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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEIRIOS INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
Nevada 88-0237454
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16801 Addison Road, Suite 425, Addison, TX 75001
(Address of principal executive offices)
Issuer's telephone number, including area code: (972) 733-3383
Securities registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange on which
each class is to be registered:
None N/A
Securities to be registered pursuant to Section 12(g)
of the Act:
$.001 Par Value Common Stock
(Title of class)
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SEIRIOS INTERNATIONAL, INC.
FORM 10-SB
TABLE OF CONTENTS
PART I
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<S> <C>
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
ITEM 3. DESCRIPTION OF PROPERTY
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
ITEM 6. EXECUTIVE COMPENSATION
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8. DESCRIPTION OF SECURITIES
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2. LEGAL PROCEEDINGS
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
PART F/S
FINANCIAL STATEMENTS
PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
SIGNATURES
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PART I
Except for the historical information, this Form 10-SB contains forward-looking
statements (including statements in the future tense and statements using the
terms "believe," "anticipate," " expect," "intend", or similar terms), which we
have made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve risks
and uncertainties that could cause our actual results to differ materially from
those discussed in this registration statement. Factors that could cause or
contribute to such differences include, but are not limited to, those we discuss
in "Item 1 -Description of Business" and "Item 2 -- Management's Discussion and
Analysis or Plan of Operations" (particularly the section entitled "Outlook:
Issues and Risks"), as well as factors discussed elsewhere in our registration
statement, in any document incorporated by reference in this registration
statement or in any other future filings with the Securities and Exchange
Commission. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. The Company cautions
potential investors not to place undue reliance on any such forward-looking
statements all of which speak only as of the date made.
ITEM 1. DESCRIPTION OF BUSINESS
SUMMARY
Seirios is a professional employer organization ("PEO") that provides a
comprehensive personnel management system for its clients. Our services include
a broad range of services for small businesses, including the following:
. payroll and benefits administration,
. payroll tax filings,
. personnel records management,
. workers' compensation and medical insurance,
. safety programs,
. liability management,
. state and federal regulatory administration and monitoring,
. enrollment and termination, and
. other human resource services.
Generally, when the Company signs a new client company, it hires all of the
client company's employees and leases them back to the client company. The
Company carries out its business by entering into one of two types of client
service agreements with each of its clients. Each of its client agreements
establishes either 1) a three party relationship in which the Company and its
client act together with the work-site employees of the client in a standard PEO
arrangement, or 2) a two party relationship in which the Company provides
administrative services only to the client in an ASO arrangement.
In the case of a PEO type agreement, the agreement allocates responsibilities
between the parties, and Seirios assumes responsibility for personnel
administration, benefit management, and compliance with most employment -
related government regulations. The client retains its employees' services in
its business and is the employer for work-site worker selection, supervision,
training, compensation determination, hours of work, vacations and various other
purposes.
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In the case of an ASO relationship, the major difference is that the Company
does not become a co-employer of the client's employees, but otherwise provides
the same services with the exception that the client may provide its own
workers' compensation insurance coverage for the employees.
Companies such as Seirios that provide comprehensive services in this manner are
referred to in our industry as Professional Employer Organizations or PEOs, and
are distinguished from "fee for service" companies or "temporaries" services.
Fee for service companies typically are payroll processing firms, human resource
consultants, and safety consulting firms, that provide a specific service to a
client under traditional two party agreements. Temporaries services companies
provide employees on a temporary basis as opposed to a long-term basis. In
addition, temporaries companies normally provide only selected employees, while
PEOs provide the entire work force.
The Company's agreements provide for payment of its invoices for the fees that
it charges prior to delivery of each periodic payroll of each client. The
Company's fees include the gross payroll of the client (as determined by the
client) plus the Company's costs for:
. paying employment related taxes,
. providing human resources services,
. providing insurance coverages and benefit plans, and
. performing the other services provided by the Company.
The Company also charges its clients an additional fee charge for the
administration of the services.
The Company's market development strategy combines direct marketing support,
licensing third party sales companies and agencies (both independent sales
companies and insurance agencies), a public relations and advertising campaign,
and potential acquisitions. In furtherance of its sales strategy, on July 1,
1999, the Company acquired Staff Sourcing Services, Inc., a PEO sales company
that had previously provided sales services to the Company on an exclusive
basis. The Company hired one of the previous owner/operators and assumed
responsibility for the commission salesmen contracted by the acquired company.
Seirios International, Inc. (SRIN) is the parent company of three wholly owned
subsidiaries - Seirios Staff Services, Inc. (SSSI), Seirios Staff Services of
Arkansas, Inc. (SSSA), and Staff Sourcing Services, Inc. (SSS). Seirios Staff
Services, Inc. provides all of the PEO services for the companies, though
Seirios Staff Services of Arkansas, Inc. provides approximately 2/3 of the
combined Companies' total business (based on client contracts). All of the
companies are referred to in this Report as "Seirios" or the "Company" unless
the context requires otherwise.
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Services/Benefits
The Company believes that it can help to improve the productivity and
profitability of small businesses. By relieving small business owners and key
managers of some of their administrative and regulatory burdens, the Company
believes that it can enable owners and managers to focus more on the core
competencies of their businesses.
The Company seeks to combine each of its client's work-site employees with the
employees of its other clients' work-sites to form larger groups for workers'
compensation and health insurance coverages, reducing overall premium costs as
compared to the costs if a smaller company were to obtain these benefits.
Additionally, other economies of scale can be realized from combination of work-
site employees in the administration of payrolls, and programs such as cafeteria
plans and 401(k) plans. Also, such programs as employee assistance programs can
be accessed in ways not practical or cost-effective for individual, smaller
employers.
The Company conducts job related risk assessments, implements safety programs
and promotes employee satisfaction through human resource management techniques
designed to improve employee performance.
The Company believe that its benefits are enhanced through its contracts with
third party providers of insurance products. Seirios provides its clients'
employees coverage for workers' compensation under a fully insured plan, and
coverage for themselves and their families for health insurance through third
party providers.
The Company also has used a third party payroll processing company to provide
for processing of its clients' payrolls to ensure that all payroll taxes are
withheld and paid to the appropriate places on a timely basis. The Company is
currently reviewing this approach to delivery of payroll services and is giving
serious consideration to bringing the processing of payrolls in-house. An
unusual aspect of the Company's payroll processing service delivery is the
opening and maintenance of a separate payroll account for each client for the
benefit of that client. The Company intends to continue this practice.
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Company Description and History
In 1995, Combined Staffing Services, Inc., the Company's predecessor ("Combined
Staffing"), acquired the customer base and employees of Corporate Network
Services, Inc. Combined Staffing changed its name to Seirios Staff Services,
Inc. and completed a reverse merger into a public company in April 1997. The
public company was previously named Exactly Sportswear, Inc., and its common
stock was traded on the OTC Bulletin Board. This company's name was changed to
Seirios International, Inc. prior to the merger. The new Seirios International,
Inc. shares were exchanged for Seirios Staff Services, Inc. shares, and Seirios
Staff Services, Inc. became a wholly-owned subsidiary of Seirios International,
Inc. In July 1999, Seirios International, Inc. acquired Staff Sourcing Services,
Inc.
By July 1999, the combined companies (with the addition of Seirios Staff
Services of Arkansas, Inc. and Staff Sourcing Services, Inc.) grew from 90
covered employees in 1995 to almost 1,100 covered employees with over 40 clients
in thirteen states (Alabama, Arkansas, California, Florida, Georgia, Kansas,
Mississippi, Missouri, Texas, Oklahoma, Oregon, Virginia, and Washington).
During the second fiscal quarter of 1999, the Company lost its largest client
due to the filing for protection of Seirios Staff Services, Inc. under Chapter
11 of the Federal bankruptcy laws. The filing caused the Company's payroll
processing provider, ADP, to discontinue some important services, and, as a
result, this large client sought services from another PEO company. See "Legal
Proceedings" below.
Substantial management changes occurred in March 1996, in July 1997, in the
second quarter of 1998, and again in January 1999. The Company has recently
completed the development of employer manuals, employee handbooks, and a Web
site.
The Company filed for protection of its subsidiary, Seirios Staff Services, Inc.
under Chapter 11 of the federal bankruptcy laws in April 1999, as described in
more detail under "Legal Proceedings" below. The Company currently holds PEO
licenses in Texas and Arkansas, as required by those states.
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Products/Services
Seirios offers an array of "value added" human resource management services to
its clients and also offers a range of benefits to the work-site employees.
These include:
Payroll Management
- ------------------
These services include: Payroll processing and paycheck preparation and
delivery, Federal and State tax withholding, payment and reporting,
garnishments, and tracking of employee accrued vacation and absences.
Section 125 Cafeteria Plan
- --------------------------
This product package is a full feature 125 Plan and provides a pretax income
benefit for payment of Medical, Dental and Vision premiums, and for out-of-
pocket unreimbursed expenses such as Medical, Dental, and Vision co-payments
and deductibles, and Child Care expenses.
Workers Compensation Programs and Risk Management
- -------------------------------------------------
Workers' Compensation insurance is carried on all employees on a full-first-
dollar coverage basis. These programs also cover assistance in compliance with
OSHA, EPA, and other federal and state regulatory agencies that require
scheduled reporting, as well as supervised and documented safety programs, loss
prevention and risk control services.
Comprehensive Health Insurance Coverage and Benefits
- ----------------------------------------------------
Fully insured programs, providing employee health, life and disability insurance
needs; including dental and vision care options are services included in this
package.
Human Resource Management
- -------------------------
A package of services including recruiting, pre-employment screening, continuous
training, employee retention through benefit enhancement, and, when beneficial,
discontinuing the employee/employer relationship. Compliance with the Internal
Revenue Service (IRS), Equal Employment Opportunity Commission (EEOC), Employee
Retirement Income Security Act (ERISA), Consolidated Omnibus Budget
Reconciliation Act of 1987 (COBRA), Family Medical Leave Act (FMLA), American
with Disabilities Act (ADA), etc.
401(k) Retirement Savings Plan
- ------------------------------
This product provides a profit-sharing plan with a cash or deferred arrangement
("CODA") under the Internal Revenue Code of 1986 (Code) Section 401(k) and a
matching contributions feature.
Employee Assistance Plan
- ------------------------
This service is a telephone and limited in-person counseling service provided
through a national third party provider.
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Gap insurance coverages
- -----------------------
A national third party provider provides a number of packages of coverage for
such needs as cancer, critical disease, short-term disability, dental and vision
care, etc. These coverages are offered as an option to all employees at the
time of enrollment as employees of Seirios.
Special Banking and Credit benefits
- -----------------------------------
The Company recently began the consolidation all of its banking with a national
bank in order to obtain added benefits for its Clients through a one stop
banking arrangement. The bank was selected because of its size and broad
coverage through branch banking. This bank has branches in place in many
locations in the U.S. This provides convenience in banking to our Clients'
employees. It also provides the capability of more effectively managing "float"
funds for overnight investment.
Other Client or Employee Services
- ---------------------------------
The Company continually seeks to improve its package of services for clients and
leased employees. Decisions to add or change programs are based on market
research and economics. Programs are adopted when the Company believes that the
programs can enhance the Company's ability to grow its client base on a
profitable basis.
Market
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The initial geographical target markets have been the Dallas Metroplex, Houston,
Oklahoma and Arkansas, though Seirios considers itself a national company and
does not limit its customer base to the initial geography.
Currently Seirios' customer base consists of more than 30 client companies,
representing more than 490 work-site employees as of February 4, 2000. The
Company's clients have an average of 16 employees, distributed throughout a wide
variety of industries.
The Company attempts to maintain diversity within its client base in order to
reduce its exposure to downturns or volatility in any particular industry. The
Company believes that this diversity may also help to insulate the Company to
some extent from general economic cycles. All prospective customers are
evaluated individually on the basis of workers' compensation risk, group medical
history, unemployment history and operating stability.
All clients enter into one of Seirios' Client Service Agreements. Each
Agreement provides for an initial one-year term, subject to termination by the
Company or the client at any time upon 30 day's prior written notice. As a
practical matter, Clients can end the relationship at any time by failure to
"run" a payroll. After the initial term, the contract is renewed unless
terminated.
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The Company's service fee is stated in the Client Service Agreement. This fee
is based on a pricing model that takes into account the gross pay of each
employee as determined and provided by the Client, plus the calculated costs of
paying employment related taxes, providing human resource services, performing
administrative functions and providing insurance coverages and benefit plans and
other services provided by the Company. Client specific information used to
initially determine service fees is gathered from the prospect client's census
which reflects information on each employee of the client, including gross pay,
workers' compensation classification, payroll frequency, whether medical
benefits are provided, and various other data. These items are combined to yield
a service fee, which is stated as a percentage of gross pay. Fees are invoiced
along with each periodic payroll. Fees for a particular client are also
influenced by the client's claims history and other client specific factors.
Payroll data on each employee is entered into the Company's payroll database,
changes in the client's employee base such as changes in rates of pay for
existing employees or the addition of new employees, will be automatically
reflected in client invoices and on payroll disbursements made by Seirios.
Using this method of service delivery and billing causes the company's costs to
be higher in the first months of a calendar year, and also when new employees
are added by a customer company, and in the first few months of a client's
service. This is true because of annual limits on taxability for unemployment
and Social Security based taxes. There is also the inherent risk of the loss of
a customer after the high cost months, and before the lower cost months can
improve the bottom-line results.
The Client Service Agreements also establish the division of responsibilities
between Seirios and the client as joint employers. Under the Client Service
Agreement in a PEO Agreement relationship, Seirios is solely responsible for all
personnel administration and is liable for purposes of certain government
regulation. In order to carry out its responsibilities in areas such as
discrimination and harassment, the Company must retain the power to enroll and
terminate employees. The Client retains the power of selection of employees and
setting wage rates. Seirios assumes liability for payment of salaries and wages
of its work-site employees and responsibility for providing employee benefits to
such persons, regardless of whether the client company makes timely payment of
the associated service fee. The Client retains the employee's services and
remains liable for the purposes of certain government regulations, compliance
with which requires control of the work-site or daily supervisory responsibility
or is otherwise beyond Seirios' ability to control.
In an ASO Agreement relationship, the only change is that the Company does not
become the co-employer of the Client's employees, and therefore does not provide
workers' compensation coverage and also is relieved of certain other aspects of
liabilities. Clients are required to pay Seirios no later than one day prior to
the applicable payroll date by wire transfer or internal bank transfer, and the
receipt of funds is verified prior to release of payroll. Although the Company
is ultimately liable as the employer in a PEO Agreement relationship, to pay
employees for work previously performed, it retains the right to terminate the
Client Service Agreement, as well as the employees upon non-payment by a Client.
This right and the periodic nature of payroll, combined with client checks and
the natural screening effect of the Company's client selection process, has
resulted in an excellent collection history. In an ASO Agreement relationship,
this liability is eliminated from the Company and is retained by the Client.
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Competition
The Company believes that PEO industry is highly fragmented and consists of
approximately 2,000 companies, many of which serve a single market or region.
The largest national PEO's include Administaff, Inc., Staff Leasing, Inc. and
The Vincam Group, Inc., and the Company also faces competition from large
regional PEOs. In recent years, several large companies in related industries
have entered the PEO market either through acquiring existing PEOs or through
start-up operations. Examples of new market entrants include Paychex, Inc.,
Automatic Data Processing, Inc. and NovaCare, Inc. Due to the relatively low
level of market penetration by the industry, the Company considers its primary
competition to be the traditional in-house provision of employee-related
services. However, as the PEO industry expands, the Company expects that
competition may intensify among PEOs. In addition, the Company competes to some
extent with fee-for-service providers such as payroll processors and human
resource consultants.
Competition in the PEO industry revolves primarily around quality of services,
breadth of services, choice of benefits packages, quality of benefits,
reputation and price. The Company believes that it competes favorably in these
areas.
Sales and Marketing
The Company markets its services through an Executive Vice-President of Sales
and independent agents. The Company incurs costs as a result of the actual
beginning of servicing of new clients, and an element of that cost is a
commission paid from actual revenues and based upon gross profit margin
realized. The Company, during January 2000, added what it believes to be a
qualified senior salesperson with the expectation that this new senior salesman
will recruit and manage another sizeable group on salespersons. All such
additional salespersons will be, like those mentioned above, compensated only by
commissions based on realized gross profit margins. The Company provides
training for each new sales person in the field, and requires that salesmen use
only Company produced sales materials. The Company provides all price
proposals. Contracts with new clients are provided by the Company and are
effective only after they have been reviewed and approved by the Company.
The Company's marketing programs provide support for the Company's sales
operations. This support focuses on communications, market research and
analysis, and product development. The marketing effort also provides empirical
data for salespersons to assist in prospecting activities in targeted industries
and regions. The Company believes that these activities can expand the Company's
contacts through new relationships and expand relationships with current
clients.
Administrative Employees
At February 4, 2000 the Company employed eleven full-time corporate office and
sales employees. The Company believes that its relations with its corporate
office and sales employees are good. None of the Company's corporate office and
sales employees is covered by a collective bargaining agreement.
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Industry Regulation
Employers in general are regulated by numerous federal laws relating to labor,
tax and employment matters. Generally, these laws prohibit race, age, sex,
disability and religious discrimination, mandate safety regulations in the
workplace, set minimum wage rates and regulate employee benefits. Because many
of these laws were enacted prior to the development of non-traditional
employment relationships, such as PEO services, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
employers. As a result, interpretive issues concerning the definition of the
term "employer" in various federal laws have arisen pertaining to the employment
relationship. Unfavorable resolution of these issues could have a material
adverse effect on the Company's results of operations or financial condition.
Compliance with these laws and regulations is time consuming and expensive. The
Company's standard forms of agreement provide that the client is responsible for
compliance with certain employment-related laws and regulations, and that the
client is obligated to indemnify the Company against breaches of the agreement.
However, some legal uncertainty exists with respect to the potential scope of
the Company's liability in the event of violations by its clients of employment,
discrimination and other laws.
Taxes
As employer of record for its clients' employees in PEO Agreement relationships,
the Company assumes responsibility for the payment of federal and state taxes
with respect to wages and salaries paid to its worksite employees. There are
essentially three types of federal employment tax obligations: income tax
withholding requirements, social security obligations under the Federal Income
Contribution Act ("FICA") and unemployment obligations under the Federal
Unemployment Tax Act ("FUTA"). Under the Internal Revenue Code of 1986, as
amended (the "Code"), the employer has the obligation to remit the employer
portion and, where applicable, withhold and remit the employee portion of these
taxes. In addition, the Company is obligated to pay state unemployment taxes and
withhold state income taxes in certain instances.
The Internal Revenue Service ("IRS") has formed a Market Segment Study Group to
examine whether PEOs such as the Company are for certain employee benefit and
tax purposes the "employers" of worksite employees under the Code. If the IRS
were to determine that the Company is not an "employer" under certain provisions
of the Code, it could materially adversely affect the Company in several ways.
With respect to benefit plans, the tax qualified status of the Company's 401(k)
plans could be revoked, and the Company's cafeteria and medical reimbursement
plans may lose their favorable tax status (resulting in employer liability,
including penalties for failure to withhold applicable taxes in connection with
the cafeteria and medical reimbursement plans). The Company cannot predict
either the timing or the nature of any final decision that may be reached by the
IRS with respect to the Market Segment Study Group or the ultimate outcome of
any such decision, nor can the Company predict whether the Treasury Department
will issue a policy statement with respect to its position on these issues or,
if issued, whether such statement would be favorable or unfavorable to the
Company. NAPEO has succeeded in getting federal legislation introduced in 1999
that would clarify these questions in a favorable way.
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A determination by the IRS that the Company is not an "employer" under certain
provisions of the Code also could lead the IRS to conclude that federal taxes
were not paid by the proper party, because such taxes must be paid by the
employer. This conclusion could lead to actions by the IRS against clients of
the Company seeking direct payment of taxes, plus penalties and interest, even
though the taxes were previously paid by the Company. Further, if the Company
were required to report and pay such taxes on account of its clients, rather
than on its own account as the employer, the Company could incur increased
administrative burdens and costs.
In light of the IRS Market Segment Study Group and the general uncertainty in
this area, certain legislation has been drafted to clarify the employer status
of PEOs in the context of the Code and benefit plans. However, there can be no
assurance that such legislation will be proposed and adopted and even if it were
adopted, the Company may need to change aspects of its operations or programs to
comply with any requirements which may ultimately be adopted. In particular, the
Company may need to retain increased sole or shared control over worksite
employees if the legislation is passed in its current form.
In addition to the employer/employee relationship requirement described above,
pension and profit sharing plans including the Company's 401(k) plans must
satisfy certain other requirements under the Code. These other requirements are
generally designed to prevent discrimination in favor of highly compensated
employees to the detriment of non-highly compensated employees with respect to
both the availability of, and the benefits rights and features offered in,
qualified employee benefit plans. The Company has made a good faith attempt to
apply the non-discrimination requirements of the Code in an effort to maintain
its 401(k) plans in compliance with the requirements of the Code. Failure to
comply could have a material adverse effect on the Company.
Employee pension welfare benefit plans are also governed by ERISA. ERISA defines
an employer as "any person acting directly as an employer, or indirectly in the
interest of an employer, in relation to an employee benefit plan." ERISA defines
the term employee as "any individual employed by an employer." The United States
Supreme Court has held that the common law test of employment must be applied to
determine whether an individual is an employee or an independent contractor
under ERISA.
A definitive judicial interpretation of an employer in the context of a full-
service PEO arrangement has not been established. If the Company were found not
to be an employer for ERISA purposes, its plans would not comply with ERISA and
the level of services the Company could offer may be materially adversely
affected. Further, as a result of such finding, the Company and its plans would
not enjoy the pre-emption of state laws provided by ERISA and could be subject
to varying state laws and regulations as well as to claims based upon state
common law.
While the Department of Labor has issued advisory opinions to one or more staff
leasing companies indicating that their welfare plans, which cover worksite
employees, are multiple employer welfare arrangements rather than single
employer plans, the Company has not been the subject of any such advisory
opinion.
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Certain Company Clients maintain their own retirement and/or welfare benefit
plans covering worksite employees. The Company's involvement in these plans is
limited to forwarding payroll amounts to the Client as directed by the Client to
fund such plans and the Company has assumed no obligation in connection with the
sponsorship or administration of such plans. While the Company believes that it
has no liability in connection with any of these Client plans, due to the legal
uncertainty that exists in this area, the Company cannot guarantee that such is
the case. Any resultant liabilities could have a material adverse effect on the
Company.
Neither the Company nor any of its employees solicit the sale of workers'
compensation insurance, health insurance, or any other insurance product. The
Company is a buyer of insurance products, not a seller. When a Client's former
employees become the employees of the Company, these employees are entitled to
participate equally with all other Company employees in insurance and benefit
programs. As such, they are "enrolled" in these programs, as they choose, by a
company "enroller". State regulation requires licensing of persons soliciting
the sale of workers' compensation insurance within that state. In certain
states, licenses are obtained by individual agents rather than a corporate
entity. Although the Company does not believe that its activities require such
licenses, there is a risk that the Company may be deemed to be making sales
without a license in jurisdictions where it is not licensed, or that it would
cease to maintain necessary licenses upon the departure of the employee who
holds certain of such licenses.
Health Care Reform
Various proposals for national health care reform have been under discussion in
recent years, including proposals to extend mandatory health insurance benefits
to virtually all classes of employees. Any health care reform proposal which
mandated health insurance benefits based on the number of employees employed by
an entity could adversely affect PEOs such as the Company, which for some
purposes are deemed to employ all their clients' employees. In addition, certain
reform proposals have sought to include medical costs for workers' compensation
in the reform package. If such proposals increased the cost of medical payments
or limited the Company's ability to control its workers' compensation costs, the
Company's ability to offer competitively-priced workers' compensation coverage
to its clients could be adversely affected. While the Company is unable to
predict whether or in what form health care reform will be enacted, aspects of
such reform, if enacted, may have an adverse effect upon the Company's medical
and workers' compensation insurance programs and results of operations.
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State and Local Regulation
The Company is subject to regulation by state and local agencies pertaining to a
wide variety of labor related laws. As is the case with federal regulations
discussed above, many of these regulations were developed prior to the emergence
of the PEO industry and do not specifically address non-traditional employers.
While many states do not explicitly regulate PEOs, eighteen states have passed
laws that have licensing or registration requirements and several others are
considering such regulation. Further, a number of other states have passed laws
defining PEOs for purposes of addressing, in particular contexts, whether PEOs
constitute employers under certain state laws applicable to employers generally.
The Company believes it is licensed where required. Such laws vary from state to
state but generally provide for monitoring the fiscal responsibility of PEOs.
Some states also specify contractual arrangements between the PEO and the client
company, and the PEO and the worksite employee. For example, some states require
an employment relationship under which the Company must retain sole or shared
control over worksite employees, thereby requiring the Company to bear more
responsibility than under its standard co-employer model. Because existing
regulations are relatively new, there is limited interpretive or enforcement
advice available. The development of additional regulations and interpretation
of existing regulations can be expected to evolve over time.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere herein. Historical results are not necessarily
indicative of trends in operating results for any future period.
Except for the historical information contained herein, the discussion in this
Form 10-SB contains or may contain forward-looking statements (which include
statements in the future tense, statements using the terms "believe,"
"anticipate," "expect," "intend" or similar terms) that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed herein particularly in
"Outlook: Issues and Risks" below, and in "Item 1 -- Business," as well as those
factors discussed elsewhere herein or in any document incorporated herein by
reference.
Results Of Operations -- Overview
The following is a summary of certain factors which affect results of operations
and which have generally applied to the Company in all periods presented.
Revenues
The most significant components of the Company's revenues are payments received
from customers for gross salaries and wages paid to PEO worksite employees and
to cover the costs of Workers' Compensation insurance, and other benefit
programs as well as the Company's service fee. The Company negotiates service
fees on a client-by-client basis based on factors such as market conditions,
client needs and services requested, the clients' workers' compensation and
benefit plan experience, Company administrative resources required, expected
profit, and other factors. These are generally expressed as a fixed percentage
of the client's gross salaries and wages except for some costs, primarily
employer's health care contributions, which are, in some cases, billed to
clients on an add-on basis. Because the service fees are negotiated separately
with each client and vary according to circumstances, the Company's service
fees, and therefore its gross margin, will fluctuate based on the Company's
client mix.
Costs Of Revenues
The Company's direct costs of revenues include salaries and wages paid to
worksite employees, employment related taxes, costs of health and welfare
benefit plans, and workers' compensation insurance costs.
The largest component of direct costs is salaries and wages to worksite
employees. Although this cost is generally directly passed through to clients,
the Company is responsible for payment of these costs even if not reimbursed by
its clients.
Employment related taxes consist of the employer's portion of payroll taxes
required under FICA, which includes Social Security and Medicare; and federal
and state unemployment taxes. The federal tax rates are defined by the
appropriate federal regulations, and are subject to change. State unemployment
rates are subject to change each year based on claims histories and vary from
state to state.
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Health care and other employee benefits costs consist of medical, life and
disability insurance premiums, and payments of and reserves for claims under the
company's dental benefit plan. The Company's Workers' Compensation, health
care, and all other disability and/or life plans consist of a mixture of fully-
insured programs, with the exception of its dental plan.
Selling, General And Administrative Expenses
The Company's primary operating expenses are personnel expenses, other general
and administrative expenses, and sales and marketing expenses. Personnel
expenses include compensation, fringe benefits and other personnel expenses
related to the Company's internal employees. Other general and administrative
expenses include rent, office supplies and expenses, legal and accounting fees,
bad debt expenses, insurance and other operating expenses. Sales and marketing
expenses include commissions to sales personnel and related expenses.
Depreciation And Amortization
Depreciation and amortization consists primarily of the office furniture and
equipment.
Operating Results
Some employment-related taxes are based on the cumulative earnings of individual
employees up to a specified wage level. Therefore, these expenses tend to
decline over the course of a year. Since the Company's revenues for most of its
individual clients are generally earned and collected at a relatively constant
rate throughout each year, payment of such unemployment tax obligations
positively impacts on the Company's working capital and results of operations as
the year progresses. Also, fourth quarter revenues are sometimes increased by
year-end bonuses and distributions paid to worksite employees, historically
resulting in little or no revenue growth from fourth to first quarter (excluding
acquisitions).
Background and General Discussion
While the Company is a successor to a professional employer organization company
that was founded in 1991 and has operated continuously since that time in the
same business, its corporate and financial structure was altered significantly
by its merger into a public company in April of 1997. The surviving corporation
and its financial history makes attempts at comparisons of operational and
financial performance prior to the merger meaningless. Therefore, the
discussion below is limited to the periods following the merger.
Operations and Results Subsequent to the End of Fiscal 1998/1999
In January, 1999 a significant change was made in the management of the Company,
and the new management substantially reduced administrative costs. Substantial
growth was accomplished in the period from January, 1999 through July, 1999
which, along with the reduced operating costs, resulted in improved operating
results.
During the period following the close of fiscal 1999, the Company also
successfully concluded longstanding disputes. On April 30, 1999, the Company
filed for protection of its operating subsidiary, Seirios Staff Services, Inc.
under Chapter 11 of the United States Bankruptcy Act. This action required the
dedication of substantial management time and attention as well as the payment
for legal counsel and the filing of regular reports with the Court.
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The dispute that necessitated the filing was mediated and agreement was reached
with the adverse parties in August. In December, the Court confirmed the
Company's plan for reorganization (a 100% plan). The settlement agreement was
carried out and is concluded.
The Company had attained operating profitability in March of 1999, but by July
it was experiencing operating losses due to the increases in costs, loss of
revenues and the difficulty in replacing lost clients related to the Chapter 11
proceeding. During the ten months that the operating subsidiary has been in
the Chapter 11 proceeding, several clients were lost, and new client prospects
were slow to enter into relationships with the Company. In addition, the costs
of administering the Chapter 11 proceeding, including the costs of filings and
the legal fees, caused overall losses for the consolidated Companies.
Legal costs have been high for the Company for several years. This has been the
result of the Company's involvement in a number of disputes. In fiscal 1998 the
legal fees amounted to $237,913, and in fiscal 1999 they were $193,006. Through
October, 1999, (fiscal 2000) they have amounted to $110,267. With the
settlement of all outstanding disputes, management believes that legal costs
will continue to decline dramatically.
With the successful conclusion of the Chapter 11 proceeding, the Company is
positioned to move into a new era of growth and profitability. New clients have
been contracted to replace some of the lost business, so that during the month
of February, 2000, the Company expects that it will process payroll for
approximately 600 employees. Management believes that the growth rate re-
established in December of 1999 and January and February of 2000 will continue
and that profitability will return and increase with the growth.
Fiscal Year 1998/1999 as Compared to Fiscal Year 1997/1998
The Company's revenues for the fiscal year ended March 31, 1999 were $19,428,620
as compared to fiscal year 1998 of $ 17,597,003 which represents an increase of
$1,831,617 or 10%. This increase is due to the work of the administrative
staff in servicing existing customers so that they continue to utilize the
company's services and the efforts of the sales force to continually bring in
new business.
Direct expenses for fiscal year 1999 were $18,727,352 as compared to
$16,994,187 for fiscal year 1998 which represents an increase of $1,733,165, or
10%. This increase represents the corresponding higher costs associated with
higher revenues. As a percentage of revenue, direct expenses for the fiscal year
1999 and 1998 were 96% .
Gross profits were $701,268 and $602,816 for fiscal 1999 and 1998,
respectively, for an increase of 16%. Gross profits, as a percentage of
revenue, were 3.61% and 3.43% for the fiscal years ended March 31, 1999 and
1998, respectively. Selling, general and administrative costs ("SG&A") for
fiscal 1999 decreased $257,728, or 20%, from $1,337,280 in fiscal 1998 to
$1,079,554. SG&A in 1999 contained $193,006 in legal costs, and in 1998 these
costs were $237,913.
Interest expense was $9,649 in fiscal 1998 and $24,977 in fiscal 1999.
Due to the significant loss carry-forward, no income taxes were applicable for
either of the reported fiscal years. In addition, the Company carries this loss
forward and will not be subject to taxes on its income until the losses have
been recovered.
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Net loss for fiscal 1999 was $427,698 versus a net loss of $804,738 in fiscal
1998. This decrease is the result of increased business and better control of
costs.
Liquidity and Capital Resources
The Company's working capital for fiscal year ended March 31, 1999 was negative.
The amount of the negative working capital was $118,223 versus a deficit of
$522,989 in fiscal 1997. The improved working capital position is attributable
to the continued earnings improvement of the Company and the addition of
capital. The company has discontinued financing through borrowing.
Because the company carries full, first dollar coverages in all of its insurance
programs, including Workers' Compensation and Health Insurance plans, it has
never been required to provide security in the form of letters of credit or
other forms of collateral for its insurance programs. The company has succeeded
in raising all necessary capital through private placements of its stock, and
expects and intends to continue to use this method of financing any future
requirements.
Inflation and changing prices have not had a material effect on the Company's
net revenues and results of operations in the last three fiscal years, as the
Company has been able to modify its prices to respond to inflation and changing
prices.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in interim financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for fiscal periods beginning after December 15,
1997, at which time the Company will adopt the provisions. The Company does not
expect SFAS 131 to have a material effect on reported results.
In March 1998, the AICPA issued Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Maintained for
Internal Use." SOP 98-1 provides guidance on the treatment of costs related to
internal use software. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998, at which time the Company will adopt the provisions. The
Company does not expect SOP 98-1 to have a material effect on reported results.
In April 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Cost of Startup Activities". SOP 98-5 provides guidance on the
financial reporting of startup costs and organization costs and requires that
the cost of startup activities and organization costs be expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998, at
which time the Company will adopt the provisions. The Company does not expect
SOP 98-5 to have a material effect on reported results.
Outlook: Issues and Risks
The following issues and risks, among others (including those discussed
elsewhere herein), should also be considered in evaluating the Company's outlook
and before investing in the Company's securities.
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Insurance Costs
The Company maintains fully-insured guaranteed cost workers' compensation
coverage. State unemployment taxes are, in part, determined by the Company's
unemployment claims experience. Medical claims experience also greatly impacts
the Company's health insurance rates and claims cost from year to year. Should
the Company experience a large increase in claims activity for unemployment,
workers' compensation and/or health care, then its costs in these areas would
increase. In such a case, the Company may not be able to pass these higher costs
to its clients and would therefore have difficulty competing with PEOs with
lower claims rates that may offer lower rates to clients.
Tax Treatment
The attractiveness to clients of a full-service PEO arrangement depends in part
upon the tax treatment of payments for particular services and products under
the Code (for example, the opportunity of employees to pay for certain benefits
under a cafeteria plan using pre-tax dollars). The Internal Revenue Service
("IRS") has formed a Market Segment Study Group to examine whether PEOs, such as
the Company, are for certain employee benefit and tax purposes the "employers"
of worksite employees under the Code. The Company cannot predict either the
timing or the nature of any final decision that may be reached by the IRS with
respect to the Market Segment Study Group or the ultimate outcome of any such
decision, nor can the Company predict whether the Treasury Department will issue
a policy statement with respect to its position on these issues or, if issued,
whether such statement would be favorable or unfavorable to the Company. If the
IRS were to determine that the Company is not an "employer" under certain
provisions of the Code, it could materially adversely affect the Company in
several ways. With respect to benefit plans, the tax qualified status of the
Company's 401(k) plans could be revoked, and the Company's cafeteria and medical
reimbursement plans may lose their favorable tax status. If an adverse IRS
determination were applied retroactively to disqualify benefit plans, employees'
vested account balances under 401(k) plans would become taxable, a 401(k) plan's
trust could become a taxable trust and the administrative employer could be
subject to liability with respect to its failure to withhold applicable taxes
and with respect to certain contributions and trust earnings. In such event, the
Company also would face the risk of client dissatisfaction and potential
litigation by clients or worksite employees.
As the employer of record for many client companies and their worksite
employees, the Company must account for and remit payroll, unemployment and
other employment-related taxes to numerous federal, state and local tax, labor
and unemployment authorities, and is subject to substantial penalties for
failure to do so. In light of the IRS Market Segment Study Group and the general
uncertainty in this area, certain proposed legislation has been drafted to
clarify the employer status of PEOs in the context of the Code and benefit
plans. However, there can be no assurance that such legislation will be proposed
and adopted or in what form it would be adopted. Even if it were adopted, the
Company may need to change aspects of its operations or programs to comply with
any requirements which may ultimately be adopted. In particular, the Company may
need to retain increased sole or shared control over worksite employees if the
legislation is passed in its current form.
Credit Risks
As the employer of record for its worksite employees, the Company is obligated
to pay their wages, benefit costs and payroll taxes. The Company typically bills
a client company for these amounts in advance of or at each payroll date, and
reserves the right to terminate its agreement with the client, and
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thereby the Company's liability for future payrolls to the client's worksite
employees, if payment is not received within two days of the invoice date. The
rapid turnaround necessary to process and make payroll payments leaves the
Company vulnerable to client credit risks, some of which may not be identified
prior to the time payroll payments are made. There can be no assurance that the
Company will be able to timely terminate any delinquent accounts or that its
contractual termination rights will be judicially enforced. In selected cases,
the company obtains bonds to assure payment.
In addition, the Company may in the future enter market segments through
acquisitions or otherwise in which PEOs typically advance wages, benefit costs
and payroll taxes to their clients. The Company might start this practice
despite the potentially greater credit risk posed by such practices. The Company
conducts a limited credit review before accepting new clients. However, the
nature of the Company's business and pricing margins is such that a small number
of client credit failures could have an adverse effect on its business and
financial performance.
Litigation
There are many legal uncertainties about employee relationships created by PEOs,
such as the extent of the PEO's liability for violations of employment and
discrimination laws. The Company may be subject to liability for violations of
these or other laws even if it does not participate in such violations. The
Company's standard form of client service agreement establish the contractual
division of responsibilities between the Company and its clients for various
personnel management matters, including compliance with and liability under
various governmental regulations. However, because the Company acts as a co-
employer, the Company may be subject to liability for violations of these or
other laws despite these contractual provisions and even if it does not
participate in such violations. The Company has not been sued in actions
alleging responsibility for employee actions (which it considers to be
incidental to its business). Although it believes it has meritorious defenses,
and maintains insurance (and requires its clients to maintain insurance)
covering certain of such liabilities, there can be no assurances that the
Company will not be found to be liable for damages in any such suit, or that
such liability would not have a materially adverse effect on the Company.
Although the client generally is required to indemnify the Company for any
liability attributable to the conduct of the client, the Company may not be able
to collect on such a contractual indemnification claim and thus may be
responsible for satisfying such liabilities. In addition, employees of the
client may be deemed to be agents of the Company, subjecting the Company to
liability for the actions of such employees.
The Company filed a voluntary petition under Chapter 11 of the federal
bankruptcy laws in April, 1999. It settled the dispute that necessitated this
filing in August 1999, and fulfilled the terms of the settlement on December 1,
1999. The Bankruptcy Court confirmed the Company's plan for reorganization on
November 12, 1999. See more under "Legal Proceedings" below.
Client Relationships
The Company's subscriber agreements with its clients generally may be canceled
upon 30 days written notice of termination by either party. While the Company
believes that it has experienced client retention better than the industry
average in the past, there can be no assurance that those relationships will
continue or that historical rates of retention will continue to be achieved. The
short-term nature of most customer agreements means that clients could terminate
a substantial portion of the Company's business upon short notice.
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Uncertainty of Extent of PEO's Liability; Government Regulation of PEOs
Employers are regulated by numerous federal and state laws relating to labor,
tax and employment matters. Generally, these laws prohibit race, age, sex,
disability and religious discrimination, mandate safety regulations in the
workplace, set minimum wage rates and regulate employee benefits. Because many
of these laws were enacted prior to the development of non-traditional
employment relationships, such as PEO services, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
"co-employers" such as the Company, and there are many legal uncertainties about
employee relationships created by PEOs, such as the extent of the PEO's
liability for violations of employment and discrimination laws. The Company may
be subject to liability for violations of these or other laws even if it does
not participate in such violations. As a result, interpretive issues concerning
the definition of the term "employer" in various federal laws have arisen
pertaining to the employment relationship. Unfavorable resolution of these
issues could have a material adverse effect on the Company's results of
operations or financial condition. The Company's standard forms of client
service agreement establish the contractual division of responsibilities between
the Company and its clients for various personnel management matters, including
compliance with and liability under various governmental regulations. However,
because the Company acts as a co-employer, the Company may be subject to
liability for violations of these or other laws despite these contractual
provisions, even if it does not participate in such violations. Although the
client generally is required to indemnify the Company for any liability
attributable to the conduct of the client or employee, the Company may not be
able to collect on such a contractual indemnification claim and thus may be
responsible for satisfying such liabilities. In addition, employees of the
client may be deemed to be agents of the Company, subjecting the Company to
liability for the actions of such employees.
While many states do not explicitly regulate PEOs, various states have passed
laws that have licensing or registration requirements and other states are
considering such regulation. Such laws vary from state to state but generally
provide for monitoring the fiscal responsibility of PEOs. There can be no
assurance that the Company will be able to satisfy licensing requirements or
other applicable regulations of any particular state from time to time.
Competition
The market for many of the services provided by the Company is highly
fragmented, with many PEOs currently competing in the United States. Although
some of these PEOs have limited operations with relatively few worksite
employees, the Company believes that a large number of these PEOs are larger
than the Company in size, and have greater financial, marketing and personnel
resources than the Company. The Company also competes with non-PEO companies
whose offerings overlap with some of the Company's services, including payroll
processing firms, insurance companies, temporary personnel companies and human
resource consulting firms. In addition, as the PEO industry becomes better
established, the Company expects that competition will continue to increase as
existing PEO firms consolidate into fewer and better competitors and well-
organized new entrants with potentially greater resources than the Company,
including some of the non-PEO companies described above, continue to enter the
PEO market. The Company's agreements with its clients generally may be canceled
upon 30 days written notice of termination by either party. The short-term
nature of most customer agreements means that substantially all of the Company's
business could be terminated upon short notice
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Management of Growth
The Company's success depends, in part, upon its ability to achieve growth and
manage this growth effectively. The Company's growth may challenge the Company's
management, personnel, resources and systems. As part of its business strategy,
the Company intends to pursue growth through its sales and marketing
capabilities, marketing alliances and acquisitions. Although the Company
believes that it can expand its management, personnel, resources and systems to
manage future growth and to assimilate acquired operations, there can be no
assurance that the Company will be able to maintain or accelerate its growth in
the future or manage this growth effectively. Failure to do so could materially
adversely affect the Company's business and financial performance.
Penny Stock Regulations
Trading in the Company's shares of common stock may be subject to the "penny
stock" rules adopted by the Securities and Exchange Commission to regulate
broker-dealer practices in connection with penny stocks. Penny stock are
generally defined as equity securities with a price of less than $5.00 (other
than securities registered on national securities exchanges or quoted on the
Nasdaq system, provided current price and volume information with respect to
transactions in such securities is provided by the exchange system). The penny
stock rules require that a broker-dealer, prior to effecting a transaction in a
penny stock that is not exempt under the rules, to deliver a standardized risk
disclosure document required by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The broker-
dealer must also provide the customer with bid and offer quotations for the
penny stock, the compensation to the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer account. In addition, the penny stock rules
require that prior to a transaction in a non-exempt penny stock, the broker-
dealer must make a special written determination that a penny stock is a
suitable investment for the purchase and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules, and, accordingly, investors may
find it more difficult to sell their shares.
Voting Control
As of February 4, 2000, the officers, directors and significant shareholders
owned in excess of fifty percent of the Company's outstanding shares of common
stock and may be able, among other things, to control the election of directors
and direct the affairs of the Company. Because the holders of shares of Common
Stock of the Company do not have cumulative voting rights, holders of more than
fifty percent of the outstanding shares voting for the election of directors,
can elect all of the directors to be elected, and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
In addition, the holders of these shares could control the vote required in
connection with any change in control transaction involving the Company.
Shares eligible for future sale by the Company's current shareholders may
adversely affect its stock price.
If the Company's shareholders sell substantial amounts of its common stock,
including shares issued upon the exercise of outstanding options, in the public
market, then the market price of our common stock could fall. While
restrictions under the securities laws limit the number of shares of common
stock available for sale in the public market, holders of substantially all of
the issued and outstanding shares of our common stock and the shares underlying
the exercise of options may be able to resell the
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shares commencing 90 days after the Company becomes a reporting company under
the federal securities laws. Sales of these shares could adversely affect the
market price of the Company's common stock. The Company may also file a
registration statement to register shares of common stock under its stock option
plans and agreements. After this registration statement is effective, shares
issued upon exercise of stock options would be eligible for resale in the public
market without restriction.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases all of its offices. The Company's principal executive offices
are located at 16801 Addison Road, Suite 425, Addison, Texas 75001 under a lease
that expires in 2002. The lease has an escape clause that provides the Company
(but not the landlord) the right to cancel the lease before termination. The
telephone number at the Company's headquarters location is (972) 733-3383 and
its fax number is (972) 733-3826. The Company may be reached by electronic mail
through its Web site at www.seirios.com.
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The Company also maintains executive and sales offices in Houston, Texas and Hot
Springs, Arkansas, respectively.
The Company believes that these facilities are adequate for its existing
operations, although further acquisitions or expansion could increase its office
space needs.
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ITEM 4. -SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 4, 2000, there were issued and outstanding 22,085,210 shares of
Common Stock. There is no other class of voting security of the Company issued
or outstanding.
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned, as of February 4, 2000, by (i) each person known to
the Company to own more than 5% of the Common Stock of the Company (the only
class of voting securities now outstanding), (ii) each of the Company's
directors, (iii) each executive officer named in the Summary Compensation Table
(the "Named Officers") and (iv) all directors, Named Officers and other
executive officers as a group. Unless otherwise indicated, the number of shares
and percentage of ownership of Common Stock for each of the stockholders set
forth below assumes that shares of Common Stock that the stockholder may acquire
within sixty days are outstanding. Except as otherwise indicated, all shares are
owned directly and the owner has the sole voting and investment power with
respect thereto. The address of each stockholder is 16801 Addison Road, Suite
425, Dallas, Texas 75001.
<TABLE>
<CAPTION>
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NAME AND ADDRESS NUMBER OF APPROXIMATE
SHARES OWNED PERCENT OF
CLASS
- --------------------------------------------------------------------------------
<S> <C> <C>
Donald C. Dalbosco (1) 7,327,229 33.2%
- --------------------------------------------------------------------------------
G. Allen Lilley(2) 533,667 2.4%
- --------------------------------------------------------------------------------
George E. Metcalf 55,000 *
- --------------------------------------------------------------------------------
Thomas Heard 50,000 *
- --------------------------------------------------------------------------------
Byron Stuckey (3) 383,000 1.7%
- --------------------------------------------------------------------------------
Johnny Simmons 904,999 4.1%
- --------------------------------------------------------------------------------
Alan C. Erick 50,000 *
- --------------------------------------------------------------------------------
Menyu Wong 3,659,500 16.5%
- --------------------------------------------------------------------------------
Allen C. Lee 1,300,000 5.9%
- --------------------------------------------------------------------------------
The Barnabas Foundation 1,200,000 5.4%
- --------------------------------------------------------------------------------
All Officers and Directors
as a Group 9,303,895 42.1%
- --------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
(1) Includes 240,000 shares held as collateral on a note payable over 24 months
for the purchase of these shares. As of February 4, 2000, $12,000 of a
total of $36,000 has been received by the Company.
(2) Includes 40,000 shares held as collateral on a note payable over 24 months
for the purchase of these shares. As of February 4, 2000, $2,000 of a total
of $6,000 has been received by the Company.
(3) Includes 240,000 shares held as collateral on a note payable over 24 months
for the purchase of these shares. As of February 4, 2000, $12,000 of a
total of $36,000 has been received by the Company. Also includes 40,000
shares presently issuable pursuant to presently exercisable options within
60 days.
(4) Includes shares issuable pursuant to presently exercisable options or
options exercisable within 60 days of February 4, 2000, held by the
directors or Named Executive Officers.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names of the Company's directors and executive officers, and information
about them, are set forth below.
<TABLE>
<CAPTION>
Name Age Position(s) with Company
<S> <C> <C>
Donald C. Dalbosco 65 Chairman of the Board, Chief Executive Officer and Director
G. Allen Lilley 52 Director
George E. Metcalf 66 Director
Thomas Heard 30 Director
Byron Stuckey 67 President, Chief Operating Officer, and Assistant Secretary
John H. Simmons 47 Executive Vice President, Marketing, Sales & Acquisitions
Alan C. Erick 49 Vice President of Marketing & Human Resources
</TABLE>
Donald C. Dalbosco has served as a director of the Company since September 1996,
as Chairman of the Board since September 1998, and as Chief Executive Officer
since December 1998. Mr. Dalbosco has served as Chief Executive Officer and
President of Selected Lands Corporation, a real estate investment company, since
June 1971, and as an independent oil operator since 1971.
G. Allen Lilley has served as a director of the Company since January 1999. Mr.
Lilley is currently employed by KPRC TV, Channel 2, Houston, in the engineering
department, where he purchases and designs audio systems for the station. He
has been employed by KPRC for more than 25 years.
George E. Metcalf has served as a director of the Company since January 1998.
Mr. Metcalf has served as Planning, Engineering, Integration and Special
Projects Engineer at NASA for Lockheed and United Space Alliance since 1988.
Thomas Heard has served as a director of the Company since January 1999. Mr.
Heard has served as Network Consultant for Dynamis of Houston since 1997. From
1996 to 1997, Mr. Heard served as General Manager for Micro International, Inc.
From 1994 to 1996, Mr. Heard served as MIS Director for JetFill, Inc.
Byron Stuckey has served as President, Chief Operating Officer and Assistant
Secretary of the Company since January 1999. Mr. Stuckey was the Company's
President and Chairman from April 1996 until July 1997. He carried out private
management consulting through Byron Stuckey & Associates, Ltd. during the period
of his absence from Seirios from July, 1997, until January, 1999, as well as
prior to coming to Seirios in April, 1996, beginning in April, 1982.
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John H. Simmons has served as Executive Vice President of Marketing, Sales and
Acquisitions since July 1999, when the Company acquired Staff Sourcing Services,
Inc., a company that provided sales and marketing services to Seirios on an
exclusive basis. Mr. Simmons had been an owner in Staff Sourcing Services since
1996 and had devoted his energies to sales for Seirios since that time. He had,
prior to that time, been a salesman for Administaff, Inc. a large PEO based in
Houston, Texas, for more than three years.
Alan C. Erick, age 49, joined Seirios as a sales representative in 1997, and was
named Vice President of Marketing and Human Resources in charge of the company's
insurance and human resources programs in 1999. Prior to joining to Seirios,
Mr. Erick had been an administrator for another PEO in Dallas for more than
three years. Prior to coming to Seirios, Al spent more than twenty years in
banking, including audit to credit management and vice president and loan
officer.
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ITEM 6. - EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the total compensation for
the three fiscal years ended March 31, 1998, for Donald C. Dalbosco, the
Company's current Chairman and Chief Executive Officer; Byron Stuckey, the
Company's current President and Chief Operating Officer; and Ronald Byrd, the
Company's former Chief Executive Officer (the "Named Executive Officers"). No
other person received cash compensation in excess of $100,000 during the fiscal
year ended March 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Restricted Number of All Other
Name and Position Fiscal Stock Underlying Compensation ($)
Year Salary ($) Bonus ($) Award Shares(#)
(shares)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Dalbosco 1999 $ 8,000 0 50,000 7,287,229 0
Chairman and CEO 1998 0 0 0 0 0
1997 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
Byron Stuckey 1999 19,500 0 100,000 243,000 0
President, Chief 1998 0 0 0 0 0
Operating Officer 1997 60,000 0 0 0 0
and Asst. Sect'y
- -------------------------------------------------------------------------------------------------------------------------
Ronald Byrd 1999 [*] 0 100,000 0 0
Former Chief 1998 58,500 0 0
Executive Officer 1997 0 0
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Mr. Byrd was the Company's CEO from April 1998 until January 1999.
EMPLOYMENT AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In July 1999, the Board of Directors approved an employment agreement between
the Company and Mr. John H. Simmons. This agreement provides for an annual base
salary of $60,000 and bonus to be awarded at the discretion of the Board. In
addition, the agreement provides for the payment of certain benefits in the
event of termination other than for cause and certain life and disability
benefits.
COMPENSATION OF DIRECTORS
The members of the Board of Directors receive $250 cash compensation for each
Board Meeting attended in connection with their service and are entitled to
reimbursement for their expenses incurred in connection with attendance at
meetings of the Board of Directors or committees.
27
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1999, Seirios acquired all of the issued and outstanding shares of
common stock of Staff Sourcing Services for an aggregate of 2,500,000 shares of
Seirios common stock and the assumption of $120,000 of indebtedness to Donald
Dalbosco, Seirios' Chairman and Chief Executive Officer. Mr. Dalbosco owned two
thirds of the issued and outstanding shares of Staff Sourcing's common stock and
received two thirds of the consideration under the Stock Purchase Agreement.
Through a subsequent transaction, as approved by the Company's board of
directors, the Company issued shares of its common stock valued at $0.15 per
share, in payment of the indebtedness to Mr. Dalbosco.
ITEM 8. - DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value, of which 22,085,210 shares were issued and outstanding and held of record
by approximately 180 stockholders as of February 4, 2000. Holders of shares of
common stock are entitled to one vote per share on all matters to be voted upon
by the stockholders generally. The approval of proposals submitted to
stockholders at a meeting other than for the election of directors requires the
vote of a majority of the shares voting, except in the case of certain
fundamental matters (such as certain amendments to the Articles of
Incorporation, and some mergers and reorganizations), in which cases Nevada law
and the Company's Bylaws require the favorable vote of at least a majority of
all outstanding shares. Stockholders are entitled to receive dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, and in the event of liquidation, dissolution or winding up
of the Company to share ratably in all assets remaining after payment of
liabilities. The holders of shares of common stock have no preemptive,
conversion, subscription or cumulative voting rights.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock, $.001
par value, of which, as of February 4, 2000, 2,483,037.5 shares of Cumulative
Convertible Series B Preferred Stock were issued and outstanding and held of
record by 8 stockholders.
The Company issued the shares of Cumulative Convertible Series B Preferred Stock
on September 1, 1998. These shares have a stated value of $.14 per share, and a
dividend rate of 6% of the stated value in Year 1, 7% of the stated value in
Year 2, and 8% of the stated value in Year 3. These shares are redeemable by
the Corporation by payment at rates from 105% to 110% over the three year
period, and must be redeemed no later than three (3) years from the date of
issuance. Holders of the Preferred Stock have no voting rights, except as
provided under Nevada corporate law.
28
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's common stock is currently traded on the Over the Counter (OTC)
Bulletin Board under the symbol "SRIN". Prior to April 1997, the Company's
common stock traded on the OTC Bulletin Board under the symbol "EXSW" beginning
in August 1993. The NASD has published a policy requiring that the Company be
fully reporting to the SEC by April 2000, or it will not be available for
trading on the OTC Bulletin Board. Although the Company intends to fulfill the
NASD requirement and therefore to remain listed, there can be no assurance in
this regard.
The following table sets forth for the quarters indicated the range of high and
low bid and ask prices of the Company's common stock as reported by the OTC
Bulletin Board since April 1, 1997.
Quarter Ended High Bid Low Bid High Ask Low Ask
------------- -------- ------- -------- -------
March 31, 2000 (through
February 20, 2000) $0.06 $0.03 $0.41 $0.25
December 31, 1999 0.07 0.06 0.41 0.41
September 30, 1999 0.07 0.06 0.41 0.41
June 30, 1999 0.06 0.06 0.41 0.41
March 31, 1999 0.40 0.06 0.55 0.41
December 31, 1998 0.50 0.06 1.06 0.53
September 30, 1998 0.13 0.06 1.06 0.81
June 30, 1998 0.13 0.13 1.18 0.81
March 31, 1998 0.25 0.13 1.25 0.88
December 31, 1997 0.50 0.25 1.38 1.00
September 30, 1997 1.25 0.38 4.25 1.00
June 30, 1997 0.50 0.38 0.88 0.76
There has been very little trading of the Company's common stock since its
merger with Exactly Sportswear and becoming a public company in April 1997. The
quotations above reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions. As of February 4, 2000,
the Company had 183 shareholders of record.
Dividend Policy
The Company has never declared or paid any cash dividends on its Common Stock
and intends to retain earnings, if any, for use in the operation and expansion
of its business. The amount of future dividends, if any, will be determined by
the Board of Directors based upon the Company's earnings, financial condition,
capital requirements and other conditions.
29
<PAGE>
ITEM 2. - LEGAL PROCEEDINGS
Except as described below, there are no pending material legal proceedings
involving the Company. In April 1999, the Company sought the protection of
Chapter 11 of the United States Bankruptcy Law for one of its subsidiaries,
Seirios Staff Services, Inc., in the United States Bankruptcy Court for the
Northern District of Texas. The Company filed this action because the Company
believed it was necessary to resolve a dispute between the Company, and a group
of individuals who had provided funds to Combined Staff Services in 1995. These
individuals disputed that the Company had acquired control of Combined Staff
Services legally, sought return of all funds provided to the Company, and
alleged that their investment was in the form of a loan, while the Company had
recorded more than one half of the funds as an equity investment. The
individuals sued the Company on their claims in 1996, and by April 1999, a trial
was scheduled in the Circuit Court of Knox County, Tennessee and additional
litigation was active in Texas in the 298/th/ District Court, Dallas County,
Texas. The plaintiffs sought damages in the amount of $443,000 together with
interest and attorneys fees. After the Company's subsidiary filed the Chapter 11
proceeding, the dispute was successfully mediated in August 1999, and the
Company settled the plaintiffs' claims for $300,000. The Bankruptcy Court
approved the settlement, and subsequently confirmed the Company's plan for
reorganization on November 12, 1999. On December 1, 1999, the Company made the
payments required under the settlement. The Company expects the matter to be
administratively closed during March, 2000.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable
30
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued securities in private placement transactions pursuant to
Section 4(2) of the Securities Act of 1933 (the "1933 Act") as described in the
following paragraphs.
As part of the April 1997 merger into Exactly Sportswear, Inc., the Company's
shareholders received one share for each share previously held, and the
shareholders in Exactly Sportswear, Inc. received one share of stock for each
three shares previously held. The surviving company (Exactly Sportswear) changed
its name to Seirios International, Inc., and changed its trading symbol to
"SRIN".
From February 1998 through July, 1998, thirteen accredited investors entered
into Securities Purchase Agreements pursuant to which the purchasers purchased
1,953,333 shares of Common Stock for an aggregate amount of $208,000. Such
securities were not registered under the Securities Act, in reliance upon
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder. The
purchase agreements contained representations of the purchasers that the shares
would be held for an indefinite period of time and the shares bear restricted
legends prohibiting their transfer except in accordance with securities laws.
In February - August, 1998, a limited number of accredited investors entered
into Securities Purchase Agreements pursuant to which the purchasers purchased
3,436,688 shares of Common Stock for an aggregate amount of $298,616. Such
securities were not registered under the Securities Act, in reliance upon
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.
In April - July, 1999, a limited number of accredited investors entered into
Securities Purchase Agreements pursuant to which the purchasers purchased
2,359,286 shares of Common Stock for an aggregate amount of $301,363. Such
securities were not registered under the Securities Act, in reliance upon
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.
In July 1999 - February, 2000, a limited number of accredited investors entered
into Securities Purchase Agreements pursuant to which the purchasers purchased
2,205,553 shares of Common Stock for an aggregate amount of $330,833. Such
securities were not registered under the Securities Act, in reliance upon
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.
The Company is authorized to issue 5,000,000 shares of Preferred Stock, $.001
par value, of which, as of November 1, 1999, 2,483,037.5 shares were issued and
outstanding and held of record by approximately 8 stockholders.
The Company established a "Cumulative Convertible Series B Preferred Stock" and
issued the above shares on September 1, 1998, in settlement of a dispute with
then existing Common Stockholders. The Common Stock held by these Stockholders
was returned to the Company's Treasury. The Preferred shares have a stated value
of $.14 per share, and a dividend rate of 6% of the stated value in Year 1, 7%
of the stated value in Year 2, and 8% of the stated value in Year 3. These
shares are redeemable by the Corporation by payment at rates from 105% to 110%
over the three year period, and must be redeemed no later than three (3) years
from the date of issuance. Holders of the Preferred have no voting rights.
31
<PAGE>
ITEM 5. - INDEMNIFICATION OF OFFICERS AND DIRECTORS
Sections 78.7502 and 78.751 of the Nevada General Corporation Law provides for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify these persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended. The Company's articles of incorporation (filed as an exhibit hereto)
provides for indemnification of its directors, officers, employees and other
agents to the extent and under the circumstances permitted by Sections 78.7502
and 78.751 of the Nevada General Corporation Law.
32
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED MARCH 31, 1998 AND 1997
-----------------------------------
CONTENTS
--------
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT.................................... F-2
CONSOLIDATED BALANCE SHEETS..................................... F-3 & 4
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS........................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................... F-7-12
</TABLE>
F-1
<PAGE>
HENDRICKS, GRAVES AND ASSOCIATES, RLLP
14001 GOLDMARK DRIVE, SUITE 115
DALLAS, TEXAS 75240-4253
972-234-3333
INDEPENDENT AUDITORS' REPORT
----------------------------
DIRECTORS
SEIRIOS INTERNATIONAL, INC.
DALLAS, TEXAS
We have audited the accompanying consolidated balance sheets of SEIRIOS
INTERNATIONAL, INC., and its SUBSIDIARY, as of March 31, 1998 and 1997, and the
related consolidated statements of operations and accumulated deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SEIRIOS
INTERNATIONAL, INC., and its SUBSIDIARY as of March 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $804,736 during the year ended March 31,
1998, and as of that date, had a working capital deficiency of $330,647 and
stockholder deficit of $522,988. Those conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. The Company plans to obtain additional financing by the issuance of
additional stock of the Company.
/s/ Hendricks, Graves and Associates,
Hendricks, Graves and Associates, RLLP
December 21, 1998
F-2
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
MARCH 31
-------------------
1998 1997
--------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $130,793 $ 93,272
Certificate of deposit 37,000
Accounts receivable - Note B:
Affiliated entities 971
Other 1,886 7,276
Unbilled revenues 496,581 187,704
Notes receivable from stockholders - Note D 138,825
Prepaid expenses - Note E 20,337 54,896
-------- --------
Total current assets 686,597 482,944
-------- --------
OFFICE EQUIPMENT - NOTE B 65,103 64,466
Less accumulated depreciation 19,723 9,574
-------- --------
Net office equipment 45,380 54,892
-------- --------
OTHER ASSETS:
Deposit 50,000
Customer contracts less accumulated
amortization of $35,263 as of
March 31, 1997 - Note B
45,375
-------- --------
Total other assets 50,000 45,375
-------- --------
$781,977 $583,211
======== ========
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT (CONTINUED)
-------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable:
Insurance premium financing - Note F $ 20,337
Affiliated entities - Note G 12,799 $ 25,000
Accounts payable:
Trade 272,883 226,390
Stockholders 12,170
Employees 3,193
Accrued expenses 705,574 226,629
Current portion of
capital lease obligations - Note K 5,651 5,162
----------- -----------
Total current liabilities 1,017,244 498,544
----------- -----------
OTHER LIABILITIES:
Notes payable to affiliated entities - Note G 271,114 91,836
Capital lease obligations,
less current portion - Note K 16,607 22,258
----------- -----------
Total other liabilities 287,721 114,094
----------- -----------
TOTAL LIABILITIES 1,304,965 612,638
----------- -----------
STOCKHOLDERS' DEFICIT - NOTES A, H AND I:
Preferred stock - Note H
Common stock - 50,000,000, $.001 par
value, shares authorized and
17,384,346 and 3,930,000 shares
issued and outstanding 17,384 3,930
Additional capital 1,291,661 993,940
Accumulated deficit - Page 4 (1,832,033) (1,027,297)
----------- -----------
Net stockholders' deficit (522,988) (29,427)
----------- -----------
$ 781,977 $ 583,211
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
-------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES - NOTE B $17,597,003 $12,284,578
DIRECT COSTS 16,994,185 11,741,195
----------- -----------
Gross profit 602,818 543,383
----------- -----------
OPERATING COSTS AND EXPENSES
Selling, general and administrative 1,337,280 942,998
Depreciation and amortization 60,625 25,156
----------- -----------
Total operating costs and expenses 1,397,905 968,154
----------- -----------
OPERATING LOSS (795,087) (424,771)
INTEREST EXPENSE 9,649 11,489
----------- -----------
NET LOSS (804,736) (436,260)
ACCUMULATED DEFICIT AT BEGINNING OF YEAR (1,027,297) (591,037)
----------- -----------
ACCUMULATED DEFICIT AT END OF YEAR $(1,832,033) (1,027,297)
=========== ===========
Net basic and diluted loss per share $ (.05)
===========
Weighted average shares outstanding 17,068,173
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(See Independent Auditors' Report.)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------
1998 1997
------------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net loss - Page 4 ($804,736) ($436,260)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 60,625 25,156
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable:
Affiliated entities 971 (971)
Other 5,390 (7,276)
Increase in unbilled revenues (308,877) (187,704)
(Increase) decrease in prepaid expenses 34,559 (54,896)
Increase in deposits (50,000)
Increase (decrease) in accounts payable:
Trade 46,493 41,925
Stockholders (12,170) 12,170
Employees (3,193) 3,193
Increase in accrued expenses 478,945 220,255
--------- ---------
Net cash used by operating activities (551,993) (384,408)
--------- ---------
INVESTING ACTIVITIES
- --------------------
Increase in certificate of deposit (37,000)
(Increase) decrease in note
receivable from stockholder 138,825 (138,825)
Property and equipment acquisitions (51,113) (46,878)
Decrease in customer contracts 45,375 7,825
--------- ---------
Net cash used by investing activities 96,087 (177,878)
--------- ---------
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
------------------------------------------------
(See Independent Auditors' Report.)
<TABLE>
<CAPTION>
MARCH 31
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES
- --------------------
Increase in notes payable $ 20,337
(Increase) decrease in notes
payable to affiliated entities 167,077 $(57,103)
Increase in capital lease obligations (5,162) 27,420
Proceeds from common stock issuance 311,175 628,920
-------- --------
Net cash provided by financing activities 493,427 599,237
-------- --------
INCREASE IN CASH 37,521 36,951
CASH AT BEGINNING OF YEAR 93,272 56,321
-------- --------
CASH AT END OF YEAR $130,793 $ 93,272
======== ========
SUPPLEMENTAL DATA:
Interest paid $ 4,652 $ 6,204
Common stock issued for services rendered 240 21,810
Common stock issued for office equipment 10,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED MARCH 31, 1998 AND 1997
-----------------------------------
A. COMPANY:
Professional employer services are provided to customers. Operations are
currently concentrated in Oklahoma and Texas. In addition, operations are
conducted in several other states. Following the acquisition of SEIRIOS
STAFF SERVICES, INC., the Company changed its name from EXACTLY SPORTSWEAR,
INC. to SEIRIOS INTERNATIONAL, INC.
The consolidated financial statements include the accounts of the Company
and SEIRIOS STAFF SERVICES, INC., a wholly owned Subsidiary.
Prior to acquiring the operating Subsidiary, the Company was inactive. On
April 2, 1997 the Company reduced its outstanding stock by two-thirds (2/3)
with a one for three reverse stock split. The Subsidiary Company was
acquired by issuing 12,917,000 shares of common stock and 62 shares of
preferred stock. The preferred stock is convertible into common stock at
the rate of 20,000 shares of common stock for each share of preferred
stock. As the Company was inactive, the purchase was treated as a reverse
merger in accordance which generally accepted accounting principles and
recorded as if the Subsidiary acquired the Parent Company, SEIRIOS
INTERNATIONAL, INC.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. Revenues - Revenues are recognized on the completion of payroll
periods.
2. Accounts Receivable - The Company evaluates the collectability of
accounts receivable. Amounts considered uncollectible or doubtful of
collection are written off and charged against income when such
determinations are made.
3. Equipment - Equipment is stated at cost less accumulated depreciation
which is provided by charges to income over estimated useful lives
using the straight line method.
4. Customer Contracts - The costs of purchased customer contracts are
recorded as an asset and amortized over five years using the straight
line method.
5. Use Of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
(Continued)
F-8
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1998 AND 1997
-----------------------------------
C. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amounts of accounts and notes receivable, accounts and notes
payable and capital lease obligations in the balance sheets approximate
fair value.
D. NOTES RECEIVABLE FROM STOCKHOLDERS:
Three stockholders gave promissory notes totalling $138,825 to the Company
for the issuance of 2,776,500 shares of the Company's common stock.
The stockholders on June 30, 1997, paid $52,500 and contributed art work
valued at approximately $102,000 to the Company in satisfaction of the
notes. Accordingly, the notes are recognized as assets on the Company's
March 31, 1997 balance sheet instead of an increase in stockholders'
deficit.
E. PREPAID EXPENSES:
Prepaid expenses consist of: MARCH 31
--------------------
1998 1997
---------- --------
Prepaid insurance premiums $20,337 $29,632
Prepaid legal expense 21,790
Prepaid rental of office facilities 2,629
Prepaid telephone expense 845
------- -------
$20,337 54,896
======= =======
F. NOTE PAYABLE: MARCH 31
1998
--------
Insurance premium financing note requiring
monthly payments of $3,041 including
interest at an annual rate of 7.1% through
October 1998.
$20,337
=======
MARCH 31
-------------------
G. NOTES PAYABLE TO AFFILIATED ENTITIES: 1998 1997
--------- --------
Promissory note to an entity controlled by
a stockholder, bearing interest at an
annual rate of eight percent and requiring
monthly payments of interest. The Company
discontinued making the required interest
payments in September 1996. $135,557 $45,918
(Continued)
F-9
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1998 AND 1997
-----------------------------------
<TABLE>
<CAPTION>
MARCH 31
------------------------------------------
G. NOTES PAYABLE TO AFFILIATED ENTITIES (Cont'd): 1998 1997
----------------- ---------------------
<S> <C> <C>
Promissory note to a stockholder bearing
interest at an annual rate of eight percent
and requiring monthly payments of interest.
The Company discontinued making the required
interest payments in September 1996. $135,557 $ 45,918
Installment note payable on demand and bearing
interest at an annual rate of ten percent. The
Company has disputed the note obligations. 12,799 25,000
-------- ---------
283,913 116,836
Less amounts without maturity dates and
considered by the Company to be long-term 271,114 91,836
-------- --------
$ 12,799 25,000
======== ========
</TABLE>
H. PREFERRED STOCK:
1. Series A Convertible Preferred Stock - In April 1997, the Company
authorized and issued sixty-two (62) shares of Series A Convertible
Preferred Stock, with a par value of $.001, in connection with the
acquisition of the Subsidiary Company. Each preferred share of stock
is convertible into 20,000 shares of common stock.
2. Series B Cumulative Convertible Preferred Stock - In September 1998,
the Company authorized and issued 3,187,433 shares of Series B
Cumulative Convertible Preferred Stock, with a stated value $.14 each,
in connection with a Bankruptcy Petition settlement. Cumulative cash
dividends are payable for three years. The Company is required to
redeem the preferred shares within three years of issue date. The per
share redemption price is 105% to 110% of the $.14 stated value,
depending on the time of redemption.
3. Series C Cumulative Convertible Preferred Stock - In September 1998,
the Company authorized and issued 107,143 shares of Series C
Cumulative Convertible Preferred Stock, with a stated value $.14 each,
in connection with the Bankruptcy Petition settlement. Cumulative cash
dividends are payable for three years. The Company is required to
redeem the preferred shares within three years of issue date. The per
share redemption price is 105% to 110% of the $.14 stated value,
depending of the time of redemption.
F-10
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1998 AND 1997
-----------------------------------
I. COMMON STOCK WARRANTS:
The Company has outstanding 78,700 "A" warrants and 78,700 "B" warrants.
Each "A" warrant is exercisable into one common share for $6.00. The
exercise period of the "A" warrants is one year after the effective date of
the registration of the "A" warrants and has been extended by the Board of
Directors for an additional one year. Each "B" warrant is exercisable into
one common share for $8.00. The exercise period of the "B" warrant is for
two years after the effective date to the registration of the "B" warrants
with the Securities and Exchange Commission. The exercise period may be
extended by the Board of Directors for an additional 365 days.
None of the warrants have been registered with the Securities and Exchange
Commission. These warrants will expire upon action by the Board of
Directors.
J. OPERATING LEASES:
The Company leases office facilities and certain equipment under operating
leases. At March 31, 1998, minimum annual rental commitments on leases for
the four years ending March 31, 2002, were $45,946, $47,294, $48,165 and
$24,505, respectively.
K. CAPITAL LEASES:
Certain equipment is leased through capital leases. At March 31, 1998,
office equipment included capitalized lease amounts of $28,359 with
associated amortization of $9,453.
At March 31, 1998, annual minimum lease payments for the four years ending
March 31, 2002 are:
Year ending March: 1999 $ 7,440
2000 7,440
2001 7,440
2002 3,749
-------
Total future minimum lease payments 26,069
Less amount considered interest expense 3,811
-------
Amount considered principal 22,258
Less current portion 5,651
-------
$16,607
=======
(Continued)
F-11
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1998 AND 1997
-----------------------------------
L. INCOME TAX LOSS CARRYFORWARDS:
The Company has income tax loss carryforwards totalling approximately
$1,635,000 that may be offset against future taxable income. If not used,
the loss carryforwards will expire as follows:
Years ending March 31: 2011 $ 587,303
2012 426,543
2013 806,667
----------
$1,820,513
==========
M. RELATED PARTY TRANSACTIONS:
An entity, related by common ownership and management, serves as a sales
representative for the Company. Commissions totaling $35,470 were paid to
the affiliated entity during the year ended December 31, 1998.
N. SUBSEQUENT EVENT:
In June 1998, several stockholders and creditors filed a Petition For
Involuntary Bankruptcy against the Company. The Petition was filed in the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division. Following negotiations with the stockholders and creditors, the
Petition was dismissed on October 14, 1998.
In December 1998, certain stockholders exchanged common shares for non-
voting preferred stock. The stockholders received one preferred share in
exchange for two common shares. Management has included the effect of this
transaction in the financial statements.
F-12
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
YEARS ENDED MARCH 31, 1999 AND 1998
-----------------------------------
AND NINE MONTHS ENDED DECEMBER 31, 1999
---------------------------------------
CONTENTS
--------
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT...................................... F-14
CONSOLIDATED BALANCE SHEETS....................................... F-15 & 16
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT..... F-17
CONSOLIDATED STATEMENTS OF CASH FLOWS............................. F-18 & 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................ F-20-24
CONSOLIDATED BALANCE SHEET (UNAUDITED) DECEMBER 31, 1999.......... F-25 & 26
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)..................................................... F-27 & 28
</TABLE>
F-13
<PAGE>
HENDRICKS, GRAVES AND ASSOCIATES, RLLP
14001 GOLDMARK DRIVE, SUITE 115
DALLAS, TEXAS 75240-4253
972-234-3333
INDEPENDENT AUDITORS' REPORT
----------------------------
DIRECTORS
SEIRIOS INTERNATIONAL, INC.
DALLAS, TEXAS
We have audited the accompanying consolidated balance sheets of SEIRIOS
INTERNATIONAL, INC., and its SUBSIDIARY, as of March 31, 1999 and 1998, and the
related consolidated statements of operations and accumulated deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SEIRIOS
INTERNATIONAL, INC., and its SUBSIDIARY as of March 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $427,698 during the year ended March 31,
1999, and as of that date, had a working capital deficiency of $392,389 and
stockholder deficit of $349,499. Those conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. The Company plans to obtain additional financing by the issuance of
additional stock of the Company.
/s/ Hendricks, Graves and Associates, RLLP
Hendricks, Graves and Associates, RLLP
December 31, 1999
F-14
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
MARCH 31
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $139,155 $130,793
Certificate of deposit 37,000
Accounts receivable - Note A and B:
Trade 500
Other 1,886
Unbilled revenues 553,531 496,581
Notes receivable from stockholders 26,000
Prepaid expenses - Note E 54,879 20,337
-------- --------
Total current assets 774,065 686,597
-------- --------
OFFICE EQUIPMENT - NOTE B 110,406 65,103
Less accumulated depreciation 44,160 19,723
-------- --------
Net office equipment 66,246 45,380
-------- --------
OTHER ASSETS:
Deposit 50,000
-------- --------
$840,311 $781,977
======== ========
</TABLE>
(Continued)
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT (CONTINUED)
-------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1999 1998
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable:
Insurance premium financing - Note E $ 20,337
Affiliated entity - Note G $ 12,799 12,799
Accounts payable:
Trade 129,161 272,883
Stockholders
Employees
Accrued expenses 728,215 705,574
Current portion of long-term debt:
Notes payable to affiliated entities Note G 271,114
Capital lease obligation 25,165 5,651
----------- -----------
Total current liabilities 1,166,454 1,017,244
----------- -----------
LONG-TERM DEBT, less current portion:
Notes payable to affiliated entities - Note G 271,114
Capital lease obligations - Note K 23,356 16,607
----------- -----------
Total long-term debt 23,356 287,721
----------- -----------
TOTAL LIABILITIES 1,189,810 1,304,965
----------- -----------
STOCKHOLDERS' - NOTES A, D, H, I AND M:
Preferred stock 2,498
Common stock - 50,000,000, $.001 par,
value, shares authorized and
20,334,080 and 17,384,346 shares
issued and outstanding 20,334 17,384
Additional capital 1,944,649 1,291,661
Accumulated deficit - Page 4 (2,259,731) (1,832,033)
Treasury stock (5,249)
Uncollected note receivable
for stock issuance (52,000)
----------- -----------
Total stockholders' equity (349,499) (522,988)
----------- -----------
$ 840,311 $ 781,977
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
-------------------------------------------------------------
YEARS ENDED MARCH 31
------------------------
1999 1998
----------- -----------
REVENUES - NOTE B $19,428,620 $17,597,003
DIRECT COSTS 18,727,352 16,944,185
----------- -----------
Gross profit 701,268 602,818
----------- -----------
OPERATING COSTS AND EXPENSES
Selling, general and administrative 1,079,552 1,337,280
Depreciation and amortization 24,437 60,625
----------- -----------
Total operating costs and expenses 1,103,989 1,397,905
----------- -----------
OPERATING LOSS (402,721) (795,087)
INTEREST EXPENSE 24,977 9,649
----------- -----------
NET LOSS (415,830) (804,736)
Preferred stock dividend requirements 11,868
----------- -----------
NET LOSS APPLICABLE TO COMMON SHARES (427,698) (804,736)
ACCUMULATED DEFICIT AT BEGINNING OF YEAR (1,832,033) (1,027,297)
----------- -----------
ACCUMULATED DEFICIT AT END OF YEAR $(2,259,731) (1,832,033)
=========== ===========
Net basic and diluted loss per share $ (.02) $ (.05)
=========== ===========
Weighted average shares outstanding 18,089,502 17,068,173
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(See Independent Auditors' Report.)
YEARS ENDED MARCH 31
-------------------------
1999 1998
------------- ----------
OPERATING ACTIVITIES
- --------------------
Net loss - Page 4 $(415,830) $(804,736)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 24,437 60,625
Changes in operating assets and liabilities:
Increase in accounts receivable:
Trade (500)
Affiliated entities 971
Other 1,886 5,390
Increase in unbilled revenues (56,950) (308,877)
(Increase) decrease in prepaid expenses (34,542) 34,559
(Increase) decrease in deposits 50,000 (50,000)
(Increase) decrease in accounts payable:
Trade (143,722) 46,494
Stockholders (12,170)
Employees (3,193)
Increase in accrued expenses 22,641 658,222
--------- ---------
Net cash used by operating activities (552,580) (372,715)
--------- ---------
INVESTING ACTIVITIES
- --------------------
Increase (decrease) in certificate of deposit (37,000) (37,000)
(Increase) Decrease in note
receivable from stockholder (26,000) 138,825
Property and equipment acquisitions (45,303) (51,113)
Decrease in customer contracts 45,375
--------- ---------
Net cash (used) by investing activities (34,303) 96,087
--------- ---------
(Continued)
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
------------------------------------------------
(See Independent Auditors' Report.)
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
--------- ---------
<S> <C> <C>
FINANCING ACTIVITIES
- --------------------
Increase (decrease) in notes payable:
Insurance premium financing $(20,337) $ 20,337
Affiliated entities (12,201)
Increase (decrease) in capital
lease obligations 26,263 (5,162)
Proceeds from common stock issuance 606,436 311,175
Purchase of treasury stock (5,249)
Preferred dividends paid (11,868)
-------- --------
Net cash provided by financing activities 595,245 314,149
-------- --------
INCREASE IN CASH 8,362 37,521
CASH AT BEGINNING OF YEAR 130,793 93,272
-------- --------
CASH AT END OF YEAR $139,155 $130,793
======== ========
SUPPLEMENTAL DATA:
Interest paid $ 17,630 $ 4,652
Common stock issued for services rendered 240
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED MARCH 31, 1999 AND 1998
-----------------------------------
A. COMPANY:
Professional employer services are provided to customers. Operations are
currently concentrated in Oklahoma and Texas. In addition, operations are
conducted in several other states. Following the acquisition of SEIRIOS STAFF
SERVICES, INC., the Company changed its name from EXACTLY SPORTSWEAR, INC. to
SEIRIOS INTERNATIONAL, INC.
The consolidated financial statements include the accounts of the Company and
SEIRIOS STAFF SERVICES, INC., a wholly owned Subsidiary.
Prior to acquiring the operating Subsidiary, the Company was inactive. On
April 2, 1997 the Company reduced its outstanding stock by two-thirds (2/3)
with a one for three reverse stock split. The Subsidiary Company was acquired
by issuing 12,917,000 shares of common stock and 62 shares of preferred
stock. The preferred stock was convertible into common stock at the rate of
20,000 shares of common stock for each share of preferred stock. As the
Company was inactive, the purchase was treated as a reverse merger in
accordance which generally accepted accounting principles and recorded as if
the Subsidiary acquired the Parent Company, SEIRIOS INTERNATIONAL, INC.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. Revenues - Revenues are recognized on the completion of payroll periods.
2. Accounts Receivable - The Company evaluates the collectability of accounts
receivable. Amounts considered uncollectible or doubtful of collection are
written off and charged against income when such determinations are made.
3. Equipment - Equipment is stated at cost less accumulated depreciation
which is provided by charges to income over estimated useful lives using
the straight line method.
4. Use Of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
C. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amounts of accounts and notes receivable, accounts and notes
payable and capital lease obligations in the balance sheets approximate fair
value.
(Continued)
F-20
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1999 AND 1998
-----------------------------------
D. NOTES RECEIVABLE FROM STOCKHOLDERS:
Three stockholders gave promissory notes totalling $78,000 to the Company for
the issuance of 520,000 shares of the Company's common stock.
In accordance with generally accepted accounting principles, the outstanding
balance of the notes, at report issue date, is recognized as an increase in
stockholders' deficit.
E. PREPAID EXPENSES:
<TABLE>
<CAPTION>
Prepaid expenses consist of: MARCH 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Prepaid insurance premiums $ 43,596 $ 20,337
Prepaid legal expense 10,000
Other 1,283
-------- --------
$ 54,879 20,337
======== ========
</TABLE>
<TABLE>
<CAPTION>
F. NOTE PAYABLE: MARCH 31
1998
--------
<S> <C>
Insurance premium financing note requiring
monthly payments of $3,041 including interest
at an annual rate of 7.1% through October
1998. $ 20,337
========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31
-------------------
G. NOTES PAYABLE TO AFFILIATED ENTITIES: 1999 1998
-------- --------
<S> <C> <C>
Promissory note to an entity controlled by a
stockholder, bearing interest at an annual
rate of eight percent and requiring monthly
payments of interest. The Company discontinued
making the required interest payments in
September 1996. $135,557 $135,557
</TABLE>
(Continued)
F-21
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1999 AND 1998
-----------------------------------
<TABLE>
<CAPTION>
MARCH 31
--------------------
G. NOTES PAYABLE TO AFFILIATED ENTITIES (Cont'd): 1999 1998
-------- --------
<S> <C> <C>
Promissory note to a stockholder bearing
interest at an annual rate of eight percent
and requiring monthly payments of interest.
The Company discontinued making the required
interest payments in September 1996. $135,557 $135,557
Installment note payable on demand and
bearing interest at an annual rate of ten
percent. The Company has disputed the note
obligation. 12,799 12,799
-------- --------
283,913 283,913
Less amounts without maturity dates and
considered by the Company to be long-term 271,114
-------- --------
$283,913 12,799
======== ========
</TABLE>
H. PREFERRED STOCK:
1. Series A Convertible Preferred Stock - In April 1997, the Company
authorized and issued sixty-two (62) shares of Series A Convertible
Preferred Stock, with a par value of $.001, in connection with the
acquisition of the Subsidiary Company. Each preferred share of stock is
convertible into 20,000 shares of common stock.
2. Series B Cumulative Convertible Preferred Stock - In September 1998, the
Company authorized and issued 3,187,433 shares of Series B Cumulative
Convertible Preferred Stock, with a stated value $.14 each, in connection
with a Bankruptcy Petition settlement. Cumulative cash dividends are
payable for three years. The Company is required to redeem the preferred
shares within three years of issue date. The per share redemption price is
105% to 110% of the $.14 stated value, depending on the time of
redemption.
3. Series C Cumulative Convertible Preferred Stock - In September 1998, the
Company authorized and issued 107,143 shares of Series C Cumulative
Convertible Preferred Stock, with a stated value $.14 each, in connection
with the Bankruptcy Petition settlement. Cumulative cash dividends are
payable for three years. The Company is required to redeem the preferred
shares within three years of issue date. The per share redemption price is
105% to 110% of the $.14 stated value, depending of the time of
redemption.
(Continued)
F-22
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1999 AND 1998
-----------------------------------
I. COMMON STOCK WARRANTS:
The Company has outstanding 78,700 "A" warrants and 78,700 "B" warrants. Each
"A" warrant is exercisable into one common share for $6.00. The exercise
period of the "A" warrants is one year after the effective date of the
registration of the "A" warrants and has been extended by the Board of
Directors for an additional one year. Each "B" warrant is exercisable into
one common share for $8.00. The exercise period of the "B" warrant is for
two years after the effective date to the registration of the "B" warrants
with the Securities and Exchange Commission. The exercise period may be
extended by the Board of Directors for an additional 365 days.
None of the warrants have been registered with the Securities and Exchange
Commission. These warrants will expire upon action by the Board of Directors.
J. OPERATING LEASES:
The Company leases office facilities and certain equipment under operating
leases. At March 31, 1999, minimum annual rental commitments on leases for
the three years ending March 31, 2002, were $47,294, $48,165 and $24,505,
respectively, and none thereafter.
K. CAPITAL LEASES:
Certain equipment is leased through capital leases. At March 31, 1999,
office equipment included capitalized lease amounts of $28,359 with
associated amortization of $9,453.
At March 31, 1999, annual minimum lease payments for the four years ending
March 31, 2002 are:
<TABLE>
<CAPTION>
<S> <C> <C>
Year ending March: 2000 $31,113
2001 21,250
2002 3,749
-------
Total future minimum lease payments 56,112
Less amount considered interest expense 7,591
-------
Amount considered principal 48,521
Less current portion 25,165
-------
$23,356
=======
</TABLE>
(Continued)
F-23
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED NOTES TO BALANCE SHEET (CONTINUED)
-----------------------------------------------
YEARS ENDED MARCH 31, 1999 AND 1998
-----------------------------------
L. INCOME TAX LOSS CARRYFORWARDS:
The Company has income tax loss carryforwards totalling approximately
$1,635,000 that may be offset against future taxable income. If not used, the
loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Years ending March 31: 2011 $ 587,303
2012 426,543
2013 806,667
2014 419,631
----------
$2,240,144
==========
</TABLE>
M. RELATED PARTY TRANSACTIONS:
An entity, related by common ownership and management, serves as a sales
representative for the Company. Commissions paid to the affiliated entity
during the years ended March 31, 1999 and 1998 were $74,137 and $35,470,
respectively.
N. SUBSEQUENT EVENT:
In 1995, two stockholders advanced approximately $525,000 to the Company in
exchange for notes payable and common stock. The transaction was recorded as
proceeds from notes payable of $150,000 and common stock issuance of
approximately $375,000. Later the stockholders claimed the entire amount was
a loan to the Company and requested full repayment.
As a result, the Company filed for bankruptcy protection on April 1, 1999.
With the court's supervision, a mutual agreement was accomplished. The
agreement provided that:
1. The Company would pay the stockholders $300,000 no later than December 1,
1999.
2. The stockholders would transfer their stock and notes to the Company.
The Bankruptcy Court confirmed the plan on November 12, 1999.
Management has included the effect of this transaction in the financial
statements.
F-24
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
Fiscal Year 2000
December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
CURRENT ASSETS:
Cash 138,434
Accounts receivable 13,861
Unbilled Revenue 155,686
Notes Receivable 52,000
Prepaid expenses 16,558
----------
Total current assets 376,539
----------
OFFICE EQUIPMENT 115,372
Less accumulated depreciation (66,682)
----------
48,690
----------
OTHER ASSETS:
Deposits 7,000
----------
Total other assets 7,000
----------
TOTAL ASSETS: 432,230
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable 12,799
Accounts payable 137,656
Accrued expenses 409,985
Capital lease obligations 30,107
Other current liabilities 25,000
Total current liabilities 615,547
----------
OTHER LIABILITIES:
Long-Term liabilities 0
----------
Total other liabilities 0
----------
TOTAL LIABILITIES: 615,547
==========
</TABLE>
F-25
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
Fiscal Year 2000
December 31, 1999
(Unaudited)
STOCKHOLDERS' DEFICIT
---------------------
<TABLE>
<S> <C>
Treasury Stock (5,249)
Preferred Stock 2,498
Common Stock 26,462
Additional Capital 2,295,822
Accumulated deficit (2,502,850)
------------
Net stockholders' deficit (183,317)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 432,230
============
</TABLE>
F-26
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
for nine months ended December 31, 1999
Fiscal Year 2000
(Unaudited)
<TABLE>
<CAPTION>
YEAR TO DATE DECEMBER 31, 1999
------------------------------
<S> <C>
REVENUES 14,238,019
DIRECT COSTS 13,586,081
------------
Gross Profit 651,938
OPERATING COSTS AND EXPENSES 866,519
------------
OPERATING LOSS (214,581)
INTEREST EXPENSE 28,538
------------
NET LOSS (243,119)
ACCUMULATED DEFICIT AT BEGINNING OF YEAR (2,259,731)
-------------
ACCUMULATED DEFICIT YEAR TO DATE (2,502,850)
=============
</TABLE>
F-27
<PAGE>
SEIRIOS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SOURCES & (USES)
AS OF DECEMBER 31, 1999
(Unaudited)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net Loss $ (243,118)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 66,682
Changes in Operating Assets and Liabilities
(Increase)/decrease in Accounts Receivable (13,361)
(Increase)/decrease in Note Receivable (26,000)
(Increase)/decrease in Unbilled revenues 397,845
(Increase)/decrease in Prepaid Expenses 38,321
(Increase)/decrease in Letter of Credit -
(Increase)/decrease in Other Assets (7,000)
Increase/(decrease) in Accounts Payable 8,495
Increase/(decrease) in Accrued Expenses (318,230)
Increase/(decrease) in Other Current Liabilities 25,000
----------
----------
Net Cash Used by Operations (71,366)
----------
INVESTING ACTIVITIES
Property and Equipment Acquisitions 4,966
----------
----------
Net Cash Provided by Investing Activities 4,966
----------
FINANCING ACTIVITIES
Increase/(decrease) in Notes Payable (258,315)
Proceeds from Sale of Stock 317,241
Increase/(decrease) in Line of Credit -
Payments on Capitalized Lease Obligations 6,751
----------
----------
Net Cash Provided by Financing Activities 65,677
----------
CASH AT BEGINNING OF YEAR 139,156
INCREASE (DECREASE) IN CASH (722)
----------
CASH BALANCE $138,434
==========
</TABLE>
F-28
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated this 28th day of February, 2000
SEIRIOS INTERNATIONAL, INC.
/s/ DONALD C. DALBOSCO
By ________________________
Donald C. Dalbosco
Chief Executive Officer
33
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
3.3 Certificate of Amendment to Articles of Incorporation
3.4 Articles of Merger
3.5 Certificate of Amendment to Articles of Incorporation
4.1 Specimen of Common Stock Certificate
10.1 Stock Purchase Agreement between the Company and Staff Sourcing Services,
Inc.
10.2 Employment Agreement with John H. Simmons
10.3 Agreement and Plan of Exchange among Registrant and Exactly Sportswear
Inc.
10.4 Agreement and Plan of Merger among Registrant and Exactly Sportswear, Inc.
10.5 Articles of Exchange
10.6 Articles of Incorporation for Subsidiary Combined Staffing Services, Inc.
(Seirios Staff Services, Inc.
10.7 Certificate of Amendment (name change) of Subsidiary Combined Staffing
Services, Inc.
21. Subsidiaries of Registrant
27.1 Financial Data Schedule
34
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CALMED, INC.
* * * *
The undersigned, acting as incorporator, pursuant to the provisions of the
laws of the State of Nevada relating to private corporations, hereby adopts the
following Articles of Incorporation:
ARTICLE ONE. (NAME). The name of the corporation is:
------------
CALMED, INC.
ARTICLE TWO. (LOCATION). The address of the corporation's principal office
------------
is Suite 980, 50 West Liberty Street, in the City of Reno, County of Washoe,
State of Nevada 89501. The initial agent for service of process at that address
is THE NEVADA AGENCY AND TRUST COMPANY.
ARTICLE THREE. (PURPOSES). The purposes for which the corporation is
--------------
organized are to engage in any activity or business not in conflict with the
laws of the State of Nevada or of the United States of America.
ARTICLE FOUR. (CAPITAL STOCK). The corporation shall have authority to
-------------
issue an aggregate of FIFTY MILLION (50,000,000) shares, par value ONE MIL
($0.001) per share, for a total capitalization of $50,000.
The holders of shares of capital stock of the corporation shall not be
entitled to pre-emptive or preferential rights to subscribe to any unissued
stock or any other securities which the corporation may now or hereafter be
authorized to issue.
The corporation's capital stock may be issued and sold from time to time
for such consideration as may be fixed by the Board of Directors, provided that
the consideration so fixed is not less than par value.
<PAGE>
The stockholders shall not possess cumulative voting rights at all
shareholders meetings called for the purpose of electing a Board of Directors.
ARTICLE FIVE. (DIRECTORS). The affairs of the corporation shall be
-------------
governed by a Board of Directors of not less than three (3) persons. The name
and addresses of the first Board of Directors are:
NAME ADDRESS
---- -------
JAMES B. MCGINNIS 24651 LEONA DRIVE
HAYWARD, CALIFORNIA 94542
MICHAEL MCGINNIS ROUTE 5
7 GRAMPIAN HILLS
CHAPEL HILL
NORTH CAROLINA 27514
SUZY FROST APARTMENT #171
6555 PLUMAS STREET
RENO, NEVADA 89509
ARTICLE SIX. (ASSESSMENT OF STOCK). The capital stock of the corporation,
------------
after the amount of the subscription price or par value has been paid in, shall
not be subject to pay debts of the corporation, and no paid up stock and no
stock issued as fully paid up shall ever be assessable or assessed.
ARTICLE SEVEN. (INCORPORATOR). The name and address of the incorporator
--------------
of the corporation is as follows:
NAME ADDRESS
---- -------
CECIL A. WALKER SUITE #980
50 WEST LIBERTY STREET
RENO, NEVADA 89501
ARTICLE EIGHT. (PERIOD OF EXISTENCE). The period of existence of the
--------------
corporation shall be perpetual.
ARTICLE NINE. (BY-LAWS). The initial By-Laws of the corporation shall be
-------------
adopted by its Board of Directors.
<PAGE>
The power to alter, amend, or repeal the By-Laws, or to adopt new By-Laws, shall
be vested in the Board of Directors, except as otherwise may be specifically
provided in the By-Laws.
ARTICLE TEN. (STOCKHOLDERS' MEETINGS). Meetings of the stockholders shall
------------
be held at such place within or without the State of Nevada as may be provided
by the By-Laws of the corporation. Special meetings of the stockholders may be
called by the President or any other Executive Officer of the corporation, the
Board of Directors, or any member thereof, or by the record holder or holders of
at least ten percent (10%) of all shares entitled to vote at the meeting of the
stockholders, except election of Directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
stockholders having at least a majority of the voting power.
ARTICLE ELEVEN. (CONTRACTS OF CORPORATION). No contract or other
--------------------------------------------
transaction between the corporation and any other corporation, whether or not a
majority of the shares of the capital stock of such other corporation is owned
by this corporation, and no act of this corporation shall in any way be affected
or invalidated by the fact that any of the directors of this corporation are
pecuniarily or otherwise interested in, or are directors or officers of such
other corporation. Any director of this corporation, individually, or any firm
of which such director may be a member, may be a part to, or may be pecuniarily
or otherwise interested in any contract or transaction of the corporation;
provided, however, that the fact that he or such firm is so interested shall be
disclosed or shall have been known to the Board of Directors of this
corporation, or a majority thereof; and any director of this corporation who is
also a director or officer of such other corporation, or who is so interested,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of this corporation that shall authorize such contract or
transaction, and may vote thereat to authorize such contract or transaction,
with like force and effect as if he were not such director or officer of such
other corporation or not so interested.
IN WITNESS WHEREOF, the undersigned incorporator has hereunto fixed her
signature at Reno, Nevada this 16/th/ day of April, 1987.
/s/ CECIL A. WALKER
________________________________
Cecil A. Walker
<PAGE>
STATE OF NEVADA
WASHOE COUNTY
On the 16/th/ day of April, 1987 before me, the undersigned, a Notary
Public, personally appeared Cecil A. Walker, known to me to be the person
described in and who executed the foregoing instrument, and who acknowledged to
me that he executed the same freely and voluntarily and for the uses and
purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ LINDA GILLESPIE
(Seal) __________________________________
/s/ Linda Gillespie, Notary Public
Residing in Douglas County
My Commission Expires:
April 19, 1990
- -----------------------
(Seal)
State of Nevada
Department of
State
I hereby certify that this is a true
and complete copy of the document
as filed in this office.
DATED: April 17, 1987
/s/ Frankie Sue Del Papa
Secretary of State
By: /s/ Beverly Davenport
<PAGE>
EXHIBIT 3.2
BY LAWS OF
SEIRIOS INTERNATIONAL, INC.
ARTICLE I.
Offices
Section 1. REGISTERED OFFICE. The registered office of the corporation
shall be located at 16801 Addison Road, Suite 425, Addison, Texas. The name of
its resident agent in the state of Nevada is Pacific National Venture, Inc.
Section 2. OTHER OFFICES. Other offices may be established by the
Board of Directors at any place or places, within or without the State of
Nevada, as the Board of Directors may from time to time determine or business of
the Corporation may require.
ARTICLE II.
Meetings of Stockholders
Section 1. Place of Meetings. Meetings of stockholders shall be held
at the principal executive office or at any other place within or without the
State of Nevada which may be designated either by the board of directors,
pursuant to authority hereinafter granted to said board, or by the written
consent of all stockholders entitled to vote thereat, given either before or
after the meeting and filed with the Secretary of the corporation; provided,
however that if no place is designated or so fixed, stockholder meetings shall
be held at the principal executive office of the Corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall
be held each year on a date and time designated by the Board of Directors. At
the annual meeting of stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be specified in the Notice of Meeting
given by or at the direction of the Board of Directors, otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before the annual meeting by a stockholder, including the
nomination of a director, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the Corporation not more than five business days after the giving of
notice of the date and place of the meeting to the stockholders. A stockholder's
notice to the Secretary shall inform as to each matter the stockholder proposes
to bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and numbers
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of shares of the Corporation which are beneficially owned by the stockholder and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures set forth in this
Section. The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any such business
not properly before the meeting shall not be transacted.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes whatsoever, may be called at any time by the Chairman of
the Board, the President or by a majority of the Board of Directors, or by such
other person as the Board of Directors may designate.
Section 4. NOTICE OF STOCKHOLDERS' MEETINGS. Written notice of each
annual or special meeting signed by the President or a Vice President, or the
Secretary, or an Assistant Secretary, or by such other person or persons as the
Directors shall designate, shall be delivered personally to, or shall be mailed
postage prepaid, to each stockholder of record entitled to vote at such meeting.
If mailed, the notice shall be directed to the stockholder at his address as it
appears upon the records of the Corporation, and service of such notice by mail
shall be complete upon such mailing, and the time of the notice shall begin to
run from the date it is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership, shall constitute
delivery of such notice to such corporation, association or partnership. All
such notices shall be delivered or sent to each stockholder entitled thereto no
less than ten nor more than sixty days before each annual or special meeting,
and shall specify the purpose or purposes for which the meeting is called, the
place, the day and the hour of such meeting.
Any stockholder may waive notice of any meeting by a writing signed by
him, or his duly authorized attorney, either before or after the meeting.
Section 5. VOTING. At all meetings of stockholders, every stockholder
entitled to vote shall have the right to vote in person or by written proxy the
number of shares standing in his own name on the stock records of the
Corporation. There shall be no cumulative voting. Such vote may be viva voce or
ballot; provided, however, that all elections for Directors must by ballot upon
demand made by a stockholder at any election and before the voting begins.
Section 6. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
Section 7. RATIFICATION AND APPROVAL OF ACTIONS AT MEETINGS. Whenever
the stockholders entitled to vote at any meeting consent, either by: (a) A
writing on the records of the meeting or filed with the Secretary; (b) Presence
at such meeting and oral consent entered on the minutes; or (c) Taking part in
the deliberations at such meeting without objection; the doings of such meeting
shall be as valid as if had at a meeting regularly called and noticed. At such
meeting, any business may be transacted which is not excepted from the written
consent or to the
2
<PAGE>
consideration of which no objections for want of notice is made at the time. If
any meeting be irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of the meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote at
such meeting. Such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
Section 8. PROXIES. At any meeting of the stockholders, any
stockholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing, which instrument shall be filed with the Secretary of the
Corporation. In the event that any such instrument in writing shall designate
two or more persons to act as proxies, a majority of such persons present at the
meetings, or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six (6) months from the date of its
execution, unless the stockholder executing it specifies therein the length of
time for which such proxy is to continue in force, which in no case shall exceed
seven (7) years from the date of its execution. Subject to the above, any proxy
duly executed is not revoked and continues in full force and effect until an
instrument revoking it or a duly executed proxy bearing a later date is filed
with the Secretary of the Corporation.
Section 9. ACTION WITHOUT A MEETING. Any action which may be taken by
the vote of the stockholders at a meeting, may be taken without a meeting if
authorized by the written consent of stockholders holding at lease a majority of
the voting power; provided that if any greater proportion of voting power is
required for such action at a meeting, then such greater proportion of written
consents shall be required. This general provision for action by written consent
shall not supersede any specific provision for acting by written consent
contained in the Nevada Revised Statutes. In no instance where action is
authorized by written consent need a meeting of stockholders be called or
noticed.
ARTICLE III.
DIRECTORS
Section 1. POWERS. Incorporation, these Bylaws and the provisions of
the Nevada Revised Statutes as to action to be authorized or approved by the
Stockholders, and subject to the duties of Directors as prescribed by these By-
Laws, all corporate powers must be managed and controlled by, the Board of
Directors. Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
following powers:
First. To select and remove all officers, agents and employees of the
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the Articles of Incorporation or the By-Laws, fix their
compensation and require from them security for faithful service.
Second. To conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not inconsistent
with law, with the Articles of Incorporation or the By-Laws, as they may deem
best.
3
<PAGE>
Third. To change the principal office for the transaction of the
business of the corporation from one location to another, and the registered
agent in charge thereof, as provided in Article 1, Section 1, hereof, to fix and
locate from time to time one or more subsidiary offices of the Corporation,
within or without the State of Nevada, as provided in Article I, Section 2,
hereof; to designate any place within or without the State of Nevada for the
holding of any stockholders' meeting or meetings; and to adopt, make and use a
corporate seal, and to prescribe the forms of certificates of stock, and to
alter the form of such seal and of such certificates from time to time, as in
their judgement they may deem best, provided such seal and such certificates
shall at all times comply with the provisions of law.
Fourth. To authorize the issue of shares of stock of the corporation
from time to time, upon such terms as may be lawful, in consideration of cash,
services rendered, personal property, real property or leases thereof, or in the
case of shares issued as a dividend, against amounts transferred from surplus to
capital.
Fifth. To borrow money and incur indebtedness for the purpose of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth. To make the Bylaws of the Corporation, subject to the Bylaws,
if any, adopted by the Stockholders.
Seventh. To, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the Directors of the Corporation, which, to the extent provided in
the resolution or resolutions, shall have and may exercise the powers of the
Board of Directors in the management of the business and affairs of the
Corporation, and may have power to authorize the seal of the Corporation to be
affixed to all papers on which the Corporation desires to place a seal. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
Directors constituting the whole Board shall be not less than one nor more than
fifteen. The present Board shall consist of four directors. Thereafter, within
the limits above specified, the number of Directors shall be determined by
resolution of the Board of Directors or by the Stockholders at the annual
meeting. All Directors must be at least 18 years of age. Unless otherwise
provided in the Articles of Incorporation, Directors need not be stockholders.
Section 3. ELECTION CLASSIFICATION AND TERM OF OFFICE. Each Director
shall be elected at each annual meeting of Stockholders by a plurality of votes
cast at the election, but if for any reason the Directors are not elected at the
annual meeting of Stockholders, each Director may be elected at any special
meeting of Stockholders by a plurality of votes cast at the election.
The members of the Board of Directors shall be divided into three classes,
designated as Class 1, Class 2, and Class 3. Each class shall consist, as nearly
as may be possible, of one-third of the total number of Directors constituting
the entire Board of Directors. The Class 1 Directors shall
4
<PAGE>
be deemed elected for a three-year term, Class 2 Directors for a two-year term,
and Class 3 Directors for a one-year term. At each succeeding annual meeting of
Stockholders commencing in June, 1997, successors to the Class of Directors
whose term expires at the annual meeting of Stockholders shall be elect3ed for a
three-year term. If the number of Directors has changed, any increase or
decrease shall be appointed among the Classes so as to maintain the number of
Directors in each Class as nearly equal as possible, and any additional Director
of any Class elected to fill a vacancy resulting from an increase in such a
Class shall hold office for a term that shall coincide with the remaining term
of that Class, unless otherwise required by law, but in no case shall a decrease
in the number of Directors in a Class shorten the term of the incumbent
Director. A Director shall hold office until the date of the annual meeting of
stockholders upon which his term expires and until his successor shall be
elected and qualified, subject, however, to his prior death, resignation,
retirement, disqualification, or removal from office. Directors need not be
residents of the state of incorporation, nor stockholders of the Corporation.
Section 4. VACANCIES. Vacancies in the Board of Directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, and each director so elected shall hold office
until his successor is elected at an annual or a special meeting of the
stockholders.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in case of the death, resignation or removal of any director, or if the
authorized number of directors be increased.,
If the Board of Directors accepts the resignation of a Director
tendered to take effect at a future time, the Board or the Stockholders shall
have power to elect a successor to take office when the resignation is to become
effective, and such successor shall hold office during the remainder of the
resigning Director's term of office.
Section 5. PLACE OF MEETING. Regular meetings of the Board of
Directors shall be held at any place within or without the State of Nevada as
designated from time to time by resolution of the Board or by written consent of
all members of the Board. In the absence of such designation regular meeting
shall be held at the principal executive office of the Corporation. Special
meetings of the Board may be held either at a place so designated, or at the
principal executive office.
Members of the Board, or any committee designated by the Board, may
participate in a meeting of such Board or committee by means of a conference
telephone network or a similar communications method by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person at such meeting. Each person participating in such
meeting shall sign the minutes thereof, which minutes may be signed in
counterparts.
Section 6. ORGANIZATION MEETING. Immediately following each annual
meeting of stockholders, the Board of Directors shall hold a regular meeting for
the purpose of organization, election of officers, and the transaction of other
business. Notice of such meeting is hereby dispensed with.
5
<PAGE>
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose or purposes shall be called at any time by the
Chairman of the Board, President, or by any two or more Directors.
Written notice of the time and place of special meetings shall be
delivered personally to the directors or sent to each director by mail or other
form of written communication, (such as by telegraph, Federal Express package,
or other similar forms of written communication), charges prepaid, addressed to
him at his address as it is shown upon the records of the corporation, or if it
is not shown on such records or is not readily ascertainable, at the place in
which the meetings of the directors are regularly held. In case such notice is
mailed or otherwise communicated in writing, it shall be deposited in the United
States mail or delivered to the appropriate delivering agent at least seventy-
two hours prior to the time of the holding of the meeting. In case such notice
is Personally delivered, it shall be so delivered at least twenty (24) hours
prior to the time of the holding of the meeting. Such mailing, personal delivery
or other written communication as above provided shall be due, legal and
personal notice to such director.
Section 8. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors, if the time
and place be fixed at the meeting adjourned.
Section 9. RATIFICATION AND APPROVAL. Whenever all Directors entitled
to vote at any meeting consent, either by: (a) A writing on the records of the
meeting or filed with the Secretary; (b) Presence at such meeting and oral
consent entered on the minutes; or (c) Taking part in the deliberations at such
meeting without objection; the doings of such meeting shall be as valid as if
had at a meeting regularly called and noticed. At such meeting any business may
be transacted which is not excepted from the written consent or to the
consideration of which no objection for want of notice is made at the time.
If any meeting be irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of the meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all Directors having the right to vote at
such meeting.
Section 10. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all the
members of the Board or of such committee. Such written consent shall be filed
with the minutes of proceedings of the Board or committee.
Section 11. QUORUM. A majority of the authorized number of Directors
shall be necessary to constitute a quorum for the transaction of business,
except to adjourn as hereinafter provided. Every act or decision done or made by
a majority of the Directors present at a meeting duly assembled at which a
quorum is present shall be regarded as the act of the Board of Directors, unless
a greater number be required by law or by the Articles of Incorporation.
Section 12. ADJOURNMENT. A quorum of the directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum, a majority of the directors present at any
directors' meting, either regular or special, may adjourn from time to time
until a quorum shall be present.
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Section 13. FEES AND COMPENSATION. The Board shall have the authority
to fix the compensation of Directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board and may be paid a fixed sum
for attendance at each meeting of the Board or a stated salary as Director. No
such payment shall preclude any director from serving the corporation in any
other capacity as an officer, agent, employee, or otherwise, and receiving
compensation therefor. Members of committees may be compensated for attending
committee meetings.
Section 14. REMOVAL. Any Director may be removed from office with or
without cause by the vote of Stockholders representing not less than two-thirds
of the issued and outstanding capital stock entitled to voting power.
Section 15. RESERVATION OF POWERS. (amended (added) by Special
Stockholders' meeting of December 12, 1998.) Notwithstanding the powers granted
to the Board of Directors or officers of the Corporation pursuant to Article
III, Section 1 of these Bylaws or otherwise, the affirmative vote of
stockholders holding at least ninety percent (90%) of the issued and outstanding
shares of the Corporation's common stock at the time of such vote or consent
shall be required prior to any action by the Board of Directors or officers of
the Corporation to issue shares of the Corporation's common stock to the
Corporation's officers and employees in excess of an aggregate of two percent
(2%) of the Corporation's issued and outstanding shares of common stock in any
calendar year. In addition, the stockholders may remove officers of the
Corporation by the affirmative vote or consent of the holders of a majority of
the issued and outstanding shares of the Corporation's common stock at the time
of such vote or consent.
7
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ARTICLE IV.
OFFICERS
Section 1. OFFICERS. (amended by Special Stockholder's meeting of
December 12, 1998.) The officers of the corporation shall be a President, a
Secretary, and a Treasurer. The corporation may also have, at the discretion of
the Board of Directors, one or more Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, a Chairman of the Board, a Chief
Executive Officer, Chief Financial Officer, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article.
Officers other than the Chairman of the Board shall not be Directors. One person
may hold two or more offices.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may
appoint such other Officers as the business of the corporation may require, each
of whom shall hold office for such period, have such authority and perform such
duties as provided in these By-Laws or as the Board of Directors may from time
to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by a majority of the Directors at the time in office. Any
officer may resign at any time by giving written notice to the Board of
Directors, the President or Secretary of the Corporation. Any such resignation
shall take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-Laws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
shall be such a position, shall preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, the
President shall subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
Corporation. In the absence of the Chairman of the Board, or if there be none,
he shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors. He shall be ex-officio a member of all committees, including
the executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of the President of a corporation, and
shall have such other powers and duties as may be prescribed by the Board of
Directors or these By-Laws.
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Section 8. VICE-PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice-Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or these By-Laws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a
book of minutes at the principal executive office or such other place as the
Board of Directors may order, of all meetings of Directors, committees and
stockholders, with the time and place of holding, whether regular or special and
if special, how authorized, the notice thereof given, the names of those present
at Directors' and committee meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office, (1) a share register, or a duplicate share register, revised
annually, showing the names of the stockholders alphabetically arranged, and
their places of residence, the number and classes of share held by each; the
number and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation; (2) a copy of
the Articles of Incorporation and all amendments thereto certified by the
Secretary of State; and (3) a copy of the Bylaws and all amendments thereto
certified by the Secretary.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders, committees and of the Board of Directors required
by the By-Laws or by law to be given, and he shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or the By-Laws.
Section 10. TREASURER. The Treasurer shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all times
be open to inspection by any Director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositaries as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the By-Laws.
Section 11. CHIEF EXECUTIVE OFFICER. (amended (added) by Special
Stockholder's meeting of December 12, 1998) The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation. The Chief
Executive Officer shall preside at all meetings of the shareholders. The Chief
Executive Officer shall have such other powers and duties as usually pertain to
such office or as may be delegated by the Board of Directors In addition, and
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without limiting the generality of the foregoing, the Chief Executive Officer
shall have the power to remove officers of the Corporation.
ARTICLE V.
MISCELLANEOUS
Section 1. RECORD DATE AND CLOSING STOCK BOOKS. The Board of Directors
may fix a day, not more than sixty (60) days prior to the holding of any meeting
of stockholders, and not exceeding thirty (30) days preceding the date fixed for
the payment of any dividend or distribution, or for the allotment of rights, or
when any change or conversion or exchange of shares shall go into effect, as a
record date for the determination of the stockholders entitled to notice of and
to vote at any such meeting, or entitled to receive any such dividend or
distribution, or any such allotment of rights, or to exercise the rights in
respect to any such change, conversion or exchange of shares, and in such case
only stockholders of record on the date so fixed shall be entitled to notice of
and to vote at such meetings, or to receive such dividend, distribution or
allotment or rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
any record date fixed as aforesaid. The Board of Directors may close the books
of the corporation against transfers of shares during the whole, or any part of
any such period.
Section 2. INSPECTION OF CORPORATE RECORDS. Stockholders shall have
the right to inspect such corporate records at such times and based upon such
limitations of such rights as may be set forth in the Nevada Revised Statutes
from time to time.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
Section 4. CONTRACT, ETC., HOW EXECUTED. The Board of Directors,
except as in the By-Laws otherwise provided, may authorize any officer or
officers, agent or agents, to enter into any contract, deed or lease or execute
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances; and unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit to render it liable for any purpose or to any amount.
Section 5. CERTIFICATES OF STOCK. A certificate or certificates for
certificated shares of the capital stock of the Corporation shall be issued to
each stockholder when any such shares are fully paid up. All such certificates
shall be signed by the Chairman of the Board, the President or a Vice President
and may be signed by the Treasurer, Secretary or an Assistant Secretary, or be
authenticated by facsimiles of their respective signatures; provided, however,
that every certificate authenticated by a facsimile of a signature must be
countersigned by the transfer agent or transfer clerk ,and by a registrar, which
registrar cannot be the Corporation itself.
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Certificates for certificated shares may be issued prior to full payment under
such restrictions and for such purposes as the Board of Directors or the By-Laws
may provide; provided, however, that any such certificate so issued prior to
full payment shall state the amount remaining unpaid and the terms of payment
thereof.
The Board of Directors is hereby authorized, pursuant to the provisions of
Nevada Revised Statutes Section 78.235, to issue uncertificated shares of some
or all of the shares of any or all of its classes or series.
Section 6. REPRESENTATIONS OF SHARES OF OTHER CORPORATIONS. The
President or any Vice President and the Secretary or Assistant Secretary of this
Corporation are authorized to vote, represent and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation may be exercised either by such officers
in person or by any person authorized so to do by proxy or power of attorney
duly executed by said officers.
Section 8. INSPECTION OF BY-LAWS. The corporation shall keep in its
principal office for the transaction of business the original or a copy of the
By-Laws as amended, or otherwise altered to date, certified by the secretary,
which shall be open to inspection by the stockholders at all reasonable times
during office hours.
ARTICLE VI.
AMENDMENTS
Section 1. POWER OF STOCKHOLDERS. New By-Laws may be adopted or these
By-Laws may be amended or repealed by the vote of stockholders entitled to
exercise a majority of the voting power of the corporation or by the written
assent of such stockholders (amended by Special Stockholder's meeting of
December 12, 1998, by adding the following sentence): Notwithstanding anything
in this Article VI to the contrary, the following provisions of these Bylaws may
be amended or revoked only by the affirmative vote of stockholders holding at
least ninety percent (90%) of the issued and outstanding shares of the
Corporation's common stock entitled to vote at the time of such vote or consent.
Section 2. POWER OF DIRECTORS. Subject to the right of stockholders as
provided in Section 1 of this Article VI to adopt, amend or repeal By-Laws, By-
Laws may be adopted, amended or repealed by the Board of directors.
ARTICLE VII
TRANSACTIONS INVOLVING DIRECTORS AND OFFICERS
Section 1. VALIDITY OF CONTRACTS AND TRANSACTIONS. No contract or
transaction between the Corporation and one or more of its Directors or
Officers, or between the Corporation and any other corporation, firm,
association, or other organization in which one or more of the Directors or
Officers are Directors or Officers or are financially interested, shall be void
or voidable solely for this reason, or solely because the Director or Officer is
present at or
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participates in the meeting of the Board of Directors or committee that
authorizes or approves the contract or transaction, or because their votes are
counted for such purpose, provided that:
(a) the material facts as to his, her, or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and noted in the minutes, and the Board of
Directors or committee, in good faith, authorizes the contract or transaction in
good faith by the affirmative vote of a majority of disinterested Directors,
even though the disinterested Directors are less than a quorum.
(b) the material facts as to his, her, or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved or ratified in good faith by the majority of shares
entitled to vote, counting the votes of the common or interested Directors or
Officers, or
(c) the contract or transaction is fair as to the Corporation as of
the time it is authorized or approved.
Section 2. DETERMINING QUORUM. Common or interested Directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes, approves or ratifies the contract
or transaction.
ARTICLE VIII
INSURANCE AND OTHER FINANCIAL ARRANGEMENTS
The Corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a Director,
Officer, Employee or Agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, Officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a Director, Officer, employee or agent, or arising out of his status
as such, whether or not the Corporation has the authority to indemnify him
against such liability and expenses. The insurance or other financial
arrangements may be provided by the Corporation or by any other person or entity
approved by the Board of Directors including a subsidiary of the Corporation.
Such other financial arrangements made by the Corporation may include
the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the Corporation;
or
(d) The establishment of a letter of credit, guaranty or surety. No
financial arrangement may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
for intentional misconduct, fraud or a
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knowing violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court as provided in Article IX hereof.
ARTICLE IX
INDEMNIFICATION
Section 1. ACTION NOT BY OR ON BEHALF OF CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
Director, Officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, Officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by him in connection with
the action, suit or proceeding if he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. ACTION BY OR ON BEHALF OF CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a Director, Officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a Director, Officer, employee
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that indemnification may not be made for any claim, issue or
matter as to which such a person shall have been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the Corporation or for amounts paid in settlement to the Corporation, unless
and only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that, in view
of all of the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a Director, Officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
or 2 of this Article IX, or in defense of any claim, issue or matter therein, he
must be indemnified by the Corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense.
13
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Section 4. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN
CIRCUMSTANCES. Any indemnification under Section 1 or 2 of this Article IX,
unless ordered by a court or advanced pursuant to this Article IX, must be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the Director, Officer, employee or agent is proper in
the circumstances. The determination must be made by the Stockholders, the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to the act, suit or proceeding, or if a majority vote of a quorum of
Directors who were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion, or if a quorum consisting of
Directors who were not parties to the act, suit or proceeding cannot be
obtained, by independent legal counsel in a written opinion.
Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses of Officers and
Directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding upon receipt of an undertaking by
or on behalf of the Director or Officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Corporation as authorized in this Article. The provisions of
this subsection (5) of this Article IX shall not affect any rights to
advancement of expenses to which corporate personnel other than Directors or
Officers may be entitled under any contract or otherwise by law.
Section 6. NOT EXCLUSIVE.
(a) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to any other section of this Article IX or any
provision of law:
(i) does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the Articles of
Incorporation or any statute, bylaw, agreement, vote of stockholders or
disinterested Directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 of this
Article IX or for the advancement of expenses made pursuant to this Article IX
may not be made to or on behalf of any Director or Officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action; and
(ii) continues for a person who has ceased to be a Director, Officer, employee
or agent and inures to the benefit of the heirs, executors and administrators of
such a person.
(b) Without limiting the foregoing, the Corporation is authorized to
enter into an agreement with any Director, Officer, employee or agent of the
Corporation providing indemnification for such person against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement that
result from any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative, including any action
by or in the right of the Corporation, that arises by reason of the fact that
such person is or was a Director, Officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the full extent allowed by law, except
that no such agreement shall provide for indemnification for any actions that
constitute intentional misconduct, fraud, or a knowing violation of law and was
material to the cause of action.
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Section 7. CERTAIN DEFINITIONS. For the purposes of this Article IX,
(a) any Director, Officer, employee or agent of the Corporation who shall serve
as a Director, Officer, employee or agent of any other corporation, joint
venture, trust, or other enterprise of which the Corporation, directly or
indirectly, is or was a stockholder or creditor, or in which the Corporation is
or was in any way interested, or (b) and Director, Officer, employee or agent of
any subsidiary corporation, joint venture, trust or other enterprise wholly
owned by the Corporation, shall be deemed to be serving as such Director,
Officer, employee or agent at the request of the Corporation, unless the Board
of Directors of the Corporation shall determine otherwise. In all other
instances where any person shall serve as Director, Officer, employee or agent
of another corporation, joint venture, trust or other enterprise of which the
Corporation is or was a stockholder or creditor, or in which it is or was
otherwise interested, if it is not otherwise established that such person is or
was serving as such Director, Officer, employee or agent at the request of the
Corporation, the Board of Directors of the Corporation may determine whether
such service is or was at the request of the Corporation, and it shall not be
necessary to show any actual or prior request for such service. For purposes of
this Article IX references to a corporation include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a Director, Officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a Director, Officer, employee or agent of
another corporation, joint venture, trust or other enterprise shall stand in the
same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity. For purposes of this Article IX,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a Director, Officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such Director, Officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonable believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article IX.
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EXHIBIT 3.3
AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
CALMED, INC.
* * *
We, the undersigned, being Directors and Secretary and President of
the Corporation, and in pursuance of the corporate laws of the State of Nevada,
being Chapter 78 of the Nevada Revised Statutes, do hereby adopt the following
Amendment to its Articles of Incorporation:
ARTICLE ONE. (NAME). The name of the corporation is:
------------
SPORTS GROUP, INC.
The above Amendment to the Articles of Incorporation was adopted by the
Shareholders of the Corporation on the 13/th/ day of November, 1989, by a
unanimous vote of the outstanding shares of the corporation.
Dated this 14/th/ day of May, 1990.
/s/ STUART NEWMEYER
_________________________________
Stuart Newmeyer
President & Director
/s/ CURTIS M. JAMISON
_________________________________
Curtis M. Jamison
Secretary, Treasurer & Director
<PAGE>
ARTICLES OF MERGER
ARTICLES OF MERGER (these "Articles") made and entered into as of the 10/th/ day
of October, 1992 by and between Exactly, Inc., a Wyoming corporation ("Exactly")
and Sports Group, Inc., a Nevada corporation ("Sports"). These Articles are
adopted pursuant to Section 78.451, Nevada Revised Statutes as amended; and the
Wyoming Business Corporation Act, as amended. All of such laws expressly permit
the merger described herein; subject to and pursuant to all of the terms and
conditions as set forth herein.
ARTICLE I
SURVIVOR CORPORATION
Sports Group, Inc., a Nevada corporation, shall be the surviving corporation.
ARTICLE II
AMENDMENTS TO ARTICLE OF INCORPORATION
Article One of the Articles of Incorporation of the survivor corporation shall
be amended to read:
The name of the Corporation is Exactly Sportswear, Inc.
ARTICLE III
SHARES AUTHORIZED AND OUTSTANDING
Exactly has the authority to issue an unlimited number of shares of Common
Stock, ("Exactly Common Stock") of which 2,600,000 shares are issued and
outstanding. Exactly also has 78,700 A Warrants and 78,700 B Warrants issued and
outstanding. Each A Warrant is exercisable into one Common Share at the exercise
price of $6.00. The exercise period of the A Warrant is for one year after the
effective date of the registration of the A Warrants with the Securities and
Exchange Commission. The exercise period may be extended by the Board of
Directors for an additional 365 days. Each B Warrant is exercisable into one
Common Share at the exercise price of $8.00. The exercise period of the B
Warrant is for two years after the effective date of the registration of the B
Warrants with the Securities and Exchange Commission. The exercise period may be
extended by the Board of Directors for an additional 365 days.
Sports has authority to issue Fifty Million (50,000,000) shares of Common Stock,
("Sports Common Stock") par value $0.001, of which 400,000 shares are issued and
outstanding.
<PAGE>
ARTICLE IV
SHAREHOLDER VOTE
On October 10, 1992, pursuant to a special meeting of the shareholders,
2,521,900 of the outstanding shares of Exactly Common Stock were voted in favor
and no shares were voted against the Agreement of Merger. Said number of votes
was sufficient for approval by the stockholders of Exactly. 320,000 of the
outstanding shares of Sports Common Stock voted in favor and no shares were
voted against the Agreement of Merger. Said number of votes was sufficient for
approval by the stockholders of Sports. A copy of the Agreement of Merger was
mailed to the shareholders of both corporations on September 30, 1992.
ARTICLE V
PLAN OF MERGER
The executed agreement of merger is on file at the principal place of business
of the surviving corporation. Said address is 5025 South Eastern Avenue, Suite
24, Las Vegas, Nevada 89119. A copy of the agreement of merger will be furnished
by the surviving corporation to any stockholder of any constituent corporation.
IN WITNESS WHEREOF, these Articles of Merger, having first been duly approved by
resolution of the Boards of Directors of Exactly and Sports and their respective
shareholders, is hereby executed on behalf of each of said two corporation by
their respective officers thereunto duly authorized.
Exactly, Inc. ATTEST:
A Wyoming Corporation
Sports Group, Inc. ATTEST;
A Nevada Corporation
/s/ CURTIS M. JAMISON /s/ SHAWN ATTIAS
________________________________ __________________________
Curtis M. Jamison, President Secretary
<PAGE>
EXHIBIT 3.4
ARTICLES OF MERGER
ARTICLES OF MERGER (these "Articles") made and entered into as of the 10th day
of October, 1992 by and between Exactly, Inc., a Wyoming corporation ("Exactly")
and Sports Group, Inc., a Nevada corporation ("Sports"). These Articles are
adopted pursuant to Section 78.451, Nevada Revised Statutes as amended; and the
Wyoming Business Corporation Act, as amended. All of such laws expressly permit
the merger described herein; subject to and pursuant to all of the terms and
conditions as set forth herein.
ARTICLE I
SURVIVOR CORPORATION
Sports Group, Inc., a Nevada corporation, shall be the surviving corporation.
ARTICLE II
AMENDMENTS TO ARTICLE OF INCORPORATION
Article One of the Articles of Incorporation of the survivor corporation shall
be amended to read:
The name of the Corporation is Exactly Sportswear, Inc.
ARTICLE III
SHARES AUTHORIZED AND OUTSTANDING
Exactly has the authority to issue an unlimited number of shares of Common
Stock, ("Exactly Common Stock") of which 2,600,000 shares are issued and
outstanding. Exactly also has 78,700 A Warrants and 78,700 B Warrants issued
and outstanding. Each A Warrant is exercisable into one Common Share at the
exercise price of $6.00. The exercise period of the A Warrant is for one year
after the effective date of the registration of the A Warrants with the
Securities and Exchange Commission. The exercise period may be extended by the
Board of Directors for an additional 365 days. Each B Warrant is exercisable
into one Common Share at the exercise price of $8.00. The exercise period of
the B Warrant is for two years after the effective date of the registration of
the B Warrants with the Securities and Exchange Commission. The exercise period
may be extended by the Board of Directors for an additional 365 days.
Sports has authority to issue Fifty Million (50,000,000) shares of Common Stock,
("Sports Common Stock") par value $0.001, of which 400,000 shares are issued and
outstanding.
<PAGE>
ARTICLE IV
SHAREHOLDER VOTE
On October 10, 1992, pursuant to a special meeting of the shareholders,
2,521,900 of the outstanding shares of Exactly Common Stock were voted in favor
and no shares were voted against the Agreement of Merger. Said number of votes
was sufficient for approval by the stockholders of Exactly. 320,000 of the
outstanding shares of Sports Common Stock voted in favor and no shares were
voted against the Agreement of Merger. Said number of votes was sufficient for
approval by the stockholders of Sports. A copy of the Agreement of Merger was
mailed to the shareholders of both corporations on September 30, 1992.
ARTICLE V
PLAN OF MERGER
The executed agreement of merger is on file at the principal place of business
of the surviving corporation. Said address is 5025 South Eastern Avenue, Suite
24, Las Vegas, Nevada 89119. A copy of the agreement of merger will be
furnished by the surviving corporation to any stockholder of any constituent
corporation.
IN WITNESS WHEREOF, these Articles of Merger, having first been duly approved
by resolution of the Boards of Directors of Exactly and Sports and their
respective shareholders, is hereby executed on behalf of each of said two
corporation by their respective officers thereunto duly authorized.
Exactly, Inc. ATTEST:
A Wyoming Corporation
/s/ MICHAEL ATTIAS /s/ SHAWN ATTIAS
_______________________________ ____________________________
President Secretary
Sports Group, Inc. ATTEST;
A Nevada Corporation
/s/ CURTIS M. JAMISON /s/ OLGA MCDANIEL
________________________________ ____________________________
Curtis M. Jamison, President Secretary
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
EXACTLY SPORTSWEAR, INC.
The following certificate of amendment to the articles of incorporation of
EXACTLY SPORTSWEAR, INC., is adopted pursuant to the provisions of Section
78.385 and78.390 of the Nevada Revised Statutes. We, the undersigned, as
President and Secretary of said Corporation, do hereby certify:
ARTICLE 1. That the Board of Directors of the Corporation duly adopted on
March 12, 1997, in accordance with Section 78.315 of the Nevada Revised
Statutes, resolutions to amend the articles of incorporation as follows:
(i) Amend the Articles of Incorporation by striking Article One in its
entirety and replacing therefor:
ARTICLE ONE (NAME). The name of the Corporation is:
------------
Seirios International, Inc.
(ii) Amend the Articles of Incorporation by striking Article Four in its
entirety and replacing therefor:
ARTICLE FOUR (CAPITAL STOCK).
-------------
1. Shares, Classes and Series Authorized. The total number of shares
of all classes of capital stock which the Corporation shall have authority
to issue is 55,000,000 shares. Stockholders shall not have any preemptive
rights, nor shall stockholders have the right to cumulative voting in the
election of Directors or for any other purpose. The classes and the
aggregate number of shares of stock of each class which the Corporation
shall have authority to issue are as follows:
(a) 50,000,000 shares of common stock, $0.001 par value ("Common Stock").
(b) 5,000,000 shares of preferred stock, $0.001 par value ("Preferred
Stock").
2. Powers and Rights of the Preferred Stock. The Preferred Stock may
be issued from time to time in one or more series, with such distinctive
serial designations as may be stated or expressed in the resolution or
resolutions providing for the issue of such stock adopted from time to time
by the Board of Directors; and in such resolution or resolutions providing
for the issuance of shares of each particular series, the Board of
Directors is also expressly authorized to fix: the right to vote, if any;
the consideration for which the shares of such series are to be issued; the
number of shares constituting such series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but not
below the number of shares thereof then outstanding)
<PAGE>
from time to time by action of the Board of Directors; the rate of
dividends upon which and the times at which dividends on shares of such
series shall be payable and the preference, if any, which such dividends
shall have relative to dividends on shares of any other class or classes or
any other series of stock of the Corporation; whether such dividends shall
be cumulative or noncumulative, and if cumulative, the date or dates from
which dividends on shares of such series shall be cumulative; the rights,
if any, which the holders of shares of such series shall have in the event
of any voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding up of the affairs of
the corporation; the rights, if any, which the holders of shares of such
series shall have to convert such shares into or exchange such shares for
shares of any other class or classes or any other series of stock of the
Corporation or for any debt exchange of such conversion or exchange;
whether shares of such series shall be subject for shares of such series
including, without limitation, a redemption price or prices payable in
shares of Common Stock; the terms and amounts of any sinking fund for the
purchase or redemption of shares of such series; and any and all other
designations, preferences, and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof
pertaining to shares of such series permitted by law.
2. Issuance of the Common Stock and the Preferred Stock. The Board
of Directors of the Corporation may from time to time authorize by
resolution the issuance of any or ass shares of the Common Stock and the
Preferred Stock herein authorized in accordance with the terms and
conditions set forth in these Articles of Incorporation for such purposes,
in such amounts, to such persons, corporations or entities, for such
consideration, and in the case of the Preferred Stock, in one or more
series, all as the Board of Directors in its discretion may determine and
without any vote or other action by the stockholders, except as otherwise
required by law. The capital stock, after the amount of the subscription
price, or par value, has been paid in shall not be subject to assessment to
pay the debts of the Corporation.
(iii) Amend the Articles of Incorporation by the addition of Article Twelve
as follows:
ARTICLE TWELVE. (OFFICER AND DIRECTOR LIABILITY). To the fullest
---------------
extent that the Nevada Revised Statutes exist on the date hereof or as they
may hereafter be amended permits the limitation or elimination of the
liability of Directors and Officers, no Director or Officer of the
Corporation shall be liable to the Corporation or its Stockholders for
monetary damages for breach of fiduciary duty as a Director or Officer. No
amendment to these Articles of Incorporation, directly or indirectly by
merger, consolidation, or otherwise, having the effect of amending or
repealing any of the provisions of this Article Twelve shall apply to or
have any effect on the liability or alleged liability of any Director or
Officer of the Corporation for or with respect to any acts or omissions of
such Director or Officer occurring prior to such amendment or repeal,
unless such amendment shall have the effect of further limiting or
eliminating such liability.
<PAGE>
ARTICLE 2. That the foregoing amendments to the Articles of Incorporation
were duly adopted by a majority consent of the Stockholders of the Corporation
dated March 25, 1997, pursuant to Section 78.320 of the Nevada Revised Statutes;
as of March 25, 1997, the date of the majority consent, the number of shares of
the Corporation issued and outstanding and entitled to vote on the foregoing
amendments to the Articles of Incorporation was 3,930,000 shares of common
stock; and, stockholders of the Corporation holding 2,162,381 shares of common
stock, which is greater than a majority of the issued and outstanding shares,
executed the majority consent.
DATED THIS 10/th/ day of April, 1997.
ATTEST EXACTLY SPORTSWEAR, INC.
/s/ Jimmy R. Clark /s/ Byron Stuckey
- ------------------------------ --------------------------------
Jimmy R. Clark, Secretary Byron Stuckey, President
STATE OF TEXAS
COUNTY OF DALLAS
I, /s/ Becky A. Tanner a notary public, hereby
----------------------------------------------
certify that on the 10/th/ day of April, 1997, appeared before me Byron Stuckey
and Jimmy R. Clark, personally known to me to be the President and Secretary,
respectively, of Exactly Sportswear, Inc., and, who being by me first duly
sworn, severally declared and acknowledged that they are the persons who signed
the foregoing document as the President and Secretary, respectively, of the
afore-mentioned Corporation and that the statements therein contained are true.
/s/ Becky A. Tanner
-------------------------------------
Becky A. Tanner, Notary Public
(SEAL)
<PAGE>
EXHIBIT 4.1
Not Valid unless countersigned by Transfer Agent
Incorporated under the Laws of the State of Nevada
CUSIP 816056 10 5
NUMBER SHARES
[SEIRIOS LOGO]
Authorized Common Stock 50,000,000 shares
THIS CERTIFIES THAT ______________________________________
is the record holder of ____________________________
Shares of SEIRIOS INTERNATIONAL, Inc. common stock----
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate Properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated ______________
_________________________________ ____________________________________
Secretary President
(SEAL)
Not valid unless countersigned by Countersigned Registered:
Transfer Agent NEVADA AGENCY AND TRUST COMPANY
50 West Liberty Street, Suite 880
Reno, Nevada 89501 By__________________
Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a member of a registered national
stock exchange, or by a bank (other than a saving bank), or a trust company. The
following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
-----------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________
____________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
X __________________________________________
X __________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement"), dated as of July 1, 1999, is
by and among Seirios International, Inc., a Nevada corporation ("Buyer"), Staff
Sourcing Services, Inc., a Texas corporation ("Company"), and the Shareholders
listed on the signature pages of this Agreement ("Sellers" or "Shareholders").
WHEREAS, Sellers own all issued and outstanding shares of capital stock of
the Company ("Company Shares"), and Sellers desire to sell to Buyer, and Buyer
desires to purchase from Sellers, the Company Shares.
NOW, THEREFORE, for and in consideration of the representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are acknowledged, and
upon the terms and subject to the conditions set forth herein, the parties do
agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase of Stock. On the Closing Date (defined below), Buyer agrees
-----------------
to purchase from Sellers, and Sellers shall sell to Buyer, all of the issued and
outstanding shares of common stock of the Company ("Company Shares") for a total
consideration of 2,500,000 shares ("Buyer Shares") of common stock of Buyer (the
"Consideration").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
The Company and the Sellers jointly and severally represent and warrant to
Buyer as follows:
2.1 Authorization of Sellers. This Agreement has been duly executed and
------------------------
delivered by each Seller and constitutes the valid and binding obligation of
such Seller, enforceable in accordance with its terms, except (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally, (ii) the remedy of
specific performance and injunctive relief are subject to certain equitable
defenses and to the discretion of the court before which any proceedings may be
brought and (iii) rights to indemnification may be limited under applicable
securities laws.
2.2 Existence and Good Standing of the Company. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company does not have any subsidiaries. The Company is duly
qualified or licensed as a foreign corporation and in good standing in each
jurisdiction in which the character or location of the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so duly qualified or
licensed would not have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company.
2.3 Capital Stock of the Company. The Company's authorized and outstanding
----------------------------
capital stock is as set forth in the Disclosure Schedules. No other shares of
capital stock are issued or outstanding. All of the Company Shares have been
validly issued and are fully paid and nonassessable and no holder thereof is
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<PAGE>
entitled to any preemptive rights. There are no outstanding conversion or
exchange rights, subscriptions, options, warrants or other arrangements or
commitments obligating the Company to issue any shares of capital stock or other
securities. As of the Closing, each of the Sellers (i) owns his Company Shares
as set forth on the Disclosure Schedules of record and beneficially and have
good and marketable title to the Company Shares, free and clear of any and all
liens, mortgages, security interests, encumbrances, pledges, charges, adverse
claims, options, rights or restrictions of any character whatsoever
(collectively, "Liens"), and (ii) has the right to vote the Company Shares on
any matters as to which any shares of the Company common stock are entitled to
be voted under the laws of the State of Texas and the Company's articles of
incorporation and bylaws, free of any right of any other person.
2.4 Company Authorization. The Company has full corporate power, capacity
---------------------
and authority to execute this Agreement and all other agreements and documents
contemplated hereby. The execution and delivery of this Agreement and such other
agreements and documents by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by the Company
and no other corporate action on the part of the Company is necessary to
authorize the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except that
(i) enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, (ii) remedies
of specific performance and injunctive relief are subject to certain equitable
defenses and to the discretion of the court before which any proceedings may be
brought, and (iii) rights to indemnification may be limited under applicable
securities laws.
2.5 Financial Statements. (a) Sellers have previously furnished to Buyer
--------------------
the financial statements set forth on the Disclosure Schedules ("Financials") as
of the date indicated ("Financials Date"). The Financials present fairly the
financial position and results of operations of the Company as of the indicated
dates and for the indicated periods and have been prepared in accordance with
generally accepted accounting principles (GAAP) consistently applied. The
Company shall permit Buyer full access to the work papers pertaining to the
Financials, including those work papers in the possession of or prepared by any
independent accountants.
(b) Except to the extent (and not in excess of amounts) reflected in the
balance sheet included in the Financials, the Company has no liabilities or
obligations (including, without limitation, taxes payable and deferred taxes and
interest accrued since the Financials Date) required to be reflected in the
Financials (or notes thereto) in accordance with GAAP other than current
liabilities incurred in the ordinary course of business, consistent with past
practice, subsequent to the Financials Date.
2.6 Tax Matters. The Company has filed all income tax returns required to
-----------
be filed by it and all returns of other Taxes required to be filed and has paid
or provided for all Taxes shown to be due on returns. No action or proceeding
for the assessment or collection of Taxes is pending against the Company; no
deficiency, assessment or other formal claim for any Taxes has been asserted or
made against the Company that has not been fully paid or finally settled; and no
issue has been formally raised by any taxing authority in connection with an
audit or examination of any return of Taxes. No federal or state income tax
returns of the Company have been examined, and there are no outstanding
agreements or waivers extending the applicable statutory periods of limitation
for such Taxes for any period. All Taxes that the Company has been required to
collect or withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority. No Taxes will be
assessed on or after the Closing Date against the Company for any tax period
ending on or prior to the Closing Date, or for any period ending after the
Closing Date with respect to any portion of such tax period that includes or is
prior to the Closing Date. "Taxes" means taxes,
-2-
<PAGE>
charges, fees, levies or assessments including, without limitation, income,
excise, property, withholding, sales and franchise taxes, imposed by federal,
state, county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions.
2.7 Assets and Properties.
---------------------
(a) Real Property. The Company does not own any real property.
-------------
(b) Personal Property. Except for inventory and supplies disposed of or
-----------------
consumed, and accounts receivable collected or written off, and cash utilized,
all in the ordinary course of business consistent with past practice, the
Company owns all of its inventory, equipment and other personal property (both
tangible and intangible) reflected on the latest balance sheet included in the
Financials or acquired since the Financials Date, free and clear of any Liens,
except for statutory Liens for current taxes, assessments or governmental
charges or levies on property not yet due and payable.
(c) Condition of Properties. The leasehold estates the subject of any Real
-----------------------
Property Leases (defined below) and the tangible personal property owned or
leased by the Company are in good operating condition and repair, ordinary wear
and tear excepted; and none of the Company or Sellers has any knowledge of any
condition or defect, not disclosed herein, of any such leasehold estate that
would materially affect the fair market value, use or operation of the leasehold
estate or otherwise have a material adverse effect on the Company or its
business or operations.
(d) Compliance. To the knowledge of the Company and Sellers, the continued
----------
ownership, operation, use and occupancy of the leasehold estates the subject of
the Real Property Leases as currently operated, used and occupied will not
violate any zoning, building, health, flood control, fire or other law,
ordinance, order or regulation or any restrictive covenant. To the knowledge of
the Company and Sellers, there are no violations of any federal, state, county
or municipal law, ordinance, order, regulation or requirement affecting any
portion of the leasehold estates and no written notice of any such violation has
been issued by any governmental authority.
2.8 Real Property Leases; Options. The Disclosure Schedules set forth a
-----------------------------
list of (i) all leases and subleases under which the Company is lessor or lessee
or sublessor or sublessee of any real property, together with all amendments,
supplements, nondisturbance agreements, brokerage and commission agreements and
other agreements pertaining thereto ("Real Property Leases"); (ii) all material
options held by the Company or contractual obligations on the part of the
Company to purchase or acquire any interest in real property; and (iii) all
options granted by the Company or contractual obligations on the part of the
Company to sell or dispose of any material interest in real property. Copies of
all Real Property Leases and such options and contractual obligations have been
delivered to Buyer. The Company has not assigned any Real Property Lease or
such options or obligations. There are no Liens on the Company's interest in
the Real Property Leases, subject only to (i) Liens for taxes and assessments
not yet due and payable and (ii) matters set forth on the Disclosure Schedules.
The Real Property Leases and options and contractual obligations listed on the
Disclosure Schedules are in full force and effect and constitute binding
obligations of the Company and the other parties thereto, and (x) there are no
defaults thereunder and (y) no event has occurred that with notice, lapse of
time or both would constitute a default by the Company or, to the best knowledge
of the Company and Sellers, by any other party.
2.9 Environmental Laws and Regulations.
----------------------------------
-3-
<PAGE>
(a)(i) The ownership and operations of the "Subject Property" and any use,
storage, treatment, disposal, or transportation of "Hazardous Substances" that
has occurred in or on the Subject Property prior to the date of this Agreement
have been in compliance with "Environmental Requirements"; (ii) during the
ownership, occupancy and operation of the Subject Property by the Company, or,
to the best knowledge of the Company and Sellers, prior to its ownership,
occupancy or operation, no release, leak, discharge, spill, disposal or emission
of Hazardous Substances has occurred in, on or under the Subject Property in a
quantity or manner that violates or requires further investigation or
remediation under Environmental Requirements; (iii) the Subject Property is free
of Hazardous Substances as of the date of this Agreement, except for the
presence of small quantities of Hazardous Substances utilized by the Company or
other tenants of the Subject Property in the ordinary course of their business;
(iv) there is no pending or threatened litigation or administrative
investigation or proceeding concerning the Subject Property involving Hazardous
Substances or Environmental Requirements; (v) there is no ACM (as defined
below), within the Subject Property, whether friable or non-friable, and there
are no above-ground or underground storage tank systems located at the Subject
Property; and (vi) the Company has never owned, operated, or leased any real
property other than the Subject Property. As used in this Agreement, the
following terms shall have the following meanings: "Environmental Requirements"
--------------------------
means all laws, statutes, rules, regulations, ordinances, guidance documents,
judgments, decrees, orders, agreements and other restrictions and requirements
(whether now or hereafter in effect) of any governmental authority, including,
without limitation, federal, state and local authorities, relating to the
regulation or protection of human health and safety, natural resources,
conservation, the environment, or the storage, treatment, disposal,
transportation, handling or other management of industrial or solid waste,
hazardous waste, hazardous or toxic substances or chemicals, or pollutants.
"Hazardous Substance" means (i) any "hazardous substance" as defined in (S)
- --------------------
101(14) of the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended from time to time (42 U.S.C. (S)(S) 9601 et
seq.)("CERCLA") or any regulations promulgated thereunder; (ii) petroleum and
petroleum by-products; (iii) asbestos or asbestos-containing material ("ACM");
or (iv) any additional substances or materials that have been or are currently
classified or considered to be pollutants, hazardous or toxic under
Environmental Requirements. "Subject Property" means all property subject to
----------------
the Real Property Leases.
2.10 Contracts. The Disclosure Schedules set forth a list of all material
---------
contracts, arrangements and commitments (whether oral or written) to which the
Company is a party or by which the Company's assets or business are bound
including, without limitation, contracts, arrangements or commitments that
relate to (i) the sale, lease or other disposition by the Company of all or any
substantial part of the business or assets of the Company (otherwise than in the
ordinary course of business), (ii) the purchase or lease by the Company of a
substantial amount of assets (otherwise than in the ordinary course of
business), (iii) the supply by the Company of any customer's requirements for
any item or the purchase by the Company of its requirements for any item or of a
vendor's output of any item, (iv) lending or advancing funds by the Company, (v)
borrowing of funds or guarantying the borrowing of funds by any other person,
whether under an indenture, note, loan agreement or otherwise, (vi) any
transaction or matter with any Affiliate of the Company, (vii) noncompetition or
employment, (viii) licenses and grants to or from the Company relating to any
intangible property listed on the Disclosure Schedules, (ix) the acquisition by
the Company of any operating business or the capital stock of any person since
January 1, 1998, or (x) any other matter that is material to the business,
assets or operations of the Company ("Contracts"). Each Contract is in full
force and effect on the date hereof, the Company is not in default under any
Contract, the Company has not given or received notice of any default under any
Contract, and, to the knowledge of the Company and Sellers, no other party to
any Contract is in default thereunder.
2.11 No Violations. The execution, delivery and performance of this
-------------
Agreement and the other
-4-
<PAGE>
agreements and documents contemplated hereby by the Company and Sellers and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of the articles of incorporation or bylaws of the Company, (ii)
violate any statute, rule, regulation, order or decree of any public body or
authority by which the Company or a Seller or its respective properties or
assets are bound, or (iii) result in a violation or breach of, or constitute a
default under, or result in the creation of any encumbrance upon, or create any
rights of termination, cancellation or acceleration in any person with respect
to any Contract or any material license, franchise or permit of the Company or
any other agreement, contract, indenture, mortgage or instrument to which the
Company is a party or by which any of its properties or assets is bound.
2.12 Consents. No consent, approval or other authorization of any
--------
governmental authority or under any Contract or other material agreement or
commitment to which the Company or a Seller is a party or by which its
respective assets are bound is required as a result of or in connection with the
execution or delivery of this Agreement and the other agreements and documents
to be executed by the Company and Sellers or the consummation by the Company and
Sellers of the transactions contemplated hereby.
2.13 Litigation and Related Matters. There are no actions, suits,
------------------------------
proceedings, investigations or grievances pending against the Company or, to the
best knowledge of the Company and Sellers, threatened against the Company, the
Company's business or any property or rights of the Company, at law or in
equity, before or by any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Agencies"). The Company is not subject to any continuing
court or Agency order, writ, injunction or decree applicable specifically to the
business, operations or assets of the Company or employees of the Company, nor
in default with respect to any order, writ, injunction or decree of any court or
Agency with respect to its assets, business, operations or employees. The
Company is not subject to any worker's compensation claims outstanding against
the Company as of the date hereof.
2.14 Product Liability and Warranty Proceedings. No product liability or
------------------------------------------
warranty actions, suits or proceedings arising from the manufacture or sale of
goods by Company have been asserted against Company.
2.15 Compliance with Laws. The Company (a) is in compliance with all
--------------------
applicable laws, regulations (including federal, state and local procurement
regulations), orders, judgments and decrees except where the failure to so
comply would not have a material adverse effect on the business, prospects,
financial condition or results of operation or prospects of the Company and (b)
possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business in the manner in which and in the
jurisdictions and places where such business is now conducted. Set forth on the
Disclosure Schedules is a list of all material licenses, franchises, permits and
governmental authorizations and all applications pending before any agency or
authority for the issuance of any licenses, franchises, permits or governmental
authorizations or the renewal thereof.
2.16 Patents, Trademarks, Etc. The Disclosure Schedules list the patents,
------------------------
patent applications and licenses, software licenses, trade names, trademarks,
service marks, trademark registrations and applications, service mark
registrations and applications, and copyright registrations and applications
owned by the Company or used in the operation of the Company's business
(collectively, "Intellectual Property"), and indicate (i) the term and
exclusivity of its rights with respect to the Intellectual Property and (ii)
whether each item of Intellectual Property is owned or licensed by the Company,
and if licensed, the licensor and the license fees therefor. The Company has the
right to use and license the Intellectual Property, and consummation of the
transactions contemplated hereby will not result in the loss or material
impairment of
-5-
<PAGE>
any rights of the Company in the Intellectual Property. There are no pending
proceedings or adverse claims made or, to the best knowledge of the Company and
Sellers, threatened against the Company with respect to the Intellectual
Property; there has been no litigation commenced or threatened in writing within
the past five (5) years with respect to the Intellectual Property or the rights
of the Company therein; and the Company and Sellers have no knowledge that (i)
the Intellectual Property or the use thereof by the Company conflicts with any
patents, patent applications, patent licenses, trade names, trademarks, service
marks, trademark or service mark registrations or applications or copyright
registrations or applications of others, or (ii) such third party Intellectual
Property or its use by others or any other conduct of a third party conflicts
with or infringes upon the Intellectual Property or its use by the Company.
2.17 Employee Benefit Plans. The Company does not have any employee
----------------------
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to
by the Company or any of its Group Members (defined below) (collectively, the
"Plans"). Neither the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated hereby will (i) entitle any
current or former employee of the Company to severance pay, unemployment
compensation or any similar payment, (ii) accelerate the time of payment or
vesting, or increase the amount of, any compensation due to any such employee or
former employee, or (iii) directly or indirectly result in any payment made or
to be made to or on behalf of any person to constitute a "parachute payment"
(within the meaning of Section 280G of the Code). For purposes of this
Agreement, "Group Member" shall mean any member of any "affiliated service
group" as defined in Section 414(m) of the Code that includes the Company, any
member of any "controlled group of corporations" as defined in Section 1563 of
the Code that includes the Company, or any member of any group of "trades or
businesses under common control" as defined by Section 414(c) of the Code that
includes the Company.
2.18 Employees; Employee Relations. (a) The Disclosure Schedules set forth
-----------------------------
the name and current annual salary and other compensation (including, without
limitation, bonus, profit-sharing and other compensation) payable by the Company
to each employee whose current total annual compensation or estimated
compensation is $50,000 or more, any increase to become effective after the
date of this Agreement in the total compensation payable by Company to each such
person, any increase to become payable after the date of this Agreement by the
Company to employees, all presently outstanding loans and advances (other than
routine travel advances to be repaid or formally accounted for within sixty (60)
days) made by the Company to, or made to the Company by, any director, officer
or employee, all other transactions between the Company and any director,
officer or employee of the Company since January 1, 1998, and all accrued but
unpaid vacation pay owing to any officer or employee that is not disclosed on
the Financials. The Company is not a party to nor bound by the terms of any
collective bargaining agreement and the Company has not experienced any material
labor difficulties during the last five years. There are no labor disputes
existing, or to the best knowledge of Company and Sellers, threatened involving,
by way of example, strikes, work stoppages, slowdowns, picketing, or any other
interference with work or production, or any other concerted action by
employees. No charges or proceedings before the National Labor Relations Board
or similar agency exist, or to the best knowledge of the Company and Sellers,
are threatened. The Company's relationship with its employees is good and
Company and Sellers have no knowledge of any facts that would indicate that the
Company's employees will not continue in its employ following the Closing on a
basis similar to that existing on the date of this Agreement. The Company is not
a party to any employment contract with any individual or employee, either
express or implied. No legal proceedings, charges, complaints, or similar
actions exist under any federal, state or local laws or regulations affecting
the employment relationship; and to the best knowledge of Company and Sellers,
no proceedings, charges, or complaints are threatened under any such laws or
regulations and no facts or circumstances exist that would give rise to any such
proceedings, charges, complaints, or claims, whether valid or not. The Company
is not
-6-
<PAGE>
subject to any settlement or consent decree with any present or former employee,
employee representative or any government or Agency relating to claims of
discrimination or other claims in respect to employment practices and policies;
and no government or Agency has issued a judgment, order, decree or finding with
respect to the labor and employment practices (including practices relating to
discrimination) of Company. Since January 1, 1998, Company has not incurred any
liability or obligation under the Worker Adjustment and Retraining Notification
Act or similar state laws. The Company has not laid off more than ten percent
(10%) of its employees at any single site of employment in any ninety (90) day
period during the twelve (12) month period ending January 1, 1998. It shall be
the obligation of Company and Sellers to provide any notice required by said Act
by reason of the provisions, execution or operation of this Agreement. The
Company is in full compliance with the Americans with Disabilities Act (the
"ADA").
2.19 Insurance. The Disclosure Schedules contain a list of the policies
---------
and contracts (including insurer, named insured, type of coverage, limits of
insurance, required deductibles or co-payments, annual premiums and expiration
date) for fire, casualty, liability and other forms of insurance maintained by,
or for the benefit of, the Company. All such policies are in full force and
effect and are adequate for the business in which the Company engages. Neither
the Company nor either Seller has received any notice of cancellation or non-
renewal or of significant premium increases with respect to any such policy. No
pending claims made by or on behalf of the Company under such policies have been
denied or are being defended against third parties under a reservation of rights
by an insurer of the Company. All premiums due prior to the date hereof for
periods prior to the date hereof with respect to such policies have been timely
paid, and all premiums due before the Closing Date for periods between the date
hereof and the Closing Date will be timely paid.
2.20 Accounts Receivable. The accounts receivable set forth in the
-------------------
Financials and those accounts receivable accruing through the Closing Date
represent valid and bona fide sales to third parties incurred in the ordinary
course of business, collectible in accordance with their terms, subject to no
defenses, set-offs or counterclaims, except to the extent of any reserves for
doubtful accounts reflected in the balance sheet included in the Prior Years
Financials.
2.21 Interests in Customers, Suppliers, Etc. No shareholder, officer,
---------------------------------------
director or Affiliate of the Company possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or Affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, other than the
officer, director and affiliate status of Donald C. Dalbosco in Buyer.
Ownership of securities of a corporation whose securities are registered under
the 1934 Act not in excess of five percent (5%) of any class of such securities
shall not be deemed to be a financial interest for purposes of this Section
2.21.
2.22 Business Relations. The Disclosure Schedules contain an accurate list
------------------
of all significant customers of the Company (i.e., those customers representing
5% or more of the Company's revenues for the 12 months ended June 30, 1999 or
who have paid to the Company $50,000 or more over any four consecutive fiscal
quarters in the two years ended June 30, 1999). To the best knowledge of the
Company and Sellers, no customer or supplier of the Company will cease to do
business with the Company after the consummation of the transactions
contemplated hereby, which cessation would have a material adverse effect on the
business, operations or financial condition of the Company. Since January 1,
1998, the Company has not experienced any difficulties in obtaining any
inventory items necessary to the operation of its business, and, to the best
knowledge of the Company and Sellers, no such shortage of supply of inventory
items is threatened or pending. The Company is not required to provide any
bonding or other financial security arrangements in any material amount in
connection with any transactions with any of its customers
-7-
<PAGE>
or suppliers.
2.23 Officers and Directors. The Disclosure Schedules set forth a list of
----------------------
officers and directors of the Company.
2.24 Bank Accounts and Powers of Attorney. The Disclosure Schedules set
------------------------------------
forth each bank, savings institution and other financial institution with which
the Company has an account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto. Each person holding a
power of attorney or similar grant of authority on behalf of the Company is
identified on the Disclosure Schedules. Except as disclosed on such Disclosure
Schedules, the Company has not given any revocable or irrevocable powers of
attorney to any person, firm, corporation or organization relating to its
business for any purpose whatsoever.
2.25 Accuracy of Information Furnished. Any information furnished to Buyer
---------------------------------
by the Company or Sellers prior to, at or after the date of this Agreement, in
the Disclosure Schedules hereto, or otherwise is, or when furnished will be,
true and correct in all material respects. Such information states, or when
furnished will state, all material facts required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which the statements are made, not misleading.
2.26 Availability of Documents. The Company has made available for
-------------------------
inspection by Buyer and its representatives true, correct, and complete copies
of the articles of incorporation and bylaws of the Company, all written
agreements, arrangements, commitments, and documents referred to in the
Disclosure Schedules attached hereto, and the corporate minute books of the
Company. Such corporate minute books contain the minutes of all of the meetings
of shareholders, board of directors, and any committees of the Company that have
been held preceding the date hereof and all written consents to action executed
in lieu thereof.
2.27 Brokerage, Financial Advisor or Finder Fees. No agent, advisor,
-------------------------------------------
broker, person or firm acting on behalf of the Company or Sellers is, or will
be, entitled to any commission or broker's, advisor's or finder's fees from any
of the parties hereto, or from any of their respective Affiliates in connection
with any of the transactions contemplated hereby.
2.28 Absence of Certain Changes or Events. Except as contemplated by this
------------------------------------
Agreement, since January 1, 1998, there has not been (a) any damage, destruction
or casualty loss to the physical properties of the Company (whether or not
covered by insurance), materially and adversely affecting the business,
operations, prospects or financial condition of the Company, (b) any material
adverse change in the business, operations, financial condition or results of
operations or prospects of the Company, (c) any entry into any transaction,
commitment or agreement (including, without limitation, any borrowing) material
to the Company, except transactions, commitments or agreements in the ordinary
course of business consistent with past practice, and which, if occurring after
the date hereof, would be in compliance with Section 4.1, (d) any declaration,
setting aside or payment of any dividend or other distribution in cash, stock or
property with respect to the Company's capital stock or other securities, any
repurchase, redemption or other acquisition by the Company of any capital stock
or other securities, or any agreement, arrangement or commitment by the Company
to do so, (e) any increase that is material in the compensation payable or to
become payable by the Company to its directors, officers, employee or agents or
any increase in the rate or terms of any bonus, or other employee benefit plan,
payment or arrangement made to, for or with any such directors, officers,
employees or agents, (f) any sale, transfer or other disposition of, or the
creation of any Lien upon, any part of the Company's assets, tangible or
intangible, except for sales of inventory and use of supplies and
-8-
<PAGE>
collections of accounts receivables in the ordinary course of business
consistent with past practice, or any cancellation or forgiveness of any debts
or claims by the Company, (g) any change in the relations of the Company with or
loss of its customers or suppliers, of any loss of business or increase in the
cost of inventory items or change in the terms offered to customers, which would
materially and adversely affect the business, operations or financial condition
of the Company, or (i) any capital expenditure (including any capital leases) or
commitment therefor by the Company in excess of $50,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
3.1 Organization and Authorization. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Nevada with all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Buyer has all requisite corporate power, capacity and authority to execute and
deliver this Agreement and all other agreements and documents contemplated
hereby. The execution and delivery of this Agreement and such other agreements
and documents by Buyer and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by Buyer and no other corporate
action on the part of Buyer is necessary to authorize the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Buyer and constitutes the valid and binding obligation of Buyer, enforceable in
accordance with its terms except (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, (ii) the remedy of specific performance and
injunctive relief are subject to certain equitable defenses and to the
discretion of the court before which any proceedings may be brought, and (iii)
rights to indemnification may be limited under applicable securities laws.
3.2 No Violations. The execution and delivery of this Agreement and other
-------------
agreements and documents contemplated hereby by Buyer and the consummation of
the transactions contemplated hereby will not (a) violate any provision of the
certificate of incorporation or bylaws of Buyer, (b) violate any statute, rule,
regulation, order or decree of any public body or authority by which Buyer or
its properties or assets are bound, or (c) result in a violation or breach of,
or constitute a default under or result in the creation of any encumbrance upon,
or create any rights of termination, cancellation or acceleration in any person
with respect to any agreement, contract, indenture, mortgage or instrument to
which Buyer is a party or any of its properties or assets is bound.
3.3 Consents. No consent, approval or other authorization of any
--------
governmental authority or third party is required as a result of or in
connection with the execution and delivery of this Agreement and the other
agreements and documents to be executed by Buyer or the consummation by Buyer of
the transactions contemplated hereby.
3.4 Brokerage, Financial Advisor or Finder Fees. No agent, advisor,
-------------------------------------------
broker, person or firm acting on behalf of Buyer is, or will be, entitled to any
commission or broker's, advisor's or finder's fees from any of the parties
hereto, or from any of their respective Affiliates, in connection with any of
the transactions contemplated hereby.
ARTICLE IV
COVENANTS OF THE PARTIES
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<PAGE>
4.1 Course of Conduct by the Company. From the date hereof through the
--------------------------------
Closing Date, except as approved in writing by Buyer or as permitted or
contemplated by this Agreement, the Company's business shall be conducted in the
ordinary course of business consistent with past practice, and Sellers shall
cause the Company to comply with the following covenants:
(a) Capital Expenditures. The Company shall not make capital expenditures
--------------------
or commitments which, when combined with capital expenditures or commitments
after January 1, 1999, would exceed $50,000.
(b) Organizational Documents. The Company shall not make any change in
------------------------
its articles or bylaws.
(c) Stock Issuance; Redemptions; Reorganizations. The Company shall not
--------------------------------------------
(i) issue, grant or dispose of, or make any agreement, arrangement or commitment
obligating the Company to issue, grant or dispose of any capital shares or other
securities of the Company, (ii) redeem or acquire, or make any agreement,
arrangement or commitment obligating the Company to redeem or acquire, any
shares of capital stock or other securities of the Company, or (iii) authorize
or effect or make any agreement, arrangement or commitment obligating the
Company to effect, any reorganization, recapitalization or split-up of such
capital stock of the Company.
(d) Employee Matters. The Company shall not (i) make any material
----------------
increase in the compensation payable or to become payable to any of the
officers, employees, or agents of the Company, or (ii) make, amend or enter into
any employment contract or any bonus, incentive, stock option, profit sharing,
pension, retirement, stock purchase, hospitalization, medical reimbursement,
insurance, severance benefit or other similar plan or arrangement or make any
voluntary contribution to any such plan or arrangement.
(e) Insurance Coverage. The Company shall maintain insurance coverage for
------------------
the benefit of the Company on the same basis as, or on a substantially
equivalent basis to, the current insurance coverage.
(f) Business Organization. The Company shall use commercially reasonable
---------------------
efforts to preserve intact its business organization and to keep available the
services of its present officers and employees as a group.
(g) Maintenance of Property. The Company shall maintain its property,
-----------------------
equipment and other tangible personal property in its present operating
condition and repair, ordinary wear and tear excepted. The Company will fully
perform and pay for all maintenance, painting, repairs, alterations and other
work required to be performed by the Company as lessee under the Real Property
Leases listed on the Disclosure Schedules.
(h) Relations with Suppliers, Customers, Etc. The Company will use
-----------------------------------------
commercially reasonable efforts to preserve its relationships with its material
customers and others having material business dealings with it and shall not
change or modify or commit to change or modify any terms offered to customers.
The Company promptly shall notify Buyer if the Company is informed by any of its
customers or suppliers that such customer or supplier will or may cease to do
business with the Company either prior to or following the Closing.
(i) Incurrence of Debt. The Company will not voluntarily incur or assume,
------------------
whether directly or
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<PAGE>
by way of guaranty or otherwise, any material obligation or liability, except
obligations and liabilities incurred in the ordinary course of business,
consistent with past practice.
(j) Liens. The Company will not mortgage, pledge, encumber, create or
-----
allow any Liens not existing on the date hereof upon any of its properties or
assets, tangible or intangible, except Liens created in the ordinary course of
business, consistent with past practice.
(k) Disposition of Assets. The Company will not sell, transfer or
---------------------
otherwise dispose of any of its tangible or intangible property or assets,
except for inventory and supplies sold, disposed of or consumed and accounts
receivable collected or written off in the ordinary course of business,
consistent with past practice. The Company will not cancel or forgive any debts
or claims except or in the ordinary course of business, consistent with past
practice.
(l) Agreements, Leases and Licenses. The Company will not amend,
-------------------------------
terminate, or allow to lapse any material agreement, lease, license or permit to
which it is a party or of which it is the holder.
(m) Accounting Practices. The Company will not make any material changes
--------------------
in its accounting methods, principles or practices, except as required by GAAP.
(n) Changes in Business Practice. The Company will not take any action,
----------------------------
the purpose or effect of which is to shift income from post-closing periods to
the pre-closing period or defer expenses from the pre-closing period to post-
closing periods, which action is not in the ordinary course of business,
consistent with past practice.
(o) Transactions with Affiliates. The Company will not enter into any
----------------------------
agreement, arrangement or transaction with, or make any payment, distribution,
loan or advance to, any Affiliate of the Company or any officer, director or
shareholder of the Company, except for salaries and travel advances consistent
with past practices or as otherwise specifically permitted by this Agreement.
(p) Material Transactions. The Company will not enter into any other
---------------------
agreement, course of action or transaction material to it, except in the
ordinary course of business, consistent with past practice.
4.2 Approvals and Consents. The Company and Sellers shall use their
----------------------
respective best efforts (i) to cause all conditions to the obligations of Buyer
under this Agreement over which they are able to exercise influence or control
to be satisfied prior to the Closing Date and (ii) to obtain promptly and to
comply with all requisite statutory, regulatory or court approvals, third party
releases and consents, and other requirements necessary for the valid and legal
consummation of the transactions contemplated hereby.
4.3 Investigations. The Company shall provide Buyer and its
--------------
representatives and agents such access to the books and records of the Company
and furnish to Buyer such financial and operating data and other information
with respect to the businesses and property of the Company as it may reasonably
request from time to time, and permit Buyer and its respective representatives
and agents to make such inspections of the Company's real and personal
properties as they may reasonably request. Sellers shall promptly arrange for
Buyer and its representatives and agents to meet with such directors, officers,
employees and agents of the Company as requested.
4.4 Records Pertaining to the Company. At the Closing, Sellers will
---------------------------------
deliver or cause to be delivered to the Company any records (i) in the
possession of Sellers, (ii) applicable primarily to the
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Company, and (iii) of which the Company does not already have copies. Sellers
shall, for a period of seven years (except in the case of any sales invoices,
which shall be for three years) after the Closing Date, neither dispose of nor
destroy any of the business records or files of Sellers that pertain in part to
the Company without first offering to turn over possession of copies thereof to
the Company at the Company's expense, by written notice to the Company, at least
thirty (30) days prior to the proposed date of such disposition or destruction.
Sellers shall allow the Company and its representatives access to all business
records and files of Sellers that pertain in part to the Company, during normal
working hours at the principal place of business of Sellers, or at any location
where such records are stored, and the Company shall have the right, at its own
expense, to make copies of any such records and files. From and after the
Closing Date, Sellers shall make available to Buyer, upon written request, (i)
personnel of Sellers to assist Buyer in locating and obtaining records and files
maintained by Sellers, and (ii) any of the personnel of Sellers, whose
assistance or participation is reasonably required by Buyer in anticipation of,
or preparation for, any existing or future third party actions, Tax or other
matters in which the Company or any of its past, present or future Affiliates is
involved and which relate to the business of the Company. Sellers shall use
their respective best efforts (including, without limitation, furnishing any
certificates reasonably requested, and complying with other reasonable requests
as a prerequisite to availability) to cause any independent accounting firm that
has reviewed or prepared a report on any financial statements of the Company or
any consolidated financial statements for any consolidated group which included
the Company with respect to any financial accounting period and to make
available to Buyer for inspection and copying, at Buyer's expense and upon its
written request therefor, such accounting firm's work papers with respect to any
such financial statements and shall take all such actions as required by any
such accounting firm in connection with such request.
4.5 Tax Elections. No new elections with respect to Taxes or any changes
-------------
in current elections with respect to Taxes affecting the Company shall be made
after the date of this Agreement without prior written consent of Buyer.
4.6 Public Announcements. Prior to the Closing, no party shall make any
--------------------
press release or public announcement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Buyer
and the Company, which consent shall not be unreasonably withheld.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to purchase the Company Shares, and to cause the
transactions contemplated hereby to occur at Closing, shall be subject to
satisfaction of the following conditions at or prior to Closing:
5.1 Representations and Warranties. Each representation and warranty of
------------------------------
the Company and Sellers contained in this Agreement and in any Disclosure
Schedules or other disclosure in writing from the Company or Sellers shall be
true and correct when made, and shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representation and warranty had been made on and as of the Closing Date.
5.2 Covenants of Sellers and Company. All of the covenants and agreements
--------------------------------
herein on the part of Sellers and the Company to be complied with or performed
on or before the Closing Date shall have been fully complied with and performed.
5.3 Absence of Litigation. No inquiry, action, suit or proceeding shall
---------------------
have been asserted, threatened or instituted (i) in which it is sought to
restrain or prohibit the carrying out of the transactions
-12-
<PAGE>
contemplated by this Agreement or to challenge the validity of such transactions
or any part thereof, (ii) which could, if adversely determined, result in any
material adverse change in the business, operations or assets or the condition,
financial or otherwise, or results of operations or prospects of the Company, or
(iii) which could, if adversely determined, have a material adverse effect on
the right or ability of the Company to carry on its business as now conducted.
5.4 Consents and Approvals. All material authorizations, consents,
----------------------
approvals, waivers and releases, if any, necessary for Sellers and the Company
to consummate the transactions contemplated hereby shall have been obtained and
copies thereof shall be delivered to Buyer.
5.5 Certificates. The Company and Sellers shall have delivered to Buyer
------------
(i) certificates of the appropriate governmental authorities, dated as of a date
not more than fifteen (15) days prior to the Closing Date, attesting to the
existence and good standing of the Company in the State of California; (ii) a
copy, certified by the Secretary of State of Texas as of a date not more than
fifteen (15) days prior to the Closing Date, of the charter and all amendments
thereto of the Company; (iii) a copy certified by the Secretary of the Company,
dated the Closing Date, of the bylaws of the Company; and (iv) certificates,
dated the Closing Date, of the Secretary of the Company, relating to the
incumbency and corporate proceedings in connection with the consummation of the
transactions contemplated hereby.
5.8 Estoppel Certificates. Sellers shall have delivered to Buyer duly
---------------------
executed estoppel certificates in form and substance satisfactory to Buyer from
the lessors under the Real Property Leases.
5.9 No Material Adverse Change. There shall not have been any material
--------------------------
adverse change since January 1, 1998 in respect of the financial condition,
results of operations, business, assets or prospects of the Company and the
Company shall not have suffered any loss (whether or not insured) by reason of
physical damage caused by fire, earthquake, flood, accident or other calamity
which could have a material adverse effect on the condition, financial or
otherwise, results of operations or business, assets or prospects of the
Company.
5.10 No Transfers to Affiliates. Except as otherwise expressly
--------------------------
contemplated by this Agreement, the Company shall not have distributed or
transferred any of its assets or properties, or made any payments, to or for the
benefit of any of its Affiliates.
5.11 Due Diligence Review. The due diligence review of the Company
--------------------
(including, without limitation, legal, financial, and operational matters) to be
conducted by or on behalf of Buyer shall have been completed in a manner
satisfactory to Buyer and shall not reveal or produce adverse facts with respect
to the Company, its premises, business, operations, financial condition or
prospects which are not otherwise disclosed in this Agreement or any Disclosure
Schedules attached. No condition shall exist that was not disclosed in writing
to Buyer prior to the date hereof that would have a material adverse effect on
the business, operations, financial condition or prospects of the Company.
5.12 Nonforeign Affidavit. Sellers shall have furnished to Buyer an
--------------------
affidavit, stating, under penalty of perjury, that the indicated number is the
transferor's United States taxpayer identification number and that the
transferor is not a foreign person, pursuant to Section 1445(b)(2) of the Code.
5.13 Employment Agreements. John H. Simmons shall have executed and
---------------------
delivered to Buyer an employment agreement in form and substance satisfactory to
the Buyer (the "Employment Agreement").
-13-
<PAGE>
5.14 Certificates. Sellers shall have tendered certificates representing
------------
the Company Shares, duly endorsed in blank or accompanied by appropriate stock
powers, in proper form for transfer, with all transfer taxes paid.
5.15 Resignations and Releases of Directors and Officers. Buyer shall have
---------------------------------------------------
received the resignations of and releases from each director and officer of the
Company if so requested by the Buyer, effective as of the Closing.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers to sell the Company Shares and to cause the
other transactions contemplated hereby to occur at the Closing shall be subject,
except as Sellers may waive in writing, to the satisfaction of each of the
following conditions at or prior to the Closing:
6.1 Representations and Warranties. Each representation and warranty of
------------------------------
Buyer contained in this Agreement and in any Disclosure Schedules or other
disclosure in writing from Buyer shall be true and correct when made, and shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as though such representation and warranty had been made on and
as of the Closing Date.
6.2 Covenants of Buyer. All of the covenants and agreements herein on the
------------------
part of Buyer to be complied with or performed on or before the Closing Date
shall have been fully complied with and performed.
6.3 Absence of Litigation. No inquiry, action, suit or proceeding shall
---------------------
have been asserted, threatened or instituted in which it is sought to restrain
or prohibit the carrying out of the transactions contemplated by this Agreement
or to challenge the validity of such transactions or any part thereof.
6.4 Consents and Approvals. All material authorizations, consents,
----------------------
approvals, waivers and releases, if any, necessary for Buyer to consummate the
transactions contemplated hereby have been delivered to Sellers.
6.5 Transfer of Shares. Buyer shall have delivered to Sellers the Buyer
------------------
Shares specified in Section 7.3.
6.6 Employment Agreements. Buyer shall have executed and delivered to
---------------------
John H. Simmons the Employment Agreement.
ARTICLE VII
CLOSING
7.1 Closing. Unless this Agreement is terminated as provided in Section
------- -------
8.1, subject to the satisfaction or waiver of all the conditions set forth in
- ---
Articles V and VI, the closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of the Company or such other location
as agreed to by Buyer and Sellers, on (i) July 15, 1999, or (ii) such other date
as the parties may agree upon in writing (the "Closing Date").
7.2 Delivery of the Shares. At Closing, Sellers shall deliver or cause to
----------------------
be delivered to Buyer the
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<PAGE>
stock certificate(s) evidencing all of the Company Shares owned by them, duly
endorsed or accompanied by duly executed stock powers assigning the Company
Shares to Buyer and otherwise in good form for transfer.
7.3 Payment to Sellers. At Closing, Buyer shall deliver the Consideration
------------------
as designated by Sellers, with 1,666,667 of the Buyer Shares to be delivered to
Donald C. Dalbosco, and 833,333 of the Buyer Shares to be delivered to John H.
Simmons.
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
8.1 Termination. (a) This Agreement may be terminated and abandoned at
-----------
any time prior to the Closing: (i) by the written mutual consent of Buyer and
Sellers; (ii) by Buyer on the Closing Date if any of the conditions set forth in
Article V shall not have been fulfilled on or prior to the Closing Date; (iii)
by Sellers on the Closing Date if any of the conditions set forth in Article VI
shall not have been fulfilled on or prior to the Closing Date; (iv) by either
Buyer or Sellers if the Closing shall not have occurred on or before December
31, 1999 (unless extended by the Buyer for an additional 30 days); and (v) by
Buyer, upon written notice to Sellers, if the examination of the Company,
including its assets, liabilities, operations, business and prospects, by Buyer
or its representatives or agents, discloses the existence or nonexistence of any
matters or things that, in the sole judgment of Buyer, would be reasonably
likely to result in a material loss or damage to Buyer or the Company or a
material diminution in value of the Company.
(b) Any termination pursuant to this Article VIII shall not affect
the obligations of the parties under Sections 4.8 and 10.16 hereof and shall be
without prejudice to the terminating party's rights and remedies under this
Agreement by reason of any violation of this Agreement occurring prior to such
termination. In the event of a termination pursuant to this Article VIII, each
party shall bear its own costs and expenses incurred with respect to the
transactions contemplated hereby.
ARTICLE IX
INDEMNIFICATION
9.1 Buyer's Losses. (a) Sellers jointly and severally agree to indemnify
--------------
and hold harmless Buyer and the Company and their respective directors,
officers, employees, representatives, agents and attorneys from, against and in
respect of any and all Buyer's Losses (as defined below) suffered, sustained,
incurred or required to be paid by any of them by reason of (i) any
representation or warranty made the Company or Sellers in or pursuant to this
Agreement being untrue or incorrect in any respect at the date of this Agreement
or at the Closing Date; (ii) any failure by the Company or Sellers to observe or
perform their covenants and agreements set forth in this Agreement or any other
agreement or document executed by them in connection with the transactions
contemplated hereby; or (iii) any liability for warranty claims arising from the
sale of goods or services by the Company through the Closing Date, except in any
instance to the extent Buyer's Losses result from Buyer's own gross negligence
or willful misconduct. This Section 9.1 is intended to indemnify Buyer, the
Company and their respective directors, officers, employees, representatives,
agents and attorneys from the results of their negligence.
(b) "Buyer's Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with Sellers' consent, which consent may
not be unreasonably withheld), losses, obligations, liabilities, liens,
deficiencies, costs (including, without limitation, reasonable attorneys' fees),
penalties, fines, interest, monetary sanctions and expenses, including, without
limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and agency orders, and other costs and expenses
-15-
<PAGE>
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce Buyer's or such other persons' right to indemnification hereunder.
9.2 Sellers' Losses. (a) Buyer and the Company jointly and severally agree
---------------
to indemnify and hold harmless Sellers, and their respective directors,
officers, employees, representatives, agents and attorneys from, against, for
and in respect of any all Sellers' Losses (defined below) suffered, sustained,
incurred or required to be paid by either Seller by reason of (i) any
representation or warranty made by Buyer in or pursuant to this Agreement being
untrue or incorrect in any respect; (ii) any failure by Buyer to observe or
perform its covenants and agreements set forth in this Agreement or any other
agreement or document executed by it in connection with the transactions
contemplated hereby; or (iii) any liability for warranty claims arising from the
sale of goods or services by the Company subsequent to the Closing Date, except
in any instance to the extent Seller's Losses result from Sellers' own gross
negligence or willful misconduct. This Section 9.3 is intended to indemnify
Sellers and their directors, officers, employees, representatives, agents and
attorneys from the results of their negligence.
(b) "Sellers' Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with Buyer's consent, which consent may
not be reasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs (including, without limitation, reasonable attorneys' fees)
and expenses, including, without limitation, reasonable attorneys' fees and
costs incurred to comply with injunctions and other court and agency orders, and
other costs and expenses incident to any suit, action, investigation, claim or
proceeding or to establish or enforce Sellers' or such other persons' right to
indemnification hereunder.
9.3 Notice of Loss. Except to the extent set forth in the next sentence,
--------------
Buyer and Sellers will not have any liability under the indemnity provisions of
this Agreement with respect to a particular matter unless a notice setting forth
in reasonable detail the breach or other matter which is asserted has been given
to the Indemnifying Party (defined below) and, in addition, if such matter
arises out of a suit, action, investigation, proceeding or claim, such notice is
given promptly, but in any event within thirty (30) days after the Indemnified
Party (defined below) is given notice of the claim or the commencement of the
suit, action, investigation or proceeding. Notwithstanding the preceding
sentence, failure of the Indemnified Party to give notice hereunder shall not
release the Indemnifying Party from its obligations under this Article, except
to the extent the Indemnifying Party is actually prejudiced by such failure to
give notice. With respect to Buyer's Losses, Sellers, jointly and severally,
shall be the Indemnifying Party and Buyer, the Company and their respective
directors, officers, employees, representatives, agents and attorneys shall be
Indemnified Parties. With respect to Sellers' Losses, Buyer shall be the
Indemnifying Party and Sellers and their respective directors, officers,
employees, representatives, agents and attorneys shall be the Indemnified Party.
9.4 Right to Defend. Upon receipt of notice of any suit, action,
---------------
investigation, claim or proceeding ("Action") for which indemnification might be
claimed by an Indemnified Party, the Indemnifying Party shall be entitled to
defend, contest or otherwise protect against any such Action at its own cost and
expense, and the Indemnified Party must cooperate in any such defense or other
action. The Indemnified Party shall have the right, but not the obligation, to
participate at its own expense in defense thereof by counsel of its own
choosing, but the Indemnifying Party shall be entitled to control the defense
unless the Indemnified Party has relieved the Indemnifying Party from liability
with respect to the particular matter or the Indemnifying Party fails to assume
defense of the matter. In the event the Indemnifying Party shall fail to
defend, contest or otherwise protect in a timely manner against any such Action,
the Indemnified Party shall have the right, but not the obligation, thereafter
to defend, contest or otherwise protect against the same and make any compromise
or settlement thereof and recover the entire cost thereof from the
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<PAGE>
Indemnifying Party including, without limitation, reasonable attorneys' fees,
disbursements and all amounts paid as a result of such Action or the compromise
or settlement thereof; provided, however, that the Indemnified Party must send a
written notice to the Indemnifying Party of any such proposed settlement or
compromise, which settlement or compromise the Indemnifying Party may reject, in
its reasonable judgment, within thirty (30) days of receipt of such notice.
Failure to reject such notice within such thirty (30) day period shall be deemed
an acceptance of such settlement or compromise. The Indemnified Party shall have
the right to effect a settlement or compromise over the objection of the
Indemnifying Party; provided, that if (i) the Indemnifying Party is contesting
such claim in good faith or (ii) the Indemnifying Party has assumed the defense
from the Indemnified Party, the Indemnified Party waives any right to indemnity
therefor. If the Indemnifying Party undertakes the defense of such matters, the
Indemnified Party shall not, so long as the Indemnifying Party does not abandon
the defense thereof, be entitled to recover from the Indemnifying Party any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written consent
of the Indemnifying Party.
9.5 Cooperation. The Company, Buyer, Sellers and each of their Affiliates,
-----------
successors and assigns shall cooperate with each other in the defense of any
suit, action, investigation, proceeding or claim by a third party and, during
normal business hours, shall afford each other access to their books and records
and employees relating to such suit, action, investigation, proceeding or claim
and shall furnish each other all such further information that they have the
right and power to furnish as may reasonably be necessary to defend such suit,
action, investigation, proceeding or claim, including, without limitation,
reports, studies, correspondence and other documentation relating to EPA, OSHA,
and EEOC matters.
9.6 Waiver of Contribution and Indemnification. Sellers hereby waive and
------------------------------------------
release any rights of indemnification or contribution they may have against the
Company as a result of payments made under this Article.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including the exhibits and
----------------
schedules hereto) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof, and no party shall be liable or bound
to the other in any manner by any representations or warranties not set forth
herein.
10.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, interests, or obligations hereunder may be assigned by any party hereto
without the prior written consent of all other parties hereto, and any purported
assignment in violation of this Section 10.2 shall be null and void.
10.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
10.4 Headings. Headings of the articles and sections of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
-17-
<PAGE>
10.5 Modification/Waiver. Any term or condition hereof may be waived in
-------------------
writing at any time by the party entitled to the benefits thereof, and this
Agreement may be modified or amended by a written instrument executed by Buyer,
the Company and each Seller. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
10.6 Disclosure Schedules, Etc. All exhibits and schedules annexed hereto
-------------------------
are expressly made a part of this Agreement as though fully set forth herein.
Buyer and Sellers acknowledge receipt under separate cover of all information
required under the Disclosure Schedules.
10.7 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
If to the Company or the Shareholders:
Staff Sourcing Services, Inc.
14515 Briarhills Parkway, Suite 200
Houston, Texas 77077
Attn: Don Dalbosco
If to the Buyer:
Seirios International, Inc.
16801 Addison Road
Suite 425, LB 6
Addison, Texas 75001
Attn: Byron Stuckey, President
10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, ENFORCED, AND
-------------
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO ITS
CHOICE OF LAW PRINCIPLES).
10.9 Survival of Covenants, Agreements, Representations and Warranties.
-----------------------------------------------------------------
(a) Covenants and Agreements. All covenants and agreements made
------------------------
hereunder or pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing and shall continue in full force
and effect thereafter according to their terms without limit as to duration.
(b) Representations and Warranties. All representations and warranties
------------------------------
contained herein shall survive the Closing and shall continue in full force and
effect thereafter.
10.50 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or
-18-
<PAGE>
unenforceable under present or future laws, such provision shall be fully
severable, this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of this Agreement,
and the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement.
10.6 Expenses. Sellers, on the one hand, and Buyer, on the other hand,
--------
shall be solely responsible for their respective costs and expenses incurred in
connection with the transactions contemplated hereby.
10.7 Third Party Beneficiaries. Except as otherwise specifically provided
-------------------------
in Article IX, no individual or firm, corporation, partnership or other entity
-----------
shall be a third-party beneficiary of the representations, warranties, covenants
and agreements made by any party hereto.
10.8 Number and Gender of Words. Whenever the singular number is used, the
--------------------------
same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
10.9 Further Assurances. From time to time after the Closing, at the
------------------
request of any other party but at the expense of the requesting party, Buyer,
the Company or Sellers, as the case may be, will execute and deliver any such
other instruments of conveyance, assignment and transfer, and take such other
action as the other party may reasonably request in order to consummate or
evidence the transactions contemplated hereby.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date above written.
BUYER:
SEIRIOS INTERNATIONAL, INC.
/s/ BYRON STUCKEY
By: __________________________
Byron Stuckey, President
COMPANY:
STAFF SOURCING SERVICES, INC.
By: ___________________________
Name:___________________________
Title: _________________________
THE SHAREHOLDERS
/s/ DONALD C. DALBOSCO
____________________________
Donald C. Dalbosco
/s/ JOHN H. SIMMONS
____________________________
John H. Simmons
-20-
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
Seirios International, Inc., a Nevada Corporation, ("the Employer") and
John H. Simmons ("the Employee"), for and in consideration of the following
promises, terms, provisions, covenants, conditions and statements, enter into
this Employment Agreement ("the Agreement"):
1. Employment
1.01 The Employer agrees to employ the Employee as an Executive Vice-
President of New Business and Employee agrees to work for the Employer as an
Executive Vice-President of New Business. The Employer reserves the right to
change the Employee's title.
1.02 The Employee agrees to use and to devote the Employee's full time and
best efforts to promote the Employer and its business endeavors.
1.03 The Employee shall report to such persons that the President, the
Chief Executive Officer of the Board of Directors of the Employer designates.
1.04 The Employee shall have such duties and responsibilities as the
Employer now or hereafter designates for the Employee.
2. Duration and Termination of the Agreement
2.01 The Employer and the Employee agree that the Initial Term of this
Agreement is three (3) years beginning on June 30, 1999 and ending on June 29,
2002, unless terminated sooner herein under para 2.03, 2.04 or 2.05.
2.02 On or before ninety (90) days before the end of the then current term
of this Agreement, the Employer and the Employee may execute an agreement to
extend the term of this Agreement. Any such agreement to extend the then current
term must be in writing signed by both the Employer and the Employee and must
state the duration of the Extended Term. Any oral agreement to extend the term
of this Agreement shall be null and void and may not be relied upon by
1
<PAGE>
either the Employer or the Employee. If the Employer and the Employee do not
execute an agreement that strictly conforms to this paragraph on or before
ninety (90) days prior to the end of the then current term, then this Agreement
shall terminate at the end of its then current term.
2.03 The Employer may terminate the Agreement at any time if the Employer
has good cause to do so. Good cause means: (a) after the Employer notifies the
-----
Employee in writing of a specific problem or problems in the Employee's job
performance, the Employee continues to perform (based upon an objective and
reasonable evaluation of the Employee's performance) as described in the notice
letter from the Employer for a continuous period of ten (10) days of (b) the
Employee is convicted of criminal conduct or (c) the Employee wilfully breaches
a duty assigned to the Employee by the Employer or an obligation under this
Agreement or (d) the Employee wilfully takes any action that is materially
detrimental to the best interests of the Employer (as reasonably determined in
good faith by the Employer).
2.04 The Employer may terminate the Agreement upon the incapacity of the
Employee to perform the Employee's obligations hereunder or the Employee's
assigned duties for a period of any sixty (60) days or more during a single year
period beginning on July 1 of a given year.
2.05 The Agreement shall terminate upon the Employee's death.
2.06 The Agreement may be terminated by mutual written agreement of the
Employer and the Employee.
2.07 In the event of the termination of the Agreement prior to the end of
the term described in para 2.01 - 2.02 or at the end of the term described in
para 2.01 - 2.02, the Employee shall be entitled to receive only:
2
<PAGE>
(a) the prorata compensation the Employee earned before the termination of
or the end of the Agreement, and
(b) if the termination of the Agreement is for any reason (including for
cause), and for the additional consideration of the Employee's present
sale of his stock in Staff Sourcing Services and of the post-
termination covenants and obligations in Sections 4 and 5, Inc., a
payment equal to six (6) months of the Employee's salary (calculated
based upon the Employee's annualized salary in effect under Schedule A
as of the date of termination) payable in twelve (12) equal bi-monthly
payments on the 1/st/ and 15/th/ of each month for the six (6) months
after the date of the termination of Agreement.
After the termination of this Agreement, to the maximum extent provided by law,
the Employee shall be entitled to no further compensation under this Agreement
except as provided for in this para 20.7 or otherwise in writing signed by the
Employer and the Employee.
3. Compensation
3.01 The Employer and the Employee agree that the Employee's compensation
is that set out in attached and incorporated Exhibit A.
4. Confidential Information and Trade Secrets
4.01 During the course of the Employee's employment with the Employer, the
Employer will make available to the Employee certain confidential information
and trade secrets of the Employer required for the Employee to perform the
Employee's job.
4.02 The Employee, for $3,000 and other good and valuable consideration
(the receipt of which is acknowledged by the Employee), hereby assigns to the
Employer any confidential information or trade secrets that the Employee has
previously acquired outside the employ of the Employer that relate to each job
to be performed by the Employee under this Agreement or hereafter acquires
outside the employ of the Employer that relate to each job to be performed by
the Employee under this Agreement.
3
<PAGE>
4.03 The Employer and the Employee acknowledge that any confidential
information or trade secret used by the Employee while employed by the Employer
is the exclusive property of the Employer.
4.04 The Employee further agrees that any patents, inventions or other
confidential information and trade secrets developed by the Employee while
employed by the Employer or based upon any work conducted while the Employee was
employed by the Employer shall be the sole property of the Employer. Employee
agrees to execute and deliver all applications and assignments as the Employer
deems necessary and appropriate to vest all patents, inventions and confidential
information and trade secrets developed by the Employee in the Employer.
4.05 The Employee, during the term of this Agreement and thereafter,
further agrees that the Employee will utilize any confidential information or
trade secrets of the Employer only to provide services to existing accounts,
clients and customers of the Employer or to develop new accounts, clients and
customers of the Employer. The Employee further agrees to protect the
confidential information and trade secrets of the Employer at all times.
4.06 As used in any paragraph or section of this Agreement, the phrase
confidential information or trade secrets includes any item or matter that under
the applicable law can be characterized as confidential information or a trade
secret and includes, without limitation, accounts, customers, leads, customer or
account contacts, marketing or business strategies or customer or client
preferences.
5. Covenants, Obligations and/or Duties
to Protect the Employer's Confidential Information or Trade Secrets and to
Protect the Employer's Goodwill and Ongoing Ability to Do Business
5.01 The Employer and the Employee enter into the following non-
disclosure, non-use
4
<PAGE>
non-dissemination, non-solicitation and non-contact covenants, obligations or
duties.
5.02 The Employee agrees to be bound by the following non-disclosure, non-
use, non-dissemination, non-solicitation and non-contact covenants, obligations
or duties, that these respective covenants, obligations and/or duties apply
during the term of employment and thereafter as hereafter described and that
these respective covenants, obligations and/or duties protect the Employer's
confidential information and trade secrets, enforce the Employee's obligations
regarding the Employer's confidential information and trade secrets and protect
the Employer's goodwill and ongoing ability to do business.
5.03 The Employee stipulates that the Employee's obligations, covenants
and duties hereunder are in addition to those obligations, covenants and duties
which arise otherwise hereunder, at law, in equity, by statute or otherwise.
5.04 The Employee further stipulates that the Employee's following
obligations, covenants and duties apply to, embrace and cover (a) the Employee
acting individually, (b) the Employee acting as a principal, agent, shareholder,
representative, employee or contractor of the Employer or of any other person,
corporation, partnership or entity, and/or (c) any suggested or actual, direct
or indirect act, omission or conduct wholly or partially involving the Employee,
facilitated by the Employee or by, for or through the Employee and involving
another person, corporation, partnership, or entity. The term "the Employee" as
used in para 5.05, 5.06 and 5.07 therefore includes the Employee individually
and in all stated capacities described in this paragraph.
Non-Disclosure, Non-Use and Non-Dissemination Obligation and Duty
5.05 The Employee, during the term of employment and after the termination
of the employment with or without cause:
5
<PAGE>
agrees not to directly or indirectly disclose to any other person any
confidential information or trade secrets except with the Employer's
written permission, and
agrees not to directly or indirectly use or utilize any confidential
information or trade secrets except with the Employer's written
permission.
5.06 The Employee, during the term of employment and after the termination
of employment with or without cause, agrees that the confidential information
and trade secrets are the Employer's exclusive property and are not to be
removed from the Employer's premises without the Employer's prior written
approval and further agrees that the Employee, without demand and before the
last day of employment, shall return to the Employer any and all confidential
information and trade secrets.
Non-Solicitation and Non-Contact Covenants
5.07 The Employee, during the term of employment and for a term of two (2)
years after the termination of the of the Employee's employment with or without
cause:
Agrees not to contact (for the solicitation of business) any
person, firm, corporation or entity which is a customer,
account or client of the Employer or which was a customer,
account or client of the Employer within the year prior to
termination of employment except with the Employer's written
permission, and
agrees not to solicit any person, firm, corporation or entity
which is a customer, account or client of the Employer or
which was a customer, account or client of the Employer within
the year prior to termination of employment except with the
Employer's written permission, or
agrees not to contact any present or former employee of the
Employer in any attempt to induce or attempt to induce any
present or former employee of the Employer to become an
employee, contractor, officer, partner or participant of any
other person, firm, corporation or entity.
The accounts, customers and clients referenced in para 5.07 and 5.08 cover and
embrace all of the
6
<PAGE>
Employer's accounts, customers and clients and not just those the Employee may
have been assigned to develop, service or maintain.
6. Remedies
6.01 Subject to Section 8 (Arbitration), the Employer and the Employee
agree that the Employer and the Employee have all available legal and equitable
remedies and rights to enforce this Agreement.
6.02 The Employer and the Employee further agree that the post-termination
terms, provisions, covenants, obligations, duties and conditions described in
Sections 4 or 5 survive the termination of employment regardless of how or why
such termination occurs.
6.03 The Employee agrees that a violation of the terms, provisions,
covenants, obligations, duties and conditions described in Section 4 or 5 will
give rise to the Employer's causes of action against the Employee for, among
other relief, issuance of injunctive relief, issuance of an ex parte or other
temporary restraining order, recovery of damages and recovery of attorney's
fees. The Employee further agrees that it is difficult to calculate the amount
and extent of any damages caused by any such violation and that the potential
existence of any monetary damages is not reasonably adequate or practically
efficient to protect the Employer's confidential information or trade secrets.
The Employee also agrees that any such violation threatens to injure, or
actually does injure, the Employer's property. The Employee agrees that the
Employer shall have the right to apply for and to receive an ex parte or other
temporary restraining order, a temporary or preliminary injunction or a
permanent injunction to enforce the terms, provisions, covenants, obligations,
duties and conditions described in Section 4 and 5.
6.04 The Employee agrees (a) that this Agreement entirely applies to the
full term of
7
<PAGE>
employment regardless of when it was executed, and (b) that the Employee has
sufficient employment alternatives and sufficient assets such that the Employee
does not have to engage in any conduct prohibited in Sections 4 or 5 during
employment or after the termination of employment in order to earn a living and
such that the obligations and covenants described in Sections 4 and 5 are
reasonable.
6.05 Subject to Section 8 (Arbitration) the Employer and the Employee
agree that if either the Employer or the Employee files, initiates, brings or
starts any suit, proceeding or action wholly or partially involving any claim
wholly or partially arising under the Agreement, seeking to enforce or to
construe the Agreement or relating to the employment relationship between the
Employer and the Employee, then any such suit, proceeding or action must be
brought either in Harris or Dallas County, Texas, and the prevailing party shall
be entitled to recover reasonable and necessary attorneys' fees and costs.
6.06 The Employer and the Employee also agree that, to the extent
necessary, a Court of competent jurisdiction or an arbitrator may modify the
scope, geographic and time restrictions contained in Sections 4 or 5 and/or
apply them as originally framed or as modified.
7. The Acknowledgments
7.01 Employee acknowledges that the Employee has had the opportunity to
read the Agreement, to ask questions about the Agreement and to consult with any
person, including counsel, about the Agreement.
7.02 The Employer and the Employee further acknowledge that they
understand the terms, provisions, obligations, duties and conditions contained
in the Agreement and they respectively have the power to, and do freely, enter
into the Agreement.
7.03 The Employee stipulates that the Employer is relying upon the
Employee's
8
<PAGE>
unconditional acceptance of the terms, provisions and covenants of the Agreement
and that the Employee is bound by the non-use, non-disclosure, non-
dissemination, non-solicitation, non-contact and other covenants described in
Sections 4 and 5.
8. Arbitration
8.01 Subject to para 8.02, any controversy or claim arising out of or
relating to this Agreement, to the relationship between the Employer and the
Employee or to the construction of the terms herein shall be resolved by
arbitration in accordance with the rules of the American Arbitration
Association.
8.02 The arbitration award may, as necessary, be filed with and confirmed
by a Court of competent jurisdiction. Nothing in para 8.01 shall prevent the
Employer from utilizing all forms (including, without limitation, either in the
Harris or Dallas County, Texas district courts or either in the federal district
courts in the Southern or Northern Districts of Texas) to seek emergency relief
by restraining order, injunction or otherwise to enforce any rights hereunder.
9. Other Provisions
9.01 The Employer and the Employee agree:
a. the Agreement is to be construed under the laws of the State of
Texas;
b. all obligations and promises are performable in either Harris or
Dallas County, Texas;
c. the Agreement is binding upon and inures to the benefit of the
Employer and the Employee's respective heirs, successors, executors,
administrators and legal representatives;
d. if any whole or partial term, provision, obligation, condition, duty,
word, sentence, phrase, or paragraph of the Agreement for any reason
shall be held to be invalid, unenforceable or illegal, then such
invalidity, unenforceability or illegality shall not affect the
remaining terms, provisions, obligations, conditions, duties, words,
phrases or paragraphs and the Agreement shall be construed as if the
invalid, unenforceable or illegal term, provision, obligation,
condition, duty, word, sentence, phrase or paragraph had not been
included.
9
<PAGE>
e. the Agreement contains the entire agreement between the Employer and
the Employee. Any and all oral statements, representations, promises
and comments are merged into the Agreement and may be relied upon
only to the extent they are contained in the Agreement;
----
f. the Agreement may not be modified except in a writing signed by the
Employer and the Employee. If either the Employer or the Employee
believe or assert, at any time, that the Agreement has been orally
modified or modified by conduct, notwithstanding Paragraph 9.01(e),
then any such alleged modification is not enforceable unless the
terms of any such alleged modification are reduced to a writing
signed by the Employer and the Employee within thirty (30) days of
any such alleged modification;
g. any notice or objection required or permitted under the Agreement or
relating to the employment relationship shall be given by certified,
mail, return receipt requested and sent:
To the Employer:
Address: 16801 Addison Road
Suite 425, LB6
Addison, Texas 75001
Attention: Donald C. Dalbosco, CEO, and
To the Employee:
Name: John H. Simmons
Address: _______________________________
_______________________________
These addresses shall remain the respective proper addresses unless
either the Employer or the Employee notify the other party of a
change in address pursuant to this paragraph. Any notice or change in
address shall be given (i.e. deemed delivered and received) when
written notice or change of address is placed in an envelope with
proper postage, with the proper address and with the proper certified
mail, return receipt material and when such envelope is then
deposited in the custody of the United States Postal Service or
successor;
10
<PAGE>
h. The Employee agrees to execute all other documents as are reasonably
necessary to implement the terms of this Agreement, and
i. The Agreement is effective the date of the last signature, but is
shall cover the entirety of the Employee's employment with the
Employer.
Seirios International, Inc., The The Employee
Employer
/s/ DONALD C. DALBOSCO /s/ JOHN H. SIMMONS
_________________________________ _________________________
Name: Donald C. Dalbosco Name:
Position: CEO
Date: Date:
11
<PAGE>
SCHEDULE A
1. Salary
Per Annum Rate During the Period of Minimum Leased Employees
$ 60,000 00000 - 1,999
$ 80,000 2,000 - 3,999
$100,000 4,000 - 7,799
$140,000 8,000 - 11,999
$180,000 12,000+
The Employer shall pay the Employee on the 1/st/ and 15/th/ of each month.
There, accordingly, shall be two (2) pay day periods each month: the first pay
day period beginning on the 1/st/ of each month and the second pay day period
beginning on the 15/th/ of each month. The Employee shall determine the minimum
number of leased employees as of the last business day respectively before the
1/st/ and 15/th/ of each month. That determination (based solely upon the
Employer's records which shall be conclusive) will determine, based upon the
prior table the pro rated salary for the next pay day period. For example, by
illustration only:
if the Employer determines (solely from its records) on August 31 that the
Employer has a minimum number of leased employees of 2,500, then the
Employer shall pay the Employee on September 1 a sum equal to 1/2 of a
monthly salary based upon an annualized salary of $80,000 and if the
Employer determines on September 14 (solely from its records) that the
Employer has a minimum number of leased employees of 5,000, then the
Employer shall pay the Employee on September 15 a sum equal to 1/2 of a
monthly salary based upon an annualized salary of $100,000.
2. Vacation:
14 work days/year
3. Medical and Other Insurance:
Per the Employer's Coverage in Effect (if any)
4. Bonuses:
At the Employer's Sole Discretion
5. Expenses:
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<PAGE>
a. Car Allowance - - $400/month + $.20/mile Billed Monthly with Receipts.
b. Other Expenses - Reimbursed (if at all) Per the Employer's Policies
6. Other:
a. Upon the execution of this Agreement, the Employee has the option to
purchase up to 100,000 shares of common stock of the Employer at a price of
$.20/share; provided, however, (a) that the Employee must fully exercise
this option on or before July 1, 2002, and (b) the Employee may exercise
the option through one or more purchases on or before July 1, 2002, but the
Employee must purchase no less than 20,000 shares of common stock each time
the Employee exercises the option during the option period. The issuance of
these shares shall conform to all applicable Texas and federal laws, if
any, that apply to such a stock option and to any stock buy-sell or similar
agreements. The Employer and the Employee shall execute all documents
necessary to implement this stock option if exercised by the Employee.
13
<PAGE>
EXHIBIT 10.3
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE (the "Exchange Agreement"), is made as
of March 1, 1997, by and between Exactly Sportswear, Inc., a Nevada Corporation
("ESI"), Seirios Staff Services, Inc., a Nevada corporation ("SSS") and each of
the stockholders of SSS who hereafter tender their shares for exchange as
provided herein ("SSS Stockholders"). The principal business address of SSS is
16801 Addison Road, Suite 425, Dallas, Texas 75248, and the principal business
address of ESI is One East Camelback Road, Suite 680, Phoenix, Arizona
85012-165.
The authorized capital stock of SSS consists of 50,000,000 shares of Common
Stock, par value $0.001 ("SSS Common Stock") and 5,000,000 shares of Preferred
Stock, par value $0.001, and the authorized capital stock of ESI consists of
50,000,000 shares of Common Stock, $0.001 par value (the "ESI Common Stock").
The Directors of both ESI and SSS deem it advisable and to the advantage of said
Corporations that ESI acquire SSS as a subsidiary upon the terms and conditions
provided herein.
NOW THEREFORE, the parties hereby adopt the plan of reorganization
encompassed by this Exchange Agreement and hereby agree that ESI shall acquire
SSS as a subsidiary on the following terms, conditions and other provisions.
1. Terms and Conditions.
1.1 Exchange. Pursuant to this Agreement, all issued and outstanding
shares of SSS Common Stock are being transferred and assigned to ESI in exchange
for ESI capital stock as follows:
(a) The SSS Stockholders listed on Exhibit A attached hereto shall
transfer and assign to ESI SSS Common Stock in exchange for ESI Common Stock at
the rate of one share of SSS Common Stock for three fully paid and nonassessable
shares of ESI Common Stock, or a total of 12,800,000 shares of SSS Common Stock
for 38,400,000 shares of ESI Common Stock.
(b) Within 20 days following the completion of the exchange described in
paragraph 1.1(a) above, ESI shall take all action required by law, its articles
of incorporation, and its bylaws to effect the following actions:
(i) To effect a three-to-one reverse split in the issued and
outstanding ESI Common Stock;
(ii) Amend the Articles of Incorporation of ESI by striking Article
One in its entirety and replacing therefor:
ARTICLE ONE. (NAME). The name of the corporation is:
------------
Seirios International, Inc.
<PAGE>
(iii) Amend the Articles of Incorporation of ESI by striking Article
Four in its entirety and replacing therefor:
ARTICLE FOUR. (CAPITAL STOCK)
-------------
1. Shares, Classes and Series Authorized. The total number of shares
of all classes of capital stock which the corporation shall have authority
to issue is 55,000,000 shares. Stockholders shall not have any preemptive
rights, nor shall stockholders have the right to cumulative voting in the
election of Directors or for any other purpose. The classes and the
aggregate number of shares of stock of each class which the Corporation
shall have authority to issue are as follows:
(a) 50,000,000 shares of common stock, $0.001 par value ("Common Stock")
(b) 5,000,000 shares of preferred stock, $0.001 par value ("Preferred
Stock").
2. Powers and Rights of the Preferred Stock. The Preferred Stock may
be issued from time to time in one or more series, with such distinctive
serial designations as may be stated or expressed in the resolution or
resolutions providing for the issue of such stock adopted from time to time
by the Board of Directors, and in such resolution or resolutions providing
for the issuance of shares of each particular series, the Board of
Directors is also expressly authorized to fix: the right to vote, if any;
the consideration for which the shares of such series are to be issued; the
number of shares constituting such series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but not
below the number of shares thereof then outstanding) from time to time by
action of the Board of Directors; the rate of dividends upon which and the
times at which dividends on shares of such series shall be payable and the
preference, if any, which such dividends shall have relative to dividends
on shares of any other class or classes or any other series of stock of the
Corporation; whether such dividends shall be cumulative or noncumulative,
and if cumulative, the date or dates from which dividends on shares of such
series shall be cumulative; the rights, if any, which the holders of shares
of such series shall have in the event of any voluntary or involuntary
liquidation, merger, consolidation, distribution or sale of assets,
dissolution or winding up of the affairs of the Corporation, the rights, if
any, which the holders of shares of such series that shall have to convert
such shares into or exchange such shares for shares of any other class or
classes or any other series of stock of the Corporation or for any debt
securities of the Corporation and the terms and conditions, including price
and rate of exchange, of such conversion or exchange; whether shares of
such series shall be subject to redemption, and the redemption price or
prices and other terms of redemption, if any, for shares of such series
including, without limitation, a redemption price or prices payable in
shares of Common Stock; the terms and amounts of any sinking fund for the
purchase or redemption of shares of such series; and any and all other
designations, preferences, and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof
pertaining to shares of such series' permitted by law.
<PAGE>
3. Issuance of the Common Stock and the Preferred Stock. The Board
of Directors of the Corporation may from time to time authorize by
resolution the issuance of any or all shares of the Common Stock and the
Preferred Stock herein authorized in accordance with the terms and
conditions set forth in these Articles of Incorporation for such purposes
in such amounts, to such persons, corporations or entities, for such
consideration, and in the case of the Preferred Stock, in one or more
series, all as the Board of Directors in its discretion may determine and
without any vote or other action by the Stockholders, except as otherwise
required by law. The capital stock, after the amount of the subscription
price, or par value, has been paid in shall not be subject to assessment to
pay the debts of the Corporation.
(iv) Amend the Articles of Incorporation of ESI by the addition of
Article Twelve as follows:
ARTICLE TWELVE. (OFFICER AND DIRECTOR LIABILITY). To the fullest
------------------------------------------------
extent that the Nevada Revised Statutes exist on the date hereof or as
they may hereafter be amended permits the limitation or elimination of the
liability of Directors and Officers, no Director or Officer of the
Corporation shall be liable to the Corporation or its Stockholders for
monetary damages for breach of fiduciary duty as a Director or Officer. No
amendment to these Articles of Incorporation, directly or indirectly by
merger, consolidation, or otherwise, having the effect of amending or
repealing any of the provisions of this Article Twelve shall apply to have
any effect on the liability or alleged liability of any Director or
Officer of the Corporation for or with respect to any acts or omissions of
such Director or Officer occurring prior to such amendment or repeal,
unless such amendment shall have the effect of further limiting or
eliminating such liability.
(v) Amend the Articles of Incorporation of ESI by the addition of
Article Thirteen as follows:
ARTICLE THIRTEEN. (CONTROLLING INTEREST/ INTERESTED STOCKHOLDERS).
----------------
The Corporation elects not to be governed by the terms and provisions of
Sections 78.378 through 78.3793, inclusive, and Sections 78.411 through
78.444, inclusive, of the Nevada Revised Statutes, as the same may be
amended, superseded, or replaced by any successor section, statute, or
provision. No amendment to these Articles of Incorporation, directly or
indirectly, by merger or consolidation or otherwise, having the effect of
amending or repealing any of the provisions of this Article Thirteen shall
apply to or have any effect on any transaction involving acquisition of
control by any person or any transaction with an interested stockholder
occurring prior to such amendment or repeal.
(c) Within 20 days following the completion of the actions described in
paragraph 1.1(b). above, the SSS Stockholders listed on Exhibit B attached
hereto shall transfer and assign to ESI SSS Common Stock in exchange for ESI
non-voting convertible preferred stock ("ESI Preferred Stock"), at the rate of
20,000 shares of SSS Common Stock for one fully paid and nonassessable share of
ESI Preferred
<PAGE>
Stock, or a total of 1,240,000 shares of SSS Common Stock for 62 shares of ESI
Common Stock.
2. Additional Covenants.
2.1 Directors. Immediately upon the completion of the actions described in
paragraph 1.1(a), above, each of the Directors of ESI shall resign in favor of
the appointment of a new Director designated by SSS, and the Board of Directors
of ESI will take all corporate action required to effect the change in the
membership of the Board of Directors to the designees of SSS.
2.2 Options and Warrants. Within 20 days following the completion of the
actions described in paragraph 1.1(b), above, ESI will take all action required
to adopt, assume, and continue the stock option plan of SSS and any successor
plan or plans, the outstanding and unexercised portions of all options to buy
SSS Common Stock shall become options for the proportionate number of shares of
ESI Common Stock with no other changes in the terms and conditions of such
options, including exercise prices.
2.3 Amendment. At any time prior to the completion of the actions
described in paragraph 1.1(a), above, this Exchange Agreement may be amended in
any manner as may be determined in the judgment of the respective Boards of
Directors of SSS and ESI to be necessary, desirable or expedient in order to
clarify the intention of the parties hereto or to effect or facilitate the
purpose and intent of this Exchange Agreement.
2.4 Abandonment. At any time prior to the completion of the actions
described in paragraph 1.1(a), above, this Exchange Agreement may be terminated
and the exchange may be abandoned by the Board of Directors of SSS or ESI.
2.5 Reverse Splits. For a period of two years following the completion of
the actions described in paragraph 1.1(a), above, neither ESI nor any of its
successors shall effect a reverse split in the issued and outstanding common
stock of ESI; provided, that this restriction shall not apply from and after the
date on which any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), (other than
ESI, a majority-owned subsidiary of ES, an affiliate of ESI within the meaning
of the Exchange Act, or an employee benefit plan of ESI, including any trustee
of such plan acting as trustee), is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
ESI (or a successor to ESI) representing 60% or more of the combined voting
power of the then outstanding securities of ESI or such successor.
2.6 SSS Status and Approval. As an inducement to, and to obtain the
reliance of ESI, SSS represents and warrants as follows:
(a) SSS is a corporation duly organized and validly existing under the
laws of the state of Nevada. The execution and delivery of this Exchange
Agreement does not, and the consummation of the transactions contemplated by
this Exchange Agreement in accordance with the terms hereof will not: violate
any provision of the Articles of Incorporation, Charter or Bylaws of SSS, result
in the breach of, constitute a default under, result in the acceleration of,
create in any person the right to accelerate, terminate, modify, cancel, or
require any notice
<PAGE>
under, any material agreement, contract, lease, license, instrument, or other
arrangement to which SSS is a party or by which it is bound or to which any of
its assets is subject, or, violate any statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court of which SSS has knowledge and to which it is
subject, the result of which would have a material adverse effect on the
proposed business operations, assets, or financial condition of SSS.
(b) SSS has full power and authority, and has taken all action required by
law, its Articles of Incorporation and Bylaws, and otherwise to execute and
deliver this Exchange Agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the Board of Directors of SSS
has duly authorized the execution, delivery, and performance of this Exchange
Agreement by SSS. This Exchange Agreement represents the valid and binding
obligation of SSS enforceable in accordance with its terms.
2.7 ESI Status and Approval. As an inducement to, and to obtain the
reliance of SSS, ESI represents and warrants as follows:
(a) ESI is a corporation duly organized and validly existing under the
laws of the state of Nevada. The execution and delivery of this Exchange
Agreement does not, and the consummation of the transactions contemplated by
this Exchange Agreement in accordance with the terms hereof will not: violate
any provision of the Articles of Incorporation, Charter or Bylaws of SSS, result
in the breach of, constitute a default under, result in the acceleration of,
create in any person the right to accelerate, terminate, modify, cancel, or
require any notice under, any material agreement, contract, lease, license,
instrument, or other arrangement to which ESI is a party or by which it is bound
or to which any of its assets is subject, or, violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court of which ESI has knowledge and
to which it is subject, the result of which would have a material adverse effect
on the proposed business operations, assets, or financial condition of ESI.
(c) ESI has full power and authority, and has taken all action required by
law, its Articles of Incorporation and Bylaws, and otherwise to execute and
deliver this Exchange Agreement and to perform its obligations hereunder.
Without limiting the generality of the foregoing, the Board of Directors of ESI
has duly authorized the execution, delivery, and performance of this Exchange
Agreement by ESI. This Exchange Agreement represents the valid and binding
obligation of ESI enforceable in accordance with its terms.
2.7 Governing Law. This Exchange Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
<PAGE>
IN WITNESS WHEREOF, this Exchange Agreement has been signed as of the date
first-above written for and on behalf of the Corporate parties hereto by the
undersigned thereunto duly authorized.
SEIRIOS STAFF SERVICES, INC. EXACTLY SPORTSWEAR, INC.
/s/ BYRON STUCKEY /s/ CURTIS M. JAMISON
By:____________________________ By:________________________________
Byron Stuckey, President Curtis M. Jamison, President
<PAGE>
EXHIBIT 10.4
Appendix A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), is made as of
March 12, 1997, by and between Seirios Staff Services, Inc., a Nevada
Corporation ("SSS"), and Exactly Sportswear, Inc. a Nevada Corporation ("ESI").
ESI is hereinafter sometimes referred to as the "Surviving Corporation", and
together with SSS are referred to as the "Constituent Corporations". The
principal business address of SSS is 16801 Addison Road, Suite 425, Dallas,
Texas, 75248, and the principal business address of ESI is One East Camelback
Road, Suite 680, Phoenix, Arizona 85012-1651.
The authorized capital stock of SSS consist of 50,000,000 shares of Common
Stock, par value $0.001 ("SSS Common Stock") and 5,000,000 shares of Preferred
Stock, par value $0.001, and the authorized capital stock of ESI consists of
50,000,000 shares of Common Stock, $0.001 par value "the "ESI Common Stock").
The Directors of the Constituent Corporations deem it advisable and to the
advantage of said Corporations that SSS merge into ESI upon the terms and
conditions provided herein.
NOW, THEREFORE, the parties hereby adopt the plan of reorganization
encompassed by this Merger Agreement and hereby agree that SSS shall merge into
ESI on the following terms, conditions and other provisions:
1. Terms and Conditions.
1.1 Merger. SSS shall be merged with and into ESI, which shall be the
surviving corporation effective at the date when this Merger Agreement is filed
as part of the required Articles of Merger with the Secretary of State of the
state of Nevada (the "Effective Date").
1.2 Succession. On the Effective Date, ESI shall succeed to all of the
rights, privileges, powers, immunities and franchises and all the property,
real, personal and mixed of SSS, without the necessity for any separate
transfer. ESI shall thereafter be responsible and liable for all liabilities and
obligations of SSS, and neither the rights of creditors nor any liens on the
property of SSS shall be impaired by the merger.
1.3 Common Stock of SSS and ESI. Upon the Effective Date, by virtue of the
merger and without any further action on the part of the Constituent
Corporations or their stockholders: (I) each share of SSS Common Stock issued
and outstanding immediately prior to the Effective Date shall be changed and
converted into and become one fully paid and nonassessable share of ESI Common
Stock; and (ii) every three shares of ESI Common Stock issued and outstanding
immediately prior to the Effective Date shall be changed and converted into and
become one fully paid and nonassessable share of ESI Common Stock. If as a
result of the foregoing conversion any stockholder of the Constituent
Corporations would be entitled to receive a fractional share of ESI Common Stock
upon the Effective Date, the number of shares of
<PAGE>
ESI Common Stock issuable to such stockholder or stockholders shall be rounded
up to the nearest whole share.
1.4 Stock Certificates. On and after the Effective Date, all of the
outstanding certificates that prior to that time represented shares of SSS
Common Stock shall be deemed for all purposes to evidence ownership of and to
represent the shares of ESI Common Stock into which the shares of SSS
represented by such certificates have been converted as provided in clause
1.3(i), above, and shall be so registered on the books and records of ESI or its
transfer agent, and all of the outstanding certificates that prior to the
Effective Date represented shares of ESI Common Stock shall be deemed for all
purposes to evidence ownership of and to represent the shares of ESI Common
Stock into which the shares represented by such certificates have been converted
as provided in clause 1.3(ii), above, and shall be so registered on the books
and records of ESI or its transfer agent. The registered owner of any such
outstanding stock certificate shall, until such certificate shall have been
surrendered for transfer or conversion or otherwise accounted for to ESI or its
transfer agents, have and be entitled to exercise any voting and other rights
with respect to and to receive any dividend and other distributions upon the
shares of ESI evidenced by such outstanding certificate as provided above.
1.5 Options and Warrants. On the Effective Date, ESI will assume and
continue the stock option plan of SSS and any successor plan or plans, the
outstanding and unexercised portions of all options to buy SSS Common Stock
shall become options for the proportionate number of shares of ESI Common Stock
with no other changes in the terms and conditions of such options, including
exercise prices, and effective upon the Effective Date, ESI hereby assumes the
outstanding and unexercised portions of such options and the obligations of SSS
with respect thereto.
1.6 Acts, Plans, Policies, Agreements, Etc. All Corporate acts, plans,
policies, agreements, arrangements, approvals and authorizations of SSS, its
stockholders, Board of Directors and committees thereof, Officers and agents
which were valid and effective immediately prior to the Effective Date, shall be
taken for all purposes as the acts, plans, policies, agreements, arrangements,
approvals and authorizations of ESI and shall be as effective and binding
thereon as the same were with respect to SSS.
2. Charter Documents, Directors and Officers
2.1 Articles of Incorporation. The Articles of Incorporation, as amended,
of ESI as in effect immediately prior to the Effective Date shall remain the
Articles of Incorporation of ESI after the Effective Date; provided, that said
Articles of Incorporation shall be amended as follows:
Amendment 1. The Articles of Incorporation of the Corporation are amended by
striking Article One in its entirety and replacing therefor:
ARTICLE ONE. (NAME). The name of the corporation is:
------------
Seirios Staff Services, Inc.
<PAGE>
Amendment 2. The Articles of Incorporation of the Corporation are amended by
striking Article Four in its entirety and replacing therefor:
ARTICLE FOUR. (CAPITAL STOCK).
-------------
1. Shares, classes and Series Authorized. The total number of shares
of all classes of capital stock which the Corporation shall have authority
to issue is 55,000,000 shares. Stockholders shall not have any preemptive
rights, nor shall Stockholders have the right to cumulative voting in the
election of Directors or for any other purpose. The classes and the
aggregate number of shares of stock of each class which the Corporation
shall have authority to issue are as follows:
(a) 50,000,000 shares of common stock, $0.001 par value ("Common Stock")
(b) 5,000,000 shares of preferred stock, $0.001 par value ("Preferred
Stock").
2. Powers and Rights of the Preferred Stock. The Preferred Stock may
be issued from time to time in one or more series, with such distinctive
serial designations as may be stated or expressed in the resolution or
resolutions providing for the issue of such stock adopted from time to time
by the Board of Directors, and in such resolution or resolutions providing
for the issuance of shares of each particular series, the Board of
Directors is also expressly authorized to fix: the right to vote, if any;
the consideration for which the shares of such series are to be issued; the
number of shares constituting such series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but not
below the number of shares thereof then outstanding) from time to time by
action of the Board of Directors; the rate of dividends upon which and the
times at which dividends on shares of such series shall be payable and the
preference, if any, which such dividends shall have relative to dividends
on shares of any other class or classes or any other series of stock of the
Corporation; whether such dividends shall be cumulative or noncumulative,
and if cumulative, the date or dates from which dividends on shares of such
series shall be cumulative; the rights, if any, which the holders of shares
of such series shall have in the event of any voluntary or involuntary
liquidation, merger, consolidation, distribution or sale of assets,
dissolution or winding up of the affairs of the Corporation, the rights, if
any, which the holders of shares of such series that shall have to convert
such shares into or exchange such shares for shares of any other class or
classes or any other series of stock of the Corporation or for any debt
securities of the Corporation and the terms and conditions, including price
and rate of exchange, of such conversion or exchange; whether shares of
such series shall be subject to redemption, and the redemption price or
prices and other terms of redemption, if any, for shares of such series
including, without limitation, a redemption price or prices payable in
shares of Common Stock; the terms and amounts of any sinking fund for the
purchase or redemption of shares of such series; and any and all other
designations, preferences, and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof
pertaining to shares of such series' permitted by law.
<PAGE>
3. Issuance of the Common Stock and the Preferred Stock. The Board of
Directors of the Corporation may from time to time authorize by resolution
the issuance of any or all shares of the Common Stock and the Preferred
Stock herein authorized in accordance with the terms and conditions set
forth in these Articles of Incorporation for such purposes in such amounts,
to such persons, corporations or entities, for such consideration, and in
the case of the Preferred Stock, in one or more series, all as the Board of
Directors in its discretion may determine and without any vote or other
action by the Stockholders, except as otherwise required by law. The
capital stock, after the amount of the subscription price, or par value,
has been paid in shall not be subject to assessment to pay the debts of the
Corporation.
Amendment 3. The Articles of Incorporation are amended by the addition of
Article Twelve as follows:
ARTICLE TWELVE. (OFFICER AND DIRECTOR LIABILITY). To the fullest
------------------------------------------------
extent that the Nevada Revised Statutes exist on the date hereof or as they
may hereafter be amended permits the limitation or elimination of the
liability of Directors and Officers, no Director or Officer of the
Corporation shall be liable to the Corporation or its Stockholders for
monetary damages for breach of fiduciary duty as a Director or Officer. No
amendment to these Articles of Incorporation, directly or indirectly by
merger, consolidation, or otherwise, having the effect of amending or
repealing any of the provisions of this Article Twelve shall apply to have
any effect on the liability or alleged liability of any Director or Officer
of the Corporation for or with respect to any acts or omissions of such
Director or Officer occurring prior to such amendment or repeal, unless
such amendment shall have the effect of further limiting or eliminating
such liability.
Amendment 4. the Articles of Incorporation of the Corporation are amended by
the addition of Article Thirteen as follows:
ARTICLE THIRTEEN. (CONTROLLING INTEREST/ INTERESTED STOCKHOLDERS).
----------------
The Corporation elects not to be governed by the terms and provisions of
Sections 78.378 through 78.3793, inclusive, and Sections 78.411 through
78.444, inclusive, of the Nevada Revised Statutes, as the same may be
amended, superseded, or replaced by any successor section, statute, or
provision. No amendment to these Articles of Incorporation, directly or
indirectly, by merger or consolidation or otherwise, having the effect of
amending or repealing any of the provisions of this Article Thirteen shall
apply to or have any effect on any transaction involving acquisition of
control by any person or any transaction with an interested stockholder
occurring prior to such amendment or repeal.
2.2 Bylaws. The Bylaws of ESI as in effect immediately prior to the
Effective Date shall remain the Bylaws of ESI after the Effective Date.
<PAGE>
2.3 Directors and Officers. On the Effective Date, the Board of Directors
of ESI will consist of the members of the Board of Directors of SSS immediately
prior to the Merger. The individuals serving as executive officers of SSS
immediately prior to the Merger will serve as executive Officers of ESI upon the
effectiveness of the Merger.
3. Miscellaneous
3.1 Further Assurances. From time to time, and when required by ESI or by
its successors and assigns, there shall be executed and delivered on behalf of
SSS such deeds and other instruments, and there shall be taken or caused to be
taken by it such further and other action, as shall be appropriate and necessary
in order to vest or perfect, or to conform of record or otherwise, in ESI the
title to and possession of all the property, intents, assets, rights,
privileges, immunities, powers, franchises and authority of SSS and otherwise to
carry out the purposes of this Merger Agreement, and the Directors and Officers
of SSS are fully authorized in the name and on behalf of SSS or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
3.2 Amendment. At any time before or after approval by the stockholders of
SSS and ESI, this Merger Agreement may be amended in any manner (except that any
of the principal terms may not be amended without the approval of the
stockholders of SSS and ESI) as may be determined in the judgment of the
respective Boards of Directors of SSS and ESI to be necessary, desirable or
expedient in order to clarify the intention of the parties hereto or to effect
or facilitate the purpose and intent of this Merger Agreement.
3.3 Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the merger may be abandoned by the Boards of
Directors of SSS or ESI notwithstanding the approval of this Merger Agreement by
the stockholders of SSS or ESI, or the consummation of the merger may be
deferred for a reasonable period if, in the opinion of the Board of Directors of
SSS or ESI, such action would be in the best interests of the Constituent
Corporations.
3.4 Reverse Splits. For a period of two years following the completion of
the actions described in paragraph 1.1(a), above, neither ESI nor any of its
successors shall effect a reverse split in the issued and outstanding common
stock of ESI; provided, that this restriction shall not apply from and after the
date on which any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), (other than
ESI, a majority-owned subsidiary of ES, an affiliate of ESI within the meaning
of the Exchange Act, or an employee benefit plan of ESI, including any trustee
of such plan acting as trustee), is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
ESI (or a successor to ESI) representing 60% or more of the combined voting
power of the then outstanding securities of ESI or such successor.
3.4 SSS Status and Approval. As an inducement to, and to obtain the
reliance of, ESI, SSS represents and warrants as follows:
<PAGE>
(a) SSS is a corporation duly organized and validly existing under the
laws of the state of Nevada. The execution and delivery of this Exchange
Agreement does not, and the consummation of the transactions contemplated by
this Exchange Agreement in accordance with the terms hereof will not: violate
any provision of the Articles of Incorporation, Charter or Bylaws of SSS, result
in the breach of, constitute a default under, result in the acceleration of,
create in any person the right to accelerate, terminate, modify, cancel, or
require any notice under, any material agreement, contract, lease, license,
instrument, or other arrangement to which SSS is a party or by which it is bound
or to which any of its assets is subject, or, violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court of which SSS has knowledge and
to which it is subject, the result of which would have a material adverse effect
on the proposed business operations, assets, or financial condition of SSS.
(b) Subject to obtaining stockholder approval of this Merger Agreement as
required by Nevada Revised Statutes, SSS has full power and authority, and has
taken all action required by law, its Articles of Incorporation and Bylaws, and
otherwise to execute and deliver this Merger Agreement and to perform its
obligations hereunder. Without limiting the generality of the foregoing, the
Board of Directors of SSS has duly authorized the execution, delivery, and
performance of this Merger Agreement by SSS. This Merger Agreement represents
the valid and binding obligation of SSS enforceable in accordance with its
terms.
3.6 ESI Status and Approval. As an inducement to, and to obtain the
reliance of SSS, ESI represents and warrants as follows:
(a) ESI is a corporation duly organized and validly existing under the
laws of the state of Nevada. The execution and delivery of this Exchange
Agreement does not, and the consummation of the transactions contemplated by
this Exchange Agreement in accordance with the terms hereof will not: violate
any provision of the Articles of Incorporation, Charter or Bylaws of SSS, result
in the breach of, constitute a default under, result in the acceleration of,
create in any person the right to accelerate, terminate, modify, cancel, or
require any notice under, any material agreement, contract, lease, license,
instrument, or other arrangement to which ESI is a party or by which it is bound
or to which any of its assets is subject, or, violate any statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court of which ESI has knowledge and
to which it is subject, the result of which would have a material adverse effect
on the proposed business operations, assets, or financial condition of ESI.
(c) Subject to obtaining stockholder approval of this Merger Agreement as
required by the Nevada Revised Statutes, ESI has full power and authority, and
has taken all action required by law, its Articles of Incorporation and Bylaws,
and otherwise to execute and deliver this Merger Agreement and to perform its
obligations hereunder. Without limiting the generality of the foregoing, the
Board of Directors of ESI has duly authorized the execution, delivery, and
performance of this Merger Agreement by ESI. This Merger Agreement represents
the valid and binding obligation of ESI enforceable in accordance with its
terms.
3.7 Governing Law. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
<PAGE>
IN WITNESS WHEREOF, This Merger Agreement has been signed as of the date
first-above written for and on behalf of the Corporate parties hereto by the
undersigned thereunto duly authorized.
SEIRIOS STAFF SERVICES, INC. EXACTLY SPORTSWEAR, INC.
/s/ BYRON STUCKEY /s/ CURTIS M. JAMISON
By:___________________________ By:_______________________________
Byron Stuckey, President Curtis M. Jamison, President
<PAGE>
EXHIBIT 10.5
ARTICLES OF EXCHANGE
THESE ARTICLES OF EXCHANGE are made by and between EXACTLY SPORTSWEAR,
INC., a Nevada Corporation ("ESI"), and SEIRIOS STAFF SERVICES, INC., a Nevada
Corporation ("SSS"), both governed by Chapters 78 and 92A of the Nevada Revised
Statutes.
ARTICLE I. PLAN OF EXCHANGE
Pursuant to these Articles of Exchange, all of the ownership interest of
SSS is hereby acquired by ESI in exchange for ESI capital stock. The terms and
conditions of the exchange are set forth in the Agreement and Plan of Exchange
between ESI and SSS dated March 12, 1997 ("Plan of Exchange"). A complete and
executed copy of the Agreement and Plan of Exchange is on file at the principle
business office of ESI and SSS, which is 16801 Addison Road, Suite 425, Dallas,
TX 75248.
ARTICLE II. DIRECTOR APPROVAL
The plan of Exchange has been duly adopted and approved by the Boards of
Directors of ESI and SSS in accordance with the laws of the State of Nevada.
ARTICLE III. STOCKHOLDER APPROVAL.
ESI has authorized 50,000,000 shares of common stock, par value $0.01 per
share (the "ESI Common Stock"), of which 3,930,000 shares are issued and
outstanding and entitled to vote on the merger. Of the issued and outstanding
ESI Common Stock, 2,162,381 shares were voted for approval of the Plan of
Exchange by written consent and no shares were voted against approval of the
Plan of Exchange. The number of votes cast for approval of the Plan of Exchange
by each class and series of the capital stock of ESI was sufficient for approval
by the owners of each such class and series.
SSS has authorized 50,000,000 shares of common stock, par value $0.001 per
share (the "SSS Common Stock") of which 13,952,000 shares are issued and
outstanding, and the 5,000,000 shares of preferred stock, par value $0.001 per
share, of which no shares are issued and outstanding. Of the issued and
outstanding SSS Common Stock 7,253,500 shares were voted for approval of the
Plan of Exchange by written consent and no shares were voted against approval of
the Plan of Exchange. The number of votes cast for approval of the Plan of
Exchange by each class and series of the capital stock of SSS was sufficient for
approval by the owners of each such class and series.
<PAGE>
IN WITNESS WHEREOF, the Exactly Sportswear, Inc., acting through its
President and Secretary, has executed these Articles of Exchange as of the
14/th/ day of March, 1997.
EXACTLY SPORTSWEAR, INC.
ATTEST:
/s/ STEVE LOPEZ /s/ CURTIS M. JAMISON
_______________________________ By:____________________________________
Steve Lopez, Secretary Curtis M. Jamison, President
STATE OF ARIZONA
COUNTY OF MARICOPA
I, Lorita R. Chittenden a notary public, hereby certify
----------------------------------------------
that on the 14/th/ day of March, 1997, appeared before me Curtis M. Jamison,
personally known to me to be the President of Exactly Sportswear, Inc. and, who
being by me first duly sworn, declared and acknowledged that he is the person
who signed the foregoing document as the President of the aforementioned
Corporation and that the statements therein contained are true.
(Seal)
/s/ LORITA A. CHITTENDEN
_______________________________________
Lorita A. Chittenden
STATE OF NEVADA
COUNTY OF CLARK
I, Rebecca Hoelzle , a notary public, hereby certify that
--------------------------------------
on the 17th day of March, 1997, appeared before me Steve Lopez, personally known
to me to be the Secretary of Exactly Sportswear, Inc. and who being by me first
duly sworn, severally declared and acknowledged that he is the person who signed
the foregoing document as the Secretary of the aforementioned Corporation and
that the statements therein contained are true.
/s/ REBECCA HOELZLE
_______________________________________
Rebecca Hoelzle
(Seal)
<PAGE>
IN WITNESS WHEREOF, the Seirios Staff Services, Inc., acting through its
President and Secretary, has executed these Articles of Exchange as of the
21/st/ day of March, 1997.
SEIRIOS STAFF SERVICES, INC
ATTEST:
/s/ LOGAN GARRETT /s/ BYRON STUCKEY
_______________________________ By:_____________________________
Logan Garrett, Secretary Byron Stuckey, President
STATE OF TEXAS
COUNTY OF DALLAS
I, Robbie Hall , a notary public,
--------------------------------------------------
hereby certify that on the 21/st/ day of March, 1997, appeared before me Byron
Stuckey and Logan Garrett, personally known to me to be the President and
Secretary, respectively, of Seirios Staff Services, Inc., and, who being by me
first duly sworn, severally declared and acknowledged that they are the persons
who signed the foregoing document as the President and Secretary, respectively,
of the afore-mentioned Corporation and that the statements therein contained are
true.
/s/ ROBBIE HALL
_________________________________
Robbie Hall, Notary Public
(Seal)
<PAGE>
EXHIBIT 10.6
ARTICLES OF INCORPORATION
OF
COMBINED STAFFING SERVICES, INC.
FIRST. The name of the corporation is Combined Staffing Services, Inc.
SECOND. Its registered office in the State of Nevada is located at One East
First Street, Reno, Nevada 89501. The name of its resident agent at that address
if The Corporation Trust Company of Nevada.
THIRD. The total number of shares which the corporation is authorized to
issue is One Hundred Thousand (100,000) of the par value of ten cents ($0.10)
each.
FOURTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the bylaws of this corporation.
The names and addresses of the first board of directors, which shall be one
(1) in number, are as follows:
NAME ADDRESS
---- -------
Jan Edwards 16801 Addison Road
Suite 310
Dallas, Texas 75248
ARTICLES OF INCORPORATION OF
COMBINED STAFFING SERVICES, INC.--Page 1
<PAGE>
FIFTH. The name and address of the incorporator signing the articles of
incorporation is as follows:
NAME ADDRESS
---- -------
Richard P. Bobowski 570 Preston Commons West
8117 Preston Road
Dallas, Texas 75225
SIXTH. At all elections of directors of the corporation, each holder of
stock possessing voting power is entitled to as many votes as equal the number
of his shares multiplied by the number of directors to be elected, and he may
cast all of his votes for a single director or may distribute them among the
number to be voted for or any two or more of them, as he may see fit.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Nevada, does make and file thee articles of incorporation, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this _____ day of March, 1995.
/s/ RICHARD P. BOBOWSKI
_____________________________
Richard P. Bobowski
ARTICLES OF INCORPORATION OF
COMBINED STAFFING SERVICES, INC.--Page 2
<PAGE>
EXHIBIT 10.7
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF COMBINED STAFFING SERVICES, INC.
Pursuant to the provisions of Sections 78.385 and 78.390 of the Nevada
Revised Statutes, the undersigned certifies and acknowledges the following:
1. My name is Byron Stuckey. I am the President of Combined Staffing
Services, Inc. (the "Corporation").
2. The Board of Directors of the Corporation adopted the following
resolutions setting forth a proposed amendments to the Articles of Incorporation
of the Corporation, declaring its advisability, and calling a special meeting of
the stockholders entitled to vote and requesting a consent resolution to
consider the following amendments:
RESOLVED, that the following amendment to the Articles of
Incorporation of the Corporation be proposed to the stockholders of the
Corporation entitled to vote, for their consideration:
The FIRST paragraph of the Articles of Incorporation shall be
amended To read as follows:
FIRST. The name of the corporation shall be SEIRIOS STAFF
SERVICES, INC.
Certificate of Amendment to the
Articles of Incorporation of Combined Staffing Services, Inc. Page 1
1
<PAGE>
Exhibit 21 -- Subsidiaries
Seirios Staff Services, Inc.
Seirios Staff Services of Arkansas, Inc.
Staff Sourcing Services, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEIRIOS
INTERNATIONAL, INC. & SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1996 APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998 MAR-31-1999
<CASH> 93,272 130,793 139,155
<SECURITIES> 0 37,000 500
<RECEIVABLES> 8,247 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 482,944 686,597 774,065
<PP&E> 64,466 65,104 110,406
<DEPRECIATION> 9,574 19,723 44,160
<TOTAL-ASSETS> 583,211 781,977 840,311
<CURRENT-LIABILITIES> 498,544 1,017,244 1,166,454
<BONDS> 0 0 0
0 0 0
0 0 2,498
<COMMON> 3,930 17,384 20,334
<OTHER-SE> 993,940 1,291,661 1,944,649
<TOTAL-LIABILITY-AND-EQUITY> 583,211 781,977 840,311
<SALES> 12,284,578 17,597,003 19,428,620
<TOTAL-REVENUES> 12,284,578 17,597,003 19,428,620
<CGS> 11,741,195 16,994,185 18,727,352
<TOTAL-COSTS> 543,383 602,818 701,268
<OTHER-EXPENSES> 968,154 1,397,905 1,103,989
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 11,489 9,649 24,977
<INCOME-PRETAX> (436,260) (804,736) (415,830)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (436,260) (804,736) (415,830)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (436,260) (804,736) (415,830)
<EPS-BASIC> (.02) (.05) (.02)
<EPS-DILUTED> 0 0 0
</TABLE>
