<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 6, 1996
SOS STAFFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Utah 0-26094 87-0295503
(State or other jurisdiction (Commission File No.) (IRS Employer Id. No.)
of incorporation)
1415 South Main Street
Salt Lake City, Utah 84115
(Address of principal executive offices)
(801) 484-4400
(Telephone number)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Item 1. Acquisition or Disposition of Assets 1
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired:
Report of Independent Public Accountants F-1
Balance Sheets as of February 28, 1995, February 29, 1996
and September 30, 1996 F-2
Statements of Income and Retained Earnings for the Years Ended
February 28, 1995, February 29, 1996 and for the
nine months ended September 30, 1995 and 1996 F-4
Statements of Cash Flows for the Years Ended
February 28, 1995, February 29, 1996 and for the
nine months ended September 30, 1995 and 1996 F-5
Notes to Financial Statements F-7
(b) Pro Forma Financial Statements:
Unaudited Pro Forma Condensed Consolidated
Balance Sheets as of September 30, 1996 F-11
Unaudited Pro Forma Condensed Consolidated
Statement of Income for the Year Ended
December 31, 1995 F-12
Unaudited Pro Forma Condensed Consolidated
Statement of Income for the 39 Weeks Ended
September 29, 1996 F-13
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements F-14
(c) Exhibits
10.1 - Stock Purchase Agreement Wolfe & Associates
99.1 - Press Release dated November 6, 1996
Signatures
</TABLE>
<PAGE> 3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 6, 1996, SOS Staffing Services, Inc. signed a contract to
acquire all of the outstanding stock of Wolfe & Associates, Inc. ("Wolfe"), a
New Mexico corporation. Wolfe is an information technology company providing
consulting services, project management, information systems design, programming
and other information technology related staffing services to private and
public-sector clients throughout the United States. Wolfe is headquartered in
Albuquerque, New Mexico, and also has offices in Pleasanton, California and
Tustin California. In addition, Wolfe has an on-site facility in Juneau, Alaska
at a customer's location and sales representatives in Minneapolis, Minnesota and
Chicago, Illinois.
The purchase price for the stock was $4.0 million in cash plus future
contingent earnouts up to a maximum earnout of $6.0 million. The purchase price
for the business acquired was determined through arms-length negotiations. There
was no material relationship between the owners of Wolfe and the Company or any
of its affiliates, any director or officer of the Company, or any associate of
any such director or officer.
-1-
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wolfe & Associates, Inc.:
We have audited the accompanying balance sheets of Wolfe & Associates, Inc. (a
New Mexico corporation) as of February 28, 1995 and February 29, 1996, and the
related statements of income and retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wolfe & Associates, Inc. as of
February 28, 1995 and February 29, 1996, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
October 17, 1996
F-1
<PAGE> 5
Page 1 of 2
WOLFE & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
February 28, February 29, September 30,
1995 1996 1996
------------- ------------ --------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ -- $ -- $ 35,379
Marketable securities 79,979 -- --
Accounts receivable 441,172 475,874 465,577
Unbilled receivables 37,571 20,006 69,714
Prepaid expenses and other 10,151 11,711 3,275
--------- ----------- -----------
Total current assets 568,873 507,591 573,945
--------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures 334,711 423,561 444,534
Leasehold improvements 60,188 75,410 77,881
Vehicles 53,322 48,141 46,641
Real property -- 286,383 286,383
--------- ----------- -----------
448,221 833,495 855,439
Less - accumulated depreciation
and amortization (366,195) (357,314) (386,814)
--------- ----------- -----------
Net property and equipment 82,026 476,181 468,625
--------- ----------- -----------
AMOUNTS DUE FROM RELATED PARTY 137,005 73,977 88,349
--------- ----------- -----------
Total assets $ 787,904 $ 1,057,749 $ 1,130,919
========= =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-2
<PAGE> 6
Page 2 of 2
WOLFE & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, February 29, September 30,
1995 1996 1996
------------ ----------- -------------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ 131,314 $ 223,582 $ --
Current portion of long-term debt 106,710 113,776 111,666
Accrued payroll costs 165,056 148,902 366,546
Accrued liabilities 29,567 45,471 32,092
Unearned revenue 62,865 79,214 94,779
Income taxes payable -- 53,003 162,293
--------- ----------- ----------
Total current liabilities 495,512 663,948 767,376
--------- ----------- ----------
DEFERRED INCOME TAX LIABILITY 127,546 109,526 57,970
--------- ----------- ----------
LONG-TERM DEBT, less current portion 232,238 308,462 246,565
--------- ----------- ----------
COMMITMENTS (Note 3)
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value,
50,000 share authorized, 1,000
shares issued and outstanding 1,000 1,000 1,000
Additional paid in capital 20,000 20,000 20,000
Retained (deficit) earnings (88,392) (45,187) 38,008
--------- ----------- ----------
Total shareholders' (deficit) equity (67,392) (24,187) 59,008
--------- ----------- ----------
Total liabilities and shareholders' equity $ 787,904 $ 1,057,749 $1,130,919
========= =========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 7
WOLFE & ASSOCIATES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended Seven Months Ended
-------------------------------- ------------------------------
February 28, February 29, September 30,
1995 1996 1995 1996
----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
SERVICE REVENUES $ 2,734,697 $ 3,252,306 $ 1,919,806 $ 2,260,491
DIRECT COSTS OF SERVICES 1,508,252 1,915,980 1,124,777 1,265,526
----------- ----------- ----------- -----------
Gross profit 1,226,445 1,336,326 795,029 994,965
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,047,253 1,257,044 659,297 840,650
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 179,192 79,282 135,732 154,315
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 19,567 18,182 10,708 4,224
Interest expense (39,004) (34,656) (18,492) (19,137)
Other (1,606) 15,380 9,365 1,527
----------- ----------- ----------- -----------
Total other, net (21,043) (1,094) 1,581 (13,386)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 158,149 78,188 137,313 140,929
PROVISION FOR INCOME TAXES 62,156 34,983 53,009 57,734
----------- ----------- ----------- -----------
NET INCOME 95,993 43,205 84,304 83,195
RETAINED EARNINGS (Deficit), beginning
of period (184,385) (88,392) (88,392) (45,187)
----------- ----------- ----------- -----------
RETAINED EARNINGS (Deficit), end of period $ (88,392) $ (45,187) $ (4,088) $ 38,008
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-4
<PAGE> 8
Page 1 of 2
WOLFE & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
Year Ended Seven Months Ended
------------------------------- September 30,
February 28, February 29, --------------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 95,993 $ 43,205 $ 84,304 $ 83,195
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 22,790 9,333 16,142 31,056
Gain (loss) on sale of assets 1,606 (15,380) 9,365 --
Changes in operating assets
and liabilities:
Accounts receivable (210,136) (34,702) 55,916 10,297
Unbilled receivables 28,633 17,565 (4,464) (49,708)
Prepaid expenses and other 489 (1,560) 9,659 8,436
Amounts due from related party 6,283 63,028 13,530 (14,372)
Bank overdraft 58,929 92,268 (97,248) (223,582)
Accrued payroll costs 62,282 (16,154) 144,536 217,644
Accrued liabilities (7,945) 15,904 (25,254) (13,379)
Unearned revenue 29,706 16,349 20,576 15,565
Income taxes payable -- 53,003 152,863 109,290
Deferred income taxes 62,156 (18,020) (99,854) (51,556)
--------- --------- --------- ---------
Net cash provided by
operating activities 150,786 224,839 280,071 122,886
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (27,100) (213,488) (171,741) (23,500)
Purchase of marketable securities (81,713) (90,588) 20,614 --
Proceeds from sale of
marketable securities 51,544 185,947 -- --
--------- --------- --------- ---------
Net cash used in
investing activities (57,269) (118,129) (151,127) (23,500)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-term debt $ (93,517) $(106,710) $ (64,430) $ (64,007)
--------- --------- --------- ---------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-5
<PAGE> 9
Page 2 of 2
WOLFE & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
Year Ended Seven Months Ended
-----------------------------
February 28, February 29, September 30,
---------------------
1995 1996 1995 1996
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
NET INCREASE IN CASH -- -- $64,514 $35,379
CASH AT BEGINNING OF PERIOD -- -- -- --
------- ------- ------- -------
CASH AT END OF PERIOD $ -- $ -- $64,514 $35,379
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest: $38,068 $35,927 $18,359 $19,357
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:
In August 1995 the Company purchased real property for $286,383 and financed a
portion of this amount with a note payable of $190,000.
The accompanying notes to financial statements
are an integral part of these statements.
F-6
<PAGE> 10
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND ORGANIZATION OF BUSINESS
Wolfe & Associates, Inc. (the "Company"), was incorporated under the
laws of the State of New Mexico on December 16, 1980. The Company is an
information technology consulting firm that also provides temporary staffing
services to the information technology industry, including telecommunications
consulting services. The Company has offices or sales representatives in New
Mexico, California, Alaska, Illinois and Minnesota.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the terms of the respective leases or the estimated economic
lives of the assets, whichever is shorter. The depreciation and amortization
periods range from five to seven years. Real property consists of a condominium
owned by the Company and is being depreciated over 39 years.
Upon retirement or other disposition of property and equipment, the
cost and related accumulated depreciation or amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
REVENUE RECOGNITION
The Company reports revenues from fixed fee consulting contract
arrangements using the percentage-of-completion method. Under this method, the
Company recognizes total contract revenue in the proportion that costs incurred
to date relate to estimated total contract costs. The Company records amounts
received before work is performed as unearned revenue. When earned revenue
exceeds amounts billed, the Company records the difference as unbilled
receivables. At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss is accrued. The Company recognizes revenues
related to other arrangements when the services are provided.
INCOME TAXES
The Company recognizes deferred tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets or liabilities
are determined based upon the difference between the financial statements and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
F-7
<PAGE> 11
UNAUDITED INTERIM FINANCIAL DATA
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the seven months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the full
fiscal year.
NOTE 2. LONG-TERM DEBT
Long-term debt at February 28, 1995 and February 29, 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to a bank, interest at 10 percent due in
monthly installments of $8,550 through December
1997, secured by substantially all assets $ 246,249 $ 164,135
Notes payable to tax authorities, interest at 9 percent, due in quarterly or
yearly installments ranging from $230 to $3,523 through October 1998, secured
by substantially all assets 89,593 68,103
Note payable to a bank, interest of 7.5 percent, monthly interest only payments
of $1,188 with principal due in August 1998, secured by real property -- 190,000
Other 3,106 --
--------- ---------
338,948 422,238
Less current portion (106,710) (113,776)
--------- ---------
$ 232,238 $ 308,462
========= =========
<CAPTION>
Scheduled principal payments required are as follows:
Year Ending February 28,
<S> <C>
1997 $ 113,776
1998 99,595
1999 208,867
---------
$ 422,238
=========
</TABLE>
NOTE 3. COMMITMENTS
The Company leases its office facilities and certain vehicles under
noncancelable operating leases. Rental expense totalled approximately $88,400
and $104,600 for the years ended February 28, 1995 and February 29, 1996,
respectively. Rental expense totalled $55,000 and $70,000,
F-8
<PAGE> 12
for the seven months ended September 30, 1995 and 1996, respectively. Future
minimum lease payments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending February 28,
------------------------
<S> <C>
1997 $ 170,751
1998 177,316
1999 166,598
2000 143,636
2001 89,041
----------
$ 747,342
==========
</TABLE>
NOTE 4. INCOME TAXES
The components of the provision for income taxes for the fiscal years
ended February 28, 1995 and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current provision:
Federal $ - $ 46,158
State - 6,845
--------- ---------
- 53,003
Deferred 62,156 (18,020)
--------- ---------
Total $ 62,156 $ 34,983
========= =========
</TABLE>
The following is a reconciliation between the statutory federal income
tax rate and the effective income tax rate for the years ended February 28, 1995
and February 29, 1996:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal benefit 3.2 3.2
Meals and entertainment 4.1 10.7
Other (2.0) (3.2)
------ ------
39.3% 44.7%
====== ======
</TABLE>
The net deferred tax liabilities were $127,546 and $109,526 at February
28, 1995 and February 29, 1996, respectively and consisted primarily of
differences resulting from the Company utilizing the cash basis method of
accounting for income tax reporting purposes.
F-9
<PAGE> 13
NOTE 5. EMPLOYEE BENEFIT PLAN
The Company has an employee savings and retirement plan which is a
salary deferral plan based on Section 401(k) of the Internal Revenue Code.
Participants may contribute up to 15% of their qualified salaries to the plan.
Under the plan, the Company is required to make a matching contribution equal to
three percent of the eligible participants salary. In addition, the Company may
make discretionary contributions to the plan. For the years ended February 28,
1995 and February 29, 1996, the Company's total contributions to the plan were
approximately $82,600 and $50,400, respectively.
NOTE 6. SIGNIFICANT CUSTOMERS
During the years ended February 28, 1995 and February 29, 1996, one
customer accounted for approximately 25 percent and 18 percent of service
revenues, respectively.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company has advanced amounts to a shareholder. The balances of the
amounts due from this related party are $137,005, $73,977 and $88,349 as of
February 28, 1995, February 29, 1996 and September 30, 1996, respectively. These
advances are not interest bearing and are due on demand.
F-10
<PAGE> 14
SOS STAFFING SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
---------------------
Pro Forma
Company Wolfe Adjustments Pro Forma
------- ------- ----------- --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 493 $ 35 $ 528
Accounts receivable, net 17,270 535 17,805
Current portion of workers' compensation deposit 623 -- 623
Prepaid expenses and other 388 4 392
Deferred tax asset 184 -- 184
Amounts due from related parties 409 -- 409
------- ------- --------
Total current assets 19,367 574 19,941
------- ------- --------
PROPERTY AND EQUIPMENT, net 1,874 469 $ (315)(a) 2,028
------- ------- ------- --------
OTHER ASSETS 10,790 88 3,941 (b) 14,819
------- ------- ------- --------
Total Assets $32,031 $ 1,131 $ 3,626 $ 36,788
======= ======= ======= ========
CURRENT LIABILITIES:
Line of credit $ 1,325 -- $ $ 1,325
Current portion of long-term debt -- 112 (68)(a) 44
Accounts payable 131 -- 131
Accrued payroll costs 2,457 366 2,823
Current portion of workers' compensation reserve 1,102 -- 1,102
Accrued liabilities 1,999 127 2,126
Income taxes payable 537 162 699
------- ------- ------- --------
Total current liabilities 7,551 767 (68) 8,250
------- ------- ------- --------
LONG-TERM LIABILITIES 6,834 305 4,000 (b) 10,892
------- ------- --------
(247)(a)
SHAREHOLDERS' EQUITY 17,646 59 (59)(b) 17,646
------- ------- ------- --------
Total liabilities and shareholders' equity $32,031 $ 1,131 $ 3,626 $ 36,788
======= ======= ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
F-11
<PAGE> 15
SOS STAFFING SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED (52 WEEKS) DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical
---------------------
Pro Forma
Company Wolfe Adjustments Pro Forma
-------- --------- ----------- --------------
<S> <C> <C> <C> <C>
SERVICE REVENUES $87,533 $ 3,252 $ 90,785
DIRECT COSTS OF SERVICES 69,353 1,916 71,269
------- ------- --------
Gross profit 18,180 1,336 19,516
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 13,859 1,257 $(176)(c) 15,116
------- ------- --------
126 (c)
50 (c)
INCOME FROM OPERATIONS 4,321 79 -- 4,400
OTHER INCOME (EXPENSE) 85 (1) (310)(d) (226)
------- ------- ---- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 4,406 78 (310) 4,174
PROVISION FOR INCOME TAXES 1,729 35 (56)(e) 1,708
------- ------- ---- --------
NET INCOME $ 2,677 $ 43 $(254) $ 2,466
======= ======= ==== ========
NET INCOME PER COMMON SHARE $ 0.43 $ 0.40
======= ========
WEIGHTED AVERAGE COMMON SHARES 6,229 6,229
======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated financial statements.
F-12
<PAGE> 16
SOS STAFFING SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
FOR THE 39 WEEKS ENDED SEPTEMBER 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical
-----------------------
Pro Forma
Company Wolfe Adjustments Pro Forma
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
SERVICE REVENUES $ 92,834 $ 2,770 $ 95,604
DIRECT COSTS OF SERVICES 73,735 1,551 75,286
-------- ------- --------
Gross profit 19,099 1,219 20,318
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 14,284 1,031 $ (83)(c) 15,364
-------- ------- ----- --------
95 (c)
37 (c)
INCOME FROM OPERATIONS 4,815 188 (49) 4,954
OTHER INCOME (EXPENSE) (61) (10) (233)(d) (304)
-------- ------- ---- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 4,754 178 (282) 4,650
PROVISION FOR INCOME TAXES 1,806 73 (62)(e) 1,817
-------- ------- ---- --------
NET INCOME $ 2,948 $ 105 $(220) $ 2,833
======== ======= ===== ========
NET INCOME PER COMMON SHARE $ 0.44 $ 0.42
======== ========
WEIGHTED AVERAGE COMMON SHARES 6,760 6,760
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
F-13
<PAGE> 17
SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed balance sheet and statements
of income are presented to give effect to the acquisition of all of the shares
of stock of Wolfe & Associates, Inc. ("Wolfe") which occurred in November 1996.
This presentation assumes that the acquisition occurred as of September 29, 1996
for purposes of the pro forma condensed consolidated balance sheet and at the
beginning of the periods presented for purposes of the pro forma condensed
consolidated statements of income. Such information does not purport to be
indicative of the results which would have actually been obtained if the
acquisition had been effected on the dates indicated nor is it indicative of
actual or future operating results or financial position.
The historical income statement period of Wolfe, included in the pro forma
condensed consolidated income statement for the year ended December 31, 1995,
represents Wolfe's fiscal year ended February 29, 1996. Wolfe's historical
period included in the pro forma condensed consolidated income statement for the
39 weeks ended September 29, 1996, is the nine month period beginning January 1,
1996 and ending September 30, 1996.
The historical income statement period of SOS Staffing Services, Inc. (the
"Company") for the year ended December 31, 1995 includes a pro forma adjustment
for income taxes related to the termination of the Company's S corporation
election which was done in connection with the Company's initial public offering
in July 1995.
The purchase method of accounting has been used in preparing the pro forma
condensed data. The purchase price was approximately $4,000,000 in cash plus
contingent future earnout payments not to exceed $6,000,000. The initial
purchase price, which was paid in November 1996, has been allocated based on the
fair value of the assets acquired and the liabilities assumed. This pro forma
allocation resulted in allocating approximately $3,791,000 to goodwill and
$150,000 to other intangible assets. The Company intends to allocate the future
earnout payments to goodwill when earned.
NOTE 2. PRO FORMA ADJUSTMENTS
(a) Adjustment to eliminate certain assets not acquired and liabilities not
assumed in accordance with the purchase agreement.
(b) Adjustment to record the initial purchase price and the long-term debt
borrowed by the Company to fund the acquisition.
F-14
<PAGE> 18
SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(c) In connection with the acquisition, the Company entered into employment
contracts with certain key executives. These adjustments reflect (i) the
elimination of excess compensation expense in the amount of approximately
$176,000 for the year ended December 31, 1995 and $83,000 for the 39 weeks ended
September 29, 1996, (ii) the amortization of goodwill totaling $126,000 for the
year ended December 31, 1995 and $95,000 for the 39 weeks ended September 29,
1996 based on a 30 year amortization period, and(iii) the amortization of other
intangible assets totaling $50,000 for the year ended December 31, 1995 and
$37,000 for the 39 weeks ended September 29, 1996 based on a three year
amortization period.
(d) Adjustment to reflect the additional interest expense of $310,000 for
the year ended December 31, 1995 and $233,000 for the 39 weeks ended September
29, 1996 calculated using an interest rate of 7.75 percent on funds borrowed.
(e) Adjustment to record the income tax provision or benefit at the
combined statutory federal and state income tax rate of 38 percent.
F-15
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOS STAFFING SERVICES, INC.
/s/ GARY B. CROOK
------------------------------------------
Gary B. Crook
Vice President, Chief Financial Officer and
Treasurer
Date: November 13, 1996
<PAGE> 1
Exhibit 10.1
STOCK PURCHASE
AGREEMENT
WOLFE & ASSOCIATES, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
COMES NOW, SOS Staffing Services, Inc. a Utah corporation at 1415 S.
Main, Salt Lake City, UT 84115 (hereinafter referred to as "SOSS"); Wolfe &
Associates, Inc., a New Mexico corporation at 5325 Wyoming Boulevard, N.E.,
Albuquerque, NM 87109 (hereinafter referred to as "WOLFE"); Curtis L. Wolfe,
Dawne E. Parker (a/k/a Dawne Wolfe) and Robert J. Otoupalik (hereinafter
collectively referred to as "SELLING SHAREHOLDERS"); and Christine Otoupalik
(hereinafter referred to as "COMMUNITY PROPERTY INTEREST HOLDER") and agree as
follows:
WITNESSETH:
WHEREAS, SOSS desires to purchase all of the outstanding shares of
stock in WOLFE from SELLING SHAREHOLDERS for cash or other good and valuable
consideration;
WHEREAS, SELLING SHAREHOLDERS, own all of the shares of stock issued
and outstanding in WOLFE and desire to exchange such shares with SOSS for cash
and other good and valuable consideration;
WHEREAS, the parties desire to enter into a written Agreement
describing and setting forth the terms and conditions under which they will
transfer ownership of said stock;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and conditions hereinafter set forth, and for other good and valuable
consideration, the parties agree as follows:
1. As a result of the stock purchase transaction contemplated by this
Agreement, SOSS shall acquire all of the assets and liabilities of WOLFE which
exist at the Closing Date. WOLFE's balance sheet at the time of Closing is
attached as Exhibit A. The assets at Closing are more fully set forth and
described, including the value of such assets, in Exhibits B (general assets), C
(operational assets) and D (cash, bank accounts, accounts receivable and
non-operational assets) which are incorporated herein by reference. WOLFE's
liabilities at the time of Closing are more fully set forth and described in
Exhibits E (third party contracts and leases), F (accounts payable), G (other
liabilities), H (contingent liabilities), J (tax liabilities) and Exhibit K
(causes of actions and lawsuits) which are incorporated herein by reference.
The parties acknowledge that WOLFE may currently have other
assets and liabilities which are not listed in the preceding Exhibits. Such
assets may be sold or otherwise transferred and such liabilities extinguished
and satisfied prior to the Closing of the Agreement. Any such asset or liability
not specifically listed in the Exhibits hereto are not to be transferred
hereunder and shall remain the property or responsibility of the SELLING
SHAREHOLDERS. Any asset or liability not identified in the Exhibits hereto which
have not
<PAGE> 3
been legally and validly transferred by WOLFE or assumed from WOLFE shall upon
the Closing of this Agreement be transferred to or assumed by SELLING
SHAREHOLDERS.
2. The closing of the transaction contemplated by this Agreement shall
take place on , 1996 at :00 .m. at 1415 South Main Street, Salt
Lake City, UT 84115, the principal place of business of SOSS or at such other
date, time or place as the parties may agree upon in writing (the "Closing").
3. At Closing, SELLING SHAREHOLDERS, Curtis L. Wolfe and Dawne E.
Parker, as joint tenants, shall deliver, convey and transfer 4,000 shares of
WOLFE stock to SOSS for the consideration described in Article 4 herein.
Additionally, SELLING SHAREHOLDER, Robert J. Otoupalik, and COMMUNITY PROPERTY
INTEREST HOLDER, Christine Otoupalik, shall deliver, convey and transfer 4,000
shares of WOLFE stock to SOSS for the consideration described in Article 4
herein. The aggregate number of shares of WOLFE stock to be transferred by all
SELLING SHAREHOLDERS and the COMMUNITY PROPERTY INTEREST HOLDER hereunder is
8,000 shares.
4. In consideration for receiving the stock pursuant to Article 3
herein and in consideration of the representations, warranties, and covenants of
WOLFE, SELLING SHAREHOLDERS and the COMMUNITY PROPERTY INTEREST HOLDER, SOSS
agrees to pay SELLING SHAREHOLDERS and the COMMUNITY INTEREST HOLDER the
following amounts on the conditions set forth herein:
(a) The total purchase price for the shares of stock described
in Article 3 of this Agreement and the payments described in
this Article 4 shall in no event exceed TEN MILLION DOLLARS
($10,000,000.00).
(b) SOSS shall pay SELLING SHAREHOLDERS and the COMMUNITY PROPERTY
INTEREST HOLDER, in the aggregate (each party shall be paid
proportionally to his or her interest in WOLFE), as an initial
purchase price FOUR MILLION DOLLARS ($4,000,000.00), as
adjusted, at the time of Closing of this Agreement. The
$4,000,000.00 initial purchase price shall be adjusted by
increasing the sum by the value of the Assets shown on Exhibit D
(cash, bank accounts, accounts receivable and non-operational
assets), , including depreciation, less the liabilities,
including accruals for such liabilities, as listed on the
financial statement and specifically described in Exhibits E
(third party contracts and leases), F (accounts payable), G
(other liabilities), H (contingent liabilities), J (tax
liabilities) and Exhibit K (causes of actions and lawsuits). No
adjustment to the purchase price shall be made for the general,
operational and fixed assets described in Exhibits B and C.
(c) (i) The "Earn-out Period" shall commence on the Closing
Date of this Agreement and continue to December 28, 1997 (the
close of SOSS' 1997 fiscal year). SOSS shall pay SELLING
SHAREHOLDERS and the COMMUNITY PROPERTY INTEREST HOLDER, in the
aggregate, two and seven-tenths
<PAGE> 4
(2.7) times the Branch Profit (defined in Article 4 (d) herein)
generated by the business currently known as WOLFE during the
Earn-out Period in excess of $500,000.00, but less than
$700,000.00 (as adjusted to reflect a period greater than
fifty-two (52) weeks in 1997 to include the operation of the
Business from the Closing Date to December 28, 1997). Such
adjustments shall be made by multiplying $500,000.00 and
$700,000.00 by a fraction, the numerator of which is the number
of weeks in the Earn-out Period and the denominator of which is
fifty-two (52). For example, if the Closing Date is November 4,
1996, then there would be sixty weeks in the Earnout Period.
SOSS would pay 2.7 times the Branch Profit generated during the
sixty week Earnout Period which is in excess of $576,923.08
($500,000.00 x 60/52), but which is less than or equal to
$807,692.31 ($700,000.00 x 60/52). Such payment shall be made no
later than forty-five (45) days from the close of the Earn-out
Period.
(ii) In addition to the monies paid pursuant to Article 4(c)
(i) herein, SOSS shall pay SELLING SHAREHOLDERS and the
COMMUNITY PROPERTY INTEREST HOLDER, in the aggregate, four (4)
times the Branch Profit generated by the business currently
known as WOLFE during the Earn-out Period in excess of
$700,000.00 (as adjusted to reflect a period greater than
fifty-two (52) weeks in 1997 to include the operation of the
Business from the Closing Date to December 28, 1997). Such
adjustment shall be made by multiplying $700,000.00 by a
fraction, the numerator of which is the number of weeks in the
Earn-out Period and the denominator of which is fifty-two (52).
For example, if the Closing Date is November 4, 1996, then there
would be sixty weeks in the Earnout Period. SOSS would pay 4
times the Branch Profit generated during the sixty week Earnout
Period which is in excess of $807,692.31 ($700,000.00 x 60/52).
Such payment shall be made no later than forty-five (45) days
from the close of the Earn-out Period.
(iii) SELLING SHAREHOLDERS and the COMMUNITY PROPERTY
INTEREST HOLDER acknowledge and agree that such earn-out will be
based on SOSS' operation of the business and acknowledges that
SOSS' workers' compensation insurance, unemployment insurance,
bonding insurance, cost of interest, cost of employee benefits
and other costs differ from WOLFE's and past performance will
not necessarily be indicative of future profits. SELLING
SHAREHOLDERS and the COMMUNITY PROPERTY INTEREST HOLDER further
acknowledge that SOSS' payroll taxes are not adjusted on branch
statements for limits on FICA or unemployment insurance. SELLING
SHAREHOLDERS and the COMMUNITY PROPERTY INTEREST HOLDER further
acknowledge that the Earn-out base of $500,000.00, has been
adjusted downward from the original base amount to reflect the
difference in some expenses from SOSS and WOLFE.
(d) (i) "Branch Profit" as used in this Agreement means gross sales
(total sales of goods and services) less adjustments and
discounts; the cost of sales (temporary employee programs,
direct costs, temporary payroll, temporary payroll taxes,
<PAGE> 5
i.e. FICA, unemployment, etc., temporary worker's compensation,
drug testing and bonding insurance); branch staff expenses
(branch staff payroll, temporary staff payroll, commissions and
bonuses, branch staff and temporary staff payroll taxes, i.e.
FICA, unemployment insurance, etc., branch staff worker's
compensation, sales and travel, group insurance, background
checks, and drug testing); advertising expenses (specialty
items, classified ads, yellow pages, promotional events, other
advertising); operation expenses (telephone, office supplies,
legal, interest on accounts receivable, professional, postage
and delivery, petty cash, training expenses, and other operating
expenses); facilities expenses (rent, repair and maintenance,
utilities, depreciation and leasehold amortization); bad debt;
miscellaneous expenses (dues and subscriptions,
adjustments/recoveries, and reimbursements); printing expenses;
computer expenses; consultation expenses; taxes and insurance;
gain or loss on disposal of assets; depreciation of assets and
other expenses (career fair; services fees, internal expenses,
etc.); plus other income (bad debt recovery, finance charges
collected and other income). The Branch Profit does not include
corporate overhead expenses. The interest on accounts receivable
is calculated based upon the dollar amount of accounts
receivable at the end of each fiscal month at the prime rate as
set by First Security Bank of Utah on the last day of the fiscal
month. For purposes of calculating the Earnout, Branch Profit
shall be based on the combined operation of all offices
currently operated by WOLFE.
(ii) Branch Profit shall exclude profit from gross sales of
any single account to the extent gross sales of any single
account exceed twenty percent (20%) of total gross sales (the
amount by which gross sales of any such single account exceed
twenty percent (20%) of total gross sales will be hereinafter be
referred to as the "Excess"). If any single account has an
Excess, Branch Profit shall be reduced by a fraction, the
numerator of which is the Excess and the denominator of which is
the total gross sales. For example, if total gross sales are
$2,000,000 and a single account generated $600,000 in gross
sales, then the Excess for such account would be $200,000 [.2 x
$2,000,000 = $400,000 (to establish what 20% of total gross
sales would be); $600,000 - 400,000 = $200,000 (the amount the
single account was in Excess of the 20% cap)]. The Branch Profit
would then be reduced by 10% ($200,000 (Excess)/$2,000,000
(total gross sales) = .10 = 10%). Therefore in this example, if
Branch Profit was $500,000, then Branch Profit would be reduced
by $50,000 (10% x $500,000 = $50,000). The adjustments made
pursuant to this paragraph are based on the assumption that the
profitability rate/gross profit percentage of the account with
the excess is similar to the profitability rate/gross profit
percentage of other Wolfe & Associates, Inc. business. The
limitation on Branch Profit contained in this Article 4(d)(ii)
is applicable only to the Earnout Period and shall not apply to
subsequent years.
(iii) If the profitability rate/gross profit percentage of
an account which has an Excess deviates more than ten percent
(10%) from the profitability rate/gross
<PAGE> 6
profit percentage of other Wolfe & Associates, Inc. business,
then in addition to the adjustments made to the Branch Profit
pursuant to Article 4(d)(ii), the Branch Profit shall be
further reduced by the percent deviation in the profitability
rate/gross profit percentage for Excess. For example, if other
Wolfe & Associates, Inc. business had a profitability
rate/gross profit percentage of forty percent (40%) and the
account with an Excess had a profitability rate/gross profit
percentage of thirty percent (30%) the deviation would be
twenty-five percent (25%) (40%-30% = 10%; 10%/40% = .25 =
25%). If using the figures from the example in Article
4(d)(ii) ($2,000,000 total gross sales, $200,000 Excess), the
Branch Profit would then be further reduced by $50,000
($200,000 (Excess) x 25% (percent deviation) = $50,000). The
total reduction pursuant to both Article 4 (d) (i) and (ii)
would be $100,000 ($50,000 (from 4(d)(i)) + $50,000 (from
4(d)(ii)) = $100,000). Therefore if the Branch Profit was
$500,000 it would be reduced to $400,000 for Earnout
calculation purposes. The limitation on Branch Profit
contained in this Article 4(d)(iii) is applicable only to the
Earnout Period and shall not apply to subsequent years.
5. At the time of Closing of this transaction SOS Staffing Services
Inc. shall become the sole shareholder of Wolfe & Associates, Inc. and there
shall be no limitation of SOSS operation of WOLFE and SOSS makes no
representations or warranties to the SELLING SHAREHOLDERS and the COMMUNITY
PROPERTY INTEREST HOLDER concerning SOSS operation of WOLFE or its continued
existence, except that SOSS shall continue to operate WOLFE either as a
subsidiary or an operating division at least during the Earn-out Period and
during the term of any SELLING SHAREHOLDER's employment agreement in a manner
consistent with good business judgment. Nothing herein shall limit SOSS' ability
dissolve and/or liquidate WOLFE at any time, provided during the Earn-out Period
and during the term of SELLING SHAREHOLDERS' employment agreements SOSS shall
continue operate WOLFE as a division in a manner consistent with good business
judgement.
6. 6.1 Non-Competition.
6.1.1 Acknowledgments. SELLING SHAREHOLDERS acknowledge that:
(i) SOSS and its subsidiaries or affiliates currently existing or that may be
formed or incorporated during the Covenant Period (as defined in Article 6.2.1),
are currently engaged in the business of providing temporary staffing and
consulting personnel to employer-customers throughout the United States,
including clerical, industrial, technical, information systems, information
technology, data processing, professional, construction and manufacturing
personnel, as well as related services, including staff leasing, payrolling,
executive placement, permanent placement, and employee testing (all such
activities in which SOSS any subsidiaries or affiliates engage during the
Covenant Period and all nations in which SOSS, its subsidiaries or affiliates
operate during the Covenant Period are collectively referred to herein as the
"Business"); (ii)
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SELLING SHAREHOLDERS acknowledge that WOLFE provides information technology
and information system consulting and staffing services and other related
services throughout the United States of America and Canada, and when SOSS
acquires the stock of WOLFE, SOSS' Business will include all states and
provinces of the United States and Canada; (iii) SELLING SHAREHOLDERS
acknowledge that SOSS would be materially harmed if SELLING SHAREHOLDERS
competed either directly or indirectly with SOSS, its subsidiaries or affiliates
in a business related to WOLFE's business; (iv) the agreements and covenants
contained in this Article 6.1 are essential to protect the Business and goodwill
of SOSS, its subsidiaries and affiliates; and (v) SELLING SHAREHOLDERS have
means to support themselves and their dependents other than by engaging in the
Business, and the provisions of this Article 6 will not impair such ability.
Accordingly, SELLING SHAREHOLDERS covenant and agree as follows:
6.2 Covenants and Reformation.
6.2.1 Non-Competition Covenants. For a period
commencing at the Closing of this Agreement and continuing for thirty-six (36)
months (the "Covenant Period"), SELLING SHAREHOLDERS shall not within the United
States of America or Canada, directly or indirectly, (i) engage in the Business
or any aspect of the Business for SELLING SHAREHOLDERS' own account in
competition with SOSS, its subsidiaries or affiliates; (ii) enter the employ of,
or render any services to or consult with, any person engaged in competition
with SOSS, its subsidiaries or affiliates in the staffing or consulting
industry; (iii) become associated with any such person in any capacity,
including, without limitation, as an individual, partner, shareholder, officer,
director, principal, agent or trustee; provided, however, SELLING SHAREHOLDERS
may own, directly or indirectly, solely as an investment, securities of any
person traded on any national securities exchange or over-the-counter if SELLING
SHAREHOLDERS are not a controlling person of, or a member of a group which
controls, such person and does not, directly or indirectly, own 5% or more of
any class of securities of such person; (iv) solicit or otherwise deal with any
client of SOSS, its subsidiaries or affiliates in a manner designed to take
staffing or consulting business away from SOSS, its subsidiaries or affiliates;
(v) solicit or otherwise induce any employee of SOSS or its subsidiaries or
affiliates to terminate his/her employment with SOSS, its subsidiaries or
affiliates; or (vi) hire or solicit any consultant then under contract with
SOSS, its subsidiaries or affiliates or encourage such consultant to terminate
such relationship.
6.2.2 Limitation on Non-Competition Covenants. If any SELLING
SHAREHOLDER is terminated from employment from SOSS or its subsidiaries or
affiliates for any reason other than for cause, as defined in the respective
SELLING SHAREHOLDER's employment agreement, then the Non-Competition Covenant
contained in Article 6.2.1 shall only prohibit the terminated SELLING
SHAREHOLDER from in any way engaging in the Business with persons or entities
with which WOLFE, SOSS, its subsidiaries or affiliates had engaged in
<PAGE> 8
Business during the preceding two (2) year period. This limitation shall not
have effect until the payment of the Annual Salary as described in the
respective SELLING SHAREHOLDER's employment agreement terminates.
6.2.3 Reformation or "blue-penciling". SOSS intends to
restrict legitimate business under Article 6.2.1 only to the extent necessary to
protect SOSS' legitimate business interests. SELLING SHAREHOLDERS and SOSS agree
that the terms and conditions hereof should be enforced to the fullest extent
permitted by law. If any court determines that any provision of Article 6.2.1,
or any part thereof, is unenforceable because of the scope, duration or
geographic breadth of such provision, such court shall have the power to reform
such provision to the maximum scope, duration or geographical breadth, as the
case may be, that such court has determined is enforceable in accordance with
the law.
6.3 Nondisclosure Covenant. During the Covenant Period,
SELLING SHAREHOLDERS will maintain as confidential all proprietary information
which they may obtain from SOSS, its subsidiaries or affiliates or any of their
respective employees. This restriction shall not apply, however, (i) as may
otherwise be required by law, (ii) to the extent such information (A) shall be
or have become publicly available, (B) was available to SELLING SHAREHOLDERS on
a non-confidential basis prior to its disclosure by SOSS, its subsidiaries or
affiliates or (C) becomes available to SELLING SHAREHOLDERS on a
non-confidential basis from a person other than SOSS, its subsidiaries or
affiliates or (iii) with respect to disclosure by SELLING SHAREHOLDERS to
parties to whom disclosure may be required or desirable in connection with the
transactions contemplated by this Agreement.
6.4 Property of SOSS. All of SOSS', its subsidiaries' or
affiliates' Trade Secrets, and all tangible items, including, without
limitation, all memoranda, notes, lists, records, proprietary and other software
and information systems, and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by any other
means, made or compiled by or on behalf of SELLING SHAREHOLDERS, or made
available to SELLING SHAREHOLDERS relating to the past, existing, or
contemplated business or work of SOSS, its subsidiaries or affiliates, other
than purely personal matters, are and shall remain SOSS' exclusive property and
shall be delivered to SOSS promptly upon the termination of SELLING
SHAREHOLDERS' employment with SOSS or at any other time on request of SOSS.
6.5 Rights and Remedies upon Breach. If either SELLING
SHAREHOLDER breaches, or threatens to commit a breach of, any of the provisions
of Articles 6.2.1, 6.3, or 6.4 (collectively, the "Restrictive Covenants"), SOSS
shall have the following rights and remedies, each of which rights and remedies
shall be independent of the others and severally enforceable, and each of which
is in addition to, and not in lieu of, any other rights and remedies available
to SOSS under law or in equity:
<PAGE> 9
6.5.1 Specific Performance. The right and remedy to
have the Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed by the parties hereto that any breach or
threatened breach of the Restrictive Covenants would cause irreparable injury to
SOSS and that money damages would not provide an adequate remedy to SOSS.
6.5.2 Accounting. The right and remedy to require
SELLING SHAREHOLDERS to account for and pay over to SOSS all compensation,
profits, monies, accruals, increments or other benefits derived or received by
SELLING SHAREHOLDERS as the result of any transactions constituting a breach of
the Restrictive Covenants.
6.6 Severability of Covenants. SELLING SHAREHOLDERS
acknowledge and agree that the Restrictive Covenants are reasonable and valid in
scope, and geographical and temporal breadth and in all other respects. If any
court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
6.7 Enforceability. SOSS and SELLING SHAREHOLDERS hereby agree
that jurisdiction to enforce the Restrictive Covenants shall rest with the
courts of the state wherein the Restrictive Covenants are alleged to have been
violated. It is the intent of the parties that the Restrictive Covenant be
construed according to the laws of the state in which the violation was alleged
to have occurred. If the court determines that any one or more of such
jurisdictions would hold the Restrictive Covenants unenforceable by reason of
their scope or otherwise, it is the intention of SOSS and SELLING SHAREHOLDERS
that such determination not bar or in any way affect SOSS' right to the relief
provided above for violations of the Restrictive Covenants alleged to have
occurred in any other jurisdiction. As to breaches of such covenants in such
other respective jurisdictions, such covenants as they relate to each
jurisdiction, for this purpose, shall be severable into diverse and independent
covenants.
7. (a) The Closing of this Agreement is contingent and conditioned
upon a successful completion of due diligence by SOSS. Within a
reasonable time after the execution of this Agreement, SOSS
shall cause its representatives, including its independent
auditors, Arthur Anderson, LLP, to begin to undertake a due
diligence review of WOLFE's books and records. SOSS will finish
its due diligence review within thirty (30) days from the date
this Agreement is executed. SOSS shall have five (5) days from
the completion of its due diligence to notify WOLFE and SELLING
SHAREHOLDERS of its intent not to close this Agreement and its
basis for such a decision.
<PAGE> 10
(b) This Agreement is also contingent and conditioned upon
SOSS' Board of Director's approving the terms of the
Agreement. SOSS shall cause its Board of Directors to act
upon this Agreement within five (5) days after its
execution. SOSS shall have five (5) days from the time its
Board of Directors acts in which to notify WOLFE and
SELLING SHAREHOLDERS of any approval or disapproval.
(c) If the Agreement does not close for any of the reasons
listed herein, the Agreement shall terminate except for
those covenants and conditions set forth in Articles 8
which shall survive any such termination.
8. In the event the transaction contemplated by this Agreement does not
close, each party will maintain as confidential for a period of five years from
the date of this Agreement all written proprietary information which it or any
of its representatives may obtain from any other party, or any other parties'
employees. This restriction shall not apply, however, (i) as may otherwise be
required by law, (ii) to the extent such information (A) shall be or have become
publicly available, (B) was available to the party on a non-confidential basis
prior to its disclosure by any other party or (C) becomes available to a party
on a non-confidential basis from a person other than any other party or (iii)
with respect to disclosure by a party to parties to whom disclosure may be
required or desirable in connection with the transactions contemplated by this
Agreement.
9. WOLFE and SELLING SHAREHOLDERS represent and warrant to SOSS that
the statements in this Article 9 below are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date. As
used in this Agreement "material" shall mean any discrepancy in the financial
statements or representations that in the aggregate have an impact of more than
twenty thousand dollars ($20,000.00).
(a) Wolfe & Associates, Inc. is a corporation duly organized,
validly existing, and in good standing under the laws of the
state of New Mexico. Wolfe & Associates, Inc. has full
corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the business in which it
is engaged and to own and use the properties owned and used by
it. Wolfe & Associates, Inc. is not in default under or in
violation of any provision of its charter, articles of
incorporation, or bylaws.
(b) Exhibit A represents a true and complete balance sheet of
Wolfe & Associates, Inc., as of the Closing Date. SOSS
acknowledges that WOLFE currently has other assets and
liabilities which are not listed in Exhibit A that will be
transferred prior to the Closing Date. WOLFE's representations
are limited to those assets and liabilities to be transferred
pursuant to this Agreement.
(c) WOLFE has good and marketable title to all the assets listed
in Exhibits B, C and
<PAGE> 11
D. Such lists constitute a full and complete list of all
assets of WOLFE. All assets are free and clear of mortgages,
liens, pledges, charges, encumbrances, equities, or claims,
except for the mortgages, liens, pledges, charges,
encumbrances, equities, or claims as described in Exhibit I,
which is attached hereto and incorporated herein.
(d) The liabilities listed in Exhibits E, F, G, H, J and K
constitute a full and complete list of the liabilities of
WOLFE. All contingent liabilities are described in Exhibit H.
(e) Neither the execution nor the delivery of this Agreement will
(i) violate any statute, regulation, judgment, order, or other
restriction of any governmental agency or court; or (ii)
conflict with, result in a breach or default under any
Agreement, contract, license, or other arrangement to which
WOLFE is a party.
(f) WOLFE has filed all income tax returns that it was required to
file, has paid in full all taxes associated with such tax
returns and is not deficient on any tax payments or
liabilities except as set forth in Exhibit J, which is hereby
incorporated herein.
(g) WOLFE has complied with the environmental, health, and safety
laws in all material respects and does not have any material
liability relating to the environmental, health, and safety
laws.
(h) WOLFE has complied with all federal, state and local equal
employment opportunity and anti-discrimination laws in all
material respects and does not have any material liability
relating to the federal, state and local equal employment
opportunity and anti-discrimination laws.
(i) WOLFE has complied with ERISA in all material respects and
does not have any material liability relating to ERISA.
(j) WOLFE has complied with COBRA in all material respects and
does not have any material liability relating to COBRA.
(k) WOLFE has paid in full all payroll taxes and other
withholdings mandated by federal, state and local laws,
including, but not limited to FICA, Medicare, unemployment,
workers' compensation insurance and trust fund withholding
taxes. WOLFE has filed all appropriate returns for such taxes
and withholdings.
(l) WOLFE has maintained at all times during the past four years
workers compensation and general liability insurance. Such
policies are currently in effect.
<PAGE> 12
WOLFE has paid all premiums for such insurance or has financed
such premiums through a premium finance company and has
accrued such charges in its financial statement.
(m) WOLFE has disclosed all lawsuits, claims, potential claims or
causes of actions that have arisen against WOLFE that are
known or that it should reasonably be expected to know. All
such lawsuits, claims, potential claims or causes of action
are listed and described in Exhibit K, which is attached
hereto and incorporated herein.
10. SELLING SHAREHOLDERS agree to indemnify SOSS and hold SOSS harmless
from any loss, damage, expense, liability, or claim, including without
limitation, attorney's fees and expenses of litigation, to which SOSS may become
subject arising out of: (a) any material misstatement of WOLFE or the SELLING
SHAREHOLDERS as warranted in Article 9; or (b) any failure of WOLFE or the
SELLING SHAREHOLDERS to perform any of their covenants, Agreements or
undertaking contained in this Agreement or in any other Agreement executed in
connection with the transactions contemplated herein or (c) any material
liability (whether known or unknown, whether asserted or un-asserted, whether
absolute or contingent) not disclosed to SOSS.
11. SOSS agrees to employ each SELLING SHAREHOLDER pursuant to the
terms and conditions of a separate employment agreement. The form of Curtis L.
Wolfe's employment agreement is attached as Exhibit L. The form of Robert J.
Otoupalik's employment agreement is attached as Exhibit M. Such employment may
be conditioned upon the successful completion of a personal history and criminal
background check, which shall be completed within ten (10) days after this
Agreement is signed. Each SELLING SHAREHOLDER hereby consents to SOSS conducting
a personal history and criminal background check prior to employment with SOSS.
12. SOSS shall issue options to purchase ten thousand (10,000) shares
of SOSS' common stock each to Curtis L. Wolfe and Robert J. Otoupalik. Such
stock options will be issued under a separate agreement pursuant to and in
accordance with the SOSS' May 1995 Incentive Stock Option Plan and shall vest
over a period of five (5) years pursuant to such separate agreement.
13. SOSS shall issue options to purchase a combined twenty thousand
(20,000) shares of SOSS' common stock to certain key employees of WOLFE (other
than the SELLING SHAREHOLDERS and the COMMUNITY PROPERTY INTEREST HOLDER) which
as a result of this Agreement are subsequently employed by SOSS. Such stock
options will be issued under a separate agreement pursuant to and in accordance
with the SOSS' May 1995 Incentive Stock Option Plan and shall vest over a period
of five (5) years pursuant to such separate agreement. Said plan requires that
any specific grant be approved by the compensation committee of SOSS' board of
directors. As part of the approval process described in Article 7(b) herein,
SOSS shall submit a list of persons and number of shares to be granted as
indicated in Exhibit N to the compensation
<PAGE> 13
committee for authorization.
14. For each of WOLFE's employees hired by SOSS, SOSS shall recognize
time of service with WOLFE as time of service with SOSS for purposes of
non-health or welfare benefits, such as, 401(k) eligibility and matching
contribution vesting, C-125, etc. SOSS currently has in effect a 401(k) plan.
WOLFE's employees currently participating in its 401(k) plan may rollover such
monies to the SOSS plan subject to all ERISA requirements and restrictions. SOSS
shall maintain current incentive plans, as described in Exhibit O, for WOLFE's
employees, excluding SELLING SHAREHOLDERS. WOLFE acknowledges that SOSS
maintains a drug-free workplace policy and that all of WOLFE's staff or regular
employees hired by SOSS will be subject to SOSS' drug free work place and drug
testing policy.
For each of WOLFE's employees hired by SOSS, SOSS will provide the same
health, life and disability benefits as currently provided by WOLFE, insofar as
SOSS may provide such coverage without violating the discrimination provisions
of any employee benefit law. If at any time in the future, SOSS can obtain
comparable benefits at a lesser cost, SOSS may purchase such similar benefits
from the lower cost provider.
15. WOLFE agrees from the time of the execution of this Agreement
through the effective date that WOLFE will conduct its Business only in the
ordinary course consistent with past practices and will not enter into any
agreement which would materially affect its business, assets or liabilities
which would be binding upon SOSS after the Closing, without SOSS' consent.
16. Each party agrees to take such further action as is necessary to
carry out the purpose of this Agreement, including the execution and delivery of
such further instruments and documents as any party reasonably may request.
17. Each party agrees that prior to the commencement of any action for
breach of this Agreement they will submit to non-binding mediation or
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time of the action. The parties agree
to negotiate in good faith to resolve the breach or enter a settlement. An
arbitrator will be chosen by the affected parties. If the parties are unable to
agree upon an arbitrator, an arbitrator shall be selected pursuant to the rules
of the American Arbitration Association then in effect.
Arbitration shall take place in Salt Lake City, Utah.
18. This Agreement and all documents executed and delivered hereunder
shall be deemed to be contracts under the laws of the State of Utah, and for all
purposes shall be construed and governed in accordance with such laws. Any suit
or other action to enforce any provision of this Agreement or to obtain any
remedy with respect hereto shall be brought in any federal or state court with
competent jurisdiction sitting in Salt Lake County, State of Utah.
19. Any term or provision of this Agreement that is invalid or
unenforceable shall not
<PAGE> 14
affect the validity and enforceability of the remaining terms and provisions of
this Agreement.
20. Each party shall bear its own costs and expenses incurred in
connection with this Agreement.
21. Each party acknowledges that it has sought the advice (or has had
the opportunity to do so) of competent legal counsel and tax advisors with
respect to the subject matter of this Agreement and the legal and tax
consequences of entering this Agreement.
22. This Agreement, together with the exhibits incorporated herein,
constitutes the entire agreement of the parties with respect to the subject
matter herein. This Agreement may only be modified by written instrument
executed by the parties hereto.
23. This Agreement may be executed in any number of counterparts, each
of which when executed and delivered shall be an original, but all such
counterparts shall constitute one and the same instrument. As used herein,
"counterparts" shall include full copies of this Agreement signed and delivered
by facsimile transmission, as well as photocopies of such facsimile
transmission.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement.
DATED this day of , 1996. DATED this day of , 1996.
----- ------- ----- ----
Wolfe & Associates, Inc., by: SOS Staffing Services, Inc., by:
- ------------------------------ ---------------------------------
Curtis L. Wolfe, its President Richard D. Reinhold, its CEO
DATED this day of , 1996. DATED this day of , 1996.
----- ------- ----- ----
SELLING SHAREHOLDER SELLING SHAREHOLDER
- ------------------------------ ---------------------------------
Curtis L. Wolfe Robert J. Otoupalik
<PAGE> 15
DATED this day of , 1996. DATED this day of , 1996.
----- ------- ----- ----
SELLING SHAREHOLDER COMMUNITY PROPERTY INTEREST
HOLDER
- ------------------------------ ---------------------------------
Dawne E. Parker Christine Otoupalik, who signs with
respect to any interest she may
claim due to her status as Robert J.
Otoupalik's spouse under
California's community property
laws.
<PAGE> 16
EXHIBIT A
<PAGE> 17
[ATTACH WOLFE's BALANCE SHEET AS EXHIBIT A]
<PAGE> 18
EXHIBIT B
The following is a general list of assets of WOLFE to be transferred to SOSS as
a result of this Agreement:
(a) The real property leases for the demised premises located at 5325 Wyoming
Boulevard, N.E., Albuquerque, New Mexico 87109, 13891 Newport Avenue, Suite 100,
Tustin California 92680, and 5820 Stoneridge Mall Road, Suite 217, Pleasanton,
California 94588 together with all rights and privileges under said leases to
real property subject to said leases; and
(b) All papers and records in WOLFE's care, custody or control relating to the
operational aspects of WOLFE's business or any of its Assets, including but not
limited to all personnel and labor relations records, environmental control
records, sales records, accounting and financial records, maintenance and
production records, except that WOLFE and SELLING SHAREHOLDERS shall either have
unlimited access to or copies of such records for the purpose of preparing
governmental reports and tax returns or any other legitimate purpose; and
(c) All records in any way related to WOLFE, its customers, business, employees,
etc. that are maintained at any location;
(d) Telephone numbers of WOLFE, to wit: (714) 731-5800, (505) 821-9336, (510)
225-9800 and any other number which is listed as Wolfe & Associates, Inc. or
owned by WOLFE, including, if so listed or owned, (847) 359-4363, (907) 780-4240
and (612) 891-1694; and
(e) Facsimile telephone numbers of WOLFE, to wit: (714) 731-6011, (505)
821-1741, (510) 225-9833 and any other number which is listed as Wolfe &
Associates, Inc. or owned by WOLFE, including, if so listed or owned, (847)
359-4219 and (612) 431-2852; and
(f) All of WOLFE's Intangibles including:
(i) all assumed business or trade names, including but not limited to:
"Wolfe & Associates" and all other forms or derivations using "Wolfe," and all
other assumed business names and trade names owned or used by WOLFE; and all
other slogans, trademarks and service marks related to WOLFE owned or used by
WOLFE; and
(ii) all intellectual property, including, but not limited to
copyrights, trade secrets, patents and technical know-how; and
(iii) all employee lists, including, but not limited to complete
personnel files, work
<PAGE> 19
histories, employment agreements between WOLFE and employees of WOLFE, employee
confidentiality and non-compete agreements between WOLFE and employees of WOLFE,
and all other documents related to employees of WOLFE; and
<PAGE> 20
(iv) all customer lists, including but not limited to all telephone
numbers, credit histories, sales histories and other documents related to
WOLFE's customers; and
(v) WOLFE's goodwill; and
(vi) all other intangibles of WOLFE; and
(g) All proprietary software, hardware and information systems and all other
software, hardware, and information systems; and
(h) All prepaid expenses relating to any of the assets, facilities, and
operations of WOLFE, including, but not limited to any deposits used in the
normal operation of WOLFE's business such as deposits for insurance, rent,
utilities, etc.; and
(i) All operational assets of WOLFE including, but not limited to all inventory,
office furniture, phones, electronic and computer equipment and all other
equipment used by WOLFE to conduct business which are listed in Exhibit C; and
(j) All cash, bank accounts, accounts receivable and non-operational assets, as
specifically described in Exhibit D;
<PAGE> 21
EXHIBIT B
<PAGE> 22
[Exhibit C shall consist of the operational asset inventory provided by WOLFE
and shall include a description of market value and depreciated book value]
<PAGE> 23
EXHIBIT C
<PAGE> 24
[Exhibit D shall consist of a complete list of WOLFE's cash, bank accounts,
accounts receivable and any other non-operational asset to be transferred
hereunder]
<PAGE> 25
[Exhibit E shall consist of a list of third party contracts and leases to be
provided by WOLFE]
<PAGE> 26
[Exhibit F shall consist of a list of all of WOLFE's accounts payable]
[To be provided by WOLFE]
<PAGE> 27
[Exhibit G is a list of all other fixed or known liabilities of WOLFE]
To be provided by WOLFE
<PAGE> 28
[Exhibit H is a list of all contingent liabilities]
To be provided by WOLFE
<PAGE> 29
[EXHIBIT I shall be a list or description of all liens, mortgages,
encumbrances, etc. attached to any asset of WOLFE. To be provided by WOLFE.]
<PAGE> 30
[EXHIBIT J is description of all tax liabilities. To be provided by WOLFE]
<PAGE> 31
[Exhibit K is a list and description of all lawsuits, claims or causes of
actions against WOLFE. To be provided by WOLFE]
<PAGE> 32
[Exhibit L is a form of Curtis L. Wolfe's employment agreement]
<PAGE> 33
[Exhibit M is a form of Robert J. Otoupalik's employment agreement]
<PAGE> 34
[Exhibit N is a list of key employees of Wolfe and the number of options to be
granted to each such employee. To be provided by Wolfe]
<PAGE> 35
[Exhibit O is a description of WOLFE employees' incentive plans. To be provided
by WOLFE]
<PAGE> 36
EXHIBIT D
<PAGE> 37
EXHIBIT E
<PAGE> 38
EXHIBIT F
<PAGE> 39
EXHIBIT G
<PAGE> 40
EXHIBIT H
<PAGE> 41
EXHIBIT I
<PAGE> 42
EXHIBIT J
<PAGE> 43
EXHIBIT K
<PAGE> 44
EXHIBIT L
<PAGE> 45
EXHIBIT M
<PAGE> 46
EXHIBIT N
<PAGE> 47
EXHIBIT O
<PAGE> 1
EXHIBIT 99.1
[SOS STAFFING SERVICES LOGO]
PRESS RELEASE -- FOR IMMEDIATE RELEASE
CONTACT: GARY B. CROOK
CHIEF FINANCIAL OFFICER
(801) 484-4400
SOS STAFFING SERVICES, INC. ANNOUNCES ITS INTENT TO ACQUIRE
WOLFE & ASSOCIATES, INC. OF ALBUQUERQUE, NEW MEXICO
SALT LAKE CITY, UTAH -- November 6, 1996 -- SOS Staffing Services, Inc.
(NASDAQ/NMS: SOSS) announced today it has signed a contract to acquire Wolfe &
Associates, Inc. (Wolfe) of Albuquerque, New Mexico. Wolfe is an information
technology company providing consulting services, project management,
information systems design, programming and other information technology
related staffing services to private-sector and public-sector clients
throughout the United States. Offices are located in Albuquerque, New Mexico;
Pleasanton, California; and Tustin, California. In addition, Wolfe has an
on-site facility in Juneau, Alaska and sales representatives in Minneapolis,
Minnesota and Chicago, Illinois. The transaction will add approximately $4
million in annualized revenues to SOS. Terms of the acquisition were not
disclosed.
Richard D. Reinhold, Chairman and Chief Executive Officer of SOS, commented,
"We feel this is an important acquisition for SOS. Wolfe is an outstanding
high-end information technology consulting and staffing company with offices in
Albuquerque, as well as Northern and Southern California. These are all key
areas in our expansion plans and give us a presence and base to develop our
other operating divisions in these markets. Wolfe will be our third information
technology acquisition this year. Equally important, the principals of Wolfe &
Associates will assume top management positions with our growing information
technology division and provide SOS with added expertise and leadership to
further expand this division."
SOS Staffing Services, Inc. offers a full range of staffing services through
its network of offices located in the states of Arizona, California, Colorado,
Idaho, Nevada, Oregon, New Mexico, Texas, Utah and Wyoming. The addition of
Wolfe & Associates and the recently announced acquisition of R.H.W., Inc. will
give SOS 79 offices.
