KELLYS COFFEE GROUP INC
DEF 14A, 2000-08-17
BLANK CHECKS
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  SCHEDULE 14A

                                 PROXY STATEMENT

                             PURSUANT TO SECTION 14A
                                     of the
                         SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]       Filed by a Party other than the Registrant [ ]

Check the appropriate box:

     [ ]  Preliminary Proxy Statement
     [ ]  Confidential,  for Use of the Commission Only [as permitted by Rule
             14a-6(e)(2)]
     [X]  Definitive Proxy Statement
     [ ]  Definitive Additional Materials
     [ ]  Soliciting Material Pursuant to Section 240.14a-12

                           KELLY'S COFFEE GROUP, INC.
                           --------------------------
                (Name of Registrant as Specified in its Charter)

                                       N/A
                -------------------------------------------------
      (Name of Person(s) Filing Proxy Statement, if other than Registrant)


================================================================================


Payment of Filing Fee (Check the appropriate box):

     [ ]  No fee required.

     [ ]  Fee computed on table below per Exchange Act Rules  14a-6(i)(4)  and
          0-11.

          1)   Title of each class of securities to which transaction applies:

          2)   Aggregate number of securities to which transaction applies:

          3)   Per unit price or other underlying value of transaction  computed
               pursuant to Exchange Act Rule 0-11 (set forth the amount on which
               the filing fee is calculated and state how it was determined):

          4)   Proposed maximum aggregate value of transaction: 0

          5)   Total fee paid: $125.00

     [X]  Fee paid previously with preliminary materials.

     [ ]  Check box if any part of the fee is offset as  provided  by Exchange
          Act Rule  0-11(a)(2)  and identify the filing for which the offsetting
          fee was paid previously.  Identify the previous filing by registration
          statement number, or the Form or Schedule and the date of its filing.

          1)   Amount Previously Paid:

          2)   Form, Schedule or Registration No.:

          3)   Filing Party:

          4)   Date Filed

================================================================================



                                        1


<PAGE>




                           KELLY'S COFFEE GROUP, INC.
                          268 West 400 South, Suite 300
                           Salt Lake City, Utah 84101
                            Telephone (801) 575-8073

                                 August 18, 2000

Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders of Kelly's
Coffee  Group,  Inc.  to be held at 10:00  a.m.  on  Wednesday,  the 20th day of
September, 2000 at 268 West 400 South, Suite 300, Salt Lake City, Utah 84101.

The  accompanying  Notice of Special  Meeting and Proxy  Statement  describe the
specific matters that will be acted upon. In addition to these matters,  we will
report on our  progress  and provide an  opportunity  for  questions  of general
interest to our stockholders.

Whether or not you plan to attend in person, it is important that your shares be
represented at the Special Meeting. PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD
IN THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE. The Board of Directors unanimously
recommends  that the  stockholders  vote "FOR" on the matter on the proxy  card.
Thank you.

                                                 Sincerely,



                                                 /s/ Richard D. Surber
                                                 ----------------------
                                                 Richard D. Surber
                                                 Chairman of the Board
























                                        2


<PAGE>



                           KELLY'S COFFEE GROUP, INC.
                          268 West 400 South, Suite 300
                           Salt Lake City, Utah 84101
                            Telephone (801) 575-8073

                    NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

A Special Meeting of Stockholders of Kelly's Coffee Group,  Inc. will be held at
268 West 400 South,  Suite 300, Salt Lake City, Utah at 10:00 a.m. on Wednesday,
the 20th day of September, 2000. At the Special Meeting,  stockholders will vote
on the following matter:

     (1)  Relocating  the  domicile of the Company from the State of Colorado to
          the  State of Nevada  and to  prepare  and file  with the  appropriate
          authorities   all  requisite   documents  and  reports   necessary  to
          accomplish the change of domicile.

Only  stockholders  of  record at the  close of  business  on August 3, 2000 are
entitled to notice of, and to vote at, the meeting and any adjournments thereof.

PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY  IMMEDIATELY IN THE ACCOMPANYING
POSTAGE-PAID  ENVELOPE TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL
MEETING OF STOCKHOLDERS.  EVEN IF YOU PLAN TO ATTEND THE MEETING, WE REQUEST YOU
TO COMPLETE AND RETURN THE ENCLOSED PROXY CARD.

Of  course,  if you  attend the  meeting  in  person,  you may vote your  shares
personally,  even if you have already  returned your Proxy.  You may revoke your
Proxy  at  any  time  before  the  meeting  either  in  writing  or by  personal
notification.

By Order of the Board of Directors

/s/  Kevin J. Schillo
---------------------------------------
Corporate Secretary

                                        3


<PAGE>



                           KELLY'S COFFEE GROUP, INC.
                          268 West 400 South, Suite 300
                           Salt Lake City, Utah 84101
                            Telephone (801) 575-8073

                                 PROXY STATEMENT

                         SPECIAL MEETING OF STOCKHOLDERS

This Proxy Statement is furnished in connection with the Solicitation of proxies
for use at the Special Meeting of Stockholders (the "Meeting") of Kelly's Coffee
Group, Inc. (the "Company") to be held on Wednesday,  the 20th day of September,
2000 at 10:00 a.m. local time at 268 West 400 South,  Suite 300, Salt Lake City,
Utah,  and at any  and all  adjournments  thereof.  The  accompanying  proxy  is
solicited  by the Board of  Directors  of the  Company and is  revokable  by the
stockholder  anytime  before it is voted.  For more  information  concerning the
procedure for revoking the proxy,  see "General."  This Proxy Statement is first
being mailed to stockholders on or about August 18, 2000.

Only  stockholders  of  record at the  close of  business  on August 3, 2000 are
entitled to notice of, and to vote at, the Meeting.  At the record  date,  there
were  51,966,427  shares of the  Company's  common  stock (the  "Common  Stock")
outstanding and each share is entitled to one vote at the meeting.

Any properly  executed proxy returned to the Company will be voted in accordance
with the instructions  indicated on thereon.  If no instructions are marked with
respect  to the  matters  to be acted  upon,  each such  proxy  will be voted in
accordance with the  recommendations of the Board of Directors set forth in this
Proxy Statement.

MATTER TO BE CONSIDERED AT THE MEETING

Stockholders will be asked to consider and act upon one proposal at the Meeting.
The proposal is to change the domicile of  incorporation of the Company from the
State of Colorado  to the State of Nevada by way of a  "migratory  merger."  The
sole purpose of such a merger is to change the Company's state of domicile.  The
merger would not involve any change in the business,  properties,  management or
capital structure of the Company, except as otherwise set forth herein.

The  matter  to be  considered  at the  Meeting  has great  significance  to the
stockholders  because,  if approved,  the Company would relocate its domicile of
incorporation  to the  State of  Nevada.  This  could  result  in the  change of
stockholder rights of the Company's current stockholders. Stockholders are urged
to carefully consider the information presented in this Proxy Statement.

RECORD DATE AND VOTING SECURITIES

The  Company's  securities  entitled  to vote at the  Meeting  consist of Common
Stock, par value $0.001 per share.  Only  stockholders of record at the close of
business on August 3, 2000 are entitled to notice of and to vote at the Meeting.
At the record  date,  the Company had  outstanding  51,966,427  shares of Common
Stock which were owned by approximately 284 stockholders.

                                        4


<PAGE>



Each holder of record of Common Stock on the record date is entitled to one vote
per share on the proposal presented at the Meeting,  exercisable in person or by
proxy.  The  presence  in person or by proxy of a  majority  of the  outstanding
shares of Common Stock  entitled to vote is necessary to  constitute a quorum at
the Meeting.  Assuming a quorum is present,  the affirmative vote of the holders
of a majority of the shares of Common  Stock issued and  outstanding  present in
person or  represented  by proxy is required  for approval of the proposal to be
voted upon at the Meeting.

Any properly  executed proxy returned to the Company will be voted in accordance
with the instructions  indicated on thereon.  If no instructions are marked with
respect  to the  matters  to be acted  upon,  each such  proxy  will be voted in
accordance with the  recommendations of the Board of Directors set forth in this
Proxy Statement.

QUORUM AND VOTES REQUIRED

The quorum  necessary to conduct business at the special meeting consists of the
holders of a majority of the shares  entitled  to vote at the  special  meeting,
represented  in  person  or by  proxy.  If  there  are not  sufficient  votes in
attendance  at the meeting in person or by proxy for  approval of any matters to
be voted upon at the special  meeting,  the special  meeting may be adjourned to
permit further solicitation of proxies.

Under Article  7-117-101 of the Colorado  Business  Corporation Act, the current
proposal to reincorporate Kelly's Coffee Group, Inc. by means of a merger with a
wholly-owned   Nevada  subsidiary  would  ordinarily  require  the  approval  of
two-thirds  of all of the shares  entitled  to vote on the  matter.  This is the
voting  requirement  imposed by the  statute for  corporations,  such as Kelly's
Coffee  Group,  Inc.,  which were in  existence  prior to the time the  Colorado
Business  Corporation Act became effective on July 1, 1994. However, the statute
provides an exception from the two-thirds  voting  requirement for  corporations
which  already   contained  a  provision  in  their  articles  of  incorporation
establishing  a  different  voting  requirement  in order to obtain  shareholder
approval for mergers and other  significant  corporate  transactions.  Since the
Company's  incorporation  in April  1987,  its  articles of  incorporation  have
contained a provision  which says that any action to be taken by shareholders of
the company may be taken by the vote of a majority of all of the shares entitled
to vote on such action  whenever the  Colorado  corporate  statute  called for a
two-thirds vote instead. For this reason, the proposal to reincorporate  Kelly's
Coffee  Group,  Inc. in Nevada need only be approved by a majority of all of the
shares entitled to vote on this matter at the special meeting.

On the record date, directors and officers  beneficially owned 15,643,340 shares
of common stock.  This represents 30.1% of the voting stock.  These parties have
indicated that they intend to vote for the reincorporation proposal.

Shares  abstaining or withheld from voting,  as well as broker  "non-votes," are
counted as shares  represented  at the special  meeting in order to  determine a
quorum,  but will not be counted  as votes cast in favor of the  reincorporation
proposal.  Therefore,   abstentions  and  votes  withheld,  as  well  as  broker
"non-votes,"  will have the effect of a vote  against the  reincorporation.  The
term broker  "non-votes"  refers to shares held by brokers and other nominees or
fiduciaries  that are  present at the  special  meeting,  but are not voted on a
particular  matter  because those persons are precluded  from  exercising  their
voting authority as a result of the matter's non-routine nature.

                                        5


<PAGE>



SOLICITATION PROCEDURES

Proxies will be solicited  primarily by mail;  however,  our  employees may also
solicit  proxies in person or  otherwise.  We will not pay  employees  for these
services.  We are  requesting  certain  holders  of record,  including  brokers,
custodians and nominees,  to distribute proxy materials to beneficial owners and
to obtain the beneficial owners' instructions  concerning the voting of proxies.
We will pay all costs of the proxy solicitation,  and will reimburse brokers and
other  persons  for the  expenses  they  incur in  sending  proxy  materials  to
beneficial owners.

The costs of  soliciting  proxies will be paid by the Company  (estimated  to be
under $10,000).  In addition to the use of the mails,  proxies may be personally
solicited by directors,  officers or regular  employees of the Company (who will
not be compensated separately for their services) by mail, telephone, telegraph,
cable or personal  discussion.  The Company will also request banks, brokers and
other  custodians,  nominees and  fiduciaries to forward proxy  materials to the
beneficial  owners of stock held of record by such persons and request authority
for the  execution of proxies.  The Company  will  reimburse  such  entities for
reasonable  out-of- pocket expenses incurred in handling proxy materials for the
beneficial owners of the Company's Common Stock.

Any proxy  given  pursuant  to this  solicitation  may be  revoked by the person
giving it at any time before it is voted by  delivering  to the Secretary of the
Company a written notice of revocation  bearing a later date than the proxy,  by
duly executing a subsequent  proxy relating to the same shares,  or by attending
the Meeting and voting in person.  Attendance  at the Meeting will not in itself
constitute  revocation of a proxy unless the  stockholder  votes their shares of
Common  Stock in person at the  Meeting.  Any notice  revoking a proxy should be
sent to the Secretary of the Company,  Kevin  Schillo,  at Kelly's Coffee Group,
Inc., 268 West 400 South, Suite 300, Salt Lake City, Utah 84101.

All shares  represented  at the  Meeting by a proxy will be voted in  accordance
with the  instructions  specified  in that proxy.  Proxies  received  and marked
"Abstain"  as to any  particular  proposal,  will be  counted in  determining  a
quorum,  however,  such  proxies  will  not be  counted  for  the  vote  on that
particular  proposal.  A majority  of the shares  represented  at the meeting is
required to ratify any proposal  presented.  If no instructions  are marked with
respect to the matters to be acted upon, each proxy will be voted FOR the matter
to be voted upon.

Please complete, date, sign and return the accompanying proxy promptly.

IT IS  IMPORTANT  THAT  PROXIES BE RETURNED  PROMPTLY.  WE URGE YOU TO COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING  PROXY, NO MATTER HOW LARGE OR SMALL YOUR
HOLDING MAY BE.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain  information  concerning the ownership of
the  Company's  Common  Stock as of August 3, 2000,  with  respect  to: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the  Company's  Common Stock;  (ii) all  directors;  and (iii)  directors and
executive  officers  of the  Company  as a group.  The  notes  accompanying  the
information in the table below are necessary for a complete understanding of the
figures  provided below. As of August 3, 2000,  there were 51,446,019  shares of
Common Stock issued and outstanding.

                                        6


<PAGE>

<TABLE>
<CAPTION>
                                                                                      AMOUNT AND NATURE
           TITLE OF                         NAME AND ADDRESS OF                         OF BENEFICIAL                  PERCENT
             CLASS                            BENEFICIAL OWNER                            OWNERSHIP                    OF CLASS
-------------------------------  ------------------------------------------  -----------------------------------  ------------------
<S>                             <C>                                         <C>                                  <C>
         Common Stock                    Richard Surber, President(1)                    15,643,340                     30.1%
      ($0.001 par value)               268 West 400 South, Suite 306
                                         Salt Lake City, Utah 84101

         Common Stock                Oasis International Hotel & Casino                   3,133,620                      6.0%
      ($0.001 par value)               268 West 400 South, Suite 300
                                         Salt Lake City, Utah 84101

         Common Stock                     CyberAmerica Corporation                         605,000                       1.0%
      ($0.001) par value               268 West 400 South, Suite 300
                                         Salt Lake City, Utah 84101

         Common Stock                  Hudson Consulting Group, Inc.                      3,904,720                      7.5%
      ($0.001) par value               268 West 400 South, Suite 300
                                         Salt Lake City, Utah 84101

         Common Stock              Directors and Executive Officers as a                 15,643,340                     30.1%
      ($0.001) par value                           Group
</TABLE>

                                  PROPOSAL ONE

         CHANGING THE COMPANY'S STATE OF INCORPORATION FROM COLORADO TO
                         NEVADA (the "REINCORPORATION")

At the special meeting,  shareholders of Kelly's Coffee Group, Inc. common stock
will be asked to vote upon the  reincorporation  of Kelly's Coffee Group,  Inc.,
which  presently is a Colorado  corporation,  as a Nevada  corporation.  Kelly's
Coffee Group,  Inc. will be merged with and into Kelly's  Coffee Group,  Inc., a
Nevada corporation,  a wholly owned subsidiary  organized under Nevada law, with
Kelly's  Coffee  Group,  Inc.,  a  Nevada  corporation  becoming  the  surviving
corporation.  We  sometimes  refer  to  Kelly's  Coffee  Group,  Inc.,  a Nevada
corporation  as the  Nevada  corporation.  The  Nevada  corporation's  principal
executive  office is located at 268 West 400 South,  Suite 300,  Salt Lake City,
Utah 84101, and its telephone number is (801) 575- 8073.

Effective  July 28, 2000,  the Board of Directors  approved the  reincorporation
proposal  pursuant to the terms of the  agreement  and plan of merger,  which is
attached as Appendix  "A," by which Kelly's  Coffee  Group,  Inc. will be merged
with and into Kelly's Coffee Group, Inc., a Nevada corporation.  Shareholders of
Kelly's  Coffee  Group,  Inc.  common stock are being  requested to consider and
approve the reincorporation  proposal.  We have summarized the material terms of
the agreement and plan of merger below. This summary is subject to and qualified
in its  entirety by reference  to the text of the  agreement  and plan of merger
itself.  The  affirmative  vote of the holders of a majority of the  outstanding
shares of our common  stock  entitled to vote is  necessary  for approval of the
reincorporation proposal.

--------------------
     (1) Richard Surber may be deemed a beneficial owner of 15,643,340 shares of
the Company's  common stock by virtue of his position as an officer and director
of  Hudson  Consulting  Group,  Inc.,   CyberAmerica   Corporation,   and  Oasis
International Hotel & Casino, Inc. Of these 15,643,340 common shares, Mr. Surber
personally owns 8,000,000 shares, issued to him on November 1, 1999 for services
rendered.

                                        7


<PAGE>



THE BOARD OF  DIRECTORS  UNANIMOUSLY  RECOMMENDS  A VOTE "FOR" THIS  PROPOSAL TO
REINCORPORATE  FROM  COLORADO  TO NEVADA  PURSUANT TO THE TERMS SET FORTH IN THE
AGREEMENT AND PLAN OF MERGER.

REASONS FOR PROPOSED REINCORPORATION IN NEVADA

We are requesting  that the  shareholders  of Kelly's Coffee Group,  Inc. common
stock  approve  the  proposal  to change the state of  incorporation  of Kelly's
Coffee Group,  Inc.  from Colorado to Nevada  pursuant to the terms set forth in
the agreement and plan of merger.

NO CHANGE IN NAME, BUSINESS OR PHYSICAL LOCATION

The proposed merger will effect a change in the legal domicile of Kelly's Coffee
Group,  Inc. and other changes of a legal nature,  the most significant of which
are described  below.  However,  the merger will not result in any change in our
name, business, management, location of our principal executive offices, assets,
liabilities  or net worth  (other than as a result of the costs  incident to the
merger,  which are  immaterial).  Our  management,  including  all directors and
officers,  will  remain  the same after the  merger  and will  assume  identical
positions with the Nevada  corporation.  Our common stock will continue to trade
without  interruption  on the Over the Counter  Bulletin  Board of the  National
Association of Securities Dealers under the symbol KLYS.

THE NEVADA CORPORATION

The Nevada  corporation that will be the surviving  corporation was incorporated
under the Nevada Revised Statutes ("NRS") on August 3, 2000, exclusively for the
purpose of merging with Kelly's  Coffee  Group,  Inc.  Prior to the merger,  the
Nevada corporation will have no material assets or liabilities and will not have
carried on any business.

The Nevada corporation's  articles of incorporation and bylaws are substantially
identical to the current articles of incorporation  and bylaws of Kelly's Coffee
Group, Inc., except for statutory references necessary to conform to the NRS and
other differences  attributable to the differences between the NRS and the CBCA.
A copy of the Nevada  corporation's  articles  of  incorporation  is attached as
Appendix  "B." The articles of  incorporation  and bylaws of the Company and the
bylaws of Kelly's Coffee Group, a Nevada  Corporation  (the "Nevada Bylaws") are
available for inspection by shareholders of the Company at the principal offices
of the Company  located at 268 West 400 South,  Suite 300, Salt Lake City,  Utah
84101. Telephone (801) 575-8073.

THE AGREEMENT AND PLAN OF MERGER

The agreement and plan of merger  provides that Kelly's Coffee Group,  Inc. will
merge with and into the Nevada  corporation,  with the Nevada  corporation  then
becoming  the  surviving  corporation.  The Nevada  corporation  will assume all
assets and  liabilities of Kelly's  Coffee Group,  Inc.,  including  obligations
under  our  outstanding  indebtedness  and  contracts.  Our  existing  Board  of
Directors  and officers  will become the board of directors  and officers of the
Nevada  corporation for identical terms of office.  The Nevada  corporation will
also assume the name of "Kelly's Coffee Group, Inc." in the merger.

The agreement and plan of merger has been  unanimously  approved by our Board of
Directors.  Consummation  of  the  Merger  is  subject  to the  approval  of the
Company's  shareholders.  The affirmative  vote of a majority of the outstanding
shares  of the  corporation  entitled  to vote on the  subject  matter,  who are
entitled  to vote at the  Special  Meeting  is  required  for the  approval  and
adoption of the Merger. If approved by the shareholders of Kelly's Coffee Group,

                                        8


<PAGE>



Inc.  common  stock,  it is  anticipated  that the merger will become  effective
immediately  upon  the  later of the  filing  of  articles  of  merger  with the
Secretary of State of Colorado in accordance with Article  7-111-105 of the CBCA
and the filing of articles of merger with the  Department  of State of Nevada in
accordance with Section 78-458 of the NRS. Prior to its effectiveness,  however,
the  Merger  may be  abandoned  by the  Board  if,  for any  reason,  the  Board
determines that consummation of the Merger is no longer advisable.

Upon the effective  date of the merger,  each share of the Company's  issued and
outstanding common stock will automatically be converted into one fully paid and
nonassessable share of common stock,  $0.0001 par value per share, of the Nevada
corporation. Each currently outstanding stock option, stock warrant, convertible
preferred  stock  and  other  right to  subscribe  for or  purchase  our  shares
automatically will be converted into the same right to subscribe for or purchase
the same number of shares of the Nevada  corporation's  common stock.  We do not
intend  to issue new  stock  certificates  to  shareholders  of record  upon the
effective date of the merger. Instead, each certificate  representing issued and
outstanding  shares of our common stock  immediately prior to the effective date
of the merger  will  evidence  ownership  of the  shares of common  stock of the
Nevada corporation after the effective date of the merger.

We anticipate  that delivery of existing  certificates  of our common stock will
constitute  "good delivery" of shares of common stock of the Nevada  corporation
in  transactions  on the  Over  the  Counter  Bulletin  Board  of  the  National
Association of Securities Dealers after the merger.

PLEASE NOTE:  Shareholders  need not exchange their existing stock  certificates
for stock certificates of the Nevada corporation. However, after consummation of
the merger, any shareholders desiring new stock certificates representing common
stock of the Nevada  corporation may submit their existing stock certificates to
Corporate Stock Transfer,  Inc., the surviving  corporation's transfer agent for
cancellation, and obtain new certificates.

DESCRIPTION OF CAPITAL STOCK AND VOTING RIGHTS

The Company's authorized capital consists of 100,000,000 shares of Common Stock,
$0.001 par value and 50,000,000  shares of Preferred  Stock $0.001 par value. As
of August 3, 2000 there were 51,966,427 shares of Common Stock outstanding and 0
shares of Preferred Stock outstanding.  The holders of Common Stock are entitled
to vote on all matters to come before a vote of the shareholders of the Company.

COMPARISON OF SHAREHOLDER RIGHTS UNDER NEVADA AND COLORADO
CORPORATE LAW AND CHARTER DOCUMENTS BEFORE AND AFTER

REINCORPORATION

The  Company  is  incorporated  in the  State  of  Colorado,  and the  surviving
corporation in the merger is incorporated in the State of Nevada.  The Company's
shareholders,  whose  rights are  currently  governed by the  Colorado  Business
Corporation Act ("CBCA") and the Company's articles of incorporation and bylaws,
will,  upon  consummation  of the  merger,  become  shareholders  of the  Nevada
corporation  and their  rights will be governed by the Nevada  Revised  Statutes
("NRS") and the articles of incorporation and bylaws of the Nevada  corporation.
Upon the  filing  with and  acceptance  by the  Secretary  of State of Nevada of
Articles of Merger in Nevada,  the Company  will become  Kelly's  Coffee  Group,
Inc., a Nevada  Corporation,  ("Kelly's  Nevada") and the outstanding  shares of
Company  Common Stock will be deemed for all purposes to evidence  ownership of,
and to represent, shares of Kelly's Nevada Common Stock.

                                        9


<PAGE>



The Nevada  Charter  Documents  will replace the Company's  current  Articles of
Incorporation,   as  amended  ("Colorado  Articles")  and  the  Colorado  Bylaws
(together,  the "Colorado  Charter  Documents")  including  providing  officers,
directors and agents of Kelly's  Nevada with certain  indemnification  rights in
addition to those currently provided for the Company.

The following is a summary of the material  differences between (a) the CBCA and
our  current  articles  of  incorporation  and  bylaws  and  (b) the NRS and the
articles of incorporation and bylaws of the Nevada corporation.  This summary is
not intended to be relied upon as an  exhaustive  list of all  differences  or a
complete  description  of the  differences,  and is qualified in its entirety by
reference to the CBCA, the NRS, and the articles of incorporation  and bylaws of
the Nevada corporation.

AUTHORIZED CAPITAL STOCK

NEVADA CORPORATION

The following discussion is qualified in its entirety by reference to the Nevada
Charter  Documents.  The  authorized  capital  stock  of  Kelly's  Nevada,  upon
effectuation  of  the   transaction  set  forth  in  the  Merger   Agreement  is
1,050,000,000 shares as hereinafter set forth. The description of the classes of
shares and a  statement  of the number of shares in each class and the  relative
rights,  voting power,  restrictions and preferences granted to and imposed upon
the shares of each class are discussed below.

COMMON STOCK. The total number of shares of Common Stock this Corporation  shall
have the  authority  to issue is one Billion  (1,000,000,000).  The Common Stock
shall have a stated par value of $0.001  per share.  Each share of Common  Stock
shall have, for all purposes one (1) vote per share. The holders of Common Stock
issued  and  outstanding  have and  possess  the  right  to  receive  notice  of
shareholders'  meetings  and to vote upon the  election of directors or upon any
other matter as to which approval of the  outstanding  shares of Common Stock or
approval of the common shareholders is required or requested.

PREFERRED  STOCK. The total number of shares of Preferred Stock this Corporation
is authorized to issue is fifty  million  (50,000,000)  shares with a stated par
value of $0.001 per share. The Board of Directors is hereby authorized from time
to time,  without  shareholder  action, to provide for the issuance of Preferred
Stock in one or more  series  not  exceeding  in the  aggregate  the  number  of
Preferred Stock authorized by these Articles of  Incorporation,  as amended from
time to time. The Board of Directors of the Corporation is vested with authority
to  determine  and  state the  designations  and the  preferences,  limitations,
relative rights,  and voting rights,  if any of each such series by the adoption
and filing in accordance with the Nevada Revised States,  before the issuance of
any shares of such series,  of an amendment or amendments  to these  Articles of
Incorporation  determining the terms of such series, which amendment need not be
approved  by the  shareholder  or the  holders  of any class or series of shares
except as  provided  by law.  All shares of  Preferred  Stock of the same series
shall be identical with each other in all respects.

VOTING RIGHTS WITH RESPECT TO EXTRAORDINARY CORPORATE TRANSACTIONS

NEVADA.  Approval of  consolidations  and sales,  leases or  exchanges of all or
substantially  all of the  property  or assets of a  corporation,  requires  the
affirmative  vote or consent of the  holders  of a majority  of the  outstanding
shares entitled to vote thereon.

                                       10


<PAGE>



COLORADO.  Under the Colorado Business Corporations Act ("CBCA"),  amendments to
the articles of incorporation,  other than ministerial amendments,  which may be
authorized by the directors without  shareholder  action, may be proposed by the
board of directors or by the holders of shares  representing at least 10% of all
of the votes entitled to be cast on the  amendment.  The board of directors must
recommend  the  amendment  to the  shareholders,  unless the  amendment is being
proposed  by  shareholders,  or unless  the board  determines  that  because  of
conflict  of  interest  or  other  special   circumstances  it  should  make  no
recommendation   and  communicates  the  basis  for  its  determination  to  the
shareholders with the amendment.  The board may also condition the submission of
the proposed  amendment to the shareholders on any basis (such as by requiring a
greater number of affirmative  votes by shareholder  than are discussed below in
order to approve an amendment to the articles of incorporation).

For  corporations  like the Company  which were  already in existence on July 1,
1994,  the date the CBCA went into effect.  Shareholders  of these  corporations
must  generally  approve an amendment to the  articles of  incorporation  by two
thirds  vote  unless  these  corporations  had  adopted,  prior to this date,  a
provision  in their  articles of  incorporation  calling for a different  voting
requirement. The Company's articles of incorporation contained such a provision,
adopted  prior to July 1,  1994,  which has the effect of  requiring  a majority
vote,  rather  than  a  two-thirds  vote,  for  amendments  to the  articles  of
incorporation.

SHAREHOLDERS CONSENT WITHOUT A MEETING

NEVADA.  Any  action  required  or  permitted  to be taken at a  meeting  of the
shareholders  may be taken without a meeting if,  before or after the action,  a
written consent thereto is signed by shareholders holding at least a majority of
the voting  power,  except that if a  different  proportion  of voting  power is
required  for such an  action at a  meeting,  then that  proportion  of  written
consents is  required.  In no instance  where  action is  authorized  by written
consent need a meeting of shareholders be called or notice given.

COLORADO.  Any  action  required  or  permitted  by the  CBCA to be  taken  at a
shareholders'  meeting may be taken without a meeting if all of the shareholders
entitled to vote  thereon  consent to such action in  writing.  No action  taken
without a  meeting  shall be  effective  unless  the  corporation  has  received
writings  that  describe  and  consent  to  the  action,  signed  by  all of the
shareholders entitled to vote on the action. Any such writing may be received by
the corporation by electronically transmitted facsimile or other form of wire or
wireless  communication  providing the corporation with a complete copy thereof,
including a copy of the  signature  thereto.  Any  shareholder  who has signed a
writing  describing  and consenting to action taken pursuant to this section may
revoke such consent by a writing signed and dated by the shareholder  describing
the action and stating that the shareholder's  prior consent thereto is revoked,
if such  writing  is  received  by the  corporation  prior  to the date the last
writing necessary to effect the action is received by the corporation.

If the  Reincorporation is consummated,  the number of shareholders  required to
consent to an action  without a  shareholders  meeting  will  decrease  from all
shareholders  providing  their  consent  to the action in  writing,  to a simple
majority of the voting power shareholders consenting to the action in writing.

DISSENTERS' RIGHTS

NEVADA.  Shareholders  are  entitled to demand  appraisal of their shares in the
case of mergers or  consolidations,  except where:  (i) they are shareholders of
the surviving  corporation  and the merger did not require their  approval under
the Nevada Revised  Statutes  (NRS);  (ii) the  corporation's  shares are either
listed on a national  securities  exchange or  designated  as a national  market
system security on an interdealer quotation system by The National  Association

                                       11


<PAGE>



of  Securities  Dealers,  Inc.;  or (iii) the  corporation's  shares are held of
record by more than 2,000 shareholders. Appraisal rights are available in either
(i), (ii) or (iii) above, however, if the shareholders are required by the terms
of the merger or consolidation to accept any consideration  other than (a) stock
of the corporation surviving or resulting from the merger or consolidation,  (b)
shares of stock of another  corporation  which are  either  listed on a national
securities  exchange or  designated as a national  market system  security on an
interdealer  quotation system by the National Association of Securities Dealers,
Inc.  or held of  record by more than  2,000  shareholders,  (c) cash in lieu of
fractional shares, or (d) any combination of the foregoing  appraisal rights are
not available in the case of a sale,  lease,  exchange or other disposition by a
corporation of all or substantially all of its property and assets.

COLORADO.  In  addition  to the  rights  and  restrictions  afforded  dissenting
shareholders  under Nevada law, a shareholder,  whether or not entitled to vote,
is entitled to dissent and obtain payment of the fair value of the shareholder's
shares in the event of a reverse  split that  reduces the number of shares owned
by the shareholder to a fraction of a share or to scrip if the fractional  share
or scrip so created is to be acquired for cash or the scrip is to be voided.

INCREASING OR DECREASING AUTHORIZED SHARES

NEVADA.  Nevada law  allows  the Board of  Directors  of a  Corporation,  unless
restricted by the Articles of Incorporation,  to increase or decrease the number
of  authorized  shares in the class or series  of the  corporations  shares  and
correspondingly effect a forward or reverse split of any such class or series of
the  corporation's  shares  without a vote of the  shareholders,  so long as the
action taken does not change or alter any right or preference of the shareholder
and does not include any  provision or  provisions  pursuant to which only money
will be paid or  script  issued  to  stockholders  who  hold  10% or more of the
outstanding  shares of the affected class and series, and who would otherwise be
entitled to receive  fractions of shares in exchange for the cancellation of all
of their outstanding shares.

COLORADO.  Colorado law requires  amendment of the Articles of  Incorporation to
increase or decrease the number of authorized  shares of any class,  and further
provides  that a proposal to effect a reverse  split of any class of shares of a
corporation can only be  accomplished  by the affirmative  vote of a majority of
the  shareholders  entitled  to  vote  on  the  issue  at a  regularly  convened
shareholder's  meeting of the corporation at which a quorum of the  shareholders
is present

DIVIDENDS

NEVADA.  The Nevada Bylaws  provide  that,  dividends on  outstanding  Preferred
Shares shall be paid or declared and set apart for payment  before any dividends
shall be paid or declared  and set apart for  payment on the common  shares with
respect  to the same  dividend  period.  If upon any  voluntary  or  involuntary
liquidation, dissolution, or winding up of the Corporation, the assets available
for  distribution  to  holders  of  Preferred  Shares  of all  series  shall  be
insufficient to pay such holders the full preferential  amount to which they are
entitled,  then such assets shall be distributed ratably among the shares of all
series  of  Preferred  Shares in  accordance  with the  respective  preferential
amounts  (including  unpaid cumulative  dividends,  if any) payable with respect
thereto.  Subject to the cumulative dividend preferences to holders of Preferred
Shares,  the shares of Common Stock are entitled to participate in any dividends
available  therefore  in equal  amounts per share on all  outstanding  Preferred
Shares  and  Common  Stock.  Subject to the  provisions  for the  payment of the
liquidation  preference to the holders of Preferred  Shares as provided  herein,
the Common Stock is entitled to participate in all distributions to shareholders
made upon liquidation, dissolution, or winding up of the corporation in equal

                                       12


<PAGE>



amounts per share as all  outstanding  Preferred  Shares and Common  Stock.  The
Board of Directors is authorized, without shareholder action, to provide for the
issuance  of  Preferred  Shares  in one or  more  series  not  exceeding  in the
aggregate  the number of  Preferred  Shares  authorized  by the  Certificate  of
Incorporation,  as amended from time to time;  and to determine  with respect to
each such series the voting powers, if any (which voting powers, if granted, may
be full or limited),  designations,  preferences,  and relative,  participating,
option,  or  other  special  rights  and  the  qualifications,  limitations,  or
restrictions relating thereof.

COLORADO. The Colorado charter documents provide that the Preferred Shares shall
not receive a dividend, and that dividends may be paid upon the Common Stock, as
and when declared by the Board of Directors,  out of funds of the Corporation to
the extent and in the manner provided by law.

If the  Reincorporation  is  consummated,  the Board of Directors of the Company
will have the  authority to issue  Preferred  shares with a dividend  preference
that was not available under the Colorado Charter documents.

ANTI-TAKEOVER STATUTES

NEVADA.  Except under  certain  circumstances  Nevada law  prohibits a "business
combination"  between the corporation and an "interested  shareholder",  however
the Nevada Articles  expressly  elect not to be governed by these  provisions as
contained in NRS 87.411 to 78.444 inclusive. To the extent permissible under the
applicable law of any  jurisdiction  to which the corporation may become subject
by reason of the conduct of business,  the ownership of assets, the residence of
shareholders,  the  location of offices or  facilities,  or any other item,  the
Company has elected not to be governed by the provisions of any statute that (i)
limits,  restricts,  modified,  suspends,  terminates,  or otherwise affects the
rights  of any  shareholder  to cast one vote for  each  share of  common  stock
registered  in the name of such  shareholder  on the  books of the  corporation,
without regard to whether such shares were acquired directly from the Company or
from any other  person and without  regard to whether such  shareholder  has the
power to  exercise  or direct the  exercise  of voting  power over any  specific
fraction of the shares of common stock of the Company issued and  outstanding or
(ii) grants to any  shareholder  the right to have his or her stock  redeemed or
purchased by the corporation or any other  shareholder on the acquisition by any
person or group of  persons  of shares of the  Company.  In  particular,  to the
extent  permitted under the laws of the state of Nevada,  the Company elects not
to be governed by any such  provision,  including  the  provisions of the Nevada
Control Share  Acquisitions Act, Sections 78.378 to 78.3793,  inclusive,  of the
Nevada Revised Statutes, or any statute of similar effect or tenor.

COLORADO.  Colorado law does not specifically address anti-takeover provisions.

QUORUM OF DIRECTORS

NEVADA. A majority of the Board of Directors in office shall constitute a quorum
for the  transaction  of  business,  but if at any meeting of the Board there be
less than a quorum present, a majority of those present may adjourn from time to
time, until a quorum shall be present,  and no notice of such adjournment  shall
be required.  The Board of Directors  may  prescribe  rules not in conflict with
these Bylaws for the conduct of its  business;  provided,  however,  that in the
fixing of salaries of the officers of the  corporation,  the unanimous action of
all the directors shall be required.

COLORADO.  A quorum at all  meetings  of the Board of  Directors  consists  of a
majority of the number of directors  then holding  office,  but a smaller number
may adjourn from time to time without further notice, until a quorum is secured.
The act of a majority of the  Directors  present at a meeting  which a quorum is
present shall be the act of the Board of Directors.

                                       13


<PAGE>



SPECIAL MEETINGS OF SHAREHOLDERS

NEVADA.  Special  meetings of the  shareholders may be held at the office of the
corporation  in the  State of  Nevada,  or  elsewhere,  whenever  called  by the
President,  or by the Board of Directors,  or by vote of, or by an instrument in
writing  signed by the  holders  of a majority  of the  issued  and  outstanding
capital  stock.  Not less than ten (10) nor more than  sixty  (60) days  written
notice of such meeting,  specifying the day, hour and place, when and where such
meeting shall be convened, and the objects for calling the same, shall be mailed
in the United States Post Office, or via express or overnight mail, addressed to
each of the  shareholders  of record at the time of issuing the  notice,  and at
his,  her, or its address  last known,  as the same  appears on the books of the
corporation.  The written  certificate  of the  officer or officers  calling any
special  meeting  setting  forth the  substance of the notice,  and the time and
place of the mailing of the same to the several shareholders, and the respective
addresses  to which the same were mailed,  shall be prima facie  evidence of the
manner and fact of the calling and giving such notice.

COLORADO.  A corporation  shall hold a special meeting of  shareholders:  (a) On
call of its board of directors or the person or persons authorized by the bylaws
or  resolution  of the board of directors to call such a meeting;  or (b) If the
corporation  receives one or more written  demands for the meeting,  stating the
purpose or purposes for which it is to be held,  signed and dated by the holders
of shares representing at least ten percent of all the votes entitled to be cast
on any issue  proposed to be  considered at the meeting.  Special  shareholders'
meetings  may be held in or out of this state at the place stated in or fixed in
accordance with the bylaws,  or, if not so stated or fixed, at a place stated in
or fixed in accordance with a resolution of the board of directors.  If no place
is so stated  or  fixed,  special  meetings  shall be held at the  corporation's
principal office.  Only business within the purpose or purposes described in the
notice of the meeting may be conducted at a special shareholders' meeting.

AMENDMENTS TO CHARTER

NEVADA.  The articles of  incorporation  may be amended in any of the  following
respects  by a vote of a majority  of the  shareholders  entitled  to vote on an
amendment:  (a) by addition to its corporate powers and purposes,  or diminution
thereof, or both. (b) by substitution of other powers and purposes,  in whole or
in  part,  for  those  prescribed  by  its  articles  of  incorporation,  (c) by
increasing,  decreasing or reclassifying  its authorized  stock, by changing the
number, par value, preferences,  or relative,  participating,  optional or other
rights,  or the  qualifications,  limitations or restrictions of such rights, of
its shares,  or of any class or series of any class  thereof  whether or not the
shares are outstanding at the time of the amendment,  or by changing shares with
par  value,  whether  or not  the  shares  are  outstanding  at the  time of the
amendment,  into  shares  without par value or by  changing  shares  without par
value,  whether or not the shares are  outstanding at the time of the amendment,
into shares with par value,  either with or without increasing or decreasing the
number of shares,  and upon such basis as may be set forth in the certificate of
amendment, (d) by changing the name of the corporation,  (e) by making any other
change or alteration in its articles of  incorporation  that may be desired.  If
any proposed  amendment  would alter or change any preference or any relative or
other  right  given to any  class or  series  of  outstanding  shares,  then the
amendment  must be approved by the vote,  in  addition to the  affirmative  vote
otherwise  required,  of the  holders of shares  representing  a majority of the
voting power of each class or series  affected by the  amendment  regardless  of
limitations or restrictions on the voting power thereof.

COLORADO.  The board of directors or the holders of shares representing at least
ten percent of all of the votes entitled to be cast on the amendment may propose
an  amendment  to  the  articles  of   incorporation   for   submission  to  the
shareholders.  For an amendment to the articles of  incorporation  to be adopted
(a) The board of directors  shall  recommend the  amendment to the  shareholders
unless  the  amendment  is  proposed  by  shareholders  or  unless  the board of
directors  determines  that,  because of conflict  of interest or other  special
circumstances,  it should make no recommendation  and communicates the basis for
its determination to the shareholders  with the amendment;

                                       14


<PAGE>



shareholders  with the amendment;  and (b) such  amendment  shall be approved by
each voting group entitled to vote  separately on the amendment by two-thirds of
all the votes  entitled to be cast on the  amendment by that voting group unless
the  Company's  Articles  of  Incorporation  provide  otherwise.  The  Company's
Articles of  Incorporation  provide for amendment upon the affirmative vote of a
majority of the shareholders voting on the issue.

NOTICE, ADJOURNMENT AND PLACE OF SHAREHOLDERS' MEETINGS

NEVADA. The Board of Directors may designate any place, either within or without
the state of  incorporation,  as the place of meeting  for any annual or special
meeting.  A waiver of notice,  signed by all shareholders  entitled to vote at a
meeting,  may  designate  any  place,  either  within  or  without  the state of
incorporation,  as the place for the holding of such meeting.  If no designation
is made, the place of meeting shall be the registered  office of the corporation
in the state of  incorporation.  Nevada Bylaws provide that the  notification of
the annual  meeting shall state the purpose or purposes for which the meeting is
called and the date,  time,  and the place,  which may be within or without this
state,  where it is to be held. A copy of such notice shall be either  delivered
personally to, or shall be mailed with postage  prepaid,  to each shareholder of
record  entitled  to vote at such  meeting  not less than ten (10) nor more than
sixty (60) days before such meeting.

COLORADO.  Written notice stating the place, day, and hour of the meeting,  and,
in case of a special  meeting,  the purpose or purposes for which the meeting is
called,  shall be delivered not less than ten (10) days nor more than fifty (50)
days before the date of the meeting,  either personally or by mail, by or at the
direction of the President,  the Secretary, or the officer or person calling the
meeting to each  shareholder of record entitled to vote at such meeting;  except
that, if the authorized shares are to be increased,  at least thirty days notice
shall be given, and if the sale of all or substantially all of the corporation's
assets is to be voted upon, at least twenty days notice shall be given.

DIRECTORS

NEVADA.  The Nevada  Certificate  provides that the initial number of members of
the Nevada board shall be three (3), and  thereafter  shall not be less than one
nor more  than  seven  (7),  and may,  at any time or  times,  be  increased  or
decreased by a duly adopted  amendment to the Articles of  Incorporation,  or in
such  manner as shall be  provided  in the  Bylaws of the  corporation  or by an
amendment to the Bylaws of the  corporation  duly adopted by either the Board of
Directors or the Shareholders.

COLORADO.  The Colorado  Articles  provide that the number of directors shall be
fixed by the Bylaws of the Corporation,  with the provision that there need only
be only as many  directors  as there  are  shareholders  in the  event  that the
outstanding  shares  are held of record by fewer than  three  shareholders.  The
Bylaws  provide  that the Board  shall not be more than seven (7)  directors.  A
majority of the number of directors  constitutes a quorum for the transaction of
business.  The Colorado Bylaws provide that a vacancy among the directors may be
filled for the  unexpired  term by the  affirmative  vote of a  majority  of the
remaining directors in office, though less than a quorum.

ELECTION AND REMOVAL OF DIRECTORS

NEVADA. The Nevada Bylaws provide each director shall hold office until the next
annual meeting of  shareholders  and until his or her successor  shall have been
elected and qualified.  At a meeting  expressly called for the removal of one or
more  directors,  such  directors  may be removed by a vote of a majority of the
shares of outstanding  stock of the corporation  entitled to vote at an election
of directors. Vacancies on the board may be filled by the remaining directors.

                                       15


<PAGE>



COLORADO. The Colorado Bylaws provide that each director shall hold office until
the next annual  meeting of  shareholders  and until his or her successor  shall
have been elected and  qualified.  Under  Colorado law and the Colorado  Charter
Documents, directors may be removed only if the number of votes cast in favor of
removal exceeds the number of votes cast against removal, with or without cause.
Vacancies  on  the  board  may  be  filled  by the  remaining  directors  or the
shareholders.

INSPECTION OF BOOKS AND RECORDS

NEVADA.  Pursuant to the Bylaws of Kelly's Nevada,  the Board of Directors shall
have power to close the share  books of the  corporation  for a period of not to
exceed sixty (60) days preceding the date of any meeting of shareholders, or the
date for payment of any dividend,  or the date for the  allotment of rights,  or
capital shares shall go into effect,  or a date in connection with obtaining the
consent of shareholders  for any purpose.  In lieu of closing the share transfer
books as  aforesaid,  the Board of  Directors  may fix in  advance  a date,  not
exceeding sixty (60) days preceding the date of any meeting of shareholders,  or
the date for the  payment  of any  dividend,  or the date for the  allotment  of
rights,  or the date when any change or conversion or exchange of capital shares
shall go into effect,  or a date in connection  with obtaining any such consent,
as a record date for the determination of the shareholders  entitled to a notice
of, and to vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend,  or to any such allotment of rights, or to
exercise  the rights in respect of any such  change,  conversion  or exchange of
capital  stock,  or to give such consent.  If the share  transfer books shall be
closed or a record date set for the purpose of determining shareholders entitled
to notice of or to vote at a meeting of shareholders, such books shall be closed
for, or such record date shall be, at least ten (10) days immediately  preceding
such meeting.

COLORADO. Pursuant to the Colorado Bylaws, the officer or agent having charge of
the stock  transfer on the books for shares of the  corporation  shall make,  at
least ten days before such  meeting of  shareholders,  a complete  record of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof,  arranged  in  alphabetical  order,  with the address and the number of
shares  held by each.  The  record,  for a period of ten (10) days prior to such
meeting,  shall be kept in file at the principal office of the company,  whether
within or without the State of Colorado,  and shall be subject to  inspection by
any  shareholder for any purpose germane to the meeting at any time during usual
business  hours.  Such record  shall be  produced  and kept open at the time and
place of the meeting and shall be subject to the  inspection of any  shareholder
for any purpose  germane to the meeting during the whole time of the meeting for
the purposes thereof. The original stock transfer books shall be the prima facie
evidence  as to who are the  shareholders  entitled  to  examine  the  record or
transfer books or to vote at any meeting of shareholders.

TRANSACTIONS WITH OFFICERS AND DIRECTORS

NEVADA.  Article  10. of the  Nevada  Charter  documents  state  that the Nevada
Corporation  expressly  elects  NOT to be  governed  by  NRS  78.411  to  78.444
inclusive,  which govern combinations with interested  shareholders,  affiliates
and associates of the Nevada  Corporation.  The result of this election provides
greater  freedom  to  the  Nevada   Corporation   regarding   certain   mergers,
consolidations,  sales,  transfers  and other  dispositions  between  itself and
interested shareholders of the Nevada Corporation.

COLORADO.  The Company  Articles in  conjunction  with the CBCA  provide that no
contract or other  transaction  between the  Corporation  and one or more of its
directors or any other corporation, firm, association, or entity in which one or
more of its directors are  directors or officers or are  financially  interested
shall either be void or voidable solely because of such relationship or interest
or solely because such directors are present at  the  meeting  of  the  board of

                                       16


<PAGE>



directors or a committee  thereof which authorizes,  approves,  or ratifies such
contract  or  transaction  or solely  because  their  votes are counted for such
purpose if: (a) the fact of such  relationship  or interest is disclosed or know
to the board of directors or committee which authorizes,  approves,  or ratifies
the contract or  transaction  by a vote or consent  sufficient  for the purposes
without counting the votes or consents of such interested directors;  or (b) the
fact  that  such   relationship  or  interest  is  disclosed  or  known  to  the
shareholders  entitled  to vote and  they  authorize,  approve  or  ratify  such
contract  or  transaction  by vote or  written  consent;  or (c) the  contact or
transaction  is fair and  reasonable  to the  corporation.  Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the board of directors or a committee  thereof which  authorizes,  approves,  or
ratifies such contract or transaction.

LIMITATION ON LIABILITY OF DIRECTORS; INDEMNIFICATION OF OFFICERS AND

DIRECTORS

NEVADA. Pursuant to the Nevada Charter Documents, the corporation shall have the
power to 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 or she 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) judgments,  fines, and amounts paid in settlement  actually and reasonably
incurred by him or her in connection  with any such action,  suit or proceeding,
if he or she acted in good faith and in a manner he or she  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 or her  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,  shall not, of itself,  create a presumption  that
the person did not act in good faith and in a manner which he or she  reasonably
believed to be in or not opposed to the best interests of the  corporation,  and
with  respect to any criminal  action or  proceeding,  he or she had  reasonable
cause to believe that his or her conduct was unlawful.

Kelly's Nevada Bylaws  specifically  provide that the corporation shall have the
power to 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 or she 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)  actually and  reasonably  incurred by him or her in  connection  with the
defense or  settlement  of such action or suit, if he or she acted in good faith
and in a manner he or she  reasonably  believed  to be in or not  opposed to the
best interests of the corporation,  except that no indemnification shall be made
in respect of any claim,  issue,  or matter as to which such a person shall have
been adjudged to be liable for  negligence or misconduct in the  performance  of
his or her duty to the corporation, unless and only to the extent that the court
in which the action or suit was brought  shall  determine on  application  that,
despite the  adjudication of liability but in view of all  circumstances  of the
case,  the  person is fairly  and  reasonably  entitled  to  indemnity  for such
expenses as the court deems proper.

COLORADO.  The Colorado Articles and the CBCA provide that the corporation shall
eliminate or limit the personal liability of a director to the corporation or to
its  shareholders  for  monetary  damages  for  breach  of  fiduciary  duty as a
director;  except  that any such  provision  shall  not  eliminate  or limit the
liability of a director to the corporation or to its  shareholders  for monetary
damages for any breach of the director's  duty of loyalty to the  corporation or
to its  shareholders,  acts or  omissions  not in good  faith or  which  involve
intentional misconduct  or a knowing  violation  of law, or any  transaction

                                       17


<PAGE>



from which the  director  directly or  indirectly  derived an improper  personal
benefit.  No such provision shall eliminate or limit the liability of a director
to the corporation or to its  shareholders  for monetary  damages for any act or
omission  occurring before the date when such provision  becomes  effective.  No
director  or  officer  shall be  personally  liable  for any injury to person or
property  arising out of a tort committed by an employee unless such director or
officer was personally  involved in the situation  giving rise to the litigation
or unless such  director or officer  committed a criminal  offense in connection
with such situation.

DISSENTERS' RIGHTS AS A RESULT OF THE REINCORPORATION MERGER

Shareholders  have  dissenters'  rights in Colorado as a result of the  proposed
Reincorporation. Shareholders who oppose the Reincorporation will have the right
to receive  payment for the value of their shares  pursuant to Colorado  Revised
Statutes Annotated  ("C.R.S.A.")  C.R.S.A.  section 7-113-101 et. sec. A copy of
Section  7-113-201 is attached  hereto as Appendix "C" to this Proxy  Statement.
The material  requirements  for a  shareholder  to properly  exercise his or her
rights are summarized  below.  However,  these  provisions are very technical in
nature,  and the  following  summary is  qualified in its entirety by the actual
statutory  provisions  that  should be  carefully  reviewed  by any  shareholder
wishing to assert such rights.

Under the Colorado Law, such dissenters'  rights will be available only to those
common or preferred  shareholders  of the Company who (i) object to the proposed
Reincorporation  in writing prior to or at the Annual Meeting before the vote on
the matter is taken (a negative vote will not itself  constitute  such a written
objection);  and (ii) do not vote any of their  shares in favor of the  proposed
Reincorporation at the Annual Meeting.

Within ten days after the effective date of the Reincorporation,  Kelly's Nevada
will send to each shareholder who has satisfied both of the foregoing conditions
a written notice in which Kelly's Nevada will notify such  shareholders of their
right to demand  payment for their shares and will supply a form for  dissenting
shareholders  to demand  payment.  Shareholders  will have 30 days to make their
payment  demands or lose such rights.  If required in the notice sent by Kelly's
Nevada,  each dissenting  shareholder must also certify whether or not he or she
acquired  beneficial  ownership  of such shares  before or after the date of the
first announcement to the news media of the proposed transaction.

Upon receipt of each demand for payment, Kelly's Nevada will pay each dissenting
shareholder  the amount that  Kelly's  Nevada  estimates to be the fair value of
such shareholder's  shares, plus interest from the date of the completion of the
Reincorporation  to  the  date  of  payment.  With  respect  to  any  dissenting
shareholder who does not certify that he or she acquired beneficial ownership of
the shares prior to the first public  announcement of the  transaction,  Kelly's
Nevada  may,  instead of making  payment,  offer such  payment if the  dissenter
agrees to accept it in full satisfaction of his or her demand. "Fair value" with
respect  to a  dissenter's  shares,  means the value of the  shares  immediately
before the  effectuation of the  Reincorporation,  excluding any appreciation or
depreciation in anticipation of such events.  Any dissenter who does not wish to
accept the payment or offer made by Kelly's Nevada must notify Kelly's Nevada in
writing of his or her own  estimate  of the fair  value of the shares  within 30
days after the date Kelly's  Nevada makes or offers  payment.  If the dissenting
shareholder  and  Kelly's  Nevada  are  unable to agree on the fair value of the
shares,  then Kelly's Nevada will commence a proceeding with the Colorado courts
within 60 days after receiving the dissenter's notice of his or her own estimate
of fair value. If Kelly's Nevada does not commence such a proceeding  within the
60-day period,  it must pay each dissenter  whose demand remains  unresolved the
amount demanded by such dissenter. If a proceeding is commenced,  the court will
determine the fair value of the shares and may appoint one or more appraisers to
help determine such value.

                                       18


<PAGE>



All  dissenting  shareholders  must be a party to the  proceeding,  and all such
shareholders  will be entitled to judgment against Kelly's Nevada for the amount
of the fair value of their shares,  to be paid on surrender of the  certificates
representing  such shares.  The judgment  will include an allowance for interest
(at a rate  determined  by the court) to the date of  payment.  The costs of the
court  proceeding,  including the fees and expenses of any  appraisers,  will be
assessed against Kelly's Nevada unless the court finds that the dissenters acted
arbitrarily,  vexatiously or not in good faith in demanding  payment at a higher
amount  than that  offered  by  Kelly's  Nevada.  Both  Kelly's  Nevada  and the
dissenters  must bear their own respective  legal fees and expenses,  unless the
court  requires  one party to pay such  legal fees and  expenses  because of the
conduct of such party.  The loss or forfeiture of appraisal  rights simply means
the loss of the right to receive a cash payment from Kelly's  Nevada in exchange
for  shares.  In such event the  shareholder  would  still hold the  appropriate
number of shares of Kelly's Nevada.

NEVADA.  Shareholders  are  entitled to demand  appraisal of their shares in the
case of mergers or  consolidations,  except where:  (i) they are shareholders of
the surviving  corporation  and the merger did not require their  approval under
the Nevada Revised  Statutes  (NRS);  (ii) the  corporation's  shares are either
listed on a national  securities  exchange or  designated  as a national  market
system security on an interdealer  quotation system by The National  Association
of  Securities  Dealers,  Inc.;  or (iii) the  corporation's  shares are held of
record by more than 2,000 shareholders. Appraisal rights are available in either
(i), (ii) or (iii) above, however, if the shareholders are required by the terms
of the merger or consolidation to accept any consideration  other than (a) stock
of the corporation surviving or resulting from the merger or consolidation,  (b)
shares of stock of another  corporation  which are  either  listed on a national
securities  exchange or  designated as a national  market system  security on an
interdealer  quotation system by the National Association of Securities Dealers,
Inc.  or held of  record by more than  2,000  shareholders,  (c) cash in lieu of
fractional shares, or (d) any combination of the foregoing  appraisal rights are
not available in the case of a sale,  lease,  exchange or other disposition by a
corporation of all or substantially all of its property and assets.

POSSIBLE DISADVANTAGES OF A CHANGE IN DOMICILE

You should be aware that  although  under  Colorado  law  shareholder  action by
written consent requires the unanimous vote of all shareholders entitled to vote
on the proposed  action,  Nevada permits  shareholder  action  through  majority
written  consent,  unless  the  articles  of  incorporation  provide  otherwise.
Moreover,  Nevada law does not require that all shareholders entitled to vote on
a matter be notified or their  written  consent  solicited.  As such,  a control
shareholder  can  eliminate  the  need for a  shareholder  meeting  and  general
solicitation  of votes by  written  consents  which are duly  signed,  dated and
delivered  to the  corporation.  In  addition,  you  should be aware  that under
Colorado law, corporations are required to provide certain shareholders with ten
days  prior  notice  before a  corporation  proceeds  to  authorize  any loan or
guaranty for the benefit of any director. In contrast,  Nevada law does not have
any such  notice  requirement,  which means that  shareholders  will not have an
opportunity  to  consider  the  advisability  of  such a loan or  guaranty  to a
director.  You should also be advised that whereas under Colorado law amendments
to a  corporation's  articles  of  incorporation  may be  proposed by holders of
shares  representing at least 10% of all of the votes entitled to be cast on the
amendment,  under Nevada law only the board of directors may propose  amendments
to the articles of incorporation.  Also, the Nevada  corporation will be subject
to the provisions of Nevada law which provide that a person who acquires  shares
in an issuing public corporation in excess of certain specified  thresholds will
generally  not have any voting  rights with  respect to such shares  unless such
voting  rights are approved by a majority of the shares  entitled to vote.  This
provision  may have the effect of delaying,  deferring or preventing a change of
control  of  the  Nevada  corporation.   However,  friendly  acquisitions  of  a
corporation  are still  permitted,  without  having to comply  with  shareholder
voting  requirements,  if the board of directors of the corporation approves the
acquisition transaction before the control share acquisition occurs.

                                       19


<PAGE>



INCORPORATION BY REFERENCE OF CERTAIN FINANCIAL INFORMATION

The  following  portions of the  Company's  Annual Report on Form 10-KSB for the
fiscal year ended February 29, 2000 are incorporated herein by reference:  "Item
1.  Business",  "Item 5.  Market  Information  for  Common  Equity  and  Related
Shareholder Matters", and "Item 7. Financial Statements." The following portions
of the  Company's  Quarterly  Report on Form 10-QSB for the period ended May 31,
2000 are also  incorporated  herein by  reference:  "Part I.  Item 1:  Financial
Statements"  and  "Part I.  Item 2:  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations."  Copies of these documents are
available  without charge to any person,  including any beneficial holder of the
Company's Common Stock to whom this Proxy Statement was delivered, on written or
oral request to Kelly's Coffee Group,  Inc. 268 West 400 South,  Suite 300, Salt
Lake City, Utah 84101, Attention:  Secretary (telephone number: (801) 575-8073).
Any statement  contained in a document all or a portion of which is incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement  contained  herein or in any
subsequently  filed  document  that also is or is deemed to be  incorporated  by
reference  herein modifies or supersedes  such statement.  Any such statement so
modified or  superseded  shall not be deemed to  constitute a part of this Proxy
Statement except as so modified or superseded.

The Company  currently has 100,000,000  authorized  shares of Common Stock,  par
value $0.001 per share, of which  51,966,427shares were outstanding on August 3,
2000.

INCREASE IN CAPITALIZATION

The Company  currently has 100,000,000  authorized  shares of Common Stock,  par
value $0.001 per share, of which 51,966,427  shares were outstanding on July 14,
2000. The Company currently has 50,000,000 authorized shares of Preferred Stock,
par value $0.001 per share, of which no shares are outstanding.

Kelly's  Coffee Group,  Inc. a Nevada  Corporation,  into which the Company will
merge to accomplish its change of domicile, if approved by the stockholders,  is
authorized to issue  1,000,000,000  shares of common stock par value $0.0001 and
50,000,000 shares of preferred stock par value $0.0001. The effect of the merger
will be to increase the number of  authorized  common shares which may be issued
by the Company from 100,000,000 to 1,000,000,000.

Although currently authorized shares may be sufficient to meet anticipated needs
in the immediate future,  the Board considers it desirable that the Company have
the  flexibility to issue an additional  amount of Common Stock without  further
stockholder action,  unless otherwise required by law or other regulations.  The
availability of these additional  shares will enhance the Company's  flexibility
in  connection  with  any  possible  acquisition  or  merger,  stock  splits  or
dividends, financings and other corporate purposes and will allow such shares to
be issued  without  the expense  and delay of a special  stockholders'  meeting,
unless such action is required by applicable  law or rules of any stock exchange
on which the Company's securities may then be listed.

Presently,  the Company has issued only one class of stock,  Common  Stock,  par
value $0.001 per share.  All of such shares are voting  shares and have the same
voting rights. However, none of such shares confers any preemptive rights on the
holders  thereof to purchase or receive any  additional  shares of the Company's
Common  Stock or any other  securities,  rights  or  options  for the  Company's
securities  authorized  or acquired by the Company in the future.  The Board may
issue the Common Stock and Preferred Stock  authorized by the Company's  Charter
for  such  consideration  as may be  fixed by the  Board  and for any  corporate
purpose without further action by the stockholders, except as may be required by
law.  Each share of Common  Stock has equal  dividend  rights  and  participates
equally upon liquidation.

                                       20


<PAGE>



FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION

The merger and resulting  reincorporation  of Kelly's  Coffee  Group,  Inc. from
Colorado to Nevada will constitute a tax-free  reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended. Accordingly,
for  federal  income  tax  purposes,  no  gain or loss  will  be  recognized  by
shareholders upon the conversion of Kelly's Coffee Group, Inc. common stock into
the  Nevada  corporation's  common  stock.  Each  shareholder  whose  shares are
converted into the Nevada corporation's common stock will have the same basis in
the common stock of the Nevada corporation as such shareholder had in the common
stock of Kelly's Coffee Group, Inc. held immediately prior to the effective date
of the merger.  The  shareholder's  holding  period in the Nevada  corporation's
common stock will include the period  during which the  corresponding  shares of
Kelly's Coffee Group, Inc. common stock were held.

PLEASE NOTE: No  information is provided in this proxy  statement  regarding the
tax  consequences,  if any, under applicable  state,  local or foreign laws, and
each  shareholder  is advised to consult  his or her  personal  attorney  or tax
advisor as to the  federal,  state,  local or foreign  tax  consequences  of the
proposed reincorporation in view of the shareholder's individual circumstances.

In addition,  neither the Company nor Kelly's Nevada will recognize gain or loss
as a result of the  Reincorporation,  and Kelly's Nevada will generally succeed,
without  adjustment,  to the  tax  attributes  of  the  Company.  Nevada  has no
corporate  income  tax,  no taxes on  corporate  shares,  no  franchise  tax, no
personal income tax, no I.R.S.  information  sharing  agreement,  nominal annual
fees,  minimal reporting and disclosure  requirements,  and shareholders are not
public record.

The foregoing summary of federal income tax consequences is included for general
information  only and does not address all income tax consequences to all of the
Company's  shareholders.  The Company's  shareholders are urged to consult their
own tax advisors as to the specific tax consequences of the Reincorporation with
respect to the  application  and effect of state,  local and foreign  income and
other tax laws.

SECURITIES ACT CONSEQUENCES

The shares of the Nevada corporation's common stock to be issued in exchange for
shares of Kelly's Coffee Group, Inc. common stock are not being registered under
the Securities Act of 1933. In that regard, the Nevada corporation is relying on
Rule 145(a)(2)  under the  Securities Act of 1933,  which provides that a merger
which has "as its sole purpose" a change in the domicile of a  corporation  does
not involve the sale of securities  for purposes of the  Securities Act of 1933,
and on  interpretations  of the Rule by the Securities  and Exchange  Commission
which  indicate that the making of certain  changes in the Nevada  corporation's
articles of  incorporation  which could otherwise be made only with the approval
of the  shareholders  of  either  corporation  does not  render  Rule  145(a)(2)
inapplicable.

After the merger,  the Nevada corporation will be a publicly-held  company,  the
Nevada  corporation's  stock will be listed for  trading on the Over the Counter
Bulletin  Board of the National  Association  of  Securities  Dealers  under the
symbol  KLYS,  and will  file  periodic  reports  and other  documents  with the
Securities  and Exchange  Commission  and provide to its  shareholders  the same
types of information  that we have previously  filed and provided.  Shareholders
whose common stock was freely  tradeable before the merger will continue to have
freely  tradeable  shares of the Nevada  corporation's  stock  after the merger.
Shareholders  holding  restricted shares of common stock will have shares of the
Nevada  corporation's  stock  which  are  subject  to the same  restrictions  on
transfer as those to which their present shares of common stock are subject, and
their stock certificates, if surrendered for replacement certificates

                                       21


<PAGE>



representing shares of the Nevada  corporation's common stock will bear the same
restrictive legend as appears on their present stock certificates.  For purposes
of computing  compliance  with the holding period  requirement of Rule 144 under
the Securities Act of 1933,  shareholders  will be deemed to have acquired their
shares of the Nevada  corporation's common stock on the date they acquired their
shares of Kelly's  Coffee Group,  Inc.'s common  stock.  In summary,  the Nevada
corporation and its shareholders will be in the same respective  positions under
the federal  securities laws after the merger as were Kelly's Coffee Group, Inc.
and its shareholders prior to the merger.

AMENDMENT TO THE MERGER AGREEMENT; TERMINATION

The  Merger  Agreement  may be  terminated  and the  Reincorporation  abandoned,
notwithstanding  shareholder  approval, by the Board of Directors of the Company
at any time before consummation of the Reincorporation if the Board of Directors
of the Company  determines  that in its  judgment the  Reincorporation  does not
appear to be in the best  interests of the Company or its  shareholders.  In the
event the Merger Agreement is terminated or the shareholders fail to approve the
Reincorporation, the Company would remain as a Colorado corporation.

RIGHTS OF DISSENTING SHAREHOLDERS

As indicated  above under  "Comparison  of  Shareholder  Rights Before and After
Reincorporation - Dissenters'  Rights",  common stock  shareholders have certain
dissenters'  rights  under  Article  113 of the  CBCA  in  connection  with  the
reincorporation of Kelly's Coffee Group, Inc. to Nevada.  Upon strict compliance
with the  notice and  abstention  from  voting  requirements  summarized  below,
shareholders  may be  entitled,  pursuant to Article 113, to receive in cash the
fair value of their shares of Kelly's  Coffee Group,  Inc.  capital  stock.  The
requirement to abstain from voting is only applicable to shareholders of Kelly's
Coffee Group, Inc. common stock because they are the only shareholders  entitled
to vote at the special meeting.

The  following  summary  does not purport to be a complete  statement of the law
relating to  dissenters'  rights and is qualified in its entirety by Article 113
of the CBCA, a copy of which is attached  hereto as Appendix  "C".  This summary
and Article 113 should be reviewed  carefully by any  shareholder  who wishes to
exercise  dissenters' rights or who wishes to preserve the right to do so, since
failure to comply  strictly  with the  procedures  set forth in Article 113 will
result in loss of such rights.  Any  shareholder  who is considering  dissenting
should consult their legal advisor.

ACTIONS TO BE TAKEN BEFORE THE MEETING

Notice to Kelly's  Coffee Group,  Inc. A shareholder  who wishes to dissent must
provide us with a written  notice of intent to demand payment for the dissenting
shares before the vote on the  reincorporation  proposal at the special meeting.
The notice must  reasonably  inform us of the identity of the shareholder and of
the  shareholder's  intent to demand  payment  for the  shareholder's  shares of
common stock if the  reincorporation  is  completed.  Neither a vote against the
reincorporation nor any proxy directing such vote, nor abstention from voting on
the reincorporation will satisfy the requirement for a written notice to us. All
such notices should be mailed to Kelly's Coffee Group, Inc., 268 West 400 South,
Suite 300, Salt Lake City, Utah 84101, Attn.: Richard D. Surber.

NO VOTING IN FAVOR OF REINCORPORATION

In addition to  delivering a written  notice of intent to demand  payment,  each
dissenting shareholder must not vote any of his or her shares of common stock in
favor of the reincorporation, either by proxy or at the special meeting.

                                       22


<PAGE>



EXERCISE OF DISSENTERS' RIGHTS BY RECORD SHAREHOLDERS

Dissenters' rights must be exercised by the shareholders of record. Thus persons
who hold their  interest in shares of our common  stock  through a nominee  must
require the record  shareholder  to deliver to us a written  notice of intent to
demand  payment and  otherwise to comply with the  requirements  (including  the
requirement  to cause the record  shareholder to refrain from voting in favor of
the  reincorporation)  as to all of the  shares  of common  stock  held for such
beneficial owner.

ACTIONS TO BE TAKEN UPON OR AFTER APPROVAL OF THE REINCORPORATION

DISSENTERS' NOTICE

If the  reincorporation  proposal is  authorized at the special  meeting,  then,
within ten days  thereafter,  we will  provide  each  dissenting  shareholder  a
written notice stating the proposed effective date of the  reincorporation,  the
address where the form for the making of a payment demand must be sent and where
the  certificate(s)  representing  their  shares  of our  common  stock  must be
deposited, supplying each dissenting shareholder with a form for the making of a
payment  demand,  informing  holders  of  uncertificated  shares to what  extent
transfers of such shares will be restricted after payment demand is received and
setting  the date by which  all forms for the  making  of a payment  demand  and
certificates representing the shares of our common stock must be received, which
date shall be not less than 30 days after the date of the written notice sent by
us to dissenting shareholders after the approval of the reincorporation proposal
at the special meeting.  Such notice will be accompanied by a copy of Article 13
of the CBCA. Dissenting  shareholders must, within the time and according to the
procedures set forth in such notice:

     (1)  Send us a duly  completed  form for the  making  of a  payment  demand
          concerning such dissenting shareholder's shares of common stock; and

     (2)  Deposit  with the party  named on such  notice the share  certificates
          representing such dissenting shareholder's shares of common stock.

A shareholder who demands payment retains all rights as a shareholder except the
right to transfer  shares until the effective date of the proposed  transactions
giving  rise to the  shareholder's  dissent  and only has the  right to  receive
payment for the shares after the effective date of the proposed transactions.

Unless the  reincorporation  does not become  effective within sixty days of the
deadline for payment  demands or we do not make  payment on such payment  demand
within  sixty  days,  the  delivery  of a  payment  demand  and the  deposit  of
certificates  representing the dissenting  shareholder's  shares of common stock
are irrevocable.

Failure  to  comply  strictly  with  the  notice   requirements  for  dissenting
shareholders described in this section will cause the loss of dissenters' rights
under Article 113 of the CBCA.

PAYMENT

Upon the  effective  date of the  reincorporation  or the receipt of the payment
demand,  whichever is later,  we will pay to all  shareholders  who have validly
exercised their dissenters' rights under Article 113 at the address shown on the
form for the making of a payment demand the amount we estimate is the fair value
of the dissenting shareholder's shares of common stock plus interest at the rate
provided  in  Article  113  of  the  CBCA  from  the   effective   date  of  the
reincorporation  until the payment  date.  We also will provide the  information
required by Article 13 of the CBCA to dissenting shareholders.

                                       23


<PAGE>



NOTICE OF DISSATISFACTION WITH RESPONSE TO PAYMENT DEMAND

If a shareholder who has validly exercised  dissenters' rights under Article 113
of the CBCA believes  that (i) the amount  offered or paid is less than the fair
value of his or her shares of common stock or that the interest was  incorrectly
calculated;  (ii) we have failed within sixty days to make the payment  offered,
or (iii) we do not return  deposited  certificates  when  required to do so, the
dissenting  shareholder may give notice to us of the  shareholder's  estimate of
the fair  market  value of his or her  shares of common  stock and the amount of
interest due and demand  payment of such estimate,  less any payment  previously
made by us, or the  dissenting  shareholder  may  reject  our  offer and  demand
payment of the fair value of the shares and interest  due. Any  objection by the
dissenting  shareholder  must be received by us within thirty days after we make
or offer payment for the dissenting shareholder's shares of common stock.

RESOLUTION OF DISSENTERS' PAYMENT OBJECTIONS

If a dissenter's  demand for payment  remains  unresolved,  then we may,  within
sixty days of receipt thereof,  request that a court determine the fair value of
the  dissenting  shareholder's  shares and interest  due  thereon.  If we do not
timely make such a request,  we must pay the dissenting  shareholder  the amount
set forth in the dissenting  shareholder's  payment  objection.  In a proceeding
described  in  this   paragraph,   the  court  will   appraise  the   dissenting
shareholder's  shares of common stock and enter  judgment in any amount by which
the  court  finds  the value of the  dissenting  shareholder's  shares of common
stock, plus interest,  exceeds the amount paid by us, or in any amount the court
finds to be the fair  value,  plus  interest,  of the  dissenting  shareholder's
shares for which we elected to withhold  payment under Article 113, section 208.
The court will assess costs of the appraisal  proceeding against us, except that
it may assess costs against dissenters if it finds they acted not in good faith.
The court may also assess fees and expenses of experts and counsel against us or
against any party which it finds did not comply with  requirements  or acted not
in good faith.

This summary and the attached copy of Article 113 of the CBCA should be reviewed
carefully by any  shareholder who wishes to exercise  dissenters'  rights or who
wishes to preserve the right to do so.  Failure to comply  strictly with all the
conditions for asserting rights as a dissenting shareholder,  including the time
limits referred to herein,  will result in loss of such dissenters'  rights, and
such  dissenters'  shares of common  stock will be entitled  only to the payment
(consisting of stock of Kelly's  Coffee Group,  Inc., a Nevada  corporation,  in
exchange for shares of the Company's  common stock) as provided in the agreement
and plan of merger.

RECOMMENDATION OF THE BOARD OF DIRECTORS

FOR THE REASONS  STATED  ABOVE,  THE BOARD OF DIRECTORS OF THE COMPANY  BELIEVES
THAT THE TRANSACTIONS  CONTEMPLATED BY THE PROPOSED  REINCORPORATION  MERGER ARE
DESIRABLE  AND  IN  THE  BEST  INTERESTS  OF  THE  COMPANY'S   SHAREHOLDERS  AND
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" SUCH PROPOSAL.

OTHER MATTERS

The Board of  Directors is not aware of any other  matters to be  presented  for
action at the Meeting.  Section  7-107-102 of CBCA precludes  consideration at a
Special  Shareholders  Meeting of any matters not described in the Notice of the
meeting.  However,  if any other matters  properly come before the Meeting,  the
persons  named in the  enclosed  proxy will vote in  accordance  with their best
judgment.

                                       24


<PAGE>



FINANCIAL INFORMATION

A copy of the Company's  financial  Statements  for the year ended  February 29,
2000 and the three month period ended May 31, 2000 are available for  inspection
by shareholders  of the Company at the principal  offices of the Company located
at 268 West 400 South,  Suite 300, Salt Lake City,  Utah 84101.  Telephone (801)
575- 8073.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Plan of Operations

As used  herein the term  "Company"  refers to Kelly's  Coffee  Group,  Inc.,  a
Colorado  corporation  and  its  predecessors,   unless  the  context  indicates
otherwise.  The Company  discontinued  its  operations on February 28, 1998. The
Company is currently a shell company whose purpose will be to acquire operations
through an acquisition, merger or begin its own start-up business.

The Company is in the process of  attempting to identify and acquire a favorable
business  opportunity.  The  Company  has  reviewed  and  evaluated  a number of
business ventures for possible  acquisition or participation by the Company. The
Company has not entered into any  agreement,  nor does it have any commitment or
understanding to enter into or become engaged in a transaction as of the date of
this filing. The Company continues to investigate, review, and evaluate business
opportunities  as they  become  available  and will  seek to  acquire  or become
engaged  in  business  opportunities  at  such  time as  specific  opportunities
warrant.  The  Company  will  continue in its  attempts to settle its  remaining
liabilities at a discount.

The Company has no plans for the purchase or sale of any plant or equipment.

The Company is a development  stage company and currently has no employees.  The
Company has no current plans to make any changes in the number of employees.

Results of Operations

The Company had no sales  revenues  for the three  months ended May 31, 2000 and
1999.  The Company had no sales for the three  months ended May 31, 2000 because
it ceased operations as of February 28, 1998 as a result of recurring losses.

The  Company  had no costs of sales for the three  months  ended May 31, 2000 or
1999 because it ceased operations as of February 28, 1998.

General and  administrative  expenses were $6,666 for the three months ended May
31,  2000,  compared  to $0 for  the  same  period  in  1999.  The  general  and
administrative  expenses  increased  for the  same  period  in 2000  because  of
activities related to resolving debt and searching for an appropriate  candidate
for a reverse merger.

The Company  recorded  net income of $26,793 for the three  months ended May 31,
2000  compared to net income of $0 for the same  period in 1999.  The net income
recorded for the three months ended May 31, 2000 was  attributable to $21,591 in
accrued interest on the debt from discontinued operations,  which the company is
attempting to clear off the books,  $6,666 in general  administrative  expenses,
and a gain of $50,050 from the settlement of debt with Robert Pallota,  a former
director  of the  Company,  and Mick  Schumacher  and  Terry  Seipert.  For more
information on the settlement of claims,  please see Part II, Item 2 "Changes in
Securities and Use of Proceeds."

                                       25


<PAGE>



Capital Resources and Liquidity

At May 31, 2000,  the Company had current  assets of $3,176,585 and total assets
of $3,176,585.  The Company had a net working  capital  surplus of $2,074,068 at
May 31, 2000.

Net stockholders' equity in the Company was $2,050,818 as of May 31, 2000.

The Company's working capital and stockholder's equity significantly improved as
a result of a change in the value of securities  held for  investment as well as
the elimination of $56,909 in  liabilities.  Previously the securities were held
at the lower of cost or market due to the nature of the investments and the lack
of a readily  determinable fair value.  Since the securities now meet the 1 year
guidelines  for  becoming  readily  tradeable,  they have been marked to current
market values as of May 31,2000.

10-KSB AND 10-QSB REPORTS

THE COMPANY WILL PROVIDE EACH BENEFICIAL  OWNER OF ITS SECURITIES WITH A COPY OF
ITS  ANNUAL  REPORT ON FORM  10-KSB,  INCLUDING  THE  FINANCIAL  STATEMENTS  AND
SCHEDULES  THERETO,  REQUIRED  TO BE FILED  WITH  THE  SECURITIES  AND  EXCHANGE
COMMISSION  FOR THE  COMPANY'S  MOST  RECENT  FISCAL  YEAR,  AND ITS MOST RECENT
QUARTERLY  REPORT  ON  FORM  10-QSB,  INCLUDING  THE  FINANCIAL  STATEMENTS  AND
SCHEDULES  THERETO,  REQUIRED  TO BE FILED  WITH  THE  SECURITIES  AND  EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT QUARTER,  WITHOUT CHARGE,  UPON RECEIPT
OF A WRITTEN REQUEST FROM SUCH PERSON.  SUCH REQUEST SHOULD BE DIRECTED TO CHIEF
FINANCIAL  OFFICER,  KELLY'S COFFEE GROUP,  INC., 268 WEST 400 SOUTH, SUITE 300,
SALT LAKE CITY, UTAH 84101.

By Order of the Board of Directors

/s/  Kevin J. Schillo
--------------------------
Kevin J. Schillo
Secretary

Salt Lake City, Utah
August 15, 2000

                                       26


<PAGE>



                           KELLY'S COFFEE GROUP, INC.
                          268 West 400 South, Suite 300
                           Salt Lake City, Utah 84101

           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

                                      PROXY

The undersigned  hereby  constitutes and appoints Richard D. Surber and Kevin J.
Schillo,  with power of  substitution,  the proxies of the undersigned to attend
the  special  meeting of the  stockholders  of Kelly's  Coffee  Group,  Inc.  on
September 20, 2000, and any adjournment  thereof, and to vote in his, her or its
place  or  stead  the  stock  of the  corporation  held  of  record  name by the
undersigned.

     1.   Proposal  to  empower  the Board of  Directors  to take the  necessary
          corporate  action to relocate  the  domicile of  incorporation  of the
          Company from the State of Colorado to the State of Nevada;

           [ ] FOR [ ] AGAINST [ ] ABSTAIN

This proxy, when properly executed,  will be voted in the manner directed herein
by the undersigned stockholder.  IF NO SPECIFIC DIRECTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.



--------------------------------          -------------------------------------
Print Name                                Signature of Stockholder

--------------------------------          -------------------------------------
Number of Shares                          Signature if Held Jointly

                                          -------------------------------------
                                          Date

Please  sign  exactly  as  name  appears  on  the  certificate  or  certificates
representing  shares  to be voted  by this  proxy.  When  signing  as  executor,
administrator,  attorney,  trustee or guardian, please give full titles as such.
If a  corporation,  please sign in full  corporate  name by  president  or other
authorized  officer.  If a  partnership,  please  sign  in  partnership  name by
authorized persons.

SEND PROXIES TO:

         Kelly's Coffee Group
         268 West 400 South, Suite 300
         Salt Lake City, Utah 84101

                                       27


<PAGE>



Appendix "A"

                          AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (hereinafter called the "Merger Agreement") is
made as of August 3, 2000, by and between Kelly's Coffee Group, Inc., a Colorado
corporation  ("Kelly's  Colorado"),  and Kelly's  Coffee  Group,  Inc., a Nevada
corporation  ("Kelly's  Nevada").   Kelly's  Colorado  and  Kelly's  Nevada  are
sometimes referred to as the "Constituent Corporations."

                                    Recitals

A.  WHEREAS,  The  authorized  capital  stock of Kelly's  Colorado  consists  of
150,000,000 shares of Common Stock,  $0.001 par value of which 51,966,427 shares
are issued and outstanding, and 50,000,000 shares of preferred stock, $0.001 par
value of which 0 shares are issued and outstanding.

B. WHEREAS, the authorized capital stock of Kelly's Nevada, upon effectuation of
the  transactions  set  forth  in  this  Merger   Agreement,   will  consist  of
1,000,000,000  shares of Common Stock, $0.001 par value and 50,000,000 shares of
Preferred Stock, $0.001 par value.

C. WHEREAS, the directors of the Constituent  Corporations deem it advisable and
to the advantage of the  Constituent  Corporations  that Kelly's  Colorado merge
with and into Kelly's Nevada upon the terms and conditions herein provided,  for
the sole purpose of effecting a change of domicile from the State of Colorado to
the State of Nevada.

D. WHEREAS,  the  merger  will  have no  effect  or change in the  nature of the
business or management of the resulting business operating through the surviving
corporation.

                                    Agreement

NOW,  THEREFORE,  the  parties  do  hereby  adopt  the  plan  of  reorganization
encompassed by this Merger  Agreement and do hereby agree that Kelly's  Colorado
shall merge into Kelly's  Nevada on the following  terms,  conditions  and other
provisions:

1. TERMS AND CONDITIONS.

         1.1 Merger.  Kelly's  Colorado  shall be merged  with and into  Kelly's
Nevada (the  "Merger"),  and Kelly's  Nevada shall be the surviving  corporation
(the "Surviving Corporation") effective upon the date when this Merger Agreement
is filed with the Secretary of State of Nevada (the "Effective Date").

         1.2 Succession.  On the Effective  Date,  Kelly's Nevada shall continue
its corporate  existence under the laws of the State of Nevada, and the separate
existence and corporate  organization of Kelly's Colorado,  except insofar as it
may be continued by operation of law, shall be terminated and cease.

         1.3 Transfer of Assets and  Liabilities.  On the  Effective  Date,  the
rights,  privileges,  powers  and  franchises,  both of a public as well as of a
private nature, of each of the Constituent  Corporations  shall be vested in and
possessed  by the  Surviving  Corporation,  subject to all of the  disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
and singular rights,privileges, powers and franchises of each of the Constituent

                                       28


<PAGE>



Corporations,  and  all  property,  real,  personal  and  mixed,  of each of the
Constituent  Corporations,  and  all  debts  due  to  each  of  the  Constituent
Corporations on whatever account,  and all things in action or belonging to each
of the  Constituent  Corporations  shall be  transferred  to and  vested  in the
Surviving  Corporation;  and  all  property,  rights,  privileges,   powers  and
franchises,  and all and every other interest,  shall be thereafter the property
of the Surviving Corporation as they were of the Constituent  Corporations,  and
the  title to any real  estate  vested  by deed or  otherwise  in  either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the  Merger;  provided,   however,  that  the  liabilities  of  the  Constituent
Corporations  and of their  shareholders,  directors  and officers  shall not be
affected and all rights of  creditors  and all liens upon any property of either
of the Constituent  Corporations  shall be preserved  unimpaired,  and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations  may be prosecuted to judgment as if the Merger had not taken place
except as they may be modified with the consent of such creditors and all debts,
liabilities  and duties of or upon each of the  Constituent  Corporations  shall
attach to the Surviving Corporation,  and may be enforced against it to the same
extent as if such debts,  liabilities and duties had been incurred or contracted
by it.

         1.4  Common  Stock of  Kelly's  Colorado  and  Kelly's  Nevada.  On the
Effective  Date,  by virtue of the Merger and without any further  action on the
part of the Constituent  Corporations or their  shareholders,  (i) each share of
Common  Stock of Kelly's  Colorado  issued  and  outstanding  immediately  prior
thereto shall be converted into shares of fully paid and nonassessable shares of
the Common Stock of Kelly's  Nevada at a ratio of 1 to 1, and (ii) each share of
Common Stock of Kelly's Nevada issued and outstanding  immediately prior thereto
shall be canceled and returned to the status of authorized but unissued shares.

         1.5 Stock  certificates.  On and after the Effective  Date,  all of the
outstanding  certificates  which  prior to that time  represented  shares of the
Common Stock or of the Preferred  Stock of Kelly's  Colorado shall be deemed for
all purposes to evidence  ownership  of and to  represent  the shares of Kelly's
Nevada  into  which  the  shares  of  Kelly's   Colorado   represented  by  such
certificates  have been converted as herein  provided and shall be so registered
on the books and records of the Surviving  Corporation  or its transfer  agents.
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 the Surviving  Corporation or its transfer  agent,  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 Kelly's Nevada evidenced
by such outstanding certificate as above provided.

2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.

         2.1 Articles of Incorporation and Bylaws. The Articles of Incorporation
and Bylaws of Kelly's  Nevada in effect on the Effective  Date shall continue to
be the Articles of Incorporation and Bylaws of the Surviving Corporation.

         2.2 Directors.  The directors of Kelly's Colorado immediately preceding
the Effective  Date shall become the directors of the Surviving  Corporation  on
and after the  Effective  Date to serve until the  expiration of their terms and
until their successors are elected and qualified.

         2.3 Officers.  The officers of Kelly's Colorado  immediately  preceding
the Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.

                                       29


<PAGE>



3. MISCELLANEOUS.

         3.1 Further  Assurances.  From time to time,  and when  required by the
Surviving Corporation or by its successors and assigns,  there shall be executed
and delivered on behalf of Kelly's  Colorado  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 or necessary in order to vest or perfect in or
to conform of record or otherwise, in the Surviving Corporation the title to and
possession  of  all  the  property,   interests,   assets,  rights,  privileges,
immunities,  powers,  franchises and authority of Kelly's Colorado and otherwise
to carry  out the  purposes  of this  Merger  Agreement,  and the  officers  and
directors of the Surviving  Corporation are fully  authorized in the name and on
behalf of Kelly's  Colorado 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 shareholders
of Kelly's Colorado,  this Merger Agreement may be amended in any manner (except
that,  after the approval of the Merger Agreement by the shareholders of Kelly's
Colorado, the principal terms may not be amended without the further approval of
the  shareholders  of Kelly's  Colorado) as may be determined in the judgment of
the respective  Board of Directors of Kelly's Nevada and Kelly's  Colorado 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  Conditions  To  Merger.   The   obligations  of  the   Constituent
Corporations  to effect  the  transactions  contemplated  hereby is  subject  to
satisfaction  of the following  conditions (any or all of which may be waived by
either of the  Constituent  Corporations  in its sole  discretion  to the extent
permitted by law):  the Merger shall have been approved by the  shareholders  of
Kelly's  Colorado in  accordance  with  applicable  provisions  of the  Colorado
Business  Corporations Act; and Kelly's Colorado, as sole shareholder of Kelly's
Nevada,   shall  have  approved  the  Merger  in  accordance  with  the  General
Corporation  Law of the  State of  Nevada;  and any and all  consents,  permits,
authorizations,  approvals,  and orders deemed in the sole discretion of Kelly's
Colorado to be material to consummation of the Merger shall have been obtained.

         3.4  Abandonment  or Deferral.  At any time before the Effective  Date,
this Merger  Agreement may be terminated  and the Merger may be abandoned by the
Board of  Directors  of  either  Kelly's  Colorado  or  Kelly's  Nevada or both,
notwithstanding  the approval of this Merger  Agreement by the  shareholders  of
Kelly's  Colorado or Kelly's  Nevada,  or the  consummation of the Merger may be
deferred  for a  reasonable  period of time if, in the  opinion of the Boards of
Directors of Kelly's  Colorado and Kelly's  Nevada,  such action would be in the
best interest of such  corporations.  In the event of termination of this Merger
Agreement,  this Merger  Agreement  shall become void and of no effect and there
shall be no liability on the part of either Constituent Corporation or its Board
of Directors or shareholders with respect thereto,  except that Kelly's Colorado
shall pay all expenses  incurred in connection  with the Merger or in respect of
this Merger Agreement or relating thereto.

         3.5  Counterparts.  In order to facilitate  the filing and recording of
this Merger  Agreement,  the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.

IN WITNESS WHEREOF,  this Merger  Agreement,  having first been duly approved by
the Board of  Directors  of  Kelly's  Colorado  and  Kelly's  Nevada,  is hereby
executed on behalf of each said  corporation  and  attested by their  respective
officers thereunto duly authorized.

                                       30


<PAGE>




                           KELLY'S COFFEE GROUP, INC.,
                             a Colorado Corporation

By:  /s/ Richard D. Surber                        By:  /s/Kevin J. Schillo
   ------------------------------------------        ---------------------
     Richard D. Surber, President and CEO            Kevin J. Schillo, Secretary



                           KELLY'S COFFEE GROUP, INC.,
                              a Nevada Corporation

By:  /s/ Richard D. Surber                       By:  /s/Kevin J. Schillo
     --------------------------------------           -------------------
       Richard D. Surber, President and CEO          Kevin J. Schillo, Secretary




                                       31


<PAGE>



Appendix "B"

             ARTICLES OF INCORPORATION OF KELLY'S COFFEE GROUP, INC.

                                   ARTICLE 1.

                                  Company Name

     1.1 The name of this corporation is Kelly's Coffee Group, Inc.

                                   ARTICLE 2.

                                    Duration

     2.1 The corporation shall continue in existence  perpetually  unless sooner
dissolved according to law.

                                   ARTICLE 3.

                       Principal Office & Registered Agent

     3.1 The resident  agent and  registered  office located within the State of
Nevada is:

                  LaVonne Frost
                  711 South Carson St. Suite 1
                  Carson City, Nevada 89701

                                   ARTICLE 4.

                                     Purpose

     4.1 The purpose for which the  corporation is organized is to engage in any
lawful activity within or without the State of Nevada.

                                   ARTICLE 5.

                               Board of Directors

     5.1. Number. The members of the governing Board of the Corporation shall be
styled "Directors", and the first Board shall be three (3) in number. The Number
of directors  shall not be reduced to less than one (1) nor exceed seven (7) and
may, at any time or times,  be increased or decreased in such manner as shall be
provided in the Bylaws of the  corporation  or by an  amendment to the Bylaws of
the  corporation   duly  adopted  by  either  the  Board  of  Directors  or  the
Shareholders.

     5.2 The names and addresses of the first Board of Directors are as follows:




                                       32


<PAGE>



    Richard D. Surber                           David Wolfson
    268 West 400 South, Suite 300               268 West 400 South, Suite 300
    Salt Lake City, Utah 84101                  Salt Lake City, Utah 84101

    Kevin J. Schillo
    268 West 400 South, Suite 300
    Salt Lake City, Utah 84101

                                   ARTICLE 6.

                                  Capital Stock

     6.1 Authorized Capital Stock. The total number of shares that may be issued
by the Corporation  and that the  Corporation  will be authorized to have is One
Billion Fifty Million (1,050,000,000) of the par value per share hereinafter set
forth.  A description  of the classes of shares and a statement of the number of
shares in each class and the relative  rights,  voting  power,  and  preferences
granted  to and  restrictions  imposed  upon the  shares  of each  class  are as
follows.

     6.2  Common  Stock.  The  total  number of  shares  of  Common  Stock  this
Corporation  shall have the  authority to issue is One Billion  (1,000,000,000).
The Common  Stock  shall  have a par value of $0.001  per  share.  Each share of
Common Stock shall have, for all purposes,  one (1) vote per share.  The holders
of Common  Stock  issued and  outstanding  have and possess the right to receive
notice of  shareholders'  meetings and to vote upon the election of directors or
upon any other matter as to which approval of the  outstanding  shares of Common
Stock or approval of the common shareholders is required.

     6.3.  Preferred  Stock.  The total number of shares of Preferred Stock this
Corporation is authorized to issue is Fifty million  (50,000,000)  shares with a
stated  par  value of  $0.001  per  share.  The  Board of  Directors  is  hereby
authorized from time to time,  without  shareholder  action,  to provide for the
issuance of Preferred Stock in one or more series not exceeding in the aggregate
the number of Preferred Stock authorized by these Articles of Incorporation,  as
amended from time to time.  The Board of Directors of the  Corporation is vested
with  authority to determine  and state the  designations  and the  preferences,
limitations,  relative rights,  and voting rights, if any of each such series by
the adoption and filing in accordance with the Nevada Revised  Statutes,  before
the issuance of any shares of such series,  of an  amendment  or  amendments  to
these  Articles of  Incorporation  determining  the terms of such series,  which
amendment need not be approved by the  stockholders  or the holders of any class
or series of shares except as provided by law. All shares of Preferred  Stock of
the same series shall be identical with each other in all respects.

                                   ARTICLE 7.

                             No Further Assessments

     7.1 The capital stock,  after the amount of the subscription price has been
paid in money, property, or services, as the Board of Directors shall determine,
shall be subject to no further  assessment to pay the debts of the  corporation,
and no stock issued as fully paid up shall ever be assessable  or assessed,  and
these Articles of Incorporation  shall not and cannot be amended,  regardless of
the vote therefore, so as to amend, modify or rescind this Article 6., or any of
the provisions hereof.

                                       33


<PAGE>



                                   ARTICLE 8.

                              No Preemptive Rights

     8.1  None of the  shares  of the  Corporation  shall  carry  with  them any
preemptive right to acquire additional or other shares of the Corporation and no
holder of any  stock of the  Corporation  shall be  entitled,  as of  right,  to
purchase  or  subscribe  for any  part of any  unissued  shares  of stock of the
Corporation or for any additional shares of stock, of any class or series, which
may at any time be  issued,  whether  now or  hereafter  authorized,  or for any
rights,  options,  or warrants to purchase or receive shares of stock or for any
bonds, certificates of indebtedness, debentures, or other securities.

                                   ARTICLE 9.

                              No Cumulative Voting

     9.1  Shareholders  will not have a right to  cumulate  their  votes for the
election of directors or for any purpose.

                                   ARTICLE 10.

       Election Not to be Governed By Provisions of NRS 78.411 to 78.444.

     10.1 The  Corporation,  pursuant  to NRS  78.434,  hereby  elects not to be
governed by the provisions of NRS 78.411 to 78.444, inclusive.

                                   ARTICLE 11.

                                     Indemnification of Officers and Directors

     11.1 The  Corporation  shall indemnify its directors,  officers,  employee,
fiduciaries and agents to the fullest extent  permitted under the Nevada Revised
Statutes.

     11.2 Every person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceedings,  whether civil,  criminal,
administrative or  investigative,  by reason of the fact that he or a person for
whom he is the legal  representative  is or was a  director  or  officer  of the
corporation or is or was serving at the request of the corporation as a director
or officer of another  corporation,  or as its  representative in a partnership,
joint venture, trust or other enterprise, shall be indemnified and held harmless
to the fullest extent legally  permissible  under the law of the State of Nevada
from time to time against all expenses, liability and loss (including attorney's
fees, judgments,  fines and amounts paid or to be paid in settlement) reasonably
incurred   or  suffered  by  him  in   connection   therewith.   Such  right  of
indemnification  shall be a contract  right  which may be enforced in any manner
desired by such person. Such right of indemnification  shall not be exclusive of
any other right which such directors,  officers or  representatives  may have or
hereafter  acquire and, without limiting the generality of such statement,  they
shall be  entitled  to their  respective  rights  of  indemnification  under any
By-Law, agreement, vote of stockholders,  provision of law or otherwise, as well
as their rights under this Article.

                                       34


<PAGE>



     11.3  Without  limiting  the  application  of the  foregoing,  the Board of
Directors may adopt By-Laws from time to time with respect to indemnification to
provide at all times the  fullest  indemnification  permitted  by the law of the
State of Nevada and may cause the corporation to purchase and maintain insurance
on behalf of any person who is or was a director  or officer of the  corporation
as a director of officer of another  corporation,  or as its representative in a
partnership,  joint  venture,  trust or other  enterprise  against any liability
asserted against such person and incurred in any such capacity or arising out of
such status,  whether or not the  corporation  would have the power to indemnify
such person.

     11.4 The private property of the Stockholders, Directors and Officers shall
not be subject to the payment of corporate debts to any extent whatsoever.

     11.5 No director,  officer or shareholder shall have any personal liability
to the corporation or its  stockholders for damages for breach of fiduciary duty
as a director or officer,  except that this  provision  does not  eliminate  nor
limit in any way the liability of a director or officer for:

     (a)  Acts or omissions  which involve  intentional  misconduct,  fraud or a
          knowing violation of law; or

     (b)  The payment of  dividends  in  violation  of Nevada  Revised  Statutes
          (N.R.S.) 78.300.

                                   ARTICLE 12.

                        Purchase of Corporation's Shares

     The  corporation,  by action of its  directors,  and without  action by its
shareholders,  may purchase its own shares in accordance  with the provisions of
the Nevada  Corporations  Code.  Such  purchases  may be made either in the open
marker or at a public or private  sale,  in such manner and  amounts,  from such
holder or holders of outstanding shares of the corporation and at such prices as
the Board of Directors shall from time to time determine.

                                   ARTICLE 13.

                                  Incorporators

     The name and address of the Incorporator of the corporation is as follows:

                  Richard D. Surber
                  268 West 400 South, Suite 300
                  Salt Lake City, Utah 84101

     IN WITNESS  WHEREOF,  we have hereunto set our hands this 31st day of July,
2000,  hereby  declaring and certifying  that the facts stated  hereinabove  are
true.

/s/  Richard D. Surber                               /s/ Kevin J. Schillo
------------------------------------                 ---------------------------
Richard D. Surber, Incorporator and Director          Kevin J. Schillo, Director


/s/  David Wolfson
-----------------------
David Wolfson, Director

                                       35


<PAGE>




NOTARIZATION OF SIGNATURE OF A DIRECTOR AND THE INCORPORATOR

State of Utah              )
                           )
County of Salt Lake        )

On this 31st day of July,  2000  before me,  Bonnie  Tippets,  a notary  public,
personally  appeared  Richard D. Surber who is personally  known to me to be the
person whose name is subscribed to this instrument and who has acknowledged that
he executed the same as a Director and the Incorporator of Kelly's Coffee Group,
Inc.

S                                     ______________________________________
E                                     Notary Public
A
L                                     ______________________________________
                                      My Commission Expires

NOTARIZATION OF SIGNATURE OF A DIRECTOR

State of Utah              )
                           )
County of Salt Lake        )

On this 31st day of July,  2000  before me,  Bonnie  Tippets,  a notary  public,
personally appeared David Wolfson who is personally known to me to be the person
whose name is subscribed to this  instrument  and who has  acknowledged  that he
executed the same as a Director of Kelly's Coffee Group, Inc.

S                                     ______________________________________
E                                     Notary Public
A
L                                     ______________________________________
                                      My Commission Expires

NOTARIZATION OF SIGNATURE OF A DIRECTOR

State of Utah              )
                           )
County of Salt Lake        )

On this 31st day of July,  2000  before me,  Bonnie  Tippets,  a notary  public,
personally  appeared  Kevin  J.Schillo who is  personally  known to me to be the
person whose name is subscribed to this instrument and who has acknowledged that
he executed the same as a Director of Kelly's Coffee Group, Inc.

S                                     ______________________________________
E                                     Notary Public
A
L                                     ______________________________________
                                      My Commission Expires

                                       36


<PAGE>


Appendix "C"

COLORADO BUSINESS CORPORATION ACT

7-113-201 - Notice of dissenters' rights.

(1) If a proposed  corporate  action creating  dissenters'  rights under section
7-113-102 is submitted to a vote at a shareholders'  meeting,  the notice of the
meeting shall be given to all shareholders, whether or not entitled to vote. The
notice  shall  state  that  shareholders  are  or  may  be  entitled  to  assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the  materials,  if any,  that,  under  articles  101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action  taken at the  shareholders'  meeting  for which the
notice was to have been given,  but any  shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding  payment
for the  shareholder's  shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (1).

(2) If a proposed  corporate  action creating  dissenters'  rights under section
7-113-102 is authorized  without a meeting of  shareholders  pursuant to section
7-107-104,  any  written  or oral  solicitation  of a  shareholder  to execute a
writing  consenting to such action  contemplated  in section  7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters'  rights under this article,  by a copy of this
article,  and by the materials,  if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders  entitled to vote on
the  proposed  action  if the  proposed  action  were  submitted  to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken  pursuant to section  7-107-104  for which the
notice was to have been given,  but any  shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding  payment
for the  shareholder's  shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (2).

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