-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eo08F0tsxWPzueHk75qzJFXJjXXDZKjHuqLQzKCHCYuIaGFzRp66H/0kgUb45w6a 39dkzmN+rXzg0ZjEuTMEmQ== 0001047469-99-001474.txt : 19990120 0001047469-99-001474.hdr.sgml : 19990120 ACCESSION NUMBER: 0001047469-99-001474 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19990119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IT STAFFING LTD CENTRAL INDEX KEY: 0001070630 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-63909 FILM NUMBER: 99508261 BUSINESS ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: M5J 2H7 BUSINESS PHONE: 4163648800 MAIL ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: MCJ 2H7 SB-2/A 1 SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 1999 REGISTRATION STATEMENT NO. 333-63909 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ IT STAFFING LTD. (Name of small business issuer as specified in its charter) ------------------------------ ONTARIO 7370 52-209027 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.) incorporation or organization) Classification Code Number)
------------------------ 55 UNIVERSITY AVENUE TORONTO, ONTARIO, CANADA M5J 2H7 (416) 364-8800 (Address and telephone number of principal executive offices and principal place of business) ------------------------------ JAY M. KAPLOWITZ, ESQ. DECLAN A. FRENCH, PRESIDENT ARTHUR S. MARCUS, ESQ. IT STAFFING LTD. GERSTEN, SAVAGE, KAPLOWITZ & FREDERICKS, 55 UNIVERSITY AVENUE LLP TORONTO, ONTARIO, CANADA M5J 2H7 101 EAST 52ND STREET, 9TH FLOOR (416) 364-8800 NEW YORK, NEW YORK 10022 (212) 752-9700 (212) 752-9713 (FAX) (Name, address and telephone number of agents for service)
------------------------ COPIES TO: JAY M. KAPLOWITZ, ESQ. JAMES R. TANENBAUM, ESQ. ARTHUR S. MARCUS, ESQ. STROOCK & STROOCK & LAVAN LLP GERSTEN, SAVAGE, KAPLOWITZ 180 MAIDEN LANE & FREDERICKS, LLP NEW YORK, NEW YORK 10038 101 EAST 52ND STREET, 9TH FLOOR (212) 806-5400 NEW YORK, NEW YORK 10022 (212) 806-6006 (FAX) (212) 752-9700 (212) 752-9713 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: /X/ ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION SECURITIES BEING REGISTERED REGISTERED PER SECURITY PRICE FEE Common Shares, no par value...................... 1,150,000(1) $5.00 $5,750,000 $1,581.25 Representative's Warrants........................ 100,000 $.001 $100 -- (2) Common Shares, no par value, issuable on Exercise of Representative's Warrants(3)................ 100,000 $8.25 $825,000 226.875 Total Registration Fee........................... $6,575,100 $1,808.15
(1) Includes up to 150,000 Common Shares, no par value issuable upon exercise of the Underwriters' over- allotment option. (2) No fee due pursuant to Rule 457(g). (3) To be acquired by the Representative. SUBJECT TO COMPLETION, DATED JANUARY 19, 1999 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS IT STAFFING LTD. 1,000,000 COMMON SHARES IT Staffing Ltd., an Ontario, Canada corporation (the "Company"), hereby offers 1,000,000 Common Shares (the "Shares"), no par value (the "Common Shares"). Prior to this offering, there has been no market for the Common Shares, and there can be no assurance that a market will develop for the Company's securities in the future or that, if developed, it will be sustained. Application has been made for the quotation of the Common Shares on the Nasdaq SmallCap-Registered Trademark-Market under the symbol "ITSTF" and application has been made for the listing of the Common Shares on the Boston Stock Exchange under the symbol "ITS." The initial public offering price of the Shares will be determined by negotiation between the Company and the Representative and will not necessarily bear any direct relationship to the Company's assets, earnings, book value per share or other generally accepted indicia of value. See "Underwriting." It is currently contemplated that the initial public offering price per Share will be $5.00. SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "DILUTION." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS (1) COMPANY(2) Per Share....................................... $5.00 $.50 $4.50 Total(3)........................................ $5,000,000 $500,000 $4,500,000
(1) Does not include additional consideration to be received by Strasbourger Pearson Tulcin Wolff Incorporated, as the representative (the "Representative") of the several underwriters (the "Underwriters"), consisting of: (i) a non-accountable expense allowance; (ii) warrants (the "Representative's Warrants") to purchase an aggregate of 100,000 Common Shares (the "Warrant Shares"); and (iii) a 24-month consulting agreement. In addition, the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See Underwriting." (2) Before deducting expenses of this offering payable by the Company, including the Representative's non-accountable expense allowance (estimated to be $660,000), and assuming no exercise of the Underwriters' over-allotment option. (3) The Company has granted the Underwriters a 45-day option to purchase up to an additional 150,000 Common Shares, on the same conditions as set forth above, solely to cover over-allotments, if any (the "Over-Allotment Option"). If the Underwriters exercise such option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $5,750,000, $575,000 and $5,175,000, respectively. See "Underwriting." ------------------------------ The Shares are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to, and accepted by, them and subject to their right to reject orders in whole or in part and to certain other conditions. It is expected that delivery of the certificates representing the Shares will be made against payment therefor at the offices of Strasbourger Pearson Tulcin Wolff Incorporated, New York, New York on or about , 1999. STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED THE DATE OF THIS PROSPECTUS IS , 1999 THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS AND TO MAKE AVAILABLE QUARTERLY REPORTS FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM FINANCIAL STATEMENTS. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES, INCLUDING PURCHASES OF COMMON SHARES TO STABILIZE THEIR MARKET PRICE, PURCHASES OF COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." THE SECURITIES OFFERED HEREBY HAVE NOT BEEN, AND WILL NOT BE, QUALIFIED FOR SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. ENFORCEABILITY OF CIVIL LIABILITIES The Company's headquarters are located in, and its officers, directors and auditors are residents of, Canada and a substantial portion of the Company's assets are, or may be, located outside the United States. Accordingly, it may be difficult for investors to effect service of process within the United States upon non-resident officers and directors, or to enforce against them judgments obtained in the United States courts predicated upon the civil liability provision of the Securities Act or state securities laws. The Company has been advised by its Canadian legal counsel, McMillan Binch, that there is doubt as to the enforceability in Canada against the Company or against any of its directors, controlling persons, officers or the experts named herein, who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon U.S. federal securities laws. Service of process may be effected, however, upon the Company's duly appointed agent for service of process, Gersten, Savage, Kaplowitz & Fredericks, LLP, New York, New York. If investors have questions with regard to these issues, they should seek the advice of their individual counsel. The Company has also been informed by its legal counsel, McMillan Binch, that pursuant to the Currency Act (Canada), a judgment by a court in any Province of Canada may only be awarded in Canadian currency. Pursuant to the provision of the Courts of Justice Act (Ontario), however, a court in the Province of Ontario shall give effect to the manner of conversion to Canadian currency of an amount in a foreign currency, where such manner of conversion is provided for in an obligation enforceable in Ontario. 2 EXCHANGE RATE DATA The Company maintains its books of account in Canadian dollars ("CND$"), but has provided the financial data in this Prospectus in United States dollars ("US$")and on the basis of generally accepted accounting principles as applied in the United States, and its audit has been conducted in accordance with generally accepted auditing standards in the United States. All references to dollar amounts in this Prospectus, unless otherwise indicated, are to United States dollars. The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars. Such rates are the number of United States dollars per one Canadian dollar and are the inverse of the rates quoted by the Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average exchange rate is based on the average of the exchange rates on the last day of each month during such periods. On December 31, 1998, the exchange rate was CDN$1.00 per US$1.5538.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- Rate at end of period.................. $ 0.7323 $ 0.7301 $ 0.6999 $ 0.7241 $ 0.6531 Average rate during period............. 0.7305 0.7332 0.7220 0.7265 0.6832 High................................... 0.7527 0.7513 0.7487 0.7487 0.7043 Low.................................... 0.7023 0.6945 0.6945 0.7145 0.6376
3 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED HEREIN, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO (I) THE REPRESENTATIVE'S WARRANTS OR THE EXERCISE THEREOF; (II) THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE EXERCISE THEREOF; (III) UP TO 435,000 COMMON SHARES RESERVED FOR ISSUANCE UPON THE EXERCISE OF OPTIONS WHICH MAY BE GRANTED PURSUANT TO THE COMPANY'S 1998 STOCK OPTION PLAN (THE "PLAN"), OPTIONS EXERCISABLE FOR 50,000 OF WHICH HAVE BEEN GRANTED TO DATE; (IV) 50,000 SHARES TO BE ISSUED TO SOUTHPORT CONSULTING CO. IN CONNECTION WITH THE ACQUISITION THEREOF AND (V) UP TO 222,125 COMMON SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS AND WARRANTS OUTSTANDING ON THE DATE OF THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, THE INFORMATION HEREIN REFLECTS A 1.31 FOR ONE STOCK SPLIT EFFECTED PRIOR TO THE DATE OF THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO IT STAFFING LTD., AN ONTARIO CORPORATION, AND ITS WHOLLY OWNED SUBSIDIARIES SYSTEMSEARCH CONSULTING SERVICES INC., AN ONTARIO CORPORATION ("SCI"), SYSTEMS PS INC., AN ONTARIO CORPORATION ("SPSI") AND COLLECTIVELY WITH SCI, "SYSTEMS"), AND INTERNATIONAL CAREER SPECIALISTS LTD., AN ONTARIO CORPORATION ("ICS"). THE OPERATIONS OF THE COMPANY EXCLUSIVE OF ICS AND SYSTEMS SHALL BE REFERRED TO AS THE "IT STAFFING DIVISION." THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. THE COMPANY The Company is a provider of information technology ("IT") staffing services, primarily in Toronto, Ontario, Canada, supplying qualified IT professionals to its customers as independent contractors for short and long term assignments and for permanent placement within such enterprises. The Company's customers include financial service companies, software and other technology companies, Canadian governmental entities and large multinational companies, including Merrill Lynch Canada Inc., Bank of Montreal, Bell Sygma Inc., Revlon Canada Inc., IBM Corporation and American Express Company. The Company has recently expanded its operations into the United States and intends to develop a network of offices to provide IT staffing services throughout North America. The Company has focused on the recruitment of highly qualified IT professionals and utilizes established testing methods to ensure that its IT professionals satisfy the Company's internal criteria. The Company also reviews candidates' technical background and conducts preliminary interviews prior to referring candidates to its customers. By attracting the most qualified IT professionals, the Company believes that it will be able to attract high quality customers who require the services of such professionals. Since inception, the Company has pursued a strategy of developing and utilizing technology that it believes will provide it with a competitive advantage. As a result, the Company believes that one of its primary competitive strengths is its utilization of technology. The Company maintains a database of over 35,000 IT professionals and advertises on the Internet to attract both candidates and customers. The Company uses HR Workbench, software developed by the Company in conjunction with Great Lakes Research and Development ("Great Lakes"), an unaffiliated entity, to locate the IT professionals in the Company's database with the technical skills and job interests that best satisfy the requirements of the position that the Company is attempting to staff. The database allows all of the Company's recruiters immediate access to active candidates. Candidates can register themselves directly into the database through the Internet or be entered into the system by the Company's recruiters. The Company and Great Lakes have developed, and are in the process of testing, an additional software product called AppTracker, which the Company, through a joint venture with Great Lakes, intends to market to human resource departments during the year ending December 31, 1999. The 4 software is designed to aid human resources departments in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. The Company believes that it will have an advantage in marketing its staffing services to companies using AppTracker because of the Company's familiarity with the software and the ease of electronic data interchange ("EDI") with the Company. According to the STAFFING INDUSTRY REPORT, a leading industry publication, revenue for the year ended December 31, 1997 for IT staffing services (which includes fees earned for permanent placement services and revenues generated by supplying contract services) in the United States is estimated to have been approximately $14.8 billion, an increase of 27% over such revenues for the year ended December 31, 1996. According to a 1998 IDC Canada survey, an independent Canadian industry publication, the Canadian Information Technology services industry grew by more than 11% in 1997, reaching CDN$11.5 billion in revenues, an 11.5% increase, and is expected to grow at a compounded annual rate of 12.1% through 2001. Although there can be no assurance that growth in the industry will continue at such rates, or at all, the Company believes that such growth will continue as a result of the following factors: (i) the hiring of the proper IT professional for a particular project may require technical knowledge that many human resource departments do not possess; (ii) there exists a shortage of IT professionals in the United States and Canada and many companies lack the time and resources to conduct a proper search; (iii) increased specialization and sophistication of IT requirements; (iv) costs associated with termination of employees, as compared to independent contractors, following the completion of a project; and (v) the costs associated with the benefits received by employees, as compared to independent contractors. The Company's business objectives are to increase its share of the IT staffing services market in Canada and the United States, as well as to establish a network of offices throughout such countries which, when linked by means of the Internet, will allow the Company to provide its customers with an array of IT staffing services. The primary components of the Company's strategy to achieve such objectives are as follows: - LEVERAGE CLIENT BASE TO ATTRACT AND RETAIN HIGHLY QUALIFIED IT PROFESSIONALS; - FOCUS ON NICHE MARKETS; - EXPAND INTO NEW REGIONAL MARKETS BY OPENING NEW OFFICES OR ACQUIRING COMPETITIVE OR COMPLEMENTARY COMPANIES; - CONTINUE TO UTILIZE THE INTERNET AND INFORMATION TECHNOLOGY TO PROVIDE A COMPETITIVE ADVANTAGE; - DEVELOP AND PROMOTE A MANAGED SERVICES PRACTICE; AND - CAPITALIZE ON THE YEAR 2000 AND OTHER OPPORTUNITIES. The Company's headquarters are located at 55 University Avenue, Suite 505, Toronto, Ontario, Canada M5J 2H7. The Company also maintains offices in New York, New York; Tampa, Florida; Etobicoke, Ontario; Scarborough, Ontario; Indian Wells, California and Ottawa, Ontario. The Company was incorporated under the laws of the Province of Ontario, Canada in February 1994. The Company maintains its Web site at http://www.itstaff.com and has registered the Internet domain name of itstaff.org and itstaff.net. Information contained on the Company's Web site is not a part of this Prospectus and must not be relied upon in evaluating an investment in the Common Shares offered hereby. This Prospectus contains trade names, service marks and trademarks of the Company and others, all of which are the property of their respective owners. 5 THE OFFERING Securities offered by the Company............ 1,000,000 Common Shares Common Shares outstanding prior to this offering................................... 1,677,875 Common Shares outstanding immediately following this offering.................... 2,677,875 Use of Proceeds.............................. To expand into new regional markets by opening new offices and acquiring complementary or competitive companies, to capitalize a joint venture to develop and market the AppTracker software, and for general corporate and working capital purposes. See "Use of Proceeds." Proposed Nasdaq SmallCap-Registered Trademark- Market Trading Symbol(1).......................... ITSTF Proposed Boston Stock Exchange trading symbol(1).................................. ITS
- ------------------------ (1) The proposed symbols do not imply that a liquid and active market will develop or be sustained for the Shares upon completion of this offering. 6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION
NINE MONTHS ENDED YEAR ENDED, DECEMBER 31, SEPTEMBER 30, -------------------- -------------------- 1996 1997 1997 1998 --------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Revenue...................................................... $ 764 $ 4,704 $ 3,419 $ 8,756 Gross profit................................................. 505 1,816 1,303 3,745 Operating Expenses........................................... 469 1,622 1,102 3201 Income from operations....................................... 36 194 201 544 Net income................................................... 30 138 135 326 Earnings per share........................................... 0.03 .11 .10 .20 Weighted Average Number of Shares Outstanding................ 1,021 1,309 1,309 1,650
AS OF SEPTEMBER 30, 1998 -------------------------- ACTUAL AS ADJUSTED(1) --------- --------------- BALANCE SHEET DATA Working capital........................................................................... 609 4,099 Total assets.............................................................................. 3,493 7,333 Long-term debt............................................................................ 382 382 Total liabilities......................................................................... 1,904 1,904 Shareholders' equity...................................................................... 1,589 5,429
- ------------------------ (1) As adjusted to reflect the sale by the Company of the 1,000,000 Shares offered hereby at an assumed initial public offering price $5.00 per Share and the initial application of the net proceeds therefrom. See "Use of Proceeds." 7 RISK FACTORS AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK, AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO HEREIN, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO, THE FOLLOWING RISK FACTORS. PROSPECTIVE INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. POSSIBLE INABILITY TO ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS. The Company's future success will depend on its ability to attract qualified IT professionals with the technical skills and experience necessary to meet its customers' requirements for technical personnel and to retain a sufficient number of professionals to fulfill its customers needs for contract workers. Competition for individuals with proven technical skills, particularly in the Windows, UNIX, computer aided design, distributed computing and other technology environments for which the Company provides services, is intense, and the Company expects that competition for IT professionals will increase in the future. Furthermore, IT professionals typically provide services on an assignment-by-assignment basis and can terminate an assignment with the Company at any time. The Company competes for such individuals with other providers of IT staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services and temporary personnel agencies. There is a possible shortage of IT professionals proficient in the most current computer languages and applications. Many of the IT professionals who have been placed by the Company accept assignments from the Company's competitors, and there can be no assurance that such IT professionals will not choose to work for competitors on future assignments. There also can be no assurance that the Company will be able to attract and retain qualified IT professionals in sufficient numbers in the future. The Company's revenue in any period is a function of, among other things, the number of IT professionals it has on staff and engaged on assignments. In the event that the Company is unable to attract or retain such personnel when required and on terms acceptable to the Company, the Company's business, prospects, financial condition and results of operations would be materially adversely affected. See "Business--Business Strategy" and "Business--Competition." HIGHLY COMPETITIVE MARKET. The IT staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. The Company competes for potential customers with other providers of IT staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services, and temporary personnel agencies. The Company does not have long-term contracts with most of its customers. Many of the Company's current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition and a larger base of IT professionals and customers than the Company, which may give such competitors a competitive advantage when compared to the Company. In addition, many of these competitors, including numerous smaller privately held companies, may be able to respond more quickly to customer requirements and to devote greater resources to the marketing of services than the Company. Because there are relatively low barriers to entry in the staffing industry, the Company expects that competition will increase in the future. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, prospects, financial condition and results of operations. Further, there can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on its business, prospects, financial condition and results of operations. See "Business--Competition." RISKS INHERENT IN EXPANSION INTO NEW MARKETS AND OPERATIONS. The Company's expansion plans depend on its ability to enter new regional markets, successfully expand existing operations and add 8 additional areas of expertise within its existing regional markets. This expansion is dependent on a number of factors, including the Company's ability to: attract, hire, integrate and retain qualified employees, such as experienced recruiters; develop, recruit and maintain a base of qualified IT professionals within each regional market in which the Company conducts or commences to conduct operations; accurately assess the level of demand for the Company's services in such markets; and initiate, develop and sustain corporate client relationships in each new regional market. There can be no assurance that the addition of qualified employees and entrance into new regional markets will occur on a timely basis or achieve anticipated financial results. The addition of qualified employees and entrance into new regional markets typically results in increases in operating expenses, primarily as a result of increased salaries and related expenses. Expenses are incurred in advance of forecasted revenue, and there is typically a delay before the Company's newly hired recruiters and sales employees reach full productivity. If the Company is unable to hire additional qualified employees or enter new regional markets in a cost-effective manner or if those employees and offices in regional markets do not achieve anticipated financial results, the Company's business, prospects, financial condition and results of operations could be materially adversely affected. Failure to expand into new markets could hinder the Company's ability to attract multinational and other large corporations which could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Business Strategy." RISK OF PAYROLL TAX LIABILITY; INCREASED COSTS FOR CONTRACT WORKERS. The Company has determined to classify its IT professionals providing contract services in the United States as independent contractors rather than employees. Accordingly, the Company has not withheld payroll taxes, social security taxes, unemployment taxes and workers compensation insurance, with respect to such IT professionals or recorded a reserve on its financial statements for such taxes and payments. Although such determination is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the rules and regulations thereunder, and the publicly available interpretations of the United States Internal Revenue Service (the "IRS"), such determination is not free from doubt. In the event that the Code, such rules and regulations or such interpretations should be amended or otherwise require the Company to classify such IT professionals as employees, the Company would be subject to a material liability for failure to withhold and pay such taxes and insurance, which could have a material adverse effect on the business, prospects, financial condition and results of operation of the Company. In addition, in such event, the Company's costs of revenues would increase materially, which would have a material adverse effect on the business, prospects, financial condition and results of operations of the Company. Similarly, the Company has determined to classify its IT professionals providing contract services in Canada as independent contractors rather than employees. Accordingly, the Company has not withheld or remitted to Canadian revenue authorities, with respect to such IT professionals, any amounts on account of employee payroll taxes and other payroll obligations including income taxes, employment insurance premiums, Canada Pension Plan contributions, employer health tax and worker's compensation contributions, nor has it created a reserve on its financial statements for such taxes and obligations. Although the Company has made its determination respecting the classification of such IT professionals based upon its understanding of the existing Canadian law and is not aware of any proposed changes to such law which would alter its determination, the proper classification of such IT professionals is not free from doubt. In the event the applicable law requires the Company to classify its Canadian IT professionals as employees, the Company could be subject to a significant liability for failure to withhold and remit required employee payroll taxes and other obligations. The classification of its Canadian IT professionals as employees would increase the Company's cost of revenues which would have a material adverse effect on the business, prospects, financial condition and results of operations of the Company. BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED ACQUISITIONS. Approximately $290,000, or 7.6%, of the estimated net proceeds of this offering will be allocated to general corporate and working capital purposes. Additionally, $3,200,000, or 83.3%, of the net proceeds of this offering have been 9 allocated to the Company's proposed expansion into new markets. Those proceeds may be utilized to open new offices or to acquire existing companies in such markets. Accordingly, management of the Company will have broad discretion over the application of such net proceeds. Although the Company may utilize a portion of the net proceeds for potential investments in, or acquisitions of, complementary or competitive companies, as of the date hereof, the Company has no agreements, plans or arrangements with respect to any such investment or acquisition. Depending upon, among other things, the structure of the acquisition or investment, the Shareholders of the Company may have no opportunity to approve specified acquisitions or to review the financial condition of any potential acquisition or investment candidate. See "Use of Proceeds." FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating results have in the past, and may in the future, fluctuate significantly depending on a number of factors, including, but not limited to, the rate of hiring and the productivity of revenue-generating personnel; the availability of qualified IT professionals; changes in the Company's relative mix of contract services and permanent placement services; changes in the pricing of the Company's services; the timing and rate of commencement of operations in new regional markets; departures or temporary absences of key sales people or recruiters; the structure and timing of acquisitions; changes in the demand for IT professionals; and general economic and industry conditions. In addition, because the Company often provides services on an assignment-by-assignment basis, which customers can terminate at any time, there can be no assurance that existing customers will continue to use the Company's services at historical levels. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In the event the Company's operating results fall below the expectations of public market analysts and investors, the market price of the Common Shares would likely be materially adversely affected. Although the Company has experienced substantial revenue growth in recent years, there can be no assurance that, in the future, the Company will be able to sustain revenue growth or profitability on a quarterly or annual basis at historical levels. See "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISKS OF ACQUISITIONS. A component of the Company's expansion strategy is the acquisition of complementary or competitive companies. The successful implementation of this strategy is dependent upon the Company's ability to identify suitable acquisition candidates, obtain requisite financing, acquire such companies on suitable terms and integrate their operations successfully with those of the Company. This strategy will entail reviewing and potentially reorganizing acquired business operations, corporate infrastructure and systems and financial controls. Unforseen expenses, difficulties, complications and delays frequently encountered with acquisitions could inhibit the Company's growth and have a material adverse effect on the business, prospects, financial condition and results of operation of the Company. To date, the Company has completed three acquisitions. There can be no assurance that the Company will be able to identify additional suitable acquisition candidates or that the Company will be able to acquire such candidates on favorable terms. Moreover, other providers of IT professional services are also competing for acquisition candidates, which could result in an increase in the price of acquisition targets and a diminished pool of companies available for acquisition. Acquisitions also involve a number of other risks, including adverse effects on the Company's reported operating results from increases in amortized goodwill and interest expense, the diversion of management attention and the subsequent integration of acquired companies. To the extent the Company seeks to acquire complementary or competitive companies for cash, the Company may be required to obtain additional financing, and there can be no assurance such financing will be available when required, on favorable terms or at all. In addition, if the Company issues Common Shares to complete any future acquisitions, existing shareholders will experience further dilution in ownership. As a result of the foregoing, acquisitions may have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business--Business Strategy." 10 INTEGRATION OF ICS, SYSTEMS AND SOUTHPORT. In May 1998, the Company completed the acquisition of ICS, in April 1998, the Company completed the acquisition of Systems and in November 1998 the Company completed the acquisition of Southport Consulting Inc. ("Southport"). These companies now operate as separate divisions within the Company. The integration of ICS, and Systems, their respective customers, IT professionals and employees has required a substantial portion of management's time and attention, and has resulted in integration related expenses. The Company anticipates that the acquisition of Southport will also require a substantial portion of management's time and attention and will result in certain integration related expenses. The Company expects that it may incur additional integration related expenses in future periods, and there can be no assurance that the integration of ICS, Systems and Southport will not involve disruptions or difficulties, such as departures of customers, IT professionals or employees, any of which may have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISK OF IT SYSTEM CAPACITY CONSTRAINTS; RISK OF SYSTEM FAILURE. A key element of the Company's expansion strategy is to utilize the Internet (i) to link its regional offices to its central database, (ii) to offer its staffing services to existing and potential customers, (iii) to attract and recruit qualified technical personnel, and (iv) to promote the Company. The Company anticipates that its expansion will require a high volume of traffic on, and use of, its Web site. Accordingly, the satisfactory performance, reliability and availability of the Company's Web site and network infrastructure are and will be critical to the Company's reputation and its ability to attract and retain customers and technical personnel and to maintain adequate customer service levels. Any system interruptions that result in the reduced availability of the Company's Web site or reduced performance of such site would interfere substantially with the communications between the Company's offices and would materially adversely affect the ability of the Company to attract new customers and technical personnel. While the Company has not experienced any system interruptions, it believes that such interruptions may occur from time to time. Any substantial increase in the volume of traffic on the Company's Web site will require the Company to expand and further upgrade its network infrastructure, including the purchase or development of additional computer hardware and software. There can be no assurance that the Company will be able to accurately project the rate or timing of increases, if any, in the use of its Web site or timely expand and upgrade its systems and infrastructure to accommodate such increases. The Company's inability to add required additional software and hardware or to develop and upgrade its technology or network infrastructure to accommodate increased traffic on its Web site may cause unanticipated system disruptions, slower response times, impediments to attracting additional customers and delays in locating required technical personnel. In addition, although the Company takes safeguards, including data encryption and firewalls, to prevent unauthorized access to Company data, it is impossible to completely eliminate this risk. Any of the foregoing events could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business--Business Strategy." DEPENDENCE ON HR WORKBENCH. The Company is substantially dependent on HR Workbench, a software product recently developed in conjunction with Great Lakes, for the day to day operation of its business, including the operation and maintenance of its database. Although the Company has operated and tested such software extensively, there can be no assurance that such software will function as intended or that it will provide the Company with any competitive advantage. In the event that such software does not function as intended, the business, prospects, financial condition and results of operations of the Company could be materially, adversely affected. The Company and Great Lakes jointly own the HR Workbench software product. See "Business--Information Technology and the Internet." RISKS ASSOCIATED WITH THE APPTRACKER SOFTWARE. The Company, through a joint venture with Great Lakes, has developed AppTracker and intends to market such software to the human resources markets. AppTracker is still in the testing stage, and there can be no assurance that the Company and Great Lakes will be able to produce a fully functioning product or that such software will function as intended. The 11 AppTracker development program was launched as a result of the positive response observed during its first test-marketing session. A working prototype was demonstrated at the annual Human Resources Professional Association Conference in Toronto in February 1998. The Company performed more than 40 one-on-one demo sessions with companies and received a positive response. The first customer for the AppTracker is the Toronto Stock Exchange. Neither the Company nor Great Lakes have any experience in marketing software products and, even if the product is fully developed, there can be no assurance that there will be a market for such a product. The success of AppTracker is substantially dependent on the Company's relationship with Great Lakes and subject to the risk that the parties may disagree on strategy or other issues, causing delays in the project. There can be no assurance that AppTracker will ever be completed, will ever provide the Company with revenue, or that the joint venture regarding AppTracker will ever be profitable. Furthermore, there can be no assurance that AppTracker will create opportunities for the Company to promote the Company's IT staffing services, that the use of AppTracker by the Company's customers will not result in a reduction in the use of the Company's services, or that the Company's competitors will not be able to utilize EDI and other benefits of AppTracker to also provide enhanced services to customers. Other companies may have similar software products. See "Business-- Information Technology and the Internet." LIABILITY RISKS. Although the Company's customer agreements disclaim responsibility for the conduct of IT professionals provided by the Company, the Company may be exposed to liability with respect to actions taken by its IT professionals while on assignment, such as damages caused by errors of IT professionals, misuse of client proprietary information or theft of client property. Although the Company maintains insurance coverage, due to the nature of the Company's assignments, and in particular the access by IT professionals to client information systems and confidential information and the potential liability with respect thereto, there can be no assurance that such insurance coverage will continue to be available on reasonable terms, or at all, or that it will be adequate to cover any such liability. Although the IT professionals providing the Company's contract services are independent contractors, the Company employs recruiters, sales personnel and others and is therefore exposed to possible claims of wrongful discharge and violations of immigration laws. Employment related claims may result in negative publicity, litigation and liability for money damages and fines. The staffing industry in Ontario is subject to the provisions of the provincial EMPLOYMENT AGENCIES ACT. Administered by the Ministry of Labour, the EMPLOYMENT AGENCIES ACT requires that all employment agencies operating in the province must be licenced by the supervisor of employment agencies. The Company currently holds a Class A licence under the provisions of the Act. In addition to this specific provincial regulatory regime, federal and provincial laws of general application relating to employment standards, labor relations, immigration and taxation apply to employed personnel of staffing companies in the same manner as other employers. The Company believes that it complies in all material respects with such regulations. DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to a significant extent on the efforts of its key management personnel, particularly Declan French, the Company's Chairman of the Board of Directors, President and Chief Executive Officer; John A. Irwin, President of ICS; and John R. Wilson, President of Systems. The loss or unavailability of any of these key employees could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. The Company has entered into employment agreements with each of Messers. French, Irwin and Wilson expiring five years from the effective date, December 31, 2000 and December 31, 1999, respectively. The Company maintains key-man life insurance on the life of Declan French with a death benefit payment of $200,000. Additionally, the Company believes that its future success will depend in large part upon its continued ability to attract and retain highly qualified recruiters, who often serve as the contact person for the Company's customers. There can be no assurance that the Company will be able to attract and retain the qualified personnel necessary for its business. See "Risk Factors--Possible Inability to Attract and Retain Qualified IT Professionals" and "Management." 12 CONTROL BY EXISTING MANAGEMENT. Upon the completion of this offering, the current directors and executive officers of the Company will, in the aggregate, beneficially own approximately 1,396,413 Common Shares, or 52.1% of the outstanding Common Shares, or approximately 49.4% of such outstanding Common Shares if the Underwriters' over-allotment option is exercised in full. As a result, the current executive officers and directors of the Company will have the ability to substantially control the outcome of all matters on which shareholders are entitled to vote, including the elections of the Company's directors and the approval of significant corporate transactions. See "Principal Shareholders." POTENTIAL ANTI-TAKEOVER EFFECT OF PREFERRED SHARES. The Company's Certificate of Incorporation, as amended, authorizes the Board of Directors to issue up to 1,000,000 preferred shares, which may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by shareholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. No preferred shares are currently outstanding, and the Company has no present plans for the issuance of any preferred shares. However, the issuance of any such preferred shares could materially adversely affect the rights of holders of Common Shares and, therefore, could reduce the value of the Common Shares. In addition, specific rights granted to future holders of preferred shares could be used to restrict the Company's ability to merge with, or sell its assets to, a third party. The ability of the Board of Directors to issue preferred shares could discourage, delay or prevent a takeover of the Company, thereby preserving control of the Company by the current shareholders. See "Description of Securities--Preferred Shares." INDUSTRY AND GEOGRAPHIC CONCENTRATION. The Company's business is dependent on the trends prevalent in, and the continued growth and rate of change of, the high technology industry. Furthermore, for the year ended December 31, 1997 and nine months ended September 30, 1998, 96% and 99% of the Company's revenue, respectively, was derived by providing services to customers in the metropolitan Toronto region. A substantial deterioration in general economic conditions in such region or in the high technology industry as a whole would have a material adverse affect on the Company's business, prospects, financial condition and results of operations. See "Business--Customers." INTELLECTUAL PROPERTY; ABSENCE OF PATENT PROTECTION. The Company's ability to compete effectively will depend on its ability to maintain the proprietary nature of its technology, including its proprietary software developed in conjunction with Great Lakes. The Company holds no patents and relies on a combination of trade secrets and copyright laws, non-disclosure and other contractual agreements and technical measures to protect its rights in its technological know-how and proprietary services. The Company currently has no registered trademarks or service marks for the HR Workbench and AppTracker names and may not be able to obtain such protection due to the familiarity of the names in the IT industry. If possible, the Company hopes to secure copyright protection on the content of the HR Workbench and AppTracker by December 31, 1999. The Company depends upon confidentiality agreements executed by its officers, employees, consultants and customers to maintain the proprietary nature of its technology. These measures may not afford the Company sufficient or complete protection, and there can be no assurance that others will not independently develop technologies similar to those of the Company, otherwise avoid the confidentiality agreements of the Company or produce patents and copyrights that would materially adversely affect the Company's business, prospects, financial condition and results of operations. The Company believes that its know-how and technologies do not infringe upon the patents or copyrights of any third parties; however, there can be no assurance that the Company's know-how and technology will not be found to infringe upon the rights of third parties. The Company is aware of another company in its industry that uses a name which may be deemed to be confusingly similar to the Company. Others may assert infringement claims against the Company, and if the Company should be found to infringe upon the patents or copyrights, or otherwise impermissibly utilize the intellectual property, of 13 others, the Company's ability to utilize the technology referred to herein could be materially restricted or prohibited. If such an event occurs, the Company may be required to obtain licenses from such third parties, enter into royalty agreements or redesign its products so as not to utilize such intellectual property, each of which may prove to be uneconomical or otherwise impossible. There can be no assurance that any licenses or royalty agreements required with respect to any such proprietary rights could be obtained on terms acceptable to the Company or such third party, or at all. Such claims could result in litigation, which could materially adversely affect the Company's business, prospects, financial condition and result of operations. See "Business--Information Technology and the Internet." UNTESTED MARKETING STRATEGY. To date, the Company has engaged in limited marketing efforts in the United States. The Company currently only generates approximately $100,000 of its revenues from operating in the United States. Achieving market penetration will require significant efforts by the Company to create awareness of, and demand for, the Company's staffing services. The Company intends to upgrade its marketing efforts to include advertising on the Internet, e-mail and an expanded sales and recruiting staff. Internet and e-mail marketing efforts have been largely untested in the marketplace, and there can be no assurance that such efforts will result in the increased provision by the Company of staffing services. The failure of the Company to develop its marketing capabilities or successfully market its staffing services would have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Use of Proceeds," "Business--Business Strategy," and "Business-- Customers." LACK OF MAJOR CUSTOMER CONTRACTS AND/OR WRITTEN AGREEMENTS. As is common in the staffing industry, the Company does not have written contracts with most of its clients. There can be no assurance that such customers will generate significant revenues for the Company in the future. The loss of any significant customers would have a material adverse affect on the Company's business, prospects, financial condition and results of operations. FOREIGN EXCHANGE RISK. During the years ended December 31, 1996 and 1997, and the nine months ended September 30, 1998, approximately 100%, 96% and 99%, respectively, of the Company's revenue was in Canadian dollars. Accordingly, the relationship of the Canadian dollar to the value of the United States dollar may materially affect the Company's operating results. Since 1995, the value of the Canadian dollar, expressed in U.S. dollars, has declined by approximately 7%. In the event that the Canadian dollar were materially devalued against the United States dollar, the Company's financial condition and results of operations could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CONTINUING INFLUENCE OF UNDERWRITERS. The Underwriters may be able to exert continuing influence on the Company in light of the fact that they have the right to (i) appoint a board member or advisor for a three year period following the date of this Prospectus; (ii) receive the Representative's Warrants to purchase up to 100,000 shares; (iii) exercise their registration rights and (iv) act as financial consultant to the Company for a two year period whereby it will receive aggregate fees of $150,000 and shall provide advisory services related to mergers and acquisitions, corporate finance and other matters and will be entitled to a finder's fee if it acts as an investment banker on certain transactions. In addition, the Company has agreed, for a period of two years from the date of this Prospectus, not to issue any Common Shares, warrants, options or other rights to purchase Common Shares, without the prior consent of the Representative, subject to certain exceptions. As a result of the above rights and/or restrictions, the Underwriters may have significant influence over certain activities of the Company. ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; VOLATILITY. Prior to this offering, there has been no public market for the Shares, and there can be no assurance that any active trading market will develop or, if any such market develops, that it will be sustained. Accordingly, unless and until a public market develops, purchasers of the Shares may experience difficulty selling or otherwise disposing of such securities. 14 The initial public offering price of the Shares was arbitrarily determined by negotiations between the Company and the Representative, and does not necessarily bear any relationship to the Company's assets, book value, results of operations, or any other generally accepted indicia of value. See "Underwriting." From time to time after this offering, there may be significant volatility in the market price of the Common Shares. Quarterly operating results of the Company or other developments affecting the Company, such as announcements by the Company or its competitors regarding acquisitions or dispositions, new procedures or technology, changes in general conditions in the economy and general market conditions could cause the market price of the Common Shares to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have often been unrelated to the operating performance of these companies. NASDAQ MAINTENANCE REQUIREMENTS. Under the currently effective criteria for listing of securities on the Nasdaq SmallCap-Registered Trademark- Market, for initial listing, a company must have at least $4,000,000 in net tangible assets, a minimum bid price of $4.00 per share, and a public float of at least $5,000,000. For continued listing, a company must maintain $2,000,000 in net tangible assets, a minimum bid price of $1.00, and a public float of at least $1,000,000. In the event that the Company should be unable to maintain the standards for continued listing, the Common Shares could be subject to delisting from the Nasdaq SmallCap-Registered Trademark- Market. Trading, if any, in the Common Shares would thereafter be conducted in the over-the-counter market on the OTC Bulletin Board established for securities that do not meet the Nasdaq SmallCap-Registered Trademark- Market listing requirements or in what are commonly referred to as the "pink sheets." As a result, investors, in the Common Shares may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Shares. RISK OF LOW PRICED STOCKS; PENNY STOCKS. In the event that the Company is unable to satisfy the maintenance requirements for the Nasdaq SmallCap Market and the bid price of the Common Shares falls below $5.00 per share for the initial quotation, trading would be conducted in the "pink sheets" or the OTC Bulletin Board. In the absence of the Common Shares being quoted in Nasdaq, or listed on an exchange, trading in the Common Shares would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if the Common Stock is a "penny stock." Under such rule, broker-dealers who recommend such securities to persons other than established customers and accredited investors (generally defined as investors with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with a spouse) must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if the market price is at least $5.00 per share. The Commission adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include an equity security listed on the Nasdaq Stock Market, and an equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Consequently, such delisting, if it were to occur, could materially adversely affect the ability of broker-dealers to sell the Common Shares and the ability of purchasers in this offering to sell their Shares in the secondary market. IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Shares offered hereby will experience immediate and substantial dilution of $3.43 per share, assuming an initial public offering price of $5.00 per Share, or approximately 69%, in the net tangible book value of the Shares purchased thereby. Additional dilution to future net tangible book value per share may occur upon exercise of outstanding 15 stock options and warrants (including the Representative's Warrants) and may occur, in addition, if the Company issues additional equity securities in the future. See "Dilution." NEED FOR ADDITIONAL FINANCING. Based on the Company's operating plan, the Company believes that the net proceeds of this offering, together with available cash and anticipated revenues from operations, will be sufficient to finance the Company's working capital requirements for a period of at least 18 months following the completion of this offering. This belief is based on certain assumptions, which may prove to be incorrect. In addition, the Company's expansion strategy contemplates acquisitions of, and investments in, complementary and competitive companies and use of such companies by the Company to expand into new markets, although the Company presently has no agreements, plans or arrangements with respect to any such investment or acquisition. Accordingly, there can be no assurance that the Company's financial resources will be sufficient to satisfy the Company's capital requirements for such period. If the Company's financial resources are insufficient and, in any case, after such 18 month period, the Company will require additional financing in order to meet its plans for expansion. Additional financing may take the form of the issuance of common or preferred equity securities or debt securities, or may involve bank financings. There can be no assurance that the Company will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all. In any of such events, the Company may be unable to implement its current plans for expansion or to repay its debt obligations as they become due. In the event that any such financing should take the form of equity securities, the holders of the Common Shares may experience additional dilution. See "Risk Factors--Immediate and Substantial Dilution," "Use of Proceeds," "Dilution," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Business Strategy." POTENTIAL NEGATIVE EFFECT ON PRICE OF THE COMPANY'S SECURITIES AS A RESULT OF SHARES ELIGIBLE FOR FUTURE SALE. The sale, or availability for sale, of a substantial number of Common Shares in the public market subsequent to this offering, pursuant to Rule 144 under the Securities Act ("Rule 144") or otherwise, could materially adversely affect the market price of the Common Shares and could impair the Company's ability to raise additional capital through the sale of its equity securities or debt financing. The availability of Rule 144 to the holders of restricted securities, as defined in Rule 144, of the Company would be conditioned on, among other factors, the availability of certain public information concerning the Company. All of the 1,677,875 Common Shares currently outstanding are "restricted securities" as that term is defined in Rule 144 and may, under certain circumstances, be sold without registration under the Securities Act. In addition, any shares issuable upon exercise of options granted under the Plan could be sold publicly commencing 90 days after the Company becomes a reporting company under the Exchange Act, pursuant to Rule 701 under the Securities Act. However, officers, directors and certain shareholders of the Company and option holders under the Plan have executed agreements ("Lock-Up Agreements") pursuant to which they have agreed not to, directly or indirectly, issue, offer, agree to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or otherwise dispose of or encumber any Common Shares or options, rights, warrants or other securities convertible into, or exercisable or exchangeable for, or evidencing any right to purchase or subscribe for, Common Shares, whether or not beneficially owned by such person, or any beneficial interest therein, for a period of 18 months from the date of this Prospectus. See "Underwriting." REGISTRATION RIGHTS. For a period of 18 months from the date of this Prospectus, the Company has agreed that it will not sell or otherwise dispose of any securities of the Company without the prior written consent of the Representative, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, during such period, the Company shall be entitled to issue (i) Common Shares in connection with mergers and acquisitions, (ii) up to 435,000 Common Shares issuable upon exercise of options which may be granted under the Plan, (iii) up to 22,125 Common Shares issuable upon the exercise of currently outstanding options and warrants which will, except in certain circumstances, be issued for an aggregate exercise price of $1.00, (iv) 200,000 Common Shares issuable upon the exercise of currently exercisable options, the holder of which has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of 16 such Common Shares for a period of two years after he exercises such options without the consent of the Company and (v) up to 100,000 Common Shares issuable upon the exercise of the Representative's Warrants. The holders of the Representative's Warrants will have certain demand registration rights with respect to such warrants, the Common Shares underlying such warrants and the "Warrant Shares" commencing one year after the date hereof. If the Representative should exercise its registration rights to effect a distribution of the Representative's Warrants or the Warrant Shares, the Representative, prior to and during such distribution, may be unable to make a market in the Company's securities. If the Representative ceases making a market in the Common Shares, the market and market prices of the Common Shares may be materially adversely affected, and holders thereof may be unable to sell or otherwise dispose thereof. See "Shares Eligible for Future Sale" and "Underwriting." NO DIVIDENDS. The Company does not intend to pay dividends on the Common Shares in the foreseeable future, but rather intends to retain future earnings, if any, for reinvestment in the development and expansion of its business. Pursuant to the Company's agreement with the Business Development Bank of Canada ("BDC"), the Company will not pay dividends so long as any portion of the Company's loan from BDC remains outstanding. September 30, 1998, the outstanding balance on such loan was $488,730. Such loan is due in August 2003, and the Company has no plans to pre-pay such loan. Dividend payments in the future may also be limited by other loan agreements or covenants contained in other securities which the Company may issue. Dividend payments from the Company are subject to Canadian withholding tax requirements. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital and legal requirements and such other factors as the Board of Directors deems relevant. See "Dividend Policy," "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources," "Description of Securities -- Common Shares" and "Certain United States and Canadian Federal Income Tax Considerations." RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. This Prospectus contains certain forward-looking statements regarding the plans and objectives of management for future operations. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based on a successful execution of the Company's expansion strategy and are based upon a number of assumptions, including assumptions relating to the growth in the use of the Internet and that there will be no unanticipated material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, political, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying such forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 17 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Shares offered hereby are estimated to be $3,840,000 ($4,492,500 if the Underwriters' over-allotment option is exercised in full) assuming an initial public offering price of $5.00 per Share, after deducting underwriting commissions and offering expenses to be paid by the Company. The Company expects to apply the net proceeds of this offering as follows:
APPLICATION OF PROCEEDS APPROXIMATE AMOUNT PERCENTAGE OF NET PROCEEDS - ------------------------------------------------------------------ ------------------- --------------------------- Expansion into new regional markets (1)........................... $ 3,200,000 83.3% Funding of the joint venture regarding AppTracker (2)............. 350,000 9.1% General corporate and working capital purposes.................... 290,000 7.6% ------------------- ----- Total............................................................. $ 3,840,000 100.0% ------------------- ----- ------------------- -----
- ------------------------ (1) Such funds will primarily be used for expenses incurred in the opening of new offices, including leasing office space, purchasing or leasing office equipment and computer hardware and related expenses prior to the commencement of operations in new locations. The Company estimates that opening a new office will cost approximately $200,000 to $500,000 per location, which costs will vary depending on the size of the office and the cost of doing business in the location in question. The Company expects to open the majority of its new offices in the United States. As part of its expansion plan, the Company may utilize a portion of these proceeds for the acquisition of, or investment in, complementary or competitive companies in these new locations. The Company has not currently identified any acquisition or investment candidates and has no agreements, plans or arrangements with respect to any such acquisition or investments. (2) Such funds will represent the Company's capital contribution to a joint venture with Great Lakes for the continued development and commercialization of AppTracker. Such capital contribution will be utilized for continued development and testing costs and, if such testing is successful, to provide funds for the initial marketing of the product. See "Business--Information Technology and the Internet." The net proceeds to the Company from the exercise of the Underwriters' over-allotment option, if any, will be utilized for general corporate and working capital purposes. Pending their use, the net proceeds of this offering will be invested in high-quality, short-term, interest bearing U.S. government obligations. The foregoing represents the Company's best estimate of its allocation of the net proceeds of the sale of the Shares based upon the Company's currently contemplated operations, the Company's business plan and current economic and industry conditions and is subject to reapportionment among the categories listed above in response to, among other things, changes in its plans, regulations, industry conditions and future revenues and expenditures. The amount and timing of expenditures will vary depending on a number of factors, including changes in the Company's contemplated operations or business plan and changes in economic and industry conditions. Based on the Company's operating plans, the Company believes that the net proceeds of this offering, together with available cash and anticipated revenues from operations, will be sufficient to satisfy the Company's working capital requirements for a period of at least the next 18 months following the completion of this Offering. This belief is based on certain assumptions, which may prove to be incorrect. After such 18-month period, or sooner if the Company's assumptions prove to be incorrect, the Company may require additional capital in order to meet its then current plans for expansion and capital requirements. Such financing may take the form of public or private common or preferred equity securities or debt securities, or may involve bank financing. There can be no assurance that the Company will be able to obtain additional capital on a timely basis, on favorable terms, or at all. In any of such events, the Company may be unable to implement its current plans for expansion. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 18 DIVIDEND POLICY The Company does not intend to pay dividends on the Common Shares in the foreseeable future, but rather intends to retain future earnings, if any, for reinvestment in the development and expansion of its business. Pursuant to the Company's agreement with the Business Development Bank of Canada ("BDC"), the Company will not pay dividends so long as any portion of the Company's loan from BDC remains outstanding. At September 30, 1998, the outstanding balance on such loan was $488,730. Such loan is due in August 2003, and the Company has no plans to pre-pay such loan. Dividend payments in the future may also be limited by other loan agreements or covenants contained in other securities which the Company may issue. Dividend payments from the Company are subject to Canadian withholding tax requirements. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital and legal requirements and such other factors as the Board of Directors deem relevant. See Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources, "Description of Securities--Common Shares" and "Certain United States and Canadian Federal Income Tax Considerations." 19 DILUTION At September 30, 1998, the net tangible book value of the Company was approximately $351,595, or $0.21 per Common Share, based on 1,677,875 Common Shares outstanding. The net tangible book value per Share represents the amount of the Company's total assets less the amount of its intangible assets and liabilities, divided by the number of Common Shares outstanding. After giving effect to the receipt of net proceeds (estimated to be approximately $3,840,000, from the sale of the Shares at an assumed initial public offering price of $5.00 per Share), the pro forma net tangible book value of the Company at September 30, 1998 would be approximately $4,191,595, or $1.57 per Share. This would result in dilution to the public investors (i.e., the difference between the assumed initial public offering price per Share and the net tangible book value thereof after giving effect to this offering) of approximately $3.43 per share (or 69%). The following table illustrates the per Share dilution:
PER COMMON SHARE ------------- Assumed initial public offering price................................. $ 5.00 Net tangible book value at September 30, 1998....................... $ 0.21 Increase in net tangible book value attributable to new investors... 1.36 --------- Net tangible book value after this offering (1)....................... 1.57 ----- Dilution of net tangible book value to new investors (1).............. $ 3.43 ----- -----
- ------------------------ (1) If the Underwriters' over-allotment option is exercised in full, the net tangible book value per share would be $1.72 and the dilution per Share to new investors in this offering would be $3.28. The following table sets forth, as of the date of this Prospectus, the number of Common Shares purchased, the percentage of the total number of Common Shares purchased, the total consideration paid, the percentage of total consideration paid, and the average price per Common Shares paid by the investors in this offering and the current shareholders of the Company:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------- PRICE PER NUMBER(1) PERCENTAGE AMOUNT(1) PERCENTAGE SHARE ---------- ----------- ------------ ----------- ----------- Current Shareholders............................... 1,677,875 63% $ 1,248,368 20% $ 0.74 New Investors(2)................................... 1,000,000 37% $ 5,000,000 80% $ 5.00 ---------- ----- ------------ ----- Total.......................................... 2,677,875 100.0% $ 6,248,368 100.0% ---------- ----- ------------ ----- ---------- ----- ------------ -----
- ------------------------ (1) Assuming an initial public offering price of $5.00 per Share. 20 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1998 and as adjusted to reflect the sale of the Shares offered hereby at the assumed initial public offering price per share of $5.00, after deducting estimated underwriting discounts and commissions, estimated offering expenses and the initial applications of the net proceeds of this offering as set forth in "Use of Proceeds." The information provided below should be read in conjunction with the other financial information included elsewhere in this Prospectus.
SEPTEMBER 30, 1998 -------------------------- ACTUAL AS ADJUSTED ------------ ------------ Long-term debt, less current maturities............................................... $ 381,630 $ 381,630 Shareholders' equity Common Shares, no par value, 1,677,875 issued and outstanding; and 2,677,875 issued and outstanding, as adjusted...................................................... 1,248,368 5,088,368 Foreign currency translation adjustment............................................. (111,139) (111,139) Retained earnings................................................................... 451,949 451,949 Total shareholders' equity............................................................ 1,589,178 5,429,178 Total capitalization.................................................................. 1,970,808 5,810,808
21 SELECTED FINANCIAL DATA The following selected statement of operations data for the years ended December 31, 1996 and 1997 are derived from the Financial Statements of the Company and Notes thereto included elsewhere herein audited by Schwartz Levitsky Feldman, Chartered Accountants, the independent accountants for the Company. The unaudited statement of operations data presented for the nine month periods ended September, 1997 and 1998, and the unaudited balance sheet data at September 30, 1998, are derived from the unaudited Consolidated Financial Statements of the Company, which have been prepared on a basis consistent with the audited Consolidated Financial Statements of the Company, and, in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations of the Company as of the dates and for the periods presented. This information should be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the Notes thereto, each included elsewhere herein. The results of operations for any interim period are not necessarily indicative of results to be expected the entire year.
YEAR ENDED, DECEMBER NINE MONTHS ENDED 31, SEPTEMBER 30, -------------------- -------------------- 1996 1997 1997 1998 --------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenue Contract services........................................................ 296 3,730 2,673 6,558 Permanent placements..................................................... 468 975 746 2,198 --------- --------- --------- --------- 764 4,704 3,419 8,756 COST OF CONTRACT SERVICES.................................................. 259 2,889 2,116 5,011 Gross profit............................................................... 505 1,816 1,303 3,745 Expenses Selling.................................................................. 273 1,123 796 2,104 Administrative........................................................... 182 373 264 968 Financial................................................................ 14 126 42 129 --------- --------- --------- --------- 469 1,622 1,102 3,201 Income Before Income Taxes................................................. 36 194 201 544 Income Taxes............................................................. 6 56 66 218 --------- --------- --------- --------- Net income................................................................. 30 138 135 326 Earnings per share......................................................... 0.03 .11 .10 .20 Weighted Average Number of Shares Outstanding.............................. 1,021 1,309 1,309 1,650
AS OF SEPTEMBER 30, 1998 -------------------------- ACTUAL AS ADJUSTED(1) --------- --------------- BALANCE SHEET DATA Working capital.......................................................................... $ 609 $ 4,099 Total assets............................................................................. 3,493 7,333 Long-term debt........................................................................... 382 382 Total liabilities........................................................................ 1,904 1,904 Shareholders' equity..................................................................... 1,589 5,429
- ------------------------ (1) As adjusted to reflect the sale by the Company of the 1,000,000 Shares offered hereby at an assumed initial public offering Price of $5.00 per Share and the initial application of the net proceeds therefrom. See "Use of Proceeds." 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS. THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. ALTHOUGH MANAGEMENT BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE TO BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED. GENERAL The Company is a provider of IT staffing services, primarily in Toronto, Ontario, Canada, supplying qualified IT professionals to its customers as independent contractors for short and long term assignments and for permanent placement within such enterprises. The Company's customers include financial service companies, software and other technology companies, Canadian governmental entities and large multinational companies, including Merrill Lynch Canada Inc., Bank of Montreal, Bell Sygma Inc., Revlon of Canada, Inc., IBM Corporation and American Express Company. The Company has recently expanded its operations into the United States and intends to develop a network of offices to provide IT staffing services throughout North America. For the year ended December 31, 1997 and the nine months ended September 30, 1998, the Company derived 96% and 99%, respectively, of its revenue in Canada and the remainder in the United States. The Company's books and records are recorded in Canadian dollars. For purposes of financial statement presentation, the Company converts balance sheet data to U.S. dollars using the exchange rate in effect at the balance sheet date. Income and expense accounts are translated using an average exchange rate prevailing during the relevant reporting period. There can be no assurance that the Company would have been able to exchange currency on the rates used in these calculations. The Company does not engage in exchange rate hedging transactions. A material change in exchange rates between U.S. and Canadian dollars could have a material effect on the reported results of the Company. The Company's services are generally classified as either contract services or permanent placement services. In the case of contract services, the Company provides its customers with independent contractors or "contract workers" who usually work under the supervision of the customer's management. Generally, the Company enters into a time-and-materials contract with its customer whereby the customer pays the Company an agreed upon hourly rate for the contract worker. The Company pays the contract worker pursuant to a separate consulting agreement. The contract worker generally receives between 75% and 80% of the amount paid by the customer to the Company; however, such payment is usually not based on any formula and may vary for different engagements. The Company has been seeking to gain "preferred supplier status" with its larger customers to secure a larger percentage of those customers' business. While such status is likely to result in increased revenue and gross profit, it is likely to reduce gross margin percentage because the Company is likely to accept a lower hourly rate from its customers and there can be no assurance that it will be able to reduce the hourly rate paid to its consultants. Revenue from contract services is recognized as services are provided. Similarly, expenses for contract services, which usually consist solely of consulting fees paid to contract workers, are recognized as services are provided. For the year ended December 31, 1997 and the nine months ended September 30, 1998, the gross margin on contract services revenue was approximately 23% and 24%, respectively. Contract services 23 accounted for 79% of revenue and 46% of gross profit for the year ended December 31, 1997 and approximately 75% of revenue and 41% of gross profit for the nine months ended September 30, 1998. In the future, the Company may perform contract services for customers on a project by project basis whereby the Company will be engaged to complete a particular, specified project. The Company may hire full time employees to supervise these projects. These projects may be billed on a time-and-materials basis or the Company may charge a fixed price for the project. If the Company charges a fixed price for a project, it will be required to estimate the total costs involved in the project and formulate a bid that contains an adequate profit margin. If the Company is unable to accurately predict the costs of such a project, or the costs of the project change due to unanticipated circumstances, which may be circumstances that are beyond the control of the Company, the Company may earn lower profit margins or suffer a loss on a given project. Currently, the Company is not providing any IT professionals pursuant to fixed price contracts. In the case of permanent placement services, the Company identifies and provides candidates to fill a permanent position for its customer. The Company recognizes revenue when the IT professional commences employment. The Company performs permanent placement services pursuant to three invoicing policies. Contingency services are engagements in which the Company is only paid if it is successful in placing a candidate in a position. Contingency exclusive services are similar to contingency engagements; however, the Company is the only firm engaged to fill the position. Retained search services are similar to contingency exclusive services, except that the Company receives a non-refundable portion of the fee prior to performing any services, with the remainder paid if the position is filled. Contingency, contingency exclusive and retained search services accounted for approximately 71%, 18% and 11%, respectively, of the Company's permanent placement services for the year ended December 31, 1997 and 83%, 15% and 2% for the nine months ended September 30, 1998. The Company calculates gross profit by subtracting the fees paid to contractors from net revenue. The Company does not attribute any direct costs to permanent placement services; therefore the gross profit margin on such services is 100% of revenue. As a result, the addition of permanent placement revenue to contract services revenue has a significant effect on the gross profit margin of the Company as a whole. Permanent placement services accounted for 21% of revenue and 54 % of gross profit for the year ended December 31, 1997 and 25% of revenue and 59% of gross profit for the nine months ended September 30, 1998. The Company anticipates expanding into new regional markets by establishing new offices or by acquiring or investing in complementary or competitive companies. The Company has not yet identified any acquisition candidates and has no agreements, plans, or arrangements with respect to such acquisitions or investments. The Company expects the cost of opening and funding a new office to range from $200,000 to $500,000, depending on the size of the office and the costs of doing business in the city in which the office is to be located. Such costs will primarily consist of leasing office space, purchasing or leasing office equipment and computer hardware and other related expenses incurred prior to the commencement of operations in new locations. Such costs also include operating expenses, such as payroll and advertising, prior to such time that the new office is able to generate significant cash flow from operations. The opening of new offices in new regional markets results in increased operating expenses including, but not limited to, salaries, equipment, insurance, marketing and public relations. Senior management also devotes resources to training and management support. Based on the experience of the Company's principals, the Company expects newly opened offices to become productive within 6 to 12 months of opening. Although there can be no assurance that such expectations will be satisfied, the Company's expectations in terms of productivity for new offices by the 12th month of operations are: 30 contractors and between $30,000 to $50,000 in permanent placement sales per month with annual revenues of approximately $450,000. The Company is likely to utilize acquisitions as an attempt to avoid or limit these costs, but the Company will incur other costs as a result of any acquisitions, including funding the purchase price and expenses related to the integration of operations and training of new employees. With regard to previous acquisitions, 24 integration costs were expensed in the period that they were incurred and the Company expects to continue to do so with future acquisitions. The Company intends its acquisition targets to be small companies who can benefit from the Company's advanced IT and other operating systems. There can be no assurance that integrating the Company's operations with those of acquired companies will result in improvements in such companies' operations or increased revenue from such operations. In April 1998, the Company completed the acquisition of all the issued and outstanding shares of SCI and SPSI for aggregate consideration of $100,007 and 288,010 Common Shares. SPSI is inactive but holds certain assets utilized by Systems in its operations. The acquisition was effective as of January 2, 1997. Declan French, the President and Chairman of the Board of the Company, participated in the management of Systems during 1997 and the Company and Systems shared data and operating information during the year ended December 31, 1997. Accordingly, the Company's Consolidated Financial Statements incorporate the operations of Systems since January 1, 1997. On May 19, 1998, the Company completed the acquisition of all the issued and outstanding shares of capital stock of ICS for $303,555 in cash and 130,914 Common Shares to John A. Irwin, who was not affiliated with the Company prior to this acquisition. In connection with the acquisition, ICS made a distribution to Mr. Irwin of certain ICS assets that were not necessary for the operation of the business. The transaction was effective as of January 1, 1998. Declan French and other officers of the Company participated in the management of ICS during the nine months ended September 30, 1998. Accordingly, the Company's Consolidated Financial Statements incorporate the operation of ICS since January 1, 1998. In November 1998, the Company completed the acquisition of certain assets of Southport from Mr. Michael Carrazza for $50,000 in cash and an amount of Common Shares with a value of $200,000 based on the offering price. If at the time Mr. Carrazza is eligible to sell shares under Rule 144 and any contractual arrangement with the Representative, the price of the Common Shares is less than $5.00 per share, the Company will be required to either issue additional shares or fund the difference in cash. Each acquisition was accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the assets of the acquired entity based on fair market value. In connection with the acquisitions of Systems, ICS and Southport the Company recorded $434,657, $851,763 and $100,000, respectively, in goodwill, which is being amortized over thirty years in accordance with generally accepted accounting principles as applied in the United States. RESULTS OF OPERATIONS The following table presents certain financial data of the Company as a percentage of the Company's revenue based on information derived from the Company's financial statements.
NINE MONTHS ENDED YEAR ENDED, DECEMBER 31, SEPTEMBER 30, ------------------------ ------------------------ 1996 1997 1997 1998 ----- ----- ----- ----- Sales........................................... 100% 100% 100% 100% Contractor Costs................................ 34% 61% 62% 57% Gross profit.................................... 66% 39% 38% 43% Operating Expenses.............................. 61% 34% 32% 37% Income from operations.......................... 5% 4% 6% 6% Net income...................................... 4% 3% 4% 4%
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997 REVENUE. Revenue for the nine months ended September 30, 1998 increased by $5.3 million, or 199%, to $8.7 million, as compared to $3.4 million for the nine months ended September 30, 1997. The 25 increase is primarily attributable to the acquisition effective January 1, 1998 of ICS, which had sales of $3.4 million for the nine months ended September 30, 1998. Also contributing to the increase was an increase of $530,000 in the sales of Systems as a result of improvements in operations since it was acquired by the Company effective January 2, 1997, and growth in the contract sales in the Toronto office. Revenue from contract services and permanent placement services accounted for 75% and 25%, respectively, of revenue for the nine months ended September 30, 1998 as compared to 78% and 22%, respectively, for the nine months ended September 30, 1997. CONTRACTOR COSTS. Contractor costs for the nine months ended September 30, 1998 increased by $2.9 million, or 137%, to $5.0 million, as compared to $2.1 million for the nine months ended September 30, 1997. This increase was due to the increased volume of contract services. As a percentage of revenue from contract services, contractor costs remained constant at 77%. GROSS PROFIT. Gross profit for the nine months ended September 30, 1998 increased by $2.4 million, or 187%, to $3.7 million, as compared to $1.3 million for the nine months ended September 30, 1997. This increase was attributable to the aforementioned increase in revenue during the nine months ended September 30, 1998. As a percentage of revenue, gross profit increased to 43% for the nine months ended September 30, 1998 as compared to 38% for the nine months ended September 30, 1997. This increase was due to the slight decrease in the percentage of revenue which was derived from contract services. OPERATING EXPENSES. Operating expenses for the nine months ended September 30, 1998 increased by $2.1 million, or 190%, to $3.2 million, as compared to $1.1 million for the nine months ended September 30, 1997. This increase was primarily attributable to increases of $928,000 in selling expenses and $431,000 in administrative expenses at ICS during the nine months ended September 30, 1998. Administrative expenses at the IT Staffing Division also increased as the Company expanded its infrastructure to support operations from multiple locations and operated additional offices. As a percentage of revenue, operating costs increased to 37% for the nine months ended September 30, 1998 from 32% for the nine months ended September 30, 1997 due to an increase in the number of locations and volume of transactions. NET INCOME. Net income for the nine months ended September 30, 1998 increased by $190,000, or 140% to $326,000, as compared to $135,000 for the nine months ended September 30, 1997 due to, among other things, the reasons enumerated above. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 REVENUE. Revenue for the year ended December 31, 1997 increased by $3.9 million, or 510%, to $4.7 million, as compared to $764,000 for the year ended December 31, 1996. The increase is primarily attributable to the acquisition of Systems, which had revenue for the year ended December 31, 1997 of $2.0 million, effective January 2, 1997, and an increase of $1.7 million of revenue during such period from contract services at the IT Staffing Division as a result of internal growth. Revenue from contract services and permanent placement services accounted for 79% and 21%, respectively, of revenue for the year ended December 31, 1997 as compared to 39% and 61%, respectively, for the year ended December 31, 1996. CONTRACTOR COSTS. Contractor costs for the year ended December 31, 1997 increased by $2.6 million, or 1000%, to $2.9 million, as compared to $260,000 for the year ended December 31, 1997. This increase was attributable to the increased volume of contract services. As a percentage of revenue from contract services, contractor costs decreased to 78% for the year ended December 31, 1997 from 88% for the year ended December 31, 1996 primarily as a result of an increase in average hourly billing rates for the Company's contract services. 26 GROSS PROFIT. Gross profit for the year ended December 31, 1997 increased by $1.3 million, or 256%, to $1.8 million, as compared to $505,000 for the year ended December 31, 1996. This increase was atttributable to the aforementioned increase in revenue. As a percentage of revenue, gross profit decreased to 38% for the year ended December 31, 1997 as compared to 66% for the year ended December 31, 1996. This decrease was due to the increase in the percentage of revenue which was derived from contract services. OPERATING EXPENSES. Operating expenses for the year ended December 31, 1997 increased $1.2 million, or 234%, to $1.6 million, as compared to $470,000 for the year ended December 31, 1997. This increase was primarily attributable to the acquisition of Systems, which incurred operating expenses of $515,000 during the year ended December 31, 1997, and an increase of $442,000 in selling expenses at the IT Staffing division due to increased volume of sales. Administrative expenses at the IT Staffing Division also increased as the Company expanded infrastructure to support operations from multiple locations. As a percentage of revenue, operating costs decreased to 34% for the year ended December 31, 1997 from 61% for the year ended December 31,1996 as a result of increased revenue since many administrative costs are relatively fixed and do not vary with revenue. NET INCOME. Net income for the year ended December 31, 1997 increased by $108,000, or 360%, to $138,000 for the year ended December 31, 1997 as compared to $30,000 for the year ended December 31, 1996 as a result of, among other things, the reasons enumerated above. LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of cash are cash flow from operations and a credit line with the Toronto-Dominion Bank ("TDB"). At September 30, 1998, the Company had cash of $150,000 and working capital of $609,000. During the nine months ended September 30, 1998, the Company had a cash flow deficiency from operations of $28,000, due primarily to an increase in accounts receivable of $1,178,000, which was partially offset by net income of $326,000 and an increase in accounts payable of $727,000. The increase in accounts receivable is primarily due to the increase in revenue in the months prior to September 30, 1998 as compared to the months prior to December 31, 1997. At December 31, 1997, the Company had cash and cash equivalents of $10,000, and a working capital deficiency of $10,000. For the year ended December 31, 1997, the Company had a cash flow deficiency from operations of $70,000, due primarily to an increase in accounts receivable of $577,000, which was partially offset by increase in accounts payable of $317,000 and net income of $138,000. For the nine months ended September 30, 1998, the Company had cash flow from financing activities of $896,000, attributable primarily to proceeds from the issuances of Common Shares. For the year ended December 31, 1997, the Company had cash flow from financing activities of $250,000 attributable primarily to the increase in Notes payable and bank indebtedness. During the nine months ended September 30, 1998, the Company received $620,944 for the issuance of 281,464 Common Shares. The Company's arrangement with TDB, which was revised in October 1998, allows for an operating line, payable on demand, of up to $650,000. Outstanding balances bear interest at 1.75% over TDB's prime rate. The line is secured by substantially all of the Company's assets, an assignment of life insurance on the life of Declan French to the extent of $200,000, and is personally guaranteed by Declan French and his wife to the extent of $130,000. The loan is subject to certain financial covenants including a minimum net worth of $562,065. At September 30, 1998, there was $240,000 outstanding on this line. As of September 30, 1998, the Company had a total of $488,730 due to BDC pursuant to four separate loans. The loans bear interest at the Canadian prime rate plus 4% to 5% and are being repaid in monthly installments which currently aggregate $8,800. In addition to interest, the Company granted BDC an option to acquire 22,125 Common Shares for an aggregate exercise price of $1.00 and to pay BDC a royalty 27 equal to .063% of gross sales until August 2003. The Company is restricted from paying dividends until these loans have been repaid to BDC. The Company has negotiated and is awaiting memorialization of an additional $200,000 loan from BDC. The loan will bear interest at 10.75% and is to be repayable in 60 equal payments commencing in April 1999. During the nine months ended September 30, 1998, the Company had a cash flow deficit from investing activities of $721,000, primarily attributable to the aforementioned acquisition of ICS. During the year ended December 31, 1997, the Company had a cash flow deficit from investing activities of $184,000, primarily attributable to the aforementioned acquisition of Systems. During the fourth quarter of 1997, the Company experienced a financial loss of $7,000. This loss was a function of two issues relating to operations. In October 1997, the Company had begun operations in a New York office and incurred approximately $67,000 of expenses relating to the start-up. While this type of expense is a re-occurring item with each office opening, the costs will vary depending upon the size and location of each new office. The second issue relates to significant management time, commitment and effort invested in the development of HR Workbench and AppTracker software programs. These are key strategic initiatives for the internet oriented nature of the Company's operations. The Company has entered into employment and consulting agreements with certain of its key employees. These agreements provide for significant salaries and/or bonuses based on the Company and/or certain of its divisions' financial performance. These agreements could affect the Company's liquidity. See "Business--Employment Agreements Consulting and Agreements." The Company believes that cash flow from operations, together with the proceeds of the offering, will be sufficient to satisfy the Company's working capital needs for at least the next 18 months. YEAR 2000 PREPARATION Many computer systems and software products worldwide and throughout all industries will not function properly, unless upgraded, as the year 2000 approaches, due to a once common programming standard that represents years using two-digits. This is the "Year 2000 problem" that has received considerable media coverage. The Company believes that it is Year 2000 compliant with respect to its internal systems, including its HR Workbench software. AppTracker is also designed to be Year 2000 compliant. SEASONALITY The Company also experiences a minor decrease in contract billings in the second half of December as workers take their holidays; there also tends to be a sluggish start to new billings in January due to lack of hiring momentum from managers newly returned from holidays. Beyond these two instances, the Company does not experience much seasonal fluctuation in its level of business. 28 BUSINESS The Company is a provider of IT staffing services, primarily in Toronto, Ontario, Canada, supplying qualified IT professionals to its customers as independent contractors for short and long term assignments and for permanent placement within such enterprises. The Company's customers include financial service companies, software and other technology companies, Canadian governmental entities and large multinational companies, including Merrill Lynch Canada Company, Inc., Bank of Montreal, Bell Sygma Inc., Revlon Canada Inc., IBM Corporation and American Express Company. The Company has recently expanded its operations into the United States and intends to develop a network of offices to provide IT staffing services throughout North America. The Company has focused on the recruiting of quality IT professionals. The Company utilizes established testing methods to ensure that its IT professionals are properly qualified. The Company also reviews a candidates' technical background and conducts preliminary interviews prior to referring candidates to its customers. By attracting the most qualified IT professionals, the Company believes that it will be able to attract high quality customers who require the services of such professionals. Since inception, the Company has pursued a strategy of developing and utilizing technology that it believes will provide it a competitive advantage. As a result, the Company believes that one of its primary competitive strengths is its utilization of technology. The Company maintains a database of over 35,000 IT professionals and advertises on the Internet to attract both candidates and customers. The Company uses HR Workbench, software developed by the Company in conjunction with Great Lakes Research and Development ("Great Lakes"), an unaffiliated entity, to locate the IT professionals in the Company's database with the technical skills and job interests that best satisfy the requirements of the position that the Company is attempting to staff. The database allows all of the Company's recruiters immediate access to active candidates. Candidates can register themselves directly into the database through the Internet or be entered into the system by the Company's recruiters. The Company and Great Lakes have developed, and are in the process of testing, an additional software product called AppTracker, which the Company, through a joint venture with Great Lakes, intends to market to human resource departments during the year ending December 31, 1999. The software is designed to aid human resources departments in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. The Company believes that it will have an advantage in marketing its staffing services to companies using AppTracker because of the Company's familiarity with the software and the ease of electronic data interchange ("EDI") with the Company. The Company was incorporated under the laws of the Province of Ontario, Canada in 1994. INDUSTRY BACKGROUND The staffing industry has experienced significant growth in recent years in response to the increased popularity of outsourcing of many staffing requirements. This growth has been driven by employers who have sought to convert personnel costs from fixed to variable in nature by reducing their permanent staff and supplementing their workforce with contract employees for specific projects, peak work loads and other needs. The use of flexible staffing services has allowed employers to improve productivity, outsource specialized skills and avoid the negative effects of layoffs. This trend has accelerated with the pace of technological change and greater global competitive pressures. Regulations governing employee benefits, insurance and retirement plans, as well as the high cost of hiring, laying off and terminating permanent employees, have prompted many employers to take advantage of the flexibility offered through contract staffing arrangements. According to the STAFFING INDUSTRY REPORT, a leading industry publication, revenue for the year ended December 31, 1997 for IT staffing services in the United States is estimated to have been $14.8 billion, a 27% increase over such revenues for the year ended December 31, 1996. According to an 1998 IDC Canada survey, an independent Canadian industry publication, the Canadian Information 29 Technology services industry grew by more than 11% in 1997, reaching CDN$11.5 billion in revenues, an 11.5% increase, and is expected to grow at a compounded annual rate of 12.1%. The high technology industry as a whole continues to experience substantial growth as constant innovations, such as open and distributed computing, client/server technology, the Internet, relational databases and object-oriented programming, shortens product lifecycles and accelerates the demand for computer-related products. These trends, combined with the intense competition faced by high technology companies, have put considerable pressure on such companies to shorten the time-to-market of their products. The development of these next generation products often requires highly specialized technical talent which may not be available internally. This need for IT professionals is particularly critical during the period prior to the release of new software or hardware products. As a result, these high technology companies are frequently utilizing supplemental sources of IT professionals with expertise in current technologies. As new technologies are developed and introduced, businesses are attempting to integrate and implement these technologies into their already complex IT systems. As these systems are being deployed on an enterprise-wide basis and on multiple hardware and software platforms, the process of systems design and implementation has become more complex. As a result, businesses are forced to find qualified IT professionals to design, develop, deploy and maintain their systems. Frequently, however, qualified IT professionals do not exist internally or it may be impractical to redeploy and retrain internal personnel. Consequently, these businesses are increasingly seeking to augment their staffs with IT professionals skilled in the management and operation of such systems. The Company believes that the growth of the Internet is likely to contribute to the demand for IT professionals. North American companies are increasingly establishing or maintaining a presence on the Internet. Although many companies outsource to web site maintenance companies, others retain direct control of their web sites and may utilize contract workers to establish and maintain such sites. Despite increased demand for IT professionals, there is a shortage of IT professionals proficient in the most current computer languages and applications. According to the Information Technology Association of America, recent studies indicate that the United States has a shortage of approximately 346,000 IT professionals. According to a study performed by the KPMG/CATA Alliance, Canada has a shortage of between 20,000 and 30,000 IT professionals. The studies also suggests that the shortfall is growing. Due to the high demand for their services, many IT professionals have a variety of opportunities in the job market and an increasing number are attracted to the benefits of working on a contract basis. Such benefits include more flexible work schedules and the opportunity to work with emerging and challenging technologies in a variety of industries. The Company believes that to address their increasing demand for contract and permanent IT professionals, both research and development departments of technology companies and IT departments of large corporations are turning to IT staffing companies to augment their existing operations. Technology-dependent companies are increasingly utilizing outside consultants to: (i) meet critical production deadlines; (ii) focus on their core business and avoid devoting valuable time to the recruiting and hiring processes; (iii) access specialized technical skills; (iv) better match staffing levels to current needs; and (v) reduce the costs of recruiting, training and terminating employees. BUSINESS STRATEGY The Company's business objectives are to increase its share of the IT staffing services market in Canada and the United States, as well as to establish a network of offices throughout such countries which, when linked by means of the Internet, will allow the Company to provide its customers with an array of IT staffing services. The primary components of the Company's strategy to achieve such objectives are as follows: 30 LEVERAGE CLIENT BASE TO ATTRACT AND RETAIN HIGHLY QUALIFIED IT PROFESSIONALS A key element of the Company's success has been its ability to attract and retain highly qualified IT professionals. The Company believes that the primary reason that it can attract such professionals is due to its high quality customer base, which allows the Company the opportunity to identify and deliver high quality assignments involving leading-edge technologies. Additionally, the Company believes that it has developed a reputation among IT professionals for efficient and high quality placements by focusing on an IT professional's particular field of technical specialization and providing access for IT professionals to cash compensation levels comparable to, or higher than, that of similarly skilled, full-time employees. As the Company's high quality clients have allowed it to attract a large number of qualified IT professionals, the Company's database of IT professionals, in turn, has allowed the Company to increase its number of clients. The Company believes that this cyclical phenomenon in the recruiting business creates the opportunity for significant growth as the Company expands and implements the other facets of its business plan. FOCUS ON NICHE MARKETS The Company believes that its expertise in the IT industry provides it a competitive advantage over recruiting firms that do not utilize IT specialists in their recruiting. The Staffing Report On-Line, an on-line magazine for the employment and temporary service industry, views the IT staffing business as distinctly different from traditional staffing businesses. The Company's recruiters follow IT industry trends, are usually knowledgeable in the IT area and have access to the Company's databases of IT professionals, all of which enables them to provide their customers with candidates who will satisfy a particular client's requirements. Although the Company recruits professionals in all aspects of the IT business, the Company places added emphasis on certain areas, such as Enterprise Resource Planning ("ERP") software products produced by Oracle Corporation, SAP AG, Peoplesoft, Inc. and the BAAN Company. The Company is often discussed in Web sites for Oracle product users and believes it can develop a reputation as one of the premier sources of IT professionals with skills and experience relating to Oracle Corporation and other ERP products. The Company has also developed an excellent reputation for recruiting IT professionals who specialize in network management. The Company believes that developing niche specialties will enhance the reputation of the Company as a whole and create opportunities for the Company to establish relationships with new customers who then may utilize the Company to locate IT professionals with other skills. EXPAND INTO NEW REGIONAL MARKETS As opportunities arise, the Company intends to expand into certain markets by means of acquisition, but believes that most expansion will come from the establishment of new offices. The Company intends to establish such offices by hiring experienced recruiters familiar with the local markets and providing them access to the Company's existing group of IT professionals and customers by means of the Internet. By hiring local recruiters the Company believes that it will be able to attract local clients and IT professionals who may not have been previously familiar with the Company. The Company believes that such recruiters will find the Company to be an attractive place to work because of the Company's existing relationships with multinational and other large corporate clients, the Company's good reputation among IT professionals, the Company's quality information technology system and the Company's incentive based compensation package which will generally combine base salary, bonuses, commissions and incentive stock options. Where the Company deems it more cost effective, or a particular acquisition candidate will provide the Company with a competitive advantage, the Company may enter a new regional market by acquiring an existing IT staffing company. The Company intends to focus on small acquisition targets who will be able to benefit from the Company's strong IT and operating systems. 31 CONTINUE TO UTILIZE THE INTERNET AND INFORMATION TECHNOLOGY The Company believes that its use of technology provides it a competitive advantage over many of its competitors. The Company utilizes its HR Workbench software to operate its database and allow recruiters to use a query based system that matches the skill set and employment preferences of the IT professionals with the needs of the customer. This system also tracks other information, such as average salaries of a particular position, which enables the Company to provide valuable advice to its clients in selecting the proper IT professional. The Company's IT professional database and recruiting software is available to its employees in other cities through its fully secure intranet system. For example, a recruiter in a new office in Austin, Texas could have complete access to the Company's information technology in Toronto, Ontario. The Company believes that this will enable it to open new offices that are quickly ready to provide services to customers without incurring significant IT start-up costs. In smaller markets, the Company intends to utilize its IT system to create lightly staffed "virtual offices" that rely on the Toronto, Ontario office for all administrative and many operating functions. The Company utilizes the Internet to promote its services and to provide IT professionals with a complete listing of available employment opportunities. IT professionals can e-mail their resumes to the Company's recruiters and, by completing an on-line form, enter themselves into the Company's database. Currently, the Company is upgrading its Web site so that it will more effectively promote the Company's services to potential customers. The Company, in conjunction with Great Lakes, is developing software that will enable human resources departments to perform numerous recruitment tasks, such as scheduling interviews and evaluating candidates. Statistics related to the recruitment process, including the costs and expenses, are tabulated in various databases. The Company believes that it will have an advantage in marketing its recruitment services to companies that are using AppTracker because of the Company's familiarity with the software and the ease of EDI with the Company. DEVELOP AND PROMOTE A MANAGED SERVICES PRACTICE The Company intends to form a team of consultants who will aid the Company's customers in determining their IT staffing needs. The Company believes that this will provide it with a competitive advantage when compared with traditional recruiting firms. Furthermore, the Company believes that Managed Services could provide it with an additional source of revenue, which could be particulary important if companies utilize AppTracker and Internet sources to reduce their reliance on recruiting firms. CAPITALIZE ON YEAR 2000 AND OTHER OPPORTUNITIES Due to a once-common programming standard that represents years using two-digits, many computer systems and software products, unless upgraded, will not function properly as the year 2000 approaches. The problem will result in the inability of computer systems to properly recognize date-sensitive data and will result in the production of erroneous information or system failure. The Company believes that many companies will turn to contract workers to review their computer systems and make necessary changes to avoid Year 2000 problems. For example, the Company assembled a group of specialists to remedy the potential Year 2000 problems at the Canadian offices of a large financial services firm. Contract workers are ideal for this task because it is likely to be a time consuming and complicated, yet temporary, project. Although the increase in revenues from Year 2000 related projects will be temporary, the Company intends to use the Year 2000 as an opportunity to develop additional customer relationships and to expand the scope of its contract work on a project-by-project basis. The Company intends to assemble teams of Year 2000 specialists and aggressively market their services to the Company's customers. 32 The Company believes that there will be opportunities for projects like Year 2000 projects as the Dow Jones Industrial Average, which is often recorded in data fields designed to read four digits, approaches 10,000, and when the European Union adopts a single currency. Computer systems will require modifications to be able to properly record these data changes, and companies may rely on contract workers and consulting teams to implement these changes. The Company intends to capitalize on the need for a quick response to such provisions by assembling teams of specialists to address such problems which the Company intends to use as an opportunity to establish additional customer relationships. As the state of the economy fluctuates, so too do expenditures on new IT systems. This is particularly true of the financial services industry, where there is a higher amount of discretionary spending for IT systems. The Company has guarded against being adversely affected by a curb in spending from the financial services sector by diversifying its client base to include manufacturing, distributing and telecommunications firms, and software companies. Currently there is a high demand for IT people to tackle the Year 2000 and European Currency conversion projects. There has been some speculation that demand for IT workers will decline dramatically after these projects have been completed. More accurately, however, the level of demand will not change significantly. New projects that are currently on hold in order to focus finite resources on the pressing Year 2000 issue, will come alive and will keep requirements for IT workers at a consistently high level. The Company has been focusing its infrastructure development and marketing initiatives on niche market areas, such as ERP and network management. The Company believes that by doing so it has positioned itself in the lowest possible risk sector for market fluctuations. The niche IT specialists mentioned above will be in strong demand for new system initiatives currently on hold while resources are focused on the more critical Year 2000 issue. CONTRACT SERVICES The Company's contract services revenue is derived from time and materials contracts in which the Company supplies a contract worker to perform under the supervision of the client. The Company's contract services generally consist of providing contract workers to customers for short and long term assignments. These assignments generally last from three to twelve months, but can sometimes last much longer. The assignments may be for specified projects or general IT consulting work. Although the Company currently bills the clients only on a time and materials basis at an agreed upon hourly rate, in the future it may assemble teams that will perform projects for an agreed upon fixed price for the project. The Company pays the contract worker an agreed upon rate, pursuant to the Company's standard consulting services agreement. The contract worker generally receives between 75% and 80% of the amount paid by the customer to the Company, however such payment is usually not based on any formula and may vary for different engagements. This agreement, which is terminable by the Company at any time, obligates the contract worker to provide notice prior to leaving the position, contains a confidentiality clause, and prohibits the worker from going to work directly for the customer for a period of six months from the date that the worker no longer works for such customer without the consent of the Company. At September 30, 1998, approximately 160 contract workers placed by the Company were performing services for the Company's customers. The Company intends to increase the amount of project services work it is doing by assembling teams specializing in particular projects, such as Year 2000 problem resolution. See "Business--Business Strategy--Focus on Niche Markets." In the future, the Company may hire project leaders as salaried employees to lead teams of consultants on certain projects. The Company believes that this will enable the Company to earn higher margins on its project work. Furthermore, such teams would enable the Company to market itself as a full-service provider of IT staffing services with a wide array of services that can be tailored to meet a customer's particular needs. 33 PERMANENT STAFFING PLACEMENT SERVICES The Company's permanent placement services generally consist of the placement of an IT professional in a position for the Company's customers. The Company identifies and provides candidates to its customers who its recruiters believe, based on the Company's data, have the technical skills and job interest to best satisfy the requirements of the position. The Company recognizes revenue when the IT professional commences employment. However, the Company is required to find a replacement free of charge if the employee does not remain in the position for at least 90 days. This placement fee is usually structured as a percentage of the IT professional's first-year annual compensation. This percentage ranges from 20% to 30%, although the Company expects to reduce the fee to 15% for customers utilizing the Company's Internet technology because those placements will require less time and input from the Company's recruiters. Salaries for the IT professionals that the Company places generally range from $45,000 to $125,000. The Company performs permanent placement services pursuant to three invoicing policies. Contingency services are engagements in which the Company is only paid if it is successful in placing a candidate in a position. Contingency exclusive services are similar to contingency engagements, however, the Company is the only firm engaged to fill the position. Retained search services are similar to contingency exclusive services, except that the Company receives a non-refundable portion of the fee prior to performing any services, with the remainder paid if the position is filled. SALES AND MARKETING The Company's primary target markets are software, telecommunications and other technology companies, financial service companies and multinational and other large corporations. The Company maintains a database of human resource administrators and IT department heads at these firms and utilizes its sales forces to build relationships with these individuals by stressing the quality of IT professionals that the Company recruits. As the Company expands into new regional markets it intends to hire local sales people who are familiar with local customers. Because many of the Company's customers maintain offices in more than one city, the Company believes that it will have an advantage in establishing relationships with these additional offices as the Company expands into new regional markets. The Company markets its services via the Internet. The Company is in the process of upgrading its web site, which previously has been used primarily as a tool to advertise job opportunities to IT professionals and to promote its services to its customers. The Company also utilizes traditional advertising outlets and trade shows to promote its services to potential customers. CUSTOMERS The Company provides staffing services to customers in a wide array of industries. Software development, telecommunications, and other technology companies utilize the Company's services to locate programmers in the development of new products. The Company also provides services to financial services companies, such as Bank of Montreal and Merrill Lynch Canada Inc., which are extremely reliant on their IT systems. Large consulting firms, such as Deloitte & Touche Tohmatsu, are also beginning to utilize the Company to meet their need for IT professionals. The Company's customers include the Canadian units of Fortune 1000 companies, such as American Express Company, Revlon Canada Inc. and IBM Corporation. The Company believes that it will be able to provide services to other multinational and large companies and expand services provided to these existing customers by expanding into new regional markets. These multinational and other large companies have indicated to the Company that they desire to use fewer suppliers to meet their needs and the Company believes that it will be able to utilize relationships in one market to establish relationships with such companies in other markets. Additionally, the Company believes that its high profile customer base 34 provides it credibility when pursuing other customers. The following is a list of certain of the larger companies who utilize the Company's services.
FINANCIAL SERVICES SOFTWARE, TECHNOLOGY AND TELECOMMUNICATIONS - -------------------------------------------------------- -------------------------------------------------------- Bank of Montreal Bell Sygma Inc. Merrill Lynch Canada Inc. Bell Canada CIBC Wood Gundy Securities Inc. SHL Systemhouse Co. First American Title Insurance Company Star Data Systems, Inc. Harris Trust and Savings Bank IBM Corporation GOVERNMENT AND EDUCATIONAL OTHER - -------------------------------------------------------- -------------------------------------------------------- Revenue Canada American Express Company Environment Canada Imperial Oil Limited University of Toronto Deloitte & Touche Tohmatsu National Grocers Co. Ltd. SolCorp Revlon Canada Inc.
The Company generally enters into a standard form agreement with its customers that indicates which parties are responsible for taxes and other expenses, and provides that all intellectual property and other proprietary information will remain confidential and the property of the customer. Some customers, such as the Canadian government, Dow Jones and CIBC Wood Gundy Securities Inc., require the Company to use another form of agreement which is similar in all material respects to the Company's standard form. With certain clients, most significantly, Bank of Montreal, the Company enters into an agreement allocating other responsibilities, such as the supervision of the IT professionals it recruits. Other customers, such as Bell Sygma Inc., enter into annual contracts with the Company pursuant to which the Company will supply contract workers during the year as required by the customer at fees to be negotiated. STRATEGIC ALLIANCES The Company has entered into a strategic alliance with Great Lakes which has resulted in the development of HR Workbench and AppTracker. See "Business--Information Technology and the Internet." The Company has also established relationships with other job search resources on the Internet to promote the Company's services. For example, the job listing page of the Toronto Star newspaper's Web site displays the Company's name and has a hyperlink to the Company's Web site. The Company intends to utilize strategic alliances to promote its staffing services. The Company may enter into arrangements with consulting firms to staff major IT projects. Alternatively, the Company may enter into arrangements with software companies whereby the Company's contract workers will be trained to perform customer support services. Lastly, the Company may enter into agreements with other staffing companies in geographic regions in which the Company does not intend to expand. Such arrangements will allow the Company to provide its existing large corporate clients with services in areas where the Company is not familiar with the local market. Currently, the Company is not a party to any agreements to enter into arrangements such as these, and there can be no assurance that the Company will find entities with which to enter into strategic alliances on terms acceptable to the Company, or at all. RECRUITING The Company believes that its technology and experienced recruiting staff of 52 individuals enables it to recruit qualified IT professionals whose skills match the needs of its customers. Many of the Company's recruiters have strong IT backgrounds and are required by the Company to take a two week training course when hired by the Company. The Company maintains a database of over 35,000 IT professionals. The Company's recruiters maintain ongoing relationships with certain IT professionals and are aware of 35 their particular skills and employment status. Using the Company's database and its recruiters' knowledge of available IT professionals, the Company is often able to quickly locate a number of suitable candidates for a position, which is particularly important for positions in which the Company does not have an exclusive engagement. The database also contains reference and employment history information which accelerates the screening process. The Company tests the computer skills of all of its IT professionals utilizing TeckChek software. This software provides recruiters with a consistent rating system and a reliable method of evaluating candidates, which aids recruiters in matching candidates with positions requiring their skill set. This software also allows the Company to provide evidence to its customers that potential employees have sufficient technical skills. Additionally, the Company screens candidates by telephone and in-person interviews and by reference checks. If the Company is unable to locate suitable candidates for a position by means of its databases, the Company may utilize advertisements in newspapers and trade magazines. The Company often prepares and places advertisements on behalf of its clients. The Company has been approved by the Canadian Newspaper Association as an advertising agency, which allows the Company to earn a commission on any advertisements it places. Additionally, the Company posts job openings on its Web site and invites IT professionals to submit their resumes to the Company by e-mail. The Company intends to recruit IT professionals from other countries, such as Singapore and India, where there are a number of IT professionals and the job opportunities are inferior to those in North America. United States and Canadian immigration laws contain preferences for immigrants who can fill skilled labor positions for which there is a shortage of native applicants. The Company believes that turbulent economic and political situations in other parts of the world, as well as the general lack of opportunities for top IT professionals in countries such as Russia and India, make Canada and the United States an appealing choice for immigration. According to a recent KPMG/ CATA Alliance High Tech Labor Survey, there is a shortage of IT workers in Canada. Bringing in foreign workers helps to alleviate this shortage. The Canadian government, in recognition of this fact, has relaxed entrance requirements for IT professionals, allowing such workers to enter the country more quickly than ever before. The Company is dedicated to maximizing the value of overseas recruitment through a variety of methods. The first is through the extensive use of the Internet and its Internet-based products, WorkBench and AppTracker. By using a combination of its Web site and e-mail, it is able to communicate with IT professionals around the globe, making them aware of the opportunities it has available, and discussing immigration options. Internally, the Company has started to build a knowledge base around the particular issues of bringing IT workers to Canada. The Company has also been building a library of information about the legal technicalities surrounding work visas and immigration for Canadian workers migrating to the United States. To complement this knowledge that the Company is building internally, it has also developed strategic relationships with legal counsel specializing in immigration and visa issues. Another strategy the Company is employing in the area of foreign recruitment is the establishment of lightly staffed virtual offices in different parts of the world. Recruiters with country-specific contacts and knowledge are given access to the Company's database and job postings. They then carry this information into the field where they screen and select foreign candidates who they feel would be appropriate for the opportunities that the Company has available. The Company then takes these pre-screened candidates and continues with the evaluation process. 36 INFORMATION TECHNOLOGY AND THE INTERNET The Company has established an extensive IT system which it believes provides it with a competitive advantage over less technologically advanced competitors. The primary components of the Company's IT system and its use of technology are described below. THE HR WORKBENCH SOFTWARE AND PROPRIETARY DATABASES The HR Workbench software is an Internet-based software application that is used by the Company in the administration and tracking of internal processes relating to the recruitment and placement of IT professionals. This software was developed by the Company in conjunction with Great Lakes, and they will share in all intellectual property rights to the software equally. The HR Workbench software is a query based software program that allows the Company's recruiters to locate the IT professional in the Company's database with the technical skills and job interests that best satisfy the requirements of the position that the Company is attempting to staff. This system also tracks other information, such as average salaries of a particular position, which enables the Company to provide valuable advice to its clients in selecting the proper IT professional. The software also incorporates the Company's database of over 35,000 IT professionals. The Company continually updates its database and occasionally accesses other databases of IT professionals that are available for sale or over the Internet. HR Workbench allows information entered into the database by a Company employee, or directly by an IT professional by means of the Internet, to be shared by all of the Company's recruiters and salespeople. UTILIZATION OF THE INTERNET The Company utilizes the Internet to promote its services and to enable customers and IT professionals to utilize its services. The descriptions of the employment opportunities are segregated among permanent and contract positions, describe the necessary skills required by IT professional candidates, and provides a phone number and e-mail address for the Company's recruiter who works with the relevant client. Alternatively, IT professionals can e-mail their resumes to the Company or can enter themselves into the Company's database by means of the Internet. The Company also utilizes the Internet to connect its offices to its Toronto, Ontario office. This results in substantial savings in software and hardware costs in the maintenance of the Company's IT system and allows for the creation of lightly staffed regional virtual offices. THE APPTRACKER SOFTWARE The Company and Great Lakes have developed a software package called AppTracker. The software is designed to aid a human resources department in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. The software has a feature that allows a human resources department to have a description of any job openings sent automatically to selected e-mail addresses, such as those of recruiting firms or previous applicants. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. Additionally, the software allows the human resource department to compile their own database of prospective employees and contract workers. Traditionally, recruiters acquire new candidates using as many sources as possible. Normally the number of sources would be limited to the recruiting office's ability to handle the logistics of communicating job specifications to those sources and handling the incoming responses. Therefore, their ability to hire quality IT candidates is directly related to the size of the group of candidates they can attract and the speed with which they can assimilate, contact, interview, evaluate, file for future use and/or hire those candidates. AppTracker, the process through which recruiters post or communicate job specifications to applicant sources, is fully automated. Once the hiring manager and the recruiter have constructed the job specification using AppTracker, they use the AppTracker Broadcast facility to communicate this job specification to all designated sources. With a click of the mouse the recruiter defines and chooses the broadcast strategy. 37 The information can be communicated/posted simultaneously and automatically to appropriate employment agencies, web news groups, web job posting sites, archived candidates, internal candidates (as per policy) and personal referral sources. AppTracker consolidates and automates the communication process for all sources. Each unique information source is provided with a web interface. All out-going and in-coming communications/ applications are managed using this web interface. No specialized client software is required. All transactions are initiated through a web browser. Recruiters, hiring managers and applicants now use a common medium for communication. This type of common-interface messaging reduces significantly the reliance on hard-copy mail, phone communication and fax transmission. Additionally, a Website address is provided for all candidates that are informed of the job requirements by means of trade journals or newspapers. This further centralizes the incoming applicant response. The joint venture between the Company and Great Lakes is primarily designed to market AppTracker to human resources departments commencing during the year ending December 31, 1999, but also governs ownership of HR Workbench and any future software developed by the Company. The AppTracker development program was launched as a result of the positive response observed during its first test- marketing session. A working prototype was demonstrated at the annual Human Resources Professional Association Conference in Toronto, Ontario in February 1998. The Company performed more than 40 one-on-one demo sessions with companies, currently, the product is being test marketed by the human resources departments of two of the Company's customers. The first customer for the AppTracker is the Toronto Stock Exchange, which is viewed as a Canadian leader in the development and deployment of application software. The Company believes that it will be able to provide assistance in the marketing of the software as a result of its existing relationships with management in the human resources and IT departments of its customers, although there can be no assurance thereof. The Company's joint venture allocates costs and responsibilities in marketing Apptracker. The Company has spent approximately $235,000 on research and development related to the HR Workbench and the Apptracker software. The joint venture agreement provides that all costs of development and marketing will be shared equally between the Company and Great Lakes as will all profits and losses. The initial contribution of the Company was the macro design, marketing and all recruitment needs of Great Lakes. Great Lakes' initial contribution was the establishment of a team of programmers to design and implement HR Workbench and AppTracker. Although there can be no assurance thereof, the Company believes that it will have an advantage in marketing its recruitment services to companies using AppTracker because of its familiarity with the software and the ease of EDI with the Company. There is a possibility, however, that utilization of the software will reduce reliance of certain customers on recruiting firms, including the Company. Notwithstanding the foregoing, the Company does not anticipate any material reduction in such reliance as a result of the utilization of this software due to the difficulty of hiring IT professionals. Furthermore, the Company intends to offer lower commission rates to customers using AppTracker software to make it less likely that they will reduce the level of utilization of the services of recruiting firms. The Company believes that the use of AppTracker and its familiarity with the software will enable it to aid customers in finding suitable, professionals in a more timely and cost efficient manner, allowing for the decrease in prices charged by the Company. EXPANSION AND ACQUISITIONS The Company believes that it can leverage its database of IT professionals, reputation, and IT system to achieve revenue growth by establishing new offices in other regional markets. Such offices may be established by opening new offices and staffing them with local recruiters and sales people or by acquiring complimentary or competitive companies. 38 The Company primarily intends to focus its expansion in large United States cities, such as Atlanta, Chicago, San Francisco and Austin. The Company is selecting locations that have other offices of its existing customers, such as Chicago, the headquarters of Harris Bank & Trust, or areas with numerous technology companies, such as Austin. In addition to attracting local IT professionals, the Company intends to attempt to recruit Canadian and other foreign IT professionals for these positions in the United States. Due to the strength of the U.S. dollar against the Canadian dollar and other currencies, the Company believes that foreign IT professionals will find the economic opportunities in the United States attractive. The Company is currently endeavoring to expand its operations in the northeastern United States. In July 1998, the Company hired John J. Silver as Senior Vice President and placed him in charge of the New York office. Mr. Silver has existing relationships with numerous potential customers in the New York market. The Company believes that recruiters in other markets will find the Company to be an attractive place to work because of its existing relationships with multinational and other large corporate clients, the Company's good reputation among IT professionals, quality information technology system and the Company's incentive based compensation package, which will generally combine base salary, bonuses, commissions and incentive stock options. The Company has also expanded in Ontario, Canada in order to obtain additional business from large Canadian customers. For example, the Company has opened an office in Ottawa in order to expand its relationship with Bell Canada. The Company believes that other large customers with offices or affiliated offices in Ottawa will consider using the Company's services in that city, providing the Company's sales force an advantage in building relationships when compared with other companies opening new offices. The Company may seek to establish offices in smaller markets that contain desirable customers. The Company believes that it can do so in a cost effective manner because of the strength of its IT system. A single recruiter/sales person can operate a "virtual office" by utilizing the Toronto, Ontario office's database and other operational systems by means of the Company's intranet. For example, the Company has opened a "virtual office" in Indian Wells, California to provide services to U.S. Filters and Armtech Incorporated. Based on the experience of the Company's principals who, prior to forming the Company, have been involved in the opening of several offices throughout Ontario and most recent experience with the opening of its New York office, the Company expects newly opened offices to become productive within 6 to 12 months of opening. The delay in productivity can be attributed to the following factors: - Recruiting, hiring, training and orientation of new staff with recruitment/sales methodologies and practices, as well as technology (databases, software, Internet, e-mail, etc.); - Recruiting and developing a base of qualified IT professionals (advertising, open houses, career fairs); - Attracting and building client relations; and - Getting on preferred supplier lists. Although there can be no assurance that such expectations will be satisfied, the Company's expectations in terms of productivity for new offices by the 12th month of operations are: 30 contractors and between $30,000 to $50,000 in permanent placement sales per month with annual revenues of approximately $450,000. The opening of new offices with the addition of qualified employees and entrance into new regional markets results in increased operating expenses including: - Salaries and payroll costs; - Infrastructure (office equipment, office space, office supplies, telephone, insurance) including an elaborate technological infrastructure; 39 - Advertising (print and career fairs); - Marketing and public relations; and - Travel and business development costs. There are also the related head office expenses associated with opening new offices, including: - Time spent by management and technical personnel on training (recruitment sales; HR Workbench, databases, e-mail, Internet, job postings to user groups); and - Time spent by management and support personnel on implementing and maintaining reporting procedures (financial and administration). The Company may also expand by acquiring complementary or competitive companies, including existing IT staffing companies, which will provide an immediate increase to the Company's customer base and in some circumstances, provide a more cost effective method of expansion than opening a new office. The Company intends to target companies who have a strong customer base or group of IT professionals, but do not utilize an advanced internal IT system. The Company believes that providing an acquired company access to the Company's IT system will allow the acquired company to provide better service without substantially increasing costs, which may also lead to increased revenue. Although, due to consolidation in the industry, there is competition for the acquisition of companies in the IT staffing industry, the Company intends to avoid competing for acquisition candidates by focusing on smaller companies. The Company may also utilize acquisitions or hiring of new employees to achieve growth in its existing markets. The Company utilized the acquisitions of Systems and ICS in the metropolitan Toronto, Ontario area to acquire access to experienced recruiters with an existing customer base. With regard to customer services, the Company plans to implement a decentralized management plan. The Company believes that allowing existing management of an acquired company to remain an important part of its operations will be beneficial in retaining customers, recruiters and IT professionals. Similarly, local recruiters and sales people hired to staff new offices will have the flexibility to continue relationships with customers and IT professionals. The Company's intranet will provide all offices full access to the Company's databases and operating software, promoting uniformity in certain functions. The Company intends to hold monthly meetings of its Operations Committee, which will consist of the heads of each regional office and subsidiary, to exchange information on industry trends and promote "best practices" among the offices. With regard to financial controls, the Company plans to have a fully integrated system which will allow control of cash flows and accounting and payroll functions from the Toronto, Ontario office. COMPETITION The IT staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. The Company competes for potential clients with other providers of IT staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services and temporary personnel agencies. Many of the Company's current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition and a larger base of IT professionals and clients than the Company which may provide such competitors with a competitive advantage when compared to the Company. In addition, many of these competitors, including numerous smaller privately held companies, may be able to respond more quickly to customer requirements and to devote greater resources to the marketing of services than the Company. Because there are relatively low barriers to entry, the Company expects that competition will increase in the future. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect the Company's business, prospects, financial condition and results of operations. Further, there can be no assurance that the Company will be able to compete 40 successfully against current and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on its business, prospects, financial condition and results of operations. The Company believes that the principal factors relevant to competition in the IT staffing services industry are the recruitment and retention of highly qualified IT professionals, rapid and accurate response to client requirements and, to a lesser extent, price. The Company believes that it competes favorably with respect to these factors. The Company believes that its competitive advantage is not only in their use of technology, but also in the accessibility of this technology to all of the Company's employees. The building and maintenance of the Company's database of over 35,000 has been a combined effort of employees in Toronto, New York and Ottawa. The Company also has Internet access and membership to over 25 local, national and international databases for IT professionals. PROPERTY AND FACILITIES The Company maintains its headquarters in a 8,076 square foot office located at 55 University Avenue in Toronto, Ontario. The Company has leased such facility for a term of ten years terminating in November 2007. The Company pays annual rent of CDN$46,200, which will increase to $55,000 commencing in December 2002. The Company leases additional offices at the following locations:
LEASE LOCATION SQUARE FEET EXPIRATION CURRENT RENT PER ANNUM - ---------------------------------------------------------- ------------- --------------- ----------------------- Etobicoke, Ontario........................................ 1,610 4/13/03 $ 22,300 New York, New York........................................ 1,214 10/31/01 $ 47,352 Tampa, Florida............................................ 188 2/28/99 $ 4,355 Scarborough, Ontario...................................... 6,000 5/31/01 $ 39,000 Ottawa, Ontario........................................... 1,291 9/30/03 $ 14,739
EMPLOYEES AND CONSULTANTS EMPLOYEES The Company's corporate staff at December 31, 1998 consisted of 88 full-time employees, including 52 recruiters, 19 account managers/salespeople and 17 administrative employees. The Company is not a party to any collective bargaining agreements covering any of its employees, has never experienced any material labor disruption and is unaware of any current efforts or plans to organize its employees. The Company considers its relationships with its employees to be good. CONSULTANTS The Company enters into consulting agreements with the IT professionals at hourly rates negotiated with each IT professional based on such individuals technical and other skills. The agreements provide that the IT professional is responsible for taxes and all other expenses and that the IT professional is not an employee of the Company for tax or other legal purposes. At December 31, 1998, approximately 180 contract workers placed by the Company were performing services for the Company's customers. LEGAL PROCEEDINGS The Company is not party to any material legal proceedings. 41 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors and executive officers of the Company.
NAME AGE POSITION - ----------------------------------------------------- --- ----------------------------------------------------- Declan French........................................ 54 Chairman of the Board of Directors, President and Chief Executive Officer John R. Wilson....................................... 45 President--Systems John A. Irwin........................................ 45 President--ICS John J. Silver....................................... 41 Senior Vice President Lloyd Maclean........................................ 45 Chief Financial Officer and Director William J. Neill..................................... 45 Director Nominee John Dunne........................................... 55 Director Nominee Blair Taylor......................................... 45 Director Nominee James Reddy.......................................... 59 Director Nominee Robert M. Rubin...................................... 54 Director Nominee Michael Carrazza..................................... 33 Director Nominee
Each director is elected for a period of one year at the Company's annual meeting of shareholders and serves until the next such meeting and until his or her successor is duly elected and qualified. Directors may be re-elected annually without limitation. Officers are appointed by, and serve at the discretion of, the Board of Directors. The Company's directors do not presently receive any compensation for their services as directors, but it is contemplated that directors will be granted options pursuant to the Plan. In addition, for a period of three years following the date of this Prospectus, the Representative shall have the right, at its option, to designate one director or observor to the Board of Directors, which director shall be reasonably acceptable to the Board of Directors. The Director-Nominees will assume office as of the effective date of this Registration Statement. Set forth below is a biographical description of each director and executive officer of the Company based on information supplied by each of them. DECLAN FRENCH has served as the Company's Chairman of the Board of Directors, President and Chief Executive Officer since the inception of the Company in February 1994. Prior to founding the Company, Mr. French was President and Chief Executive Officer of TEC Partners Ltd., a IT recruiting firm in Toronto, Ontario. Mr. French has a diploma in Psychology and Philosophy from the University of St. Thomas in Rome, Italy. JOHN R. WILSON has served as President of Systems since 1982 and was its sole shareholder prior to its sale to the Company in April 1998. Mr. Wilson is a member of the Company's Operations Committee. JOHN A. IRWIN has served as President of ICS since 1980 and was its sole shareholder prior to its sale to the Company in May 1998. Mr. Irwin has a degree in Computer Programming from Cambridge College of Arts and Technology. Mr. Irwin is a member of the Company's Operations Committee. JOHN J. SILVER has served as a Senior Vice President of the Company since July 1998. From April 1995 until July 1998, Mr. Silver served as Director of Professional Services Volt Technical Services, a New York based IT staffing firm, where he was in charge of managed services for major accounts. From November 1994 until March 1995, he was a regional manager for ADIA Personnel Services in Santa Monica, California. From July 1992 until November 1994, Mr. Silver was a regional Vice President for Spectrum Information Technolgies/Data One in Lancaster, California. Mr. Silver has a marketing degree from Suffolk College. Mr. Silver is a member of the Company's Operations Committee. LLOYD MACLEAN has served as the Company's Chief Financial Officer since September 1997. Mr. Maclean is the sole officer and director of Globe Capital Corporation. From 1996 to 1997, 42 Mr. Maclean was Vice President and Chief Financial Officer of ING Direct Bank of Canada. From 1994 until 1996, he was Vice President and Chief Financial Officer of North American Trust, Inc., where he also served as a Vice President from 1990 until 1994. Mr. Maclean has an MBA from Harvard University and is a member of the Canadian Institute of Chartered Accountants. WILLIAM J. NEILL has been nominated and has agreed to join the Board of Directors after the closing of this offering. Mr. Neill is currently a senior executive at Sun Media Corp. From October 1997 to October 1998 he served as Publisher and Chief Executive Officer of the Financial Post. From 1996 until 1997, Mr. Neill was Publisher of the Ottawa Sun. From 1993 until 1996, he was a Vice President of the Financial Post. Mr. Neill has an MBA from Queens University in Kingston, Ontario. BLAIR TAYLOR has been nominated and has agreed to join the Board of Directors after the closing of this offering. Since July 1997, Mr. Taylor has served as Director of Finance and Operations for Phoenix Research and Trading Corporation. From 1993 to 1997, he was a managing director of CIBC Wood Gundy Securities, Inc. Mr. Taylor has a degree in computer science from the University of Waterloo and is a member of the Canadian Institute of Chartered Accountants. JOHN DUNNE has been nominated and has agreed to join the Board of Directors after the closing of this offering. Mr. Dunne has been Chairman and Chief Executive Officer of the Great Atlantic & Pacific Company of Canada, Ltd ("Great Atlantic") since August 1997, where he also served as President and Chief Operating Officer from September 1996 until August 1997. From November 1995 until September 1996, Mr. Dunne was Chairman and Chief Executive Officer of Food Basics Ltd. Prior to that, he had served as Vice Chairman and Chief Merchandising Officer of Great Atlantic. JAMES REDDY has been nominated and has agreed to join the Board of Directors after the closing of this offering. Mr. Reddy has served as Chief Financial Officer of Gemstar Communications, Inc. since July 1998. From July 1997 to July 1998, Mr. Reddy was an independent management consultant. He is a member of the Canadian Institute of Chartered Accountants. From 1989 to 1997, he was employed by DFI Securities, Inc., most recently as Chief Financial Officer. ROBERT M. RUBIN has been nominated and has agreed to join the Board of Directors after the closing of this offering. Mr. Rubin has served as Chairman of the Board of Directors of Diplomat Direct Marketing Corporation since 1992. Between October, 1990 and January 1, 1994 Mr. Rubin served as the Chairman of the Board of Directors and Chief Executive Officer of American United Global Inc., a telecommunications and software company ("AUGI"), and since January 1, 1994, solely as Chairman of the Board of Directors of AUGI. Mr. Rubin was formerly a Director and Vice Chairman of the Board of Directors, and is a minority stockholder of American Complex Care, Incorporated ("ACCI"). In April 1995, the principal operating subsidiaries of ACCI petitioned in the Circuit Court of Broward County, Florida for an assignment for the benefit of creditors. Mr. Rubin is also a Director of Help At Home, Inc., and has served as Chairman of the Board of Directors of Western Power and Equipment Corporation and Med-Emerg International, Inc., each of which are public companies. Mr. Rubin was Chairman of the Board of Directors, Chief Executive Officer and remains a Director and a principal stockholder of ERD Waste Corp., which filed for bankruptcy protection in 1997. Mr. Rubin was the founder, President, Chief Executive Officer and a Director of Superior Care, Inc. ("SCI") from its inception in 1976 until May 1986 and continued as a Director of SCI (now known as Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten, a New York Stock Exchange listed company, is engaged in providing home care and institutional staffing services and health care management services. MICHAEL CARRAZZA has been nominated and has agreed to join the Board of Directors after the closing of this offering. From September 1991 to November 1998 Mr. Carrazza was the Managing Director and sole shareholder of Southport Consulting Corp. Southport provided IT workers to clients, in the New York area, primarily in the financial sector. He is currently the Managing Director of Craven Street Capital Partners, a privately owned equity investment and management company which specializes in acquisitions. Since 1997, Mr. Carrazza has held a Senior Corporate Finance advisory position and has been the assistant to the Chief Financial Officer of Mitchell Madison Group, a global management consultant. From 1995 to 43 1997, he served as Vice-President of South Street Capital Group, a company specializing in turnarounds for middle market public and private companies. From 1989 to 1995, Mr. Carrazza was an associate and an advisor to Goldman, Sachs & Co. where he was involved in automating operations within the Investment Banking, Finance and Treasury Divisions. Mr. Carrazza is a Certified Management Consultant and a member of the Turnaround Management Association. Mr. Carrazza has a B.S. in Electrical Engineering from the Pennsylvania State University and an MBA from the Stern School of Business at New York University. COMMITTEES OF THE BOARD In July 1998, the Board of Directors formalized the creation of a Compensation Committee, which is comprised of Blair Taylor, William J. Neill and Declan French. The Compensation Committee has (i) full power and authority to interpret the provisions of, and supervise the administration of, the Plan and (ii) the authority to review all compensation matters relating to the Company. The Compensation Committee has not yet met and has not yet formulated compensation policies for senior management and executive officers. However, it is anticipated that the Compensation Committee will develop a Company-wide program covering all employees and that the goals of such program will be to attract, maintain and motivate the Company's employees. It is further anticipated that one of the aspects of the program will be to link an employee's compensation to his or her performance, and that the grant of stock options or other awards related to the price of the Common Shares will be used in order to make an employee's compensation consistent with shareholders' gains. It is expected that salaries will be set competitively relative to the IT staffing industry and that individual experience and performance will be considered in setting salaries. In July 1998, the Board of Directors also formalized the creation of an Audit Committee, which is comprised of two or more directors of the Company designated by a majority vote of the entire Board of Directors. A majority of the Audit Committee are Directors who are not officers of the Company and who are not and have not been employed by the Company or any affiliates thereof. The Audit Committee currently consists of Lloyd Maclean, James Reddy and John Dunne and is charged with reviewing the following matters and advising and consulting with the entire Board of Directors with respect thereto: (i) the preparation of the Company's annual financial statements in collaboration with the Company's chartered accountants; (ii) annual review of the financial statements and annual report of the Company; and (iii) all contracts between the Company and the officers, directors and other affiliates thereof. The Audit Committee, like most independent committees of public companies, does not have explicit authority to veto any actions of the entire Board of Directors relating to the foregoing or other matters; however, the Company's senior management, recognizing their own fiduciary duty to the Company and its shareholders, is committed not to take any action contrary to the recommendation of the Audit Committee in any matter within the scope of its review. OPERATIONS COMMITTEE The Company has established an Operations Committee in order for the Company's officers to exchange information on industry trends and promote "best practices" among the officers. The head of each regional office and subsidiary will serve on the Operations Committee. Currently, the Operations Operations consists of Declan French, Lloyd Maclean, John A. Irwin, John R. Wilson and John J. Silver. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES The Bylaws of the Company provide that the Company shall indemnify to the fullest extent permitted by Canadian law directors and officers (and former officers and directors) of the Company. Such indemnification includes all costs and expenses and charges reasonably incurred in connection with the defense of any civil, criminal or administrative action or proceeding to which such person is made a party by reason of being or having been an officer or director of the Company if such person was substantially successful on the merits in his or her defense of the action and he or she acted honestly and in good faith 44 with a view to the best interests of the Company, and if a criminal or administrative action that is enforced by a monetary penalty, such person had reasonable grounds to believe his or her conduct was lawful. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company and the Underwriters pursuant to the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses, incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person or by the Underwriters in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation paid by the Company during each of the last three fiscal years to the Company's Chief Executive Officer and to each of the Company's executive officers who earned in excess of $100,000 during the year ended December 31, 1997. SUMMARY COMPENSATION TABLE
YEAR/ OTHER ENDED ANNUAL COM- NAME AND PRINCIPAL POSITION DECEMBER COMPENSATION BONUS PENSATION - ------------------------------------------------------------------- ----------- ------------- --------- ----------- Declan French...................................................... 1997 $ 104,275 -- $ 8,342 Chairman of the Board of Directors 1996 108,350 -- 8,668 President and Chief Executive Officer 1995 5,001 -- 8,800 John A. Irwin...................................................... 1997 139,034 -- 8,342 President-Systems 1996 -- -- -- 1995 -- -- -- John R. Wilson..................................................... 1997 83,420 -- 20,855 President-ICS 1996 80,659 -- 10,113 1995 -- -- --
EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with Declan French whereby he will serve as the Company's Chairman of the Board of Directors, President and Chief Executive Officer for a period of five years commencing on the effective date of the Registration Statement of which this Prospectus forms a part. Mr. French shall be paid a base salary of $97,900 ($150,000 Cdn) and a bonus based on a percentage of the Company's net income. On May 19, 1998, in connection with the acquisition of ICS, the Company entered into an employment agreement for John A. Irwin whereby he will serve as President of ICS. The employment agreement is for a term of three years commencing on January 1, 1998, the effective date of the acquisition of ICS. Mr. Irwin receives a salary of $130,580 ($200,000 Canadian) plus a quarterly bonus of 2% of all permanent placement service revenue and 2% of the gross profit all contract services revenue. In February 1998, in connection with the acquisition of Systems, the Company entered into a three year employment agreement with John R. Wilson whereby he will serve as President of Systems at a salary of $120,000 per year. The agreement was effective as of January 2, 1997. Mr. Wilson receives a commission of 10% of the permanent placement revenue of Systems. Additionally, he receives $0.65 for every hour of contract services provided by IT professionals placed by Systems, provided that the gross margin on such 45 hour exceeds $6.50. Pursuant to the agreement, Mr. Wilson will have control of the day-to-day management of Systems. In August 1998, the Company entered into a one year employment with John J. Silver whereby he will serve as a Senior Vice President. Mr. Silver is to be paid an annual salary of $175,000 plus a bonus of 4% of the net income of the Company's New York office. The agreement also requires the Company to grant Mr. Silver 50,000 stock options exercisable at the initial public offering price. The agreement is terminable by either party upon three months notice. CONSULTING AGREEMENTS In November 1998, in connection with the acquisition of certain assets of Southport, the Company entered into a consulting agreement with Michael Carrazza, the owner of Southport. Mr. Carrazza is the brother of a principal of the Representative. Southport was engaged in the business of providing IT workers to corporations in the New York, tri-state region. The consulting agreement is for a term of two years and provides for an annual salary of $125,000. Mr. Carrazza has committed to join the Company's Board of Directors upon the closing of this offering. In May 1998, the Company entered into a consulting agreement with Robert M. Rubin, a director-nominee of the Company, pursuant to which Mr. Rubin will aid the Company in structuring and negotiating acquisitions, strategic partnerships and other expansion opportunities. In exchange for such services, Mr. Rubin has been granted an option to purchase 200,000 Common Shares at a purchase price of $2.10 per share and a consulting fee of $80,000 per year. The consulting agreement is for a term of five years. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of the Common Shares issuable upon exercise of the options for a period of two years after exercise without the consent of the Company. STOCK OPTION PLAN The Plan will be administered by the Compensation Committee or the Board of Directors, which will determine among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of Common Shares issuable upon the exercise of the options and the option exercise price. The Plan is effective for a period for ten years, expiring in 2008. Options to acquire an aggregate of 435,000 Common Shares may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to the Company. The Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the Plan may be exercisable for up to ten years, generally require a minimum two year vesting period and shall be at an exercise price all as determined by the Board of directors provided that pursuant to the terms of the Underwriting Agreement between the Company and the Underwriters, the exercise price of any options may not be less than the fair market value of the Common Shares on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her respective guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. If a participant ceases affiliation with the Company by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant 90 days to exercise the option, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the Company become available again for issuance under the Plan, subject to applicable securities regulation. 46 The Plan may be terminated or amended at any time by the Board of Directors, except that the number of Common Shares reserved for issuance upon the exercise of options granted under the Plan may not be increased without the consent of the shareholders of the Company. 47 PRINCIPAL SHAREHOLDERS The following table sets forth certain information, as of the date hereof, and as adjusted to give effect to this offering and the transactions contemplated thereby, with respect to the beneficial ownership of the Common Shares by (i) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Shares, (ii) each executive officer and director of the Company and (iii) all executive officers and directors of the Company as a group:
NUMBER OF SHARES OF PERCENTAGE COMMON SHARES BENEFICIALLY OWNED NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER(1) OWNED OFFERING OFFERING - --------------------------------------------------------------- ------------------- --------------------- ----------- Declan French(2)............................................... 1,021,126 60.9% 38.1% John R. Wilson................................................. 130,914 7.8% 4.9% John A. Irwin.................................................. 130,914 7.8% 4.9% Lloyd Maclean (3).............................................. 113,459 6.8% 4.2% Robert M. Rubin (4)............................................ 200,000 10.7% 6.9% William J. Neill............................................... 19,637 1.2% * John Dunne (5)................................................. 13,091(5) * * Blair Taylor (6)............................................... 19,637(6) 1.2% * James Reddy.................................................... 19,637 1.2% * All executive officers and directors as a group (five persons)..................................................... 1,648,913 88.8% 58.0%
- ------------------------ * Less than 1.0% (1) Unless otherwise indicated, the address of the referenced individual is c/o IT Staffing Ltd., 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7. (2) Includes 510,563 Common Shares owned by Christine French, the wife of Declan French. (3) Such Common Shares are owned by Globe Capital Corporation, an Ontario corporation that is wholly owned by Lloyd Maclean. (4) Consists of currently exercisable options to acquire 200,000 Common Shares at an exercise price of $2.10 per share for a period of seven years. (5) Consists of 13,091 Common Shares owned by Mr. Dunne's spouse. (6) Includes 9,818 Common Shares owned by Mr. Taylor's spouse. 47 CERTAIN TRANSACTIONS In April 1998, the Company acquired all the issued and outstanding capital stock of SCI and SPSI from John R. Wilson for aggregate consideration of $100,007 and 288,010 Common Shares. The acquisition was effective as of January 2, 1997. SPSI is inactive but holds certain assets utilized by Systems in its operations. Mr. Wilson was not affiliated with the Company prior to the acquisition. On May 19, 1998, the Company completed the acquisition of all the issued and outstanding capital stock of ICS for $303,955 in cash and 130,914 shares of Common Shares to John A. Irwin. In connection with the acquisition, ICS made a distribution to Mr. Irwin of certain ICS assets that were not necessary for the operation of the business. The transaction was effective as of January 1, 1998. Mr. Irwin was not affiliated with the Company prior to the acquisition. The Company, through ICS, leases its Scarborough, Ontario office facility from 1242541 Ontario Ltd., a corporation owned by John A. Irwin, President of ICS, and certain other ICS employees. The three year lease, which expires in May 2001, requires annual rental payments of $60,000, which the Company believes is as least as favorable as could be obtained from a non-affiliated third party. In October 1997, in consideration for business consulting services, including identifying, structuring and effecting the acquisitions of Systems and ICS, the Company issued 113,459 Common Shares to Globe Capital Corporation, which is controlled by Lloyd Maclean, the Company's Chief Financial Officer and a Director nominee. In May 1998, the Company entered into a consulting agreement with Robert M. Rubin, a director of the Company, pursuant to which Mr. Rubin will aid the Company in structuring and negotiating acquisitions, strategic partnerships and other expansion opportunities. In exchange for such services, Mr. Rubin received an option to purchase 200,000 Common Shares at a purchase price of $2.10 per share and a consulting fee of $80,000 per year. The consulting agreement is for a term of five years. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of the Common Shares issuable upon exercise of the options for a period of two years after exercise without the consent of the Company. In November 1998, the Company purchased certain assets of Southport from Michael Carrazza for $50,000 in cash and an amount of Common Shares with a value of $200,000 based on the offering price. Mr. Carrazza will join the Company's Board of Directors upon the closing of the offering. In connection with the acquisition, Mr. Carrazza entered into a consulting agreement with the Company for a period of two years. Certain payments under such consulting agreement are secured by a lien, secured in priority on the accounts receivable of the Company. While the Company was a private Company, the Company lacked sufficient independent directors to ratify the foregoing transactions. All future transactions between the Company and its officers, directors or 5% shareholders, and their respective affiliates, will be on terms no less favorable than could be obtained from unaffiliated third parties. In the event that the Company enters into future affiliated transactions they will be approved by the Company's independent directors who do not have an interest in the transactions and who have access, at the Company's expense, to the Company's counsel or independent legal counsel. 48 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 2,677,875 Common Shares outstanding (2,827,875 Common Shares outstanding if the Underwriters' over-allotment option is exercised in full). Of these shares, the 1,000,000 Common Shares offered hereby (1,150,000 shares if the Underwriters' over- allotment option is exercised in full) and 1,265,499 of the 1,677,875 Common Shares outstanding immediately prior to this offering will be freely tradeable commencing 90 days after the effective date of the registration statement of which this Prospectus is a part, without further registration thereunder, subject to compliance with the volume requirements, the holding period and other requirements of Rule 144. All executive officers and directors of the Company, the holders of Common Shares outstanding immediately prior to the offering, and all the option holders under the Plan have agreed (i) not to publicly sell, or otherwise dispose of, any Common Shares or Common Shares issuable upon exercise of options or warrants for a period of 18 months from the date of this offering without the Representative's prior written consent, which consent will not be unreasonably withheld, and (ii) not to privately sell or otherwise dispose of any such shares during such period unless the proposed transferee agrees to be bound by such restrictions on transfer. The Representative may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to the above described restrictions on sale. All of the 1,677,875 Common Shares outstanding prior to this offering are "restricted securities" within the meaning of Rule 144 of the Securities Act and, if held for at least one year, would be eligible for sale in the public market in reliance upon, and in accordance with, the provisions of Rule 144 following the expiration of such one year period. As of October 31, 1998, 1,368,958 Common Shares had been held for at least one year. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person or persons whose shares are aggregated, including a person who may be deemed to be an "affiliate" of the Company, as the term is defined under the Securities Act (an "Affiliate"), would be entitled to sell within any three month period a number of shares beneficially owned for at least one year that does not exceed the greater of (i) 1% of the then outstanding Common Shares, or (ii) the average weekly trading volume in the Common Shares during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and the availability of current public information about the Company. However, a person who is not deemed to have been an affiliate of the Company during the 90 days preceding a sale by such person and who has beneficially owned Common Shares for at least two years may immediately sell such shares without regard to the volume, manner of sale or notice requirements of Rule 144. Rule 701 under the Securities Act provides that the Common Shares acquired on the exercise of options granted under a written compensatory plan of the Company or contract with the Company prior to the date of this Prospectus may be resold by persons, other than Affiliates, beginning 90 days after the date of this Prospectus, subject only to the manner of sale provisions of Rule 144 and by Affiliates under Rule 144 without compliance with its one-year minimum holding period, subject to certain limitations. There are 435,000 Common Shares issuable upon the exercise of options which may be granted under the Plan prior to the date of this Prospectus (the "Option Shares") and 200,000 options. Except as otherwise provided above, beginning 90 days after the date of this Prospectus, the Option Shares, if any, would be eligible for sale in reliance on Rule 701, subject to certain vesting provisions. For a period of 18 months from the date of this Prospectus, the Company has agreed that it will not sell or otherwise dispose of any securities of the Company without the prior written consent of the Representative, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, during such period, the Company shall be entitled to issue (i) Common Shares in connection with mergers and acquisitions, (ii) up to 435,000 Common Shares issuable upon exercise of options which may be granted under the Plan, (iii) up to 22,125 Common Shares issuable upon the exercise of currently outstanding warrants which will, except in certain circumstances, be issued for an aggregate exercise price of $1.00, (iv) 200,000 Common Shares issuable upon the exercise of currently exercisable options, the holder of which has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of such Common Shares for 49 a period of two years after he exercises such options without the consent of the Company, which consent will not be unreasonably withheld, and (v) up to 100,000 Common Shares issuable upon the exercise of the Representative's Warrants. Prior to this offering, there has been no public market for the Company's securities. Following this offering, the Company cannot predict the effect, if any, that sales of Common Shares pursuant to Rule 144 or otherwise, or the availability of such shares for sale, will have on the market price prevailing from time to time. Nevertheless, sales by the current shareholders of a substantial number of Common Shares in the public market could materially adversely affect prevailing market prices for the Common Shares. In addition, the availability for sale of a substantial number of Common Shares acquired through the exercise of the Representative's Warrants or the outstanding options under the Plan could materially adversely affect prevailing market prices for the Common Shares. See "Risk Factors--Shares Eligible for Future Sale." 50 DESCRIPTION OF SECURITIES The authorized capital of the Company consists of 15,000,000 Common Shares and 1,000,000 preferred shares, issuable in series, of which 1,677,875 Common Shares and no preferred shares were issued and outstanding as of the date of this Prospectus. The following is a summary of the material provisions attaching to each class of shares of the Company and is qualified in all respects by reference to the Articles of Incorporation, as amended, and Bylaws of the Company, copies of which have been filed as Exhibits to the Registration Statement of which this Prospectus is a part. Pursuant to the Business Corporations Act (Ontario) ("BCA"), a shareholder of an Ontario corporation has the right to have the corporation pay the shareholder the fair market value for its shares of the corporation in the event such shareholder dissents from certain actions have been taken by the corporation, such as amalgamation or the sale of all or substantially all of the assets of the corporation, and such shareholder follows the procedures set forth in the BCA. COMMON SHARES The holders of Common Shares are entitled to receive, as and when declared by the Board of Directors of the Company, dividends in such amounts and in such form as the Board of Directors of the Company may determine from time to time. The holders of Common Shares are entitled to receive notice of and to attend all meetings of shareholders of the Company and have one vote for each Common Share held at all such meetings, except for meetings at which only the holders of another class or series of shares of the Company are entitled to vote separately as a class or series. The Common Shares rank junior to the preferred shares with respect to dividends and distributions of assets in the event of the liquidation, dissolution or winding-up of the Company. PREFERRED SHARES The preferred shares may be issued from time to time in one or more series, each series having such number of shares and such designations, rights, privileges, restrictions and conditions as the Board of Directors of the Company may determine. Accordingly, the Company's Board of Directors may, without shareholder approval, issue preferred shares with dividend, liquidation, conversion or other rights that could materially adversely affect the rights of the holders of the Common Shares. In addition, specific rights granted to future holders of preferred shares could be used to restrict the Company's ability to merge with, or sell its assets to, a third party. The ability of the Board of Directors to issue preferred shares could discourage, delay or prevent a takeover of the Company, thereby preserving control of the Company by the current shareholders. Except as required by law or where the rights, privileges, restrictions and conditions attaching to a series of preferred shares provide for voting rights for the holders of that series of preferred shares, the holders of preferred shares are not entitled as such to receive notice of, to attend at or to vote at, a meeting of the shareholders of the Company. The preferred shares rank prior to the Common Shares with respect to dividends and distributions of assets in the event of the liquidation, dissolution or winding-up of the Company. Although the Company has no present intention to issue any preferred shares, there can be no assurance that it will not do so in the future. In the event that the Company issues preferred shares in a transaction with an affiliate, the issuance will be approved by a majority of the Company's independent directors who do not have an interest in the transaction and who have access, at the Company's expense, to the Company's counsel or independent legal counsel. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Shares is Continental Stock Transfer & Trust Company. 51 CERTAIN UNITED STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS UNITED STATES The following describes the principal United States federal income tax consequences of the purchase, ownership and disposition of the Common Shares by a shareholder that is a citizen or resident of the United States or a United States domestic corporation or that otherwise will be subject to United States federal income tax (a "U.S. Holder"). This summary is based on the United States Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Prospectus may affect the tax consequences described herein. This summary discusses only the principal United States federal income tax consequences to those beneficial owners holding the securities as capital assets within the meaning of Section 1221 of the Code and does not address the tax treatment of a beneficial owner that owns 10% or more of the Common Shares. It is for general guidance only and does not address the consequences applicable to certain specialized classes of taxpayers such as certain financial institutions, insurance companies, dealers in securities or foreign currencies or United States persons whose functional currency (as defined in Section 985 of the Code) is not the United States dollar. Persons considering the purchase of these securities should consult their tax advisors with regard to the application of the United States and other income tax laws to their particular situations. In particular, a U.S. Holder should consult his tax advisor with regard to the application of the United States federal income tax laws to his situation. A U.S. Holder generally will realize, to the extent of the Company's current and accumulated earnings and profits, foreign source ordinary income on the receipt of cash dividends, if any, on the Common Shares equal to the United States dollar value of such dividends determined by reference to the exchange rate in effect on the day they are received by the U.S. Holder (with the value of such dividends computed before any reduction for any Canadian withholding tax). U.S. Holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any dividends received which are converted into United States dollars on a date subsequent to receipt. Subject to the requirements and limitations imposed by the Code, a U.S. Holder may elect to claim Canadian tax withheld or paid with respect to dividends on the Common Shares as a foreign credit against the United States federal income tax liability of such holder. Dividends on the Common Shares generally will constitute "passive income" or, in the case of certain U.S. Holders, "financial services income," for United States foreign tax credit purposes. U.S. Holders who do not elect to claim any foreign tax credits may claim a deduction for Canadian income tax withheld. Dividends paid on the Common Shares will not be eligible for the dividends received deduction available in certain cases to United States corporations. Upon a sale or exchange of a Common Share, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized on such sale or exchange and the tax basis of such Common Share. Generally, any gain or loss recognized as a result of the foregoing will be a capital gain or loss and will either be long-term or short-term depending upon the period of time the Common Shares sold or exchanged, as the case may be, were held. THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR IS MADE. CANADA The following is a summary of the principal Canadian federal income tax considerations generally applicable to the acquisition, holding and disposition of Common Shares purchased pursuant to this Prospectus by a holder (a "U.S. holder") who, for the purposes of the INCOME TAX ACT (Canada) (the "ITA") and the CANADA-UNITED STATES INCOME TAX CONVENTION (the "Convention"), as applicable and at all relevant times, (i) is resident in the United States and not resident in Canada, (ii) holds Common Shares as 52 capital property, (iii) does not have a "permanent establishment" or "fixed base" in Canada (as defined in the Convention), and (iv) deals at arm's length with the Company. Special rules, which are not discussed in this summary, may apply to "financial institutions" (as defined in the ITA) and to non-resident insurers carrying on an insurance business in Canada and elsewhere. This summary is based on the current provisions of the ITA and the regulations thereunder and the Convention, all specific proposals to amend the ITA or the regulations thereunder announced by the Canadian Minister of Finance prior to the date of this Prospectus and the current published administrative practices of Revenue Canada. This summary does not otherwise take into account or anticipate any changes in law or administrative practice nor does it take into account income tax laws or considerations of any province or territory of Canada or any jurisdiction other than Canada, which may differ from the federal income tax consequences described herein. This summary is of a general nature only and is not intended to be, and should not be interpreted as, legal or tax advice to any particular purchaser of Common Shares. DIVIDENDS Under the ITA and the Convention, dividends paid or credited, or deemed to be paid or credited, on the Common Shares to a U.S. holder who owns less than 10% of the Company's voting shares will be subject to Canadian withholding tax at the rate of 15% of the gross amount of such dividends or deemed dividends. Under the Convention, dividends paid or credited to certain religious, scientific, charitable and similar tax exempt organizations and certain pension organizations that are resident, and exempt from tax, in the United States and that have complied with certain administrative procedures are exempt from this Canadian withholding tax. DISPOSITION OF COMMON SHARES A capital gain realized by a U.S. holder on a disposition or deemed disposition of Common Shares will not be subject to tax under the ITA unless such Common Shares constitute taxable Canadian property within the meaning of the ITA at the time of the disposition or deemed disposition. In general, the Common Shares will not be "taxable Canadian property" to a U.S. holder unless they are not listed on a prescribed stock exchange (which includes the Nasdaq SmallCap Market-Registered Trademark-) or at any time within the five year period immediately preceding the disposition the U.S. holder, persons with whom the U.S. holder did not deal at arm's length, or the U.S. holder together with such persons owned or had an interest in or a right to acquire more than 25% of any class or series of the Company's shares. A deemed disposition of Common Shares will arise on the death of a U.S. holder. If the Common Shares are taxable Canadian property to a U.S. holder, any capital gain realized on a disposition or deemed disposition of such Common Shares will generally be exempt from tax under the ITA by virtue of the Convention if the value of the Common Shares at the time of the disposition or deemed disposition is not derived principally from real property (as defined by the Convention) situated in Canada. The Company is of the view that the Common Shares do not now derive their value principally from real property situated in Canada; however, the determination as to whether Canadian tax would be applicable on a disposition or deemed disposition of Common Shares must be made at the time of the disposition or deemed disposition. THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR IS MADE. 53 INVESTMENT CANADA ACT The Investment Canada Act, a Canadian federal statute, regulates the acquisition of control of existing Canadian businesses by any "non-Canadian" (as that term is defined in the Investment Canada Act). The Company is currently a "Canadian Business" (as that term is defined in the Investment Canada Act). If a non-Canadian seeks to acquire control of the Company, such acquisition will be subject to the Investment Canada Act. In general, any transaction which is subject to the Investment Canada Act is a reviewable transaction if the book value of the Company's assets, as set out in its most recent financial statements, exceeds the applicable threshold. If the potential acquiror is a "WTO Investor", acquiring control of the Company would only be reviewable if the book value of the Company assets exceeded Cdn$179 million. (This number is the threshold amount for 1998 and this amount is increased each year by a factor equal to the increase in the rate of Canadian inflation for the previous year). A WTO Investor is defined in the Investment Canada Act as an investor ultimately controlled by nationals of World Trade Organization member states, such as the United States of America. If the book value of the Company's assets exceeds the applicable threshold for review, the potential acquiror must file an application for review and obtain the approval of the Minister of Industry before acquiring control of the Company. In deciding whether to approve the reviewable transaction, the Minister considers whether the investment "is likely to be of net benefit to Canada." This determination is made on the basis of economic and policy criteria set out in the Investment Canada Act. The approval process begins with an initial review period of 45 days from the date the completed application is received. However, the Minister of Industry has authority to extend the review period unilaterally for an additional 30 days. Any further extensions requires the potential acquiror's consent. 54 UNDERWRITING Subject to the terms and conditions contained in the underwriting agreement (the "Underwriting Agreement"), the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters, for which Strasbourger Pearson Tulcin Wolff Incorporated is acting as Representative, has severally, and not jointly, agreed, to purchase the number of Shares offered hereby set forth opposite their respective names below.
NUMBER NAME OF SHARES - ----------------------------------------------------------------------------------------------------- ---------- Strasbourger Pearson Tulcin Wolff Incorporated....................................................... Total................................................................................................ 1,000,000
A copy of the Underwriting Agreement has been filed as an exhibit to the Registration Statement, to which reference is hereby made. The Underwriting Agreement provides that the obligations of the Underwriters to purchase the Shares is subject to certain conditions. The Underwriters shall be obligated to purchase all of the Shares (other than those covered by the Underwriters' over-allotment option described below), if any are purchased. The Representative has advised the Company that the Underwriters propose to offer the Shares to the public at the initial public offering price set forth on the cover page of this Prospectus and that they may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD"), and to certain foreign dealers, concessions not in excess of $ per Share, of which amount a sum not in excess of $ per Share may in turn be reallowed by such dealers to other dealers who are members of the NASD and to certain foreign dealers. After completion of the offering, the offering price, the concession to selected dealers, and the reallowance to other dealers may be changed by the Representative. The Company has agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. The Company has agreed to pay to the Representative an expense allowance, on a non-accountable basis, equal to 3% of the gross proceeds derived from the sale of 1,000,000 Shares offered hereby (or 1,150,000 Shares if the Underwriters' over-allotment option is exercised in full). The Company paid an advance on such allowances in the amount of $75,000. The Company has also agreed to pay certain of the Representative's expenses in connection with this offering, including expenses in connection with qualifying the Shares offered hereby for sale under the laws of such states as the Representative may designate and the placement of tombstone advertisements. In connection with this offering, the Company has granted the Representative the right, for the three-year period commencing on the closing date of this offering, to appoint an observer to attend all meetings of the Company's Board of Directors. This designee has the right to notice of all meetings of the Board of Directors and to receive reimbursement for all out-of-pocket expenses incurred in attending such meetings. In addition, such designee will be entitled to indemnification to the same extent as the Company's directors. The Company has agreed to retain the Representative as financial consultants for a period of two years to commence on the closing of this offering at an aggregate fee of $150,000, $100,000 of which shall be payable at the closing of this offering and the remainder of which shall be due on the date one year and one day after such closing. Pursuant to this agreement, the Representative shall provide advisory services related to mergers and acquisitions activity, corporate finance and other matters. 55 The Representative has advised the Company that the Underwriters do not intend to confirm sales of the Shares offered hereby to any account over which they exercise discretionary authority. The Company, its officers, directors and shareholders, as well as the holders of options under the Plan, have agreed not to offer, assign, issue, sell, hypothecate or otherwise dispose of any Common Shares, securities of the Company convertible into, or exercisable or exchangeable for, Common Shares, or Common Shares received upon conversion, exercise or exchange of such securities to the public without the prior written consent of the Representative for a period of 18 months from the date of this Prospectus. Prior to this offering, there has been no public trading market for the Common Shares. The initial public offering price for the Shares will be determined by arms-length negotiations between the Company and the Representative and does not necessarily bear any relationship to the Company's book value, assets, past operating results, financial condition or other established criteria of value. Among the factors to be considered in such negotiations will be prevailing market conditions, the history and prospects for the Company and the industry in which the Company competes, an assessment of the Company's management, its capital structure, and such other factors deemed relevant. The Company has also granted to the Underwriters an option, exercisable during the 45-day period commencing on the date of this Prospectus, to purchase at the public offering price per share, less the underwriting discounts and commissions, up to an aggregate of 150,000 Common Shares. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase additional Common Shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Underwriters may exercise such right of purchase only for the purpose of covering over-allotments, if any, made in connection with the sale of Shares. Purchases of Common Shares upon exercise of the over-allotment option will result in the realization of additional compensation by the Underwriters. In connection with this offering, the Company has agreed to sell to the Representative, individually and not as Representative of the several Underwriters, at the price of $.001 per warrant, the Representative's Warrants to purchase an aggregate of 100,000 Common Shares. The Representative's Warrants are exercisable for a period of four years commencing one year from the date of this Prospectus at an exercise price per share (the "Exercise Price") equal to 165% of the public offering price per share. The Representative's Warrants may not be sold, transferred, assigned, pledged, or hypothecated for a period of 12 months from the date of the Prospectus, except to members of the selling group and to officers and partners of the Representative and members of the selling group. The Representative's Warrants contain anti-dilution provisions providing for adjustments of the Exercise Price and number of shares issuable on exercise of the Representative's Warrants, upon the occurrence of certain events, including dividends, stock splits, and recapitalizations. The holders of the Representative's Warrants have no voting, dividend or other rights as stockholders of the Company with respect to Common Shares underlying the Representative's Warrants, unless the Representative's Warrants shall have been exercised. A new registration statement or post-effective amendment to the Registration Statement will be required to be filed and declared effective before distribution to the public of the Representative's Warrants and the Warrant Shares. The Company has agreed, on one occasion during the period beginning one year after the date of this Prospectus and ending four years thereafter, if requested by the holders of a majority of the Representative's Warrants or Warrant Shares, to make all necessary filings to permit a public offering of the Representative's Warrants and Warrant Shares and to use its best efforts to cause such filing to become effective under the Securities Act and to remain effective for at least 12 months, at the Company's sole expense. In addition, the Company has agreed to give advance notice to holders of the Representative's Warrants and Warrant Shares of its intention to file a registration statement, and in such case, holders of the Representative's Warrants and the Warrant Shares shall have the right to require the Company to include the Warrant Shares in such registration statement ("Piggyback Registration Rights") 56 at the Company's expense (subject to certain limitations). Such Piggyback Registration Rights will expire five years from the effective date of the Registration Statement. During and after this offering, the Underwriters may purchase and sell Common Shares in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with this offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the Common Shares sold in this offering for their account may be reclaimed by the syndicate if such shares are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Shares which may be higher than the price that might otherwise affect the market price of the Common Shares, which may be higher than the price that might otherwise prevail in the open market. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Shares. In addition, neither the Company nor any of the Underwriters makes any representation that the Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued at any time. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement, which are filed as exhibits to the Registration Statement. See "Additional Information." LEGAL MATTERS Certain legal matters relating to Canadian law, including the validity of the issuance of the Common Shares offered hereby, will be passed upon for the Company by McMillan Binch, Toronto, Ontario. Certain legal matters in connection with the offering will be passed upon for the Company by its United States counsel, Gersten, Savage, Kaplowitz & Fredericks, LLP, New York, New York. Certain legal matters will be passed upon for the Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. EXPERTS The financial statements of the Company, ICS and Systems for each of the two fiscal years ended December 31, 1996 and 1997, appearing in this Prospectus and Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered Accountants, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement under the Securities Act with respect to the Common Shares offered hereby. This Prospectus omits certain information contained in the Registration Statement and the exhibits thereto, and references are made to the Registration Statement and the exhibits thereto for further information with respect to the Company and the Common Shares offered hereby. Statements contained herein concerning the provisions of any documents are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The Registration Statement, including exhibits and schedules filed therewith, may be inspected without charge at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the 57 Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its public reference facilities in New York, New York and Chicago, Illinois upon payment of the prescribed fees. Electronic registration statements filed through the Electronic Data Gathering, Analysis, and Retrieval System are publicly available through the Commission's Web site (http:/ /www.sec.gov). Further information on public reference rooms available at the Commission is available by contacting the Commission at 1-(800) SEC-0330. 58 IT STAFFING LTD. CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (AMOUNTS EXPRESSED IN US DOLLARS) Independent Auditors' Report................................................................... F-2 Consolidated Balance Sheets.................................................................... F-3 Consolidated Statements of Income.............................................................. F-4 Consolidated Statements of Stockholders' Equity................................................ F-5 Consolidated Statements of Cash Flows.......................................................... F-6 Notes to Consolidated Financial Statements..................................................... F-7
SUPPLEMENTARY SCHEDULES Consolidated Schedules of Expenses............................................................. F-17
INTERNATIONAL CAREER SPECIALISTS LTD. FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (AMOUNTS EXPRESSED IN US DOLLARS) Independent Auditors' Report................................................................... F-19 Balance Sheets................................................................................. F-20 Statement of Income............................................................................ F-21 Statements of Stockholder's Equity............................................................. F-22 Statement of Cash Flows........................................................................ F-23 Notes to Financial Statements.................................................................. F-25
SUPPLEMENTARY SCHEDULES Schedules of Expenses.......................................................................... F-29
SYSTEMSEARCH CONSULTING SERVICES INC. FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (AMOUNTS EXPRESSED IN US DOLLARS) Independent Auditors' Report................................................................... F-31 Balance Sheets................................................................................. F-32 Statements of Income........................................................................... F-33 Statements of Stockholders' Equity............................................................. F-34 Statements of Cash Flows....................................................................... F-35 Notes to Financial Statements.................................................................. F-36 SUPPLEMENTARY SCHEDULES Schedules of Expenses.......................................................................... F-39
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of IT Staffing Ltd. We have audited the accompanying consolidated balance sheets of IT Staffing Ltd. (incorporated in Canada) as of December 31, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flows for the years ended December 31, 1997 and 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of IT Staffing Ltd. as of December 31, 1997 and 1996 and the consolidated results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles in the United States of America. Toronto, Ontario July 27, 1998 Schwartz Levitsky Feldman Chartered Accountants
F-2 IT STAFFING LTD. CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
SEPTEMBER SEPTEMBER DECEMBER DECEMBER 30, 30, 31, 31, 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) ASSETS CURRENT ASSETS Cash..................................... 149,572 2,935 9,860 5,743 Accounts receivable (note 3)............. 1,838,633 698,046 761,570 211,928 Prepaid expenses......................... 143,585 37,788 19,997 4,352 ----------- ----------- ----------- ----------- 2,131,790 738,769 791,427 222,023 CAPITAL ASSETS (note 4).................... 123,836 40,631 47,955 22,000 GOODWILL (note 5).......................... 1,237,583 467,296 434,833 -- ----------- ----------- ----------- ----------- 3,493,209 1,246,696 1,274,215 244,023 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES CURRENT LIABILITIES Bank indebtedness (note 6)............... 156,746 91,652 196,248 123,396 Accounts payable......................... 1,057,805 422,194 388,250 84,742 Income taxes payable..................... 200,750 61,594 40,786 6,421 Note payable (note 7).................... -- 108,609 104,858 -- Current portion of long-term debt (note 8)..................................... 107,100 17,535 21,191 7,296 Advances from stockholders............... -- 52,885 49,749 29,988 ----------- ----------- ----------- ----------- 1,522,401 754,469 801,082 251,843 LONG-TERM DEBT (note 8).................... 381,630 43,742 37,278 4,864 ----------- ----------- ----------- ----------- 1,904,031 798,211 838,360 256,707 ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIENCY) CAPITAL STOCK (note 9)..................... 1,248,368 328,327 328,327 4 CUMULATIVE TRANSLATION ADJUSTMENT.......... (111,139) (2,542) (18,133) 59 RETAINED EARNINGS (DEFICIENCY)............. 451,949 122,700 125,661 (12,747) ----------- ----------- ----------- ----------- 1,589,178 448,485 435,855 (12,684) ----------- ----------- ----------- ----------- 3,493,209 1,246,696 1,274,215 244,023 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-3 IT STAFFING LTD. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) REVENUE Contract services................................. $ 6,558,250 $ 2,673,449 $3,729,703 $ 295,980 Permanent placements.............................. 2,198,232 746,054 974,638 468,207 ------------- ------------- ------------ ------------ 8,756,482 3,419,503 4,704,341 764,187 CONTRACTOR COSTS...................................... 5,010,878 2,116,823 2,888,540 259,334 ------------- ------------- ------------ ------------ GROSS PROFIT.......................................... 3,745,604 1,302,680 1,815,801 504,853 EXPENSES Selling........................................... 2,104,823 795,564 1,123,051 273,689 Administrative.................................... 967,741 263,900 373,627 181,876 Financial......................................... 128,702 42,125 125,594 13,733 ------------- ------------- ------------ ------------ 3,201,266 1,101,589 1,622,272 469,298 INCOME BEFORE INCOME TAXES............................ 544,338 201,091 193,529 35,555 Income Taxes (Note 10)............................ 218,050 65,644 55,121 5,353 ------------- ------------- ------------ ------------ NET INCOME............................................ 326,288 135,447 138,408 30,202 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 9) Basic............................................... 1,677,875 1,309,135 1,309,135 1,021,125 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ Fully Diluted....................................... 1,821,095 1,309,135 1,309,135 1,021,125 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ EARNINGS PER WEIGHTED AVERAGE COMMON SHARE Basic............................................... 20 NTS 10 NTS 11 NTS 3 CENTS ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ Fully Diluted....................................... 18 NTS 10 NTS 11 NTS 3 CENTS ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 IT STAFFING LTD. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS EXPRESSED IN US DOLLARS)
COMMON STOCK RETAINED CUMULATIVE NUMBER OF EARNINGS TRANSLATION SHARES AMOUNTS (DEFICIT) ADJUSTMENTS ---------- ---------- --------- ----------- $ $ $ Balance as of December 31, 1995................................ 1,021,125 4 (20,948) -- Foreign currency translation................................... -- -- -- 59 Dividends paid................................................. -- -- (22,001) -- Net income for the year........................................ -- -- 30,202 -- ---------- ---------- --------- ----------- Balance as of December 31, 1996................................ 1,021,125 4 (12,747) 59 Common shares issued........................................... 288,010 328,323 -- -- Foreign currency translation................................... -- -- -- (2,601) Net income for the period...................................... -- -- 135,447 -- ---------- ---------- --------- ----------- Balance as of September 30, 1997............................... 1,309,135 328,327 122,700 (2,542) Foreign currency translation................................... -- -- -- (15,591) Net income for the period...................................... -- -- 2,961 -- ---------- ---------- --------- ----------- Balance as of December 31, 1997................................ 1,309,135 328,327 125,661 (18,133) Common shares issued........................................... 368,740 920,041 -- -- Foreign currency translation................................... -- -- -- (93,006) Net income for the period...................................... -- -- 326,288 -- ---------- ---------- --------- ----------- Balance as of September 30, 1998............................... 1,677,875 1,248,368 451,949 (111,139) ---------- ---------- --------- ----------- ---------- ---------- --------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-5 IT STAFFING LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ Cash flows from operating activities: Net income.......................................... 326,288 135,447 138,408 30,202 ------------- ------------- ------------ ------------ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization...................................... 24,356 8,228 16,968 5,037 Amortization of goodwill.......................... 33,579 12,023 15,258 -- Decrease (increase) in accounts receivable........ (1,178,966) (489,358) (577,114) (211,535) Decrease (increase) in prepaid expenses........... (130,645) 2,742 (15,645) (3,629) Increase (decrease) in accounts payable........... 727,044 339,226 317,281 60,934 Increase (decrease) in income taxes payable....... 170,124 55,406 34,365 6,454 ------------- ------------- ------------ ------------ Total adjustments................................... (354,508) (71,733) (208,887) (142,739) ------------- ------------- ------------ ------------ Net cash generated by operating activities.......... (28,220) 63,714 (70,479) (112,537) ------------- ------------- ------------ ------------ Cash flows from investing activities: Purchases of capital assets......................... (107,024) (27,090) (44,739) (25,830) Incorporation costs................................. -- -- 733 (744) Acquisition of goodwill............................. (614,030) (190,035) (140,028) -- ------------- ------------- ------------ ------------ Net cash used in investing activities............... (721,054) (217,125) (184,034) (26,574) ------------- ------------- ------------ ------------ Cash flows from financing activity: Increase (decrease) in note payable................. (102,466) 108,972 108,350 -- Increase (decrease) in long-term debt............... 454,050 49,374 23,837 12,223 Increase (decrease) in advances from shareholders... (48,614) 23,202 21,716 30,142 Proceeds from issuance of capital stock............. 620,944 -- -- -- Payment of dividends................................ -- -- -- (22,001) Increase (decrease) in bank's indebtedness.......... (27,828) (30,909) 96,601 115,605 ------------- ------------- ------------ ------------ 896,086 150,639 250,504 135,969 ------------- ------------- ------------ ------------ Effect of foreign currency exchange rate changes...... (7,100) (36) 8,126 8,394 ------------- ------------- ------------ ------------ Net increase (decrease) in cash....................... 139,712 (2,808) 4,117 5,252 Cash --Beginning of year................................. 9,860 5,743 5,743 491 ------------- ------------- ------------ ------------ End of year......................................... 149,572 2,935 9,860 5,743 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ Interest paid......................................... $ 80,717 $ 13,757 6,491 2,910 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ Income taxes paid..................................... -- -- -- -- ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 1. BASIS OF PRESENTATION The consolidated financial statements for the nine months ended September 30, 1998 and 1997 are unaudited. The interim results are not necessarily indicative of the results for any future period. In the opinion of management, the data in the consolidated financial statements reflects all adjustments necessary for a fair presentation of the results of the interim periods disclosed. All adjustments are of a normal and recurring nature. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The earnings of the subsidiaries are included from the date of acquisition. All significant inter-company accounts have been eliminated. Systemsearch Consulting Services Inc. was acquired on January 2, 1997 for $391,850. This amount was paid by the issuance of Common Shares and a cash payment of $100,007. The purchase has been reflected as follows: Consideration.................................................. $ 391,850 Assumption of net liabilities.................................. 42,807 Goodwill......................................................... 434,657
International Career Specialists Ltd. was acquired on January 1, 1998 for $653,083. This amount was paid by the issuance of Common Shares and a cash payment of $303,555. The purchase was reflected as follows: Consideration.................................................. $ 653,083 Assumption of net liabilities.................................. 198,680 Goodwill......................................................... 851,763
Had the Systemsearch Consulting Services Inc. income been included with the Company's December 31, 1996 consolidated results of operations, the pro-forma summarized results of operations would have been as follows: Revenue......................................................... $1,971,976 Net loss........................................................ 29,854 Loss per share.................................................. (.02) Pro-forma shares outstanding.................................... 1,309,135
F-7 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Had the International Career Specialists Ltd. income been included with the Company's December 31, 1997 consolidated results of operations, the pro-forma summarized results of operations would have been as follows: Revenue................................................. $8,363,133 Net earnings............................................ 153,744 Earnings per share...................................... .11 Pro-forma shares outstanding............................ 1,440,049
b) Principal Business Activity IT Staffing is an information technology staffing company, which along with its subsidiaries System Search Consulting Services Inc. and International Career Specialists Ltd., specialize in placing information technology personnel on both a contract and permanent basis System Search Consultants Inc. was purchased by IT Staffing Ltd. in a transaction effective January 2, 1997. The acquisition was accounted for using the purchase method. International Career Specialists Ltd. was purchased by IT Staffing Ltd. in a transaction effective January 1, 1998. The acquisition was accounted for using the purchase method. c) Cash Cash includes cash on hand, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. d) Other Financial Instruments The carrying amount of the company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. e) Long-term Financial Instruments The fair value of each of the company's long-term financial assets and debt instruments is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the company's current borrowing rate for similar instruments of comparable maturity would be. f) Capital Assets Property and equipment are recorded at cost and are depreciated on the declining balance basis over their estimated useful lives. F-8 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Revenue Revenue from contract placements is recognized as services are performed. Revenue from permanent placements is recognized upon commencement of employment. h) Goodwill Goodwill representing the cost in excess of the fair value of net assets acquired related to the acquisitions of System Search Consulting Services Inc. and International Career Specialists Ltd. is being amortized on a straight-line basis over a thirty year period. The Company calculates the recoverability of goodwill on a quarterly basis by reference to estimated undiscounted future cash flows. i) Foreign Currency Translation The translation of the consolidated financial statements from Canadian dollars ("CDN $") into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are included in the cumulative translation adjustments in stockholders' equity. j) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. ACCOUNTS RECEIVABLE
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Accounts receivable................................... 1,871,287 698,046 796,523 211,928 Less: Allowance for doubtful accounts................. 32,654 -- 34,953 -- ------------- ------------- ------------ ------------ Accounts receivable, net.............................. 1,838,633 698,046 761,570 211,928 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
F-9 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 4. CAPITAL ASSETS
DECEMBER 31, 1997 DECEMBER 31, ----------------------------------- 1996 ACCUMULATED ------------- COST AMORTIZATION NET NET --------- ------------- --------- ------------- $ $ $ $ Furniture and equipment.......................................... 40,565 16,000 24,565 14,084 Computer equipment............................................... 25,477 9,078 16,399 7,175 Computer software................................................ 13,982 6,991 6,991 -- Incorporation costs.............................................. 710 710 -- 741 --------- ------ --------- ------ 80,734 32,779 47,955 22,000 --------- ------ --------- ------ --------- ------ --------- ------
Amortization for the year ended December 31, 1997 amounted to $16,968; ($5,037 at December 31, 1996).
SEPTEMBER 30, 1998 SEPTEMBER 30, ---------------------------------------- 1997 ACCUMULATED ------------- COST AMORTIZATION NET NET ----------- ------------- ------------ ------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1) Furniture and equipment................................. 122,650 47,676 74,974 27,564 Computer equipment...................................... 56,778 19,442 37,336 13,067 Computer software....................................... 23,051 11,525 11,526 -- Automobile.............................................. -- -- -- -- ----------- ------ ------------ ------ 202,479 78,643 123,836 40,631 ----------- ------ ------------ ------ ----------- ------ ------------ ------
Amortization for the period ended September 30, 1998 amounted to $24,356; ($8,228 at September 30, 1997). 5. GOODWILL Goodwill is the excess of cost over the value of assets acquired over liabilities assumed.
NINE MONTHS ENDED YEARS ENDED ---------------------------- ------------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ----------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Cost.................................................. 1,286,420 479,319 450,091 -- Accumulated amortization.............................. 48,837 12,023 15,258 -- -- ------------- ------------- ------------ Net................................................... 1,237,583 467,296 434,833 -- -- -- ------------- ------------- ------------ ------------- ------------- ------------ Amortization for the period........................... 33,579 12,023 15,258 -- -- -- ------------- ------------- ------------ ------------- ------------- ------------
F-10 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 6. BANK INDEBTEDNESS AND LINE OF CREDIT The companies have available a line of credit to a maximum of $650,000, which bears interest at plus 1.75% over the Toronto Dominion Bank's prime rate per annum and is secured by a general assignment of book debts, a general security agreement and guarantees and postponements of claims by various affiliated companies. 7. NOTES PAYABLE Notes payable are represented by $104,858 ($108,609 in September 1997) of notes payable in conjunction with the acquisition of Systems Search Consulting Ltd. 8. LONG-TERM DEBT
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Included therein a) A Business Development Bank of Canada ("BDC") loan, secured by a general security agreement, payable in 59 equal monthly payments of $4,354 from October 23, 1998, plus interest of the BDC base rate plus 4% per annum. Currently the interest rate is 13%. In addition IT Staffing Ltd. shall pay interest monthly by way of a royalty of 0.0426% per annum of IT Staffing Ltd.'s projected annual gross sales.... 256,886 -- -- -- A BDC loan, secured by a general security agreement, payable in 59 monthly payments of $3,265 plus interest of the BDC base rate plus 4% per annum. Currently, the interest rate is 13%. In addition IT Staffing Ltd. shall pay interest monthly by way of royalty of 0.0198% per annum of its projected gross annual sales........................................ 192,659 -- -- -- ------------- ------------- ------------ ------------ Balance forward..................................... 449,545 -- -- -- a) Balance forward.................................... 449,545 -- -- -- A BDC loan secured by a general security agreement, payable in 34 remaining monthly payments of $653 plus interest of the BDC operational interest rate prime plus 5%, per annum. Currently, the interest rate is 14%......................................... 22,205 33,277 28,974 --
F-11 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 8. LONG-TERM DEBT (CONTINUED)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) A BDC loan secured by a general security agreement payable in 26 remaining monthly payments of $653 plus interest of the BDC base rate plus 3% per annum. Currently, the interest rate is 12%.......... 16,980 28,000 23,749 -- A National Bank of Canada non-revolving, demand loan currently with no outstanding balance. Payments were made on a monthly basis in the amount of $608 for 24 months, at a rate equal to the National Bank of Canada Canadian prime rate plus 2% per annum........ -- -- 5,746 12,160 ------------- ------------- ------------ ------------ 488,730 61,277 58,469 12,160 Less: Current portion............................... 107,100 17,535 21,191 7,296 ------------- ------------- ------------ ------------ 381,630 43,742 37,278 4,864 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
b) Future principal payments consist of the following as of September 30, 1998: September 30, 1999................................................ $ 107,100 September 30, 2000................................................ 107,100 September 30, 2001................................................ 99,264 September 30, 2002................................................ 91,428 September 30, 2003................................................ 83,838 --------- $ 488,730 --------- ---------
c) Interest expense with respect to the long-term debt amounted to $36,000 for the nine months ended September 30, 1998 ($18,000 for the nine months ended September 30, 1997) and $6,491 at December 31, 1997 ($2,910 at December 31, 1996). d) Pursuant to the BDC loan agreement, BDC has the option to acquire 22,125 shares for an aggregate consideration of $1. The fair market value of these shares at the time of issuance was $62,393 ($2.82 share). The imputed discount on these options is being amortized over the term of the loan as interest. F-12 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 9. CAPITAL STOCK Authorized An unlimited number of Common Shares Issued
SHARES $ --------- --------- September 30, 1998..................................... 1,677,875 1,248,368 September 30, 1997..................................... 1,309,135 328,327 December 31, 1997...................................... 1,309,135 328,327 December 31, 1996...................................... 1,021,125 4
On January 2, 1997 288,010 shares were issued in conjunction with the acquisition of System Search Consulting Services Inc. with a carrying value of $291,843 On January 1, 1998 130,914 shares were issued in conjunction with the acquisition of International Career Specialists Ltd. with a carrying value of $349,528. A private placement of 196,370 shares was completed in March 1998 yielding proceeds of $423,639. A second private placement of 85,094 shares was completed in April 1998 yielding proceeds of $216,814 The Company redeemed 43,637 shares for $69,940 in April 1998. The Company has outstanding stock options issued in conjunction with its long-term financing arrangements for 22,125 shares (see note 8d) and additional options issued to a consultant of the Company for 200,000 shares exercisable at $2.10/Share. Subsequent to June 30, 1998 the Company granted options to purchase 50,000 shares to a vice president. The options are exerciseable at the issue price of Common Shares in the proposed initial public offering. The Company has initiated a stock option plan for officers, directors, consultants, key employees and advisors. Under the plan, options to acquire an aggregate of 435,000 Common Shares may be granted at the discretion of the board of directors. The shares will require a two year vesting period and will be exerciseable for up to 10 years. The option exercise price will be determined by the board of directors and may not be less than the fair market value of the Common Shares on the date of the granting of an option. To date, no options have been granted under this plan. On August 6, 1998, the Company split its stock. The result of the split converted the outstanding shares from 1,281,667 to 1,667,875 shares. The number of shares indicated above have been retroactively restated in all periods to reflect the stock split on August 6, 1998. The fully diluted shares outstanding after the effect of the stock split is 1,900,000 shares . Weighted average number of shares outstanding is calculated on a fully diluted basis after giving effect to the stock split. F-13 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 10. INCOME TAXES
NINE MONTHS ENDED YEARS ENDED -------------------- ------------------------ SEPT. SEPT. DECEMBER DECEMBER 1998 1997 1997 1998 --------- --------- ----------- ----------- Income Taxes (Recovery) consist of: Amount calculated at Federal and Provincial Statutory rates......................................... 226,246 77,293 70,702 5,333 Increase (decrease) resulting from: Permanent Differences.............................................. 6,265 4,021 2,714 1,216 Timing Differences................................................. (268) 74 (29) (106) Other Differences.................................................. (14,193) (15,744) (18,266) (1,090) --------- --------- ----------- ----------- (8,196) (11,649) (15,581) 20 --------- --------- ----------- ----------- Current Income Taxes (Recovery)...................................... 218,050 65,644 55,121 5,353 --------- --------- ----------- ----------- --------- --------- ----------- -----------
11. TRANSACTIONS WITH RELATED COMPANIES Prior to IT Staffing Ltd. purchasing shares of International Career Specialists Ltd. on January 1, 1998, the Company rented premises from International Career Specialists Ltd. The land and building were disposed of as part of the purchase price. 12. LEASE COMMITMENTS a) Minimum payments under operating leases for premises occupied by the Company and its subsidiaries in Toronto and New York, exclusive of most operating costs and realty taxes, for the fiscal year end of December 31 for the next five years are as follows: 1998.............................................................. $ 117,849 1999.............................................................. 95,734 2000.............................................................. 95,734 2001.............................................................. 71,888 2002.............................................................. 55,855 --------- $ 437,060 --------- ---------
b) Minimum payments under other operating leases for the fiscal year end December 31 until expiry are as follows: 1998.............................................................. $ 53,158 1999.............................................................. 32,916 2000.............................................................. 16,011 2001.............................................................. 4,242 2002.............................................................. 3,181 --------- $ 109,508 --------- ---------
F-14 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 13. SEGMENTED INFORMATION a) Sales by Geographic Area
NINE MONTHS ENDED YEARS ENDED ------------------------ ------------------------ SEPTEMBER SEPTEMBER DECEMBER DECEMBER 30, 30, 31, 31, 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Canada..................................... 8,627,912 3,419,503 4,503,642 764,187 United States of America................... 98,570 -- 200,699 -- ----------- ----------- ----------- ----------- 8,756,482 3,419,503 4,704,341 764,187 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
b) Net Income by Geographic Area The Company's accounting records do not readily provide information on net income by geographic area. Management is of the opinion that the proportion of net income based principally on sales, presented below, would fairly present the results of operations by geographic area.
NINE MONTHS ENDED YEARS ENDED ------------------------ ------------------------ SEPTEMBER SEPTEMBER DECEMBER DECEMBER 30, 30, 31, 31, 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Canada..................................... 322,615 135,447 131,822 30,202 United States of America................... 3,673 -- 6,586 -- ----------- ----------- ----------- ----------- 326,288 135,447 138,408 30,202 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
c) Identifiable Assets by Geographic Area All identifiable assets were located in Canada for 1998, 1997 and 1996. d) Sales to Major Customers The consolidated entity had the following sales to major customers: September 1998............................................................. None September 1997............................................................. None December 1997 Bank of Montreal........................................................... $ 674,426 14% SHL Systemhouse............................................................ $ 511,951 11% December 1996 Bank of Montreal........................................................... $ 176,972 23% Inco Limited............................................................... $ 77,119 10%
e) Purchases From Major Suppliers F-15 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 13. SEGMENTED INFORMATION (CONTINUED) There were no significant purchases from major suppliers. 14. SUBSEQUENT EVENTS a) The Company has entered into a Letter of Intent with an underwriting firm and is proceeding to complete an initial public offering of 1,000,000 Common Shares for net proceeds to the Company of $4,500,000. Upon successful completion of the offering the company will apply to have its stock listed on Nasdaq. b) Subsequent to September 30, 1998, the company acquired certain major assets of Southport Consulting Company, a New Jersey corporation. The consideration for the acquisition of US$250,000 was as follows: Cash.............................................................. $ 50,000 Shares............................................................ 200,000 --------- $ 250,000 --------- ---------
The number of shares shall be determined by the issue price of the initial public offering and shall have a value of $200,000. In the event that the public offering is not completed 50,000 shares will be issued. The assets acquired are valued as follows: Software.......................................................... $ 130,000 Office furniture and equipment.................................... 20,000 Goodwill.......................................................... 100,000 --------- $ 250,000 --------- ---------
IT Staffing has contracted to retain Mr. Michael Carrazza, the key employee of Southport Consulting Company through December 31, 2000. 15. COMPARATIVE FIGURES Certain figures in the 1997 financial statements have been reclassified to conform with the basis of presentation used in 1998. 16. STOCK OPTION PLAN In July 1998, the Directors of the Company adopted and the stockholders approved the adoption of the Company's 1998 Stock Option Plan. The Plan will be administrated by the Compensation Committee or the Board of Directors, which will determine among other things, those individuals who shall receive options, the time period during which the options may be partially of fully exercised, the number of Common Shares issuable upon the exercise of the options and the option exercise price. F-16 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) The Plan is effective for a period for ten years, expiring in 2008. Options to acquire 435,000 Common Shares may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to the Company. The Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by the Board of Directors provided that, pursuant to the terms of the Underwriting Agreement between the Company and the Underwriters, the exercise price of any options may not be less than the fair market value of the Common Shares on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian of legal representative) during his or her lifetime or by his or her legal representatives following death. If a participant ceases affiliation with the Company by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant 90 days to exercise the option, except for termination for cause which results in immediate termination of the option. The Company has agreed with the Representative not to grant any options under the Plan at less than 100% of the fair market value of the Common Shares at the date of the grant of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the Company become available again for issuance under the Plan, subject to applicable securities regulation. The Plan may be terminated or amended at any time by the Board of Directors, except that the number of Common Shares reserved for issuance upon the exercise of options granted under the Plan may not be increased without the consent of the shareholders of the Company. F-17 IT STAFFING LTD. SCHEDULES OF EXPENSES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ------------------------ ------------------------ SEPTEMBER SEPTEMBER DECEMBER DECEMBER 30, 30, 31, 31, 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) SELLING Commissions................................ 1,855,764 690,844 954,915 190,551 Advertising and promotion.................. 198,762 89,187 144,455 67,589 Automobile and travel...................... 50,297 15,533 23,681 15,549 ----------- ----------- ----------- ----------- 2,104,823 795,564 1,123,051 273,689 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ADMINISTRATIVE Office and salaries and benefits........... 229,969 79,966 96,132 56,288 Rent....................................... 156,204 51,048 66,261 33,599 Management salaries and fees............... 291,698 0 -- -- Telephone.................................. 74,966 24,703 40,011 16,034 Office and general......................... 80,041 36,129 60,898 35,001 Taxes and licenses......................... 4,577 10,912 15,066 5,326 Insurance.................................. 8,715 5,697 8,751 6,897 Repairs and maintenance.................... 8,132 1,183 3,486 762 Equipment rental........................... 55,504 34,011 50,796 22,932 Amortization of goodwill................... 33,579 12,023 15,258 -- Amortization............................... 24,356 8,228 16,968 5,037 ----------- ----------- ----------- ----------- 967,741 263,900 373,627 181,876 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- FINANCIAL Bad debts.................................. -- -- 36,117 -- Interest and bank charges.................. 85,657 25,428 42,153 8,762 Professional fees.......................... 43,045 16,697 47,324 4,971 ----------- ----------- ----------- ----------- 128,702 42,125 125,594 13,733 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
F-18 INTERNATIONAL CAREER SPECIALISTS LTD. FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (AMOUNTS EXPRESSED IN US DOLLARS) F-19 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of International Career Specialists Ltd. We have audited the accompanying balance sheets of International Career Specialists Ltd. (incorporated in Canada) as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flow for the years ended December 31, 1997 and 1996. 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 International Career Specialists Ltd. as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles in the United States of America. Schwartz Levitsky Feldman Chartered Accountants
Toronto, Ontario July 27, 1998 F-20 INTERNATIONAL CAREER SPECIALISTS LTD. BALANCE SHEETS AS AT DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1A) (NOTE 1A) ASSETS CURRENT ASSETS Cash...................................................... 134,096 159,250 161,839 76,220 Accounts receivable....................................... 413,504 249,826 426,121 174,243 Short-term investments (note 2)........................... 0 60,983 47,135 32,773 Loan receivable--parent company........................... 45,716 0 -- -- Due from shareholder...................................... 0 0 -- 43,702 ------------- ------------- ------------ ------------ 593,316 470,059 635,095 326,938 CAPITAL ASSETS (note 3)..................................... 32,997 29,088 151,844 34,132 INVESTMENT IN RELATED COMPANY............................... 0 59,411 61,167 -- ------------- ------------- ------------ ------------ 626,313 558,558 848,106 361,070 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ LIABILITIES CURRENT LIABILITIES Accounts payable.......................................... 454,440 305,708 505,446 235,093 Accrued wages............................................. 0 157,296 209,018 65,665 Income taxes payable...................................... 104,766 7,761 3,845 (1,016) Advances from shareholder................................. 0 0 34,228 -- ------------- ------------- ------------ ------------ 559,206 470,765 752,537 299,742 ------------- ------------- ------------ ------------ STOCKHOLDERS' EQUITY CAPITAL STOCK (note 4)...................................... 1 1 1 1 CUMULATIVE TRANSLATION ADJUSTMENT........................... (9,817) (850) (4,093) (298) RETAINED EARNINGS........................................... 76,923 88,642 99,661 61,625 ------------- ------------- ------------ ------------ 67,107 87,793 95,569 61,328 ------------- ------------- ------------ ------------ 626,313 558,558 848,106 361,070 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. F-21 INTERNATIONAL CAREER SPECIALISTS LTD. STATEMENTS OF INCOME FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1A) (NOTE 1A) REVENUE Contract sales.................................... 2,418,973 1,533,992 2,275,859 999,680 Permanent sales................................... 1,053,710 985,522 1,382,934 716,134 ------------- ------------- ------------ ------------ 3,472,683 2,519,514 3,658,793 1,715,814 Contractor fees................................... 1,661,952 1,179,639 1,736,037 786,245 ------------- ------------- ------------ ------------ GROSS PROFIT.......................................... 1,810,731 1,339,875 1,922,756 929,569 Other income...................................... 6,919 3,571 2,665 11,332 ------------- ------------- ------------ ------------ 1,817,650 1,343,446 1,925,421 940,901 ------------- ------------- ------------ ------------ EXPENSES Administrative.................................... 430,695 396,857 503,627 234,440 Selling........................................... 928,351 903,289 1,356,978 689,834 Financial......................................... 2,610 8,522 15,946 2,204 ------------- ------------- ------------ ------------ 1,361,656 1,308,668 1,876,551 926,478 ------------- ------------- ------------ ------------ INCOME BEFORE INCOME TAXES............................ 455,994 34,778 48,870 14,423 Income taxes (note 5)............................. 167,282 7,761 10,834 6,679 ------------- ------------- ------------ ------------ NET INCOME............................................ 288,712 27,017 38,036 7,744 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. F-22 INTERNATIONAL CAREER SPECIALISTS LTD. STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS EXPRESSED IN US DOLLARS)
COMMON STOCK CUMULATIVE NUMBER OF RETAINED TRANSLATION SHARES AMOUNTS EARNINGS ADJUSTMENTS ---------- ---------- ---------- ------------- $ $ $ Balance as of December 31, 1995................................ 2 1 53,881 -- Foreign currency translation................................... -- -- -- (298) Net income for the year........................................ -- -- 7,744 -- ---------- ---------- ---------- ------ Balance as of December 31, 1996................................ 2 1 61,625 (298) Foreign currency translation................................... -- -- -- (552) Net income for the period...................................... -- -- 27,017 -- ---------- ---------- ---------- ------ Balance as of September 30, 1997............................... 2 1 88,642 (850) Foreign currency translation................................... -- -- -- (3,243) Net income for the period...................................... -- -- 11,019 -- ---------- ---------- ---------- ------ Balance as of December 31, 1997................................ 2 1 99,661 (4,093) Foreign currency translation................................... -- -- -- (5,724) Distribution of assets--dividends paid (note 6)................ -- -- (311,450) -- Net income for the period...................................... -- -- 288,712 -- ---------- ---------- ---------- ------ Balance as of September 30, 1998............................... 2 1 76,923 (9,817) ---------- ---------- ---------- ------ ---------- ---------- ---------- ------
The accompanying notes are an integral part of these financial statements. F-23 INTERNATIONAL CAREER SPECIALISTS LTD. STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1A) (NOTE 1A) Cash flows from operating activities: Net income.......................................... 288,712 27,017 38,036 7,744 ------------- ------------- ------------ ------------ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization...................................... 3,155 10,672 15,933 8,264 Decrease (increase) in accounts receivable........ (16,116) (77,165) (267,804) (106,202) Decrease (increase) in short-term investments..... 46,060 (28,554) (16,258) 2,553 Increase (decrease) in accounts payable........... (19,042) 72,643 289,526 193,767 Increase (decrease) in accrued wages.............. (204,249) 92,444 150,968 66,002 Increase (decrease) in income taxes payable....... 105,827 8,799 4,979 (936) ------------- ------------- ------------ ------------ Total adjustments................................... (84,365) 78,839 177,344 163,448 ------------- ------------- ------------ ------------ Net cash generated by operating activities.......... 204,347 105,856 215,380 171,192 ------------- ------------- ------------ ------------ Cash flows from investing activities: Purchases of capital assets....................... -- (5,871) (139,041) (25,590) Disposal of capital assets........................ 110,710 -- -- -- ------------- ------------- ------------ ------------ Net cash used in investing activities............. 110,710 (5,871) (139,041) (25,590) ------------- ------------- ------------ ------------ Cash flows from financing activities: Decrease (increase) in investment in related company......................................... 59,772 (59,610) (63,204) -- Decrease (increase) in advances to shareholder.... -- 43,515 35,358 -- Decrease (increase) in loan to parent company..... (47,817) -- -- -- Increase (decrease) in advances from shareholder...... (33,447) -- 43,266 (36,805) Payment of dividends................................ (311,450) -- -- -- ------------- ------------- ------------ ------------ (332,942) (16,095) 15,420 (36,805) ------------- ------------- ------------ ------------ Effect of foreign currency exchange rate changes...... (9,858) (860) (6,140) (391) ------------- ------------- ------------ ------------ Net increase (decrease) in cash....................... (27,743) 83,030 85,619 108,406 Cash -- Beginning of year................................ 161,839 76,220 76,220 (32,186) ------------- ------------- ------------ ------------ -- End of year...................................... 134,096 159,250 161,839 76,220 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ Interest paid......................................... -- -- -- -- ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ Income taxes paid..................................... 38,545 3,503 5,856 7,615 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. F-24 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The financial statements for the nine-months ended September 30, 1998 and 1997 are unaudited. The interim results are not necessarily indicative of the results for any future period. In the opinion of management, the data in the financial statements reflects all adjustments necessary for a fair presentation of the results of the interim periods disclosed. All adjustments are of a normal and recurring nature. b) Business Operations International Career Specialists is an information technology staffing company specializing in placing high technology personnel on both a contract and permanent basis. c) Cash Cash includes cash on hand, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. d) Other Financial Instruments The carrying amount of the company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. e) Short-term Investments The Company's marketable securities are in equity investments. Short-term investments are carried at fair market value. f) Revenue Recognition Revenue from contract placements is recognized as services are performed. Revenue from permanent placements are recognized upon commencement of employment. g) Capital Assets Capital assets are recorded at cost and are amortized at the undernoted rates and methods: Declining Vehicles 20% balance Declining Office equipment 20% balance Declining Computer 30% balance Leasehold improvements 5 years Straight-line Declining Building--U.S. office 5% balance Office equipment--U.S. Declining office 20% balance
Amortization of assets acquired during the year is recorded at one-half of the normal rates. F-25 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h) Foreign Currency Translation The translation of the financial statements from Canadian dollars ("CDN$") into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are including in the cumulative translation adjustments in stockholders's equity. i) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at 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. 2. SHORT-TERM INVESTMENTS Short-term investments consist of:
NINE MONTHS ENDED YEARS ENDED ---------------------------- ---------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------- ------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1A) (NOTE 1A) Marketable securities............. -- 60,983 47,135 32,773 ------ ------ ------ ------ ------ ------ ------ ------
All marketable securities are in equity investments and have been adjusted to reflect their market value. The securities were disposed of during 1998. Gains are recorded in other income. 3. CAPITAL ASSETS
DECEMBER 31, DECEMBER 31, 1997 1996 -------------------------------------------------- ACCUMULATED ------------------------ COST AMORTIZATION NET NET --------- ------------- --------- ------------- $ $ $ $ Land--US................................... 24,467 -- 24,467 -- Building--US............................... 85,984 2,150 83,834 -- Office equipment--US....................... 5,276 514 4,762 -- Vehicles................................... 18,577 7,597 10,980 16,372 Office equipment........................... 39,482 16,229 23,253 8,905 Computer................................... 14,038 9,490 4,548 5,080 Leasehold improvements..................... 5,692 5,692 -- 3,775 --------- ------ --------- ------ 193,516 41,672 151,844 34,132 --------- ------ --------- ------ --------- ------ --------- ------
F-26 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 3. CAPITAL ASSETS (CONTINUED) Amortization for the year ended December 31, 1997 amounted to $15,933 ($8,264 as of December 31, 1996).
SEPTEMBER 30, 1998 SEPTEMBER 30, (UNAUDITED) 1997 (NOTE 1A) (UNAUDITED) ----------------------------------- (NOTE 1A) ACCUMULATED ------------- COST AMORTIZATION NET NET --------- ------------- --------- ------------- $ $ $ $ Vehicles..................................... -- -- -- 12,148 Office equipment............................. 43,992 19,907 24,085 11,719 Computer..................................... 17,439 8,527 8,912 3,937 Leasehold improvements....................... -- -- -- 1,284 --------- ------ --------- ------ 61,431 28,434 32,997 29,088 --------- ------ --------- ------ --------- ------ --------- ------
Amortization for the nine months ended September 30, 1998 amounted to $3,155 ($10,672 for the nine months ended September 30, 1997). 4. CAPITAL STOCK Authorized 10,000 Preferred shares, 10% non-cumulative, non-participating, non-voting, redeemable at par value of $7.30 each ($10 Canadian) 25,000 Common shares, no par value
NINE MONTHS ENDED YEARS ENDED ------------------------------------ ------------------------------------ SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------------- ----------------- ----------------- ----------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1A) (NOTE 1A) ----------------- ----------------- Issued 2 Common shares.......... 1 1 1 1 - - - - - - - -
F-27 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997, DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 5. INCOME TAXES
NINE MONTHS ENDED YEARS ENDED -------------------- ------------------------ SEPT. SEPT. DECEMBER DECEMBER 1998 1997 1997 1996 --------- --------- ----------- ----------- Income Taxes (Recovery) consist of: Amount calculated at Federal and Provincial Statutory rates.......................................... 173,278 13,216 18,571 5,769 Increase (decrease) resulting from: Permanent Differences............................................... 448 554 735 784 Timing Differences.................................................. (458) (440) (583) -- Other Differences................................................... (5,986) (5,569) (7,888) 125 --------- --------- ----------- ----- (5,995) (5,454) (7,736) 909 --------- --------- ----------- ----- Current Income Taxes (Recovery)....................................... 167,282 7,761 10,834 6,679 --------- --------- ----------- ----- --------- --------- ----------- -----
6. DISTRIBUTION OF ASSETS--DIVIDENDS PAID On January 1, 1998, the Company paid a dividend in kind to its shareholder distributing assets as follows: Short-term investments (at market value).......................... $ 53,464 Investment in 1242541 Ontario Inc................................. 68,194 Land--Building U.S................................................ 109,834 Vehicle........................................................... 10,443 Cash.............................................................. 69,515 --------- $ 311,450 --------- ---------
7. LEASE COMMITMENTS Minimum payments under an operating lease for premises, inclusive of all operating costs, hydro, basic insurance, utilities and property taxes for which the company is responsible, for the fiscal year end, is as follows until expiry: 1998............................................................... $ 40,878 1999............................................................... 40,878 2000............................................................... 40,878 2001............................................................... 17,032
F-28 INTERNATIONAL CAREER SPECIALISTS LTD. SCHEDULES OF EXPENSES FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ------------------------------ -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 -------------- -------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1A) (NOTE 1A) ADMINISTRATIVE Management salaries and fees................... 291,698 296,385 366,225 139,338 Office salaries and benefits................... 70,143 35,109 47,055 33,574 Rent........................................... 34,000 32,048 43,688 35,066 Telephone...................................... 15,819 10,640 14,486 11,118 Office and general............................. 13,610 12,003 16,240 7,080 Repairs and maintenance........................ 2,270 -- -- -- Amortization................................... 3,155 10,672 15,933 8,264 ------- ------- ------------ ------------ 430,695 396,857 503,627 234,440 ------- ------- ------------ ------------ ------- ------- ------------ ------------ SELLING Commission..................................... 910,740 880,100 1,323,007 659,090 Advertising and promotion...................... 11,699 15,404 22,235 17,650 Automobile and travel.......................... 5,912 7,785 11,736 13,094 ------- ------- ------------ ------------ 928,351 903,289 1,356,978 689,834 ------- ------- ------------ ------------ ------- ------- ------------ ------------ FINANCIAL Professional fees.............................. 2,001 8,265 15,596 1,868 Interest and bank charges...................... 609 257 350 336 ------- ------- ------------ ------------ 2,610 8,522 15,946 2,204 ------- ------- ------------ ------------ ------- ------- ------------ ------------
F-29 SYSTEMSEARCH CONSULTING SERVICES INC. FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (AMOUNTS EXPRESSED IN US DOLLARS) F-30 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Systemsearch Consulting Services Inc. We have audited the accompanying balance sheets of Systemsearch Consulting Services Inc. (incorporated in Canada) as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flows for the years ended December 31, 1997 and 1996. 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 Systemsearch Consulting Services Ltd. as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles in the United States of America. Schwartz Levitsky Feldman Chartered Accountants
Toronto, Ontario July 27, 1998 F-31 SYSTEMSEARCH CONSULTING SERVICES INC. BALANCE SHEETS AS AT DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
SEPTEMBER SEPTEMBER DECEMBER DECEMBER 30, 30, 31, 31, 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) ASSETS CURRENT ASSETS Bank..................................... 13,259 2,935 7,948 4,050 Accounts receivable...................... 370,946 233,121 271,985 144,615 Income taxes recoverable................. -- -- 19,000 Due from parent company (note 3)......... 65,308 -- ----------- ----------- ----------- ----------- 449,513 236,056 279,933 167,665 CAPITAL ASSETS (note 4).................... 11,711 12,223 11,176 9,339 ----------- ----------- ----------- ----------- 461,224 248,279 291,109 177,004 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES CURRENT LIABILITIES Bank indebtedness........................ -- 13,343 12,183 5,905 Accounts payable......................... 154,783 165,845 176,438 158,700 Income taxes payable..................... 113,059 14,313 20,168 -- Due to shareholder (note 5).............. -- -- 20,972 -- ----------- ----------- ----------- ----------- 267,842 193,501 229,761 164,605 DUE TO SHAREHOLDER (note 5)................ -- 21,722 -- 57,489 ----------- ----------- ----------- ----------- 267,842 215,223 229,761 222,094 ----------- ----------- ----------- ----------- SHAREHOLDER'S EQUITY CAPITAL STOCK (note 6)..................... 36 36 36 36 CUMULATIVE TRANSLATION ADJUSTMENT.......... (11,863) 315 (1,074) 329 RETAINED EARNINGS.......................... 205,209 32,705 62,386 (45,455) ----------- ----------- ----------- ----------- 193,382 33,056 61,348 (45,090) ----------- ----------- ----------- ----------- 461,224 248,279 291,109 177,004 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. F-32 SYSTEMSEARCH CONSULTING SERVICES INC. STATEMENTS OF INCOME FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ------------------------ ------------------------ SEPTEMBER SEPTEMBER DECEMBER DECEMBER 30, 30, 31, 31, 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) REVENUE Contract sales........................... 1,504,978 1,192,167 1,703,097 1,009,238 Permanent sales.......................... 429,024 209,114 248,961 198,550 ----------- ----------- ----------- ----------- 1,934,002 1,401,281 1,952,058 1,207,788 Contractor fees.......................... 1,230,896 890,138 1,289,229 838,855 ----------- ----------- ----------- ----------- GROSS PROFIT............................... 703,106 511,143 662,829 368,933 Other income............................. 3,533 0 -- -- ----------- ----------- ----------- ----------- 706,639 511,143 662,829 368,933 ----------- ----------- ----------- ----------- EXPENSES Administrative........................... 128,641 66,518 89,031 81,617 Selling.................................. 329,817 315,965 406,718 341,495 Financial................................ 6,809 17,331 19,400 9,619 ----------- ----------- ----------- ----------- 465,267 399,814 515,149 432,731 ----------- ----------- ----------- ----------- EARNINGS BEFORE INCOME TAXES............... 241,372 111,329 147,680 (63,798) Income taxes (note 7).................... 98,549 33,169 39,839 (19,000) ----------- ----------- ----------- ----------- NET INCOME................................. 142,823 78,160 107,841 (44,798) ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. F-33 SYSTEMSEARCH CONSULTING SERVICES INC. STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS EXPRESSED IN US DOLLARS)
COMMON STOCK RETAINED CUMULATIVE NUMBER OF EARNINGS TRANSLATION SHARES AMOUNTS (DEFICIT) ADJUSTMENTS ------------- ----------- --------- ----------- $ $ $ Balance as of December 31, 1995................................... 65 36 (657) -- Foreign currency translation...................................... -- -- -- 329 Net loss for the year............................................. -- -- (44,798) -- ----- ----- --------- ----------- Balance as of December 31, 1996................................... 65 36 (45,455) 329 Foreign currency translation...................................... -- -- -- (14) Net income for the year........................................... -- -- 78,160 -- ----- ----- --------- ----------- Balance as of September 30, 1997.................................. 65 36 32,705 315 Foreign currency translation...................................... -- -- -- (1,389) Net income for the year........................................... -- -- 29,681 -- ----- ----- --------- ----------- Balance as of December 31, 1997................................... 65 36 62,386 (1,074) Foreign currency translation...................................... -- -- -- (10,789) Net income for the year........................................... -- -- 142,823 -- ----- ----- --------- ----------- Balance as of September 30, 1998.................................. 65 36 205,209 (11,863) ----- ----- --------- ----------- ----- ----- --------- -----------
The accompanying notes are an integral part of these financial statements. F-34 SYSTEMSEARCH CONSULTING SERVICES INC. STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ------------- ------------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Cash flows from operating activities: Net income.......................................... 142,823 78,160 107,841 (44,798) ------------- ------------- ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Amortization........................................ 2,162 1,947 2,582 2,347 Decrease (increase) in accounts receivable.......... (122,220) (89,904) (137,868) 48,795 Increase (decrease) in accounts payable............. (10,744) 8,379 25,196 (50,617) Increase (decrease) in income taxes payable......... 98,276 33,181 39,839 (19,000) ------------- ------------- ------------ ------------ Total adjustments..................................... (32,526) (46,397) (70,251) (18,475) ------------- ------------- ------------ ------------ Net cash generated by operating activities.......... 110,297 31,763 37,590 (63,273) ------------- ------------- ------------ ------------ Cash flows from investing activities: Purchases of capital assets......................... (3,491) 1,947 (4,884) -- ------------- ------------- ------------ ------------ Cash flows from financing activities Decrease (increase) in laon to parent company....... (68,311) Increase (decrease) in advance from shareholder..... (20,493) (35,448) (35,246) 22,000 Increase (decrease) in bank indebtedness............ (11,902) 7,508 6,278 5,905 ------------- ------------- ------------ ------------ (100,706) (27,940) (28,968) 27,905 ------------- ------------- ------------ ------------ Effect of foreign currency exchange rate on changes... (789) (6,885) 160 9 ------------- ------------- ------------ ------------ Net increase (decrease) in cash....................... 5,311 (1,115) 3,898 (35,359) Cash --Beginning of year................................. 7,948 4,050 4,050 39,409 ------------- ------------- ------------ ------------ --End of year....................................... 13,259 2,935 7,948 4,050 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ --Interest paid..................................... 2,477 2,941 3,936 8,548 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ --Income taxes paid................................. -- -- -- -- ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. F-35 SYSTEMSEARCH CONSULTING SERVICES INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The financial statements for the nine months ended September 30, 1998 and 1997 are unaudited. The interim results are not necessarily indicative of the results for any future period. In the opinion of management, the data in the financial statements reflects all adjustments necessary for a fair presentation of the results of the interim periods disclosed. All adjustments are of normal and recurring nature. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Business Systemsearch Consulting Services Inc. is an information technology staffing company, specializes in placing information technology personnel on both a contract and permanent basis. b) Cash Cash includes cash on hand, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. c) Other Financial Instruments The carrying amount of the Company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. d) Long-term Financial Instruments The fair value of each of the Company's long-term financial assets and debt instruments is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the Company's current borrowing rate for similar instruments of comparable maturity would be. e) Capital Assets Property and equipment are recorded at cost and are amortized on the declining balance basis over their estimated useful lives. f) Revenue Recognition Revenue from contract placements is recognized as services are performed. Revenue from permanent placements are recognized upon commencement of employment. g) Foreign Currency Translation The translation of the financial statements from Canadian dollars ("CDN $") into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No F-36 SYSTEMSEARCH CONSULTING SERVICES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are included in the cumulative translation adjustments in stockholders' equity. h) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at 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. 3. DUE FROM PARENT COMPANY This loan is unsecured, non-interest bearing and has no specific terms of repayment. 4. CAPITAL ASSETS
DECEMBER 31, DECEMBER 31, 1997 1996 --------------------------------- ------------- ACCUMULATED COST AMORTIZATION NET NET --------- ----------- --------- ------------- $ $ $ $ Furniture and fixtures............................... 22,203 11,027 11,176 9,339 --------- ----------- --------- ----- --------- ----------- --------- ----- Amortization for the year ended December 31, 1997 amounted to $2,582 ($2,347 as of December 31, 1996).
SEPTEMBER 30, 1997 (UNAUDITED) SEPTEMBER 30, (NOTE 1) 1996 ------------------------------------- (UNAUDITED) ACCUMULATED (NOTE 1) AMORTIZATION ----------------- COST NET NET NET ----------- ----------- ----------- ----------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1) Furniture and fixtures.................... 24,080 12,369 11,711 12,223 ----------- ----------- ----------- ------ ----------- ----------- ----------- ------
Amortization for the period ended September 30, 1998 amounted to $2,162 ($1,947 for the period ended September 30, 1997). 5. DUE TO SHAREHOLDER The shareholder loan is unsecured, non-interest bearing and has no specific terms of repayment. F-37 SYSTEMSEARCH CONSULTING SERVICES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998, SEPTEMBER 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 6. CAPITAL STOCK Authorized An unlimited number of Common Shares, no par value Issued
NINE MONTHS ENDED YEARS ENDED ---------------------------- ---------------------------- SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31 1998 1997 1997 1996 ------------- ------------- ------------- ------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) 65 Common shares....................... 36 36 36 36 ----- ----- ----- ----- ----- ----- ----- -----
7. INCOME TAXES
NINE MONTHS ENDED YEARS ENDED ------------------------ ------------------------ SEPTEMBER SEPTEMBER DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ----------- ----------- Income Taxes (Recovery) consist of: Amount calculated at Federal and Provincial Statutory rates............................... 98,359 46,758 56,119 (19,139) Increase (decrease) resulting from: Permanent Differences......................... 299 129 134 319 Timing Differences............................ (110) (57) (68) (180) Other Differences............................. -- (13,662) (16,346) -- ----------- ----------- ----------- ----------- 189 (13,589) (16,279) 139 ----------- ----------- ----------- ----------- Current Income Taxes (Recovery)................. 98,549 33,169 39,839 (19,000) ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8. LEASE COMMITMENTS Minimum lease payments under an operating lease for the premises, exclusive of all operating costs, hydro, basic insurance, utilities and property taxes for which the company is responsible, is as follows for the fiscal year end:
1998............................................................................... $ 21,695 1999............................................................................... 23,380 2000............................................................................... 23,380 2001............................................................................... 23,380 2002............................................................................... 23,380
F-38 SYSTEMSEARCH CONSULTING SERVICES INC. SCHEDULES OF EXPENSES FOR THE PERIODS ENDED DECEMBER 31 AND SEPTEMBER 30 (AMOUNTS EXPRESSED IN US DOLLARS)
NINE MONTHS ENDED YEARS ENDED ---------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) ADMINISTRATIVE Office salaries and benefits........................ 61,098 -- -- -- Rent................................................ 29,222 22,878 28,848 26,732 Office and general.................................. 13,610 23,992 35,649 32,627 Telephone........................................... 9,872 8,248 10,473 10,532 Taxes and licences.................................. 4,236 4,857 5,948 2,916 Insurance........................................... 1,808 1,869 1,858 2,287 Equipment rental.................................... 1,814 1,772 2,158 4,176 Repairs and maintenance............................. 4,819 955 1,515 -- Management salaries and fees........................ -- -- -- -- Amortization........................................ 2,162 1,947 2,582 2,347 ------------- ------------- ------------ ------------ 128,641 66,518 89,031 81,617 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ SELLING Commission.......................................... 316,979 312,113 402,059 332,529 Automobile and travel............................... 12,838 3,852 4,659 8,966 ------------- ------------- ------------ ------------ 329,817 315,965 406,718 341,495 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------ FINANCIAL Interest and bank charges........................... 2,477 2,941 3,936 8,548 Professional fees................................... 4,332 14,390 15,464 1,071 ------------- ------------- ------------ ------------ 6,809 17,331 19,400 9,619 ------------- ------------- ------------ ------------ ------------- ------------- ------------ ------------
F-39 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. -------------------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. 4 Risk Factors................................... 8 Use of Proceeds................................ 18 Dividend Policy................................ 19 Dilution....................................... 20 Capitalization................................. 21 Selected Financial Data........................ 22 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 23 Business....................................... 29 Management..................................... 42 Principal Shareholders......................... 47 Certain Transactions........................... 48 Shares Eligible for Future Sale................ 49 Description of Securities...................... 51 Certain United States and Canadian Federal Income Tax Considerations.................... 52 Investment Canada Act.......................... 54 Underwriting................................... 55 Legal Matters.................................. 57 Experts........................................ 57 Additional Information......................... 57 Index to Financial Statements.................. F-1
------------------------ UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IT STAFFING LTD. 1,000,000 COMMON SHARES ------------------------ PROSPECTUS ------------------------ STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Bylaws of the Company provide that the Company shall indemnify directors and officers of the Company. The pertinent section of Canadian law is set forth below in full. In addition, upon effectiveness of this registration statement, management intends to obtain officers' and directors' liability insurance. See the second and third paragraphs of Item 28 below for information regarding the position of the Securities and Exchange Commission (the "Commission") with respect to the effect of any indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). Section 136 of the Business Corporations Act (Ontario) provides as follows: (1) INDEMNIFICATION OF DIRECTORS. A corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or a person who acts or acted at the corporation's request as a director or officer of a body corporate of which the corporation is or was a shareholder or creditor, and his or her heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal or administrative action or proceeding to which he or she is a party by reason of being or having been a director or officer of such corporation or body corporate, if, (a) he or she acted honestly and in good faith with a view to the best interests of the corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. (2) IDEM. A corporation may, with the approval of the court, indemnify a person referred to in subsection (1) in respect of an action by or behalf of the corporation or body corporate to procure a judgment in its favour, to which the person is made a party by reason of being or having been a director or an officer of the corporation or body corporate, against all costs, charges and expenses reasonably incurred by the person in connection with such action if he or she fulfils the conditions set out in clauses (1)(a) and (b). (3) IDEM. Despite anything in this section, a person referred to in subsection (1) is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the corporation or body corporate, if the person seeking indemnity; (a) was substantially successful on the merits in his or her defense of the action or proceeding; and (b) fulfills the conditions set out in clauses (1)(a) and (b). (4) LIABILITY INSURANCE. A corporation may purchase and maintain insurance for the benefit of any person referred to in subsection (1) against any liability incurred by the person, (a) in his or her capacity as a director or officer of the corporation, except where the liability relates to the person's failure to act honestly and in good faith with a view to the best interests of the corporation; or II-1 (b) in his or her capacity as a director or officer of another body corporate where the person acts or acted in that capacity at the corporation's request, except where the liability relates to the person's failure to act honestly and in good faith with a view to the best interests of the body corporate. (5) APPLICATION TO COURT. A corporation or a person referred to in subsection (1) may apply to the court for an order approving an indemnity under this section and the court may so order and make any further order it thinks fit. (6) INDEM. Upon application under subsection (5), the court may order notice to be given to any interested person and such person is entitled to appear and be heard in person or by counsel. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is a statement of the estimated expenses to be paid by the Company in connection with the issuance and distribution of the securities being registered: SEC Registration Fee........................................................... $ 1,808.15 NASD Filing Fee................................................................ 1,325.00 Nasdaq Listing Fees*........................................................... 15,000.00 Printing Engraving Expenses*................................................... 75,000.00 Legal Fees and Expenses*....................................................... 150,000.00 Accounting Fees and Expenses*.................................................. 70,000.00 Blue Sky Fees and Expenses*.................................................... 35,000.00 Transfer Agent and Registrar Fees and Expenses................................. 3,500.00 Miscellaneous*................................................................. 8,366.85 Total.......................................................................... $360,000.00
- ------------------------ * estimate ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In October 1997, in consideration for business consulting services, including identifying, structuring and effecting the acquisitions of Systems and ICS, the Company issued 113,459 Common Shares to Globe Capital Corporation, which is controlled by Lloyd Maclean, the Company's Chief Financial Officer and a Director. The shares were valued at CDN$50,000. In January 1997, in connection with the acquisition of Systems, the Company issued 174,551 Common Shares to John R. Wilson. The shares were valued at $291,843. 43,637 of these shares were redeemed in April 1998 for $69,940. II-2 In February through March of 1998, the Company sold 196,372 Common Shares to 12 individuals at a purchase price of approximately $2.15 per share for aggregate consideration of $423,639. The twelve individuals included employees and directors of the Company were:
PURCHASE PRICE IN SHAREHOLDER SHARES CANADIAN DOLLARS AFFILIATION(1) - ----------------------------------------------- --------- -------------------------------- -------------------- Patrick French................................. 19,637 60,000 (2) James French................................... 6,546 20,000 (2) Paul Dodd...................................... 19,637 60,000 Employee Deidre Taylor.................................. 9,819 30,000 (3) Blair Taylor................................... 9,819 30,000 Director Nominee John Richardson................................ 9,819 30,000 Dennis Marsh................................... 19,637 60,000 Owen McCreery.................................. 39,274 120,000 Maureen Neglia................................. 9,819 30,000 Employee Michael Helferman.............................. 19,637 60,000 Gail Dunne..................................... 13,091 40,000 (4) Jim Reddy...................................... 19,637 60,000 Director Nominee
- ------------------------ (1) Unless otherwise indicated, the investors had no affiliation with the Company. (2) Mr. Patrick French and Mr. James French are the brothers of Declan French, the Company's Chairman and Chief Executive Officer. (3) Ms. Taylor is the spouse of Blair Taylor, a director nominee. (4) Ms. Dunne is the spouse of John Dunne, a director nominee. In May and June of 1998, the Company sold 85,582 Common Shares to seven individuals at a purchase price of approximately $2.53 per share for aggregate consideration of $216,814. The seven individuals were:
PURCHASE PRICE IN SHAREHOLDER SHARES CANADIAN DOLLARS AFFILIATION(1) - ----------------------------------------------- --------- -------------------------------- -------------------- Dennis Marsh................................... 15,704 60,000 Owen McCreery.................................. 31,914 120,000 Donna Hankinson................................ 2,618 10,000 Kelly Hankinson................................ 1,309 5,000 Employee William Neill.................................. 19,637 60,000 Director Nominee Paul Dodd...................................... 6,546 25,000 Employee Maureen Neglia................................. 7,854 30,000 Employee
- ------------------------ (1) Unless otherwise indicated, the investors had no affiliation with the Company. In January 1998, in connection with the Acquisition of ICS, the Company issued 130,914 shares of Common Stock to John A. Irwin. The shares were valued at $349,528. All of such issuances were made in Canada to Canadian residents in conformity with the relevant local securities laws and the Company believes would have been exempt from registration in the United States pursuant to the exemption provided by Section 4(2) of the Securities Act. In May 1998, the Company granted an option to purchase 200,000 Common Shares at an exercise price of $2.10 per share to Robert M. Rubin. The options are exercisable out of proceeds of Mr. Rubin's consulting agreement which provides for an $80,000 per year cash compensation. II-3 ITEM 27. EXHIBITS ***1.1 Form of Underwriting Agreement ***3.1 Bylaws of Registrant ***3.2 Articles of Incorporation dated February 11, 1994 ***3.3 Articles of Amendment dated February 15, 1996 ***3.4 Articles of Amendment dated April 15, 1998 ***3.5 Articles of Amendment dated August 6, 1998 **3.6 Articles of Amendment dated January 19, 1999 *4.2 Form of Underwriters' Warrant **4.3 Specimen Common Share Certificate *5.1 Opinion of McMillan Binch *10.1 Form of Financial Consulting Agreement ***10.2 1998 Stock Option Plan ***10.3(a) Lease of the Company's headquarters in Toronto, Ontario ***10.3(b) Lease of the Company's office in New York, New York ***10.3(c) Lease of the Company's office in Etobicoke, Ontario ***10.3(d) Lease of the Company's office in Scarborough, Ontario ***10.3(e) Amendment to the lease of the Company's office in Scarborough, Ontario ***10.4 Employment Agreement between the Company and Declan French dated August 1998 ***10.5 Employment Agreement between the Company and John A. Irwin dated May 19, 1998 ***10.6 Employment Agreement between the Company and John R. Wilson dated February 8, 1998 ***10.7 Employment Agreement between the Company and John J. Silver dated August 10, 1998 ***10.8 Form of consulting agreement for the Company's independent contractors ***10.9 Form of services agreement for the Company's customers ***10.10 Agreement for the Acquisition of the Capital Stock of International Career Specialists Ltd. ***10.11 Agreement for the acquisition of the Capital Stock of Systemsearch Consulting Services, Inc. and Systems, PS, Inc. ***10.12 License Agreement between the Company and International Office Centers Corp. dated August 1, 1998 ***10.13 Joint Venture Agreement between the Company and Great Lakes Research and Development, Ltd. dated October 30, 1998 ***10.14 Consulting Agreement between the Company and Robert M. Rubin ***10.15 Form of Employment Agreement with Confidentiality Provision *10.16 Asset Purchase Agreement between IT Staffing Ltd. and Southport Consulting Company *10.17 Consulting Agreement between IT Staffing Ltd. and Michael Carrazza *23.1 Consent of Schwartz Levitsky Feldman, independent auditors of IT Staffing LTD. *23.2 Consent of Schwartz Levitsky Feldman, independent auditors of Informational Career Specialists Ltd. *23.3 Consent of Schwartz Levitsky Feldman, independent auditors of System Search Consulting Services, Inc. *23.4 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP *23.5 Consent of McMillan Binch ***23.6 Consents to act as Directors
- ------------------------ * Filed herewith. ** To be filed by amendment. *** Previously filed. II-4 ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to any charter provision, by-law, contract arrangements, statute, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned small business issuer hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i)To include any Prospectus required by section 10(a)(3) of the Securities Act; (ii)To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the Offering. (4) For determining any liability under the Securities Act, treat the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h), under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (5) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of Prospectus as a new registration statement at that time as the initial bona fide offering of those securities. (6) The Company will provide to the Underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-5 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirement for filing on Form SB-2 and has duly caused this Pre-Effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Province of Ontario, Canada on January 18, 1999. IT STAFFING LTD. By: /s/ DECLAN FRENCH ----------------------------------------- Declan French PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this Pre-Effective Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- Chairman, President and /s/ DECLAN FRENCH Chief Executive Officer - ------------------------------ (Principal Executive January 18, 1999 Declan French Officer) /s/ LLOYD MACLEAN Chief Financial Officer and - ------------------------------ Director (Principal January 18, 1999 Lloyd Maclean Accounting Officer) II-6 EX-1.1 2 EXHIBIT 1.1 Exhibit 1.1 1,000,000 Common Shares IT STAFFING LTD. UNDERWRITING AGREEMENT _________, 1998 Strasbourger Pearson Tulcin Wolff Incorporated As Representative of the several Underwriters named in Schedule I attached hereto c/o Strasbourger Pearson Tulcin Wolff Incorporated 61 Broadway New York, New York 10006 Gentlemen: The undersigned, IT Staffing Ltd., a Ontario corporation (the "Company"), hereby confirms its agreement with Strasbourger Pearson Tulcin Wolff Incorporated (individually, "Strasbourger," and, as representative (the "Representative") of the several underwriters named in Schedule I hereto (the "Underwriters")), and the Underwriters as follows: 1. Introduction. (a) The Company proposes to issue and sell to the Underwriters an aggregate of 1,000,000 common shares, no par value, of the Company (the "Common Shares"). Such Common Shares are hereinafter referred to as the "Firm Stock". (b) Solely for the purpose of covering over-allotments, if any, the Company proposes to grant to the Underwriters an option (the "Over-allotment Option") to purchase from 1 it, in the aggregate, up to an additional 150,000 Common Shares. Such Common Shares are hereinafter referred to as the "Additional Stock." The Firm Stock and the Additional Stock are hereinafter referred to as the "Stock." (c) The Company proposes to sell to Strasbourger, individually and not as Representative, warrants (the "Representative's Warrants") to purchase up to an aggregate of 100,000 Common Shares(the "Warrant Shares") for an aggregate purchase price of $100.00. The Representative's Warrants shall be substantially in the form filed as an exhibit to the Registration Statement (as hereinafter defined). The Representative's Warrants and the Warrant Shares are hereinafter referred to collectively as the "Representative's Securities." The Stock and the Representative's Securities are hereinafter referred to collectively as the "Securities." 2. Representations and Warranties. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (Registration No. 333-_______), and may have filed one or more amendments thereto and a Rule 462(b) Registration Statement (as hereinafter defined) in accordance with Rule 462(b) under the Securities Act, including in such registration statement and each such amendment a related preliminary prospectus, for the registration of the Securities under the Securities Act of 1933, as amended (the "Securities Act"). As used in this Agreement, the term "Registration Statement" shall refer to such registration statement referred to in the first sentence of this Section 2(a), as amended, on file with the Commission at the time such registration statement is declared by the Commission to be effective under the Securities Act (including the prospectus, financial statements, and exhibits filed as a part thereof, provided, 2 however, that such registration statement, at the time it is declared by the Commission to be effective under the Securities Act, may omit such information as is permitted to be omitted from such registration statement when it becomes effective under the Securities Act pursuant to Rule 430A of the General Rules and Regulations of the Commission under the Securities Act (the "Regulations"), which information (the "Rule 430A Information") shall be deemed to be included in such registration statement when a final prospectus is filed with the Commission in accordance with Rules 430A and 424(b)(1) or (4) of the Regulations and includes any Rule 462(b) Registration Statement); the term "Preliminary Prospectus" shall refer to each prospectus included in the Registration Statement, or any amendments thereto, before the Registration Statement is declared by the Commission to be effective under the Securities Act, the form of prospectus omitting Rule 430A Information included in the Registration Statement when the Registration Statement becomes effective under the Securities Act, if applicable (the "Rule 430A Prospectus"), and any prospectus filed by the Company with the consent of the Representative pursuant to Rule 424(a) of the Regulations; and the term "Prospectus" shall refer to the final prospectus forming a part of the Registration Statement in the form first filed with the Commission pursuant to Rule 424(b)(1) or (4) of the Regulations or, if no such filing is required, the form of final prospectus forming a part of the Registration Statement. As used in this Agreement, the term "Rule 462(b) Registration Statement" means the registration statement and any amendments thereto filed pursuant to Rule 462(b) of the Regulations relating to the offering covered by the Initial Registration Statement. (b) When the Registration Statement becomes effective under the Securities Act, and at all times subsequent thereto up to and including the Closing Date (as defined in Section 3(a) hereof) and each Additional Closing Date (as defined in Section 3(b) hereof), and during such longer 3 period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, and during such longer period until any post-effective amendment thereto shall become effective under the Securities Act, the Registration Statement (and any post-effective amendment thereto) and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement to the Registration Statement or the Prospectus) will contain all statements which are required to be stated therein in accordance with the Securities Act and the Regulations, will comply with the Securities Act and the Regulations, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no event will have occurred which should have been set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not then been set forth in such an amendment or supplement; if a Rule 430A Prospectus is included in the Registration Statement at the time it is declared by the Commission to be effective under the Securities Act, the Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all Rule 430A Information and all statements which are required to be stated therein in accordance with the Securities Act or the Regulations, will comply with the Securities Act and the Regulations, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and each Preliminary Prospectus, as of the date filed with the Commission, contained all statements required to be stated therein in accordance with the Securities Act and the Regulations, complied with the Securities Act and the Regulations, and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; except that no representation or 4 warranty is made in this Section 2(a)(2) with respect to statements or omissions made in reliance upon, and in conformity with, written information furnished to the Company as stated in Section 8(b) with respect to any Underwriter by, or on behalf of, such Underwriter through the Representative expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto. (c) Neither the Commission nor the "blue sky" or securities authority of any jurisdiction has issued an order (a "Stop Order") suspending the effectiveness of, or preventing or suspending the use of, the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, refusing to permit the effectiveness of the Registration Statement, or suspending the registration or qualification of the Securities, nor has any of such authorities instituted or threatened to institute any proceedings with respect to a Stop Order. (d) Any contract, agreement, instrument, lease, or license required to be described in the Registration Statement or the Prospectus has been properly described therein. Any contract, agreement, instrument, lease, or license required to be filed as an exhibit to the Registration Statement has been filed with the Commission as an exhibit to the Registration Statement. (e) The following corporations are the only subsidiaries (as defined in the Regulations) of the Company: Systemsearch Consulting, Inc., a ________ corporation ("SCI"), Systems PS Inc., a __________ corporation ("SPS"), and International Career Specialists Ltd., a ________ corporation ("ICS," and collectively with SCI and SPS, the "Subsidiaries"). The Company and each of the Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its respective jurisdiction of incorporation, with full power and authority, 5 and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with, all federal, state, local, and other governmental authorities and all courts and other tribunals, to own, lease, license, and use its properties and assets and to conduct its business in the manner described in the Prospectus. The Company and each Subsidiary is duly qualified to do business as a foreign corporation and is in good standing as such in every jurisdiction in which its ownership, leasing, licensing, or use of property and assets or the conduct of its business makes such qualification necessary, except where the failure to so qualify will not have a material adverse effect on the Company's business, properties, or financial condition on a consolidated basis. (f) The authorized capital stock of the Company consists of 15,000,000 Common Shares, of which 1,7677,876 shares are outstanding prior to this offering, and 1,000,000 shares of preferred stock, no par value, of which none are outstanding. Each outstanding Common Share is validly authorized and issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, has not been issued and is not owned or held in violation of any preemptive or similar rights of shareholders. Each share of capital stock of each Subsidiary is owned of record and beneficially by the Company. There is no commitment, plan, or arrangement to issue, and no outstanding option, warrant, or other right calling for the issuance of, any share of capital stock of the Company or any Subsidiary or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, capital stock of the Company, except as may be properly described in the Prospectus. There is outstanding no security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, capital stock 6 of the Company or any Subsidiary, except as may be properly described in the Prospectus. The certificates evidencing the Common Shares are in due and proper form. (g) The consolidated financial statements of the Company and each of the Subsidiaries included in the Registration Statement and the Prospectus fairly present in all material respects, with respect to the Company, the financial position, the results of operations, the cash flows, and the other information purported to be shown therein at the respective dates and for the respective periods to which they apply. Such consolidated financial statements have been prepared in accordance with generally accepted accounting principles (except to the extent that certain footnote disclosures regarding any stub period may have been omitted in accordance with the applicable rules of the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) consistently applied throughout the periods involved, are correct and complete in all material respects, and are in accordance with the books and records of the Company. Schwartz Levitsky Feldman, the accountants whose reports on the audited consolidated financial statements for the years ended and at December 31, 1996 and 1997, are filed with the Commission as a part of the Registration Statement, is, and during the periods covered by their reports included in the Registration Statement and the Prospectus was, independent certified public accountants with respect to the Company and each of the Subsidiaries within the meaning of the Securities Act and the Regulations. No other financial statements are required by Form S-1 or otherwise to be included in the Registration Statement or the Prospectus. There has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the Company on a consolidated basis from the latest information set forth in the Registration Statement or the Prospectus, except as may be properly described in the Prospectus. 7 (h) There is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation pending, threatened, or, to the best knowledge of the Company, in prospect (or any basis therefor) with respect to the Company, any Subsidiary, or any of their respective operations, businesses, properties, or assets, except as may be properly described in the Prospectus or such as individually or in the aggregate do not now have, and will not in the future have, a material adverse effect upon the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the Company and the Subsidiaries taken as a whole. To the best knowledge of the Company, neither the Company nor any Subsidiary is in violation of, or in default with respect to, any law, rule, regulation, order, judgment, or decree, except as may be properly described in the Prospectus or such as in the aggregate do not now have, and will not in the future have, a material adverse effect upon the operations, business, properties, or assets of the Company and the Subsidiaries taken as a whole; nor is the Company or any Subsidiary currently required to take any action in order to avoid any such violation or default. (i) The Company and each Subsidiary has good and marketable title to all properties and assets which the Prospectus indicates are owned by it, free and clear of all liens, security interests, pledges, charges, encumbrances, and mortgages, except as may be properly described in the Prospectus or as are not material to the Company and the Subsidiaries taken as a whole. No real property owned, leased, licensed, or used by the Company or any Subsidiary lies in an area which is, or to the knowledge of the Company will be, subject to zoning, use, or building code restrictions which would prohibit, and no state of facts relating to the actions or inaction of another person or entity or his or its ownership, leasing, licensing, or use of any real or personal property exists or will exist which would prevent, the continued effective ownership, leasing, 8 licensing, or use of such real property in the business of the Company and the Subsidiaries, each as presently conducted or as the Prospectus indicates it contemplates conducting, except as may be properly described in the Prospectus. (j) Neither the Company or any Subsidiary nor, to the knowledge of the Company, any other party, is now, or is expected by the Company to be, in violation or breach of, or in default with respect to, any provision of any contract, agreement, instrument, lease, license, arrangement, or understanding which is material to the Company and the Subsidiaries taken as a whole, and each such contract, agreement, instrument, lease, license, arrangement, and understanding is in full force and effect and is the legal, valid, and binding obligation of the parties thereto and is enforceable as to them in accordance with its respective terms. The Company and each Subsidiary enjoys peaceful and undisturbed possession under all leases and licenses under which it is operating. Except as described in the Prospectus, neither the Company nor any Subsidiary is a party to, or bound by, any contract, agreement, instrument, lease, license, arrangement, or understanding, or subject to any charter or other restriction, which has had, or may in the future have, a material adverse effect on the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the Company and the Subsidiaries taken as a whole. Neither the Company nor any Subsidiary is in violation or breach of, or in default with respect to, any term of its respective certificate of incorporation (or other charter document) or by-laws. (k) The Company and each Subsidiary owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, licenses, know-how, proprietary techniques, including processes and substances, trademarks, service marks, trade names, and copyrights 9 described or referred to in the Prospectus as owned or used by it or which are necessary for the conduct of its business as currently conducted as described in the Prospectus and, to the best knowledge of the Company, its business as contemplated as described in the Prospectus. To the best knowledge of the Company, all such patents, patent rights, licenses, trademarks, service marks, and copyrights are (i) valid and enforceable, (ii) not being infringed by any third parties which infringement could, singly or in the aggregate, materially and adversely affect the business, properties, operations, condition (financial or otherwise), results of operations, income, or business prospects of the Company and the Subsidiaries taken as a whole, as presently being conducted or as proposed to be conducted as described in the Prospectus, and (iii) are uncontested by any third party. The Company has no knowledge of, nor has it received any notice of, infringement of, or conflict with, asserted rights of others with respect to any patents, patent rights, inventions, trade secrets, licenses, know-how, proprietary techniques, including processes and substances, trademarks, service marks, trade names, or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling, or finding could materially and adversely affect the business, properties, operations, condition (financial or otherwise), results of operations, income, or business prospects of the Company and the Subsidiaries taken as a whole, as presently being conducted or as proposed to be conducted as described in the Prospectus. (l) Neither the Company or any Subsidiary, nor, to the best knowledge of the Company, any director, officer, agent, employee, or other person associated with, or acting on behalf of, the Company or any Subsidiary, has, directly or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign 10 or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment. The Company's internal accounting controls and procedures are sufficient to cause the Company and each of the Subsidiaries to comply in all respects with the Foreign Corrupt Practices Act of 1977, as amended. (m) The Company has all requisite power and authority to execute, deliver, and perform each of this Agreement, the financial advisory agreement, between the Company, and Strasbourger, a form of which has been filed as an Exhibit to the Registration Statement (the "Financial Advisory Agreement"), and the Representative's Warrants. All necessary corporate proceedings of the Company have been duly taken to authorize the execution, delivery, and performance by the Company of this Agreement, the Financial Advisory Agreement, and the Representative's Warrants. This Agreement has been duly authorized, executed, and delivered by the Company and is the legal, valid, and binding obligation of the Company. The Financial Advisory Agreement and the Representative's Warrants have been duly authorized by the Company and, when executed and delivered by the Company, will be legal, valid, and binding obligations of the Company, each enforceable as to the Company in accordance with its terms. No consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any federal, state, local, or other governmental authority or any court or other tribunal is required by the Company or any Subsidiary for the execution, delivery, or performance by the Company of this Agreement, the Financial Advisory Agreement, or the Representative's Warrants, except filings under the Securities Act which have been or will be made before the Closing Date, and consents consisting only of consents under "blue sky" or securities laws which have been obtained at or prior 11 to the date of this Agreement. No consent of any party to any contract, agreement, instrument, lease, license, arrangement, or understanding to which the Company or any Subsidiary is a party, or to which any of their respective properties or assets are subject, is required for the execution, delivery, or performance of this Agreement, the Financial Advisory Agreement, and the Representative's Warrants; and the execution, delivery, and performance of this Agreement , the Financial Advisory Agreement, and the Representative's Warrants will not violate, result in a breach of, conflict with, result in the creation or imposition of any lien, charge, or encumbrance upon any properties or assets of the Company or any Subsidiary pursuant to the terms of, or, with or without the giving of notice or the passage of time or both, entitle any party to terminate or call a default under, any such contract, agreement, instrument, lease, license, arrangement, or understanding, or violate, result in a breach of, or conflict with any term of the certificate of incorporation (or other charter document) or by-laws of the Company, or violate, result in a breach of, or conflict with, any law, rule, regulation, order, judgment, or decree binding on the Company or any Subsidiary or to which any of their respective operations, businesses, properties, or assets are subject. (n) The Firm Stock is validly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not be issued in violation of any preemptive or similar rights of shareholders, and the Underwriters will receive good title to the shares of Firm Stock purchased by them, respectively, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. The Additional Stock is validly authorized and, when issued in accordance with the terms hereof, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and 12 will not be issued in violation of any preemptive or similar rights of shareholders. The Additional Stock has been duly and validly reserved for issuance. The Stock conforms to all statements relating thereto contained in the Registration Statement and the Prospectus. (o) The Warrant Stock is validly authorized and has been duly and validly reserved for issuance and, when issued and delivered upon exercise of the Representative's Warrants in accordance with the terms thereof, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not be issued in violation of any preemptive or similar rights of shareholders; and the holders of the Representative's Warrants will receive good title to the securities purchased by them upon the exercise of the Representative's Warrants, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. The Representative's Securities conform to all statements relating thereto contained in the Registration Statement and the Prospectus. (p) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as may otherwise be properly described in the Prospectus, neither the Company nor any Subsidiary has (i) issued any securities or incurred any material liability or material obligation, primary or contingent, for borrowed money, (ii) entered into any material transaction not in the ordinary course of business, (iii) declared or paid any dividend on its capital stock, except dividends by a Subsidiary to the Company or another Subsidiary, or (iv) experienced any adverse changes or any development which may materially adversely effect the condition (financial or otherwise), net assets or shareholders' equity, results of operations, business, key personnel, assets, or properties of the Company and the Subsidiaries taken as a whole. 13 (q) Neither the Company or any Subsidiary nor any of their respective officers, directors, or affiliates (as defined in the Regulations), has taken or will take, directly or indirectly, prior to the termination of the offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which has caused or resulted in, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Firm Stock or the Additional Stock. (r) The Company has obtained from each of its directors, officers, and shareholders a written agreement, in form and substance satisfactory to counsel for the Underwriters, that, for a period of 24 months from the date on which the Registration Statement is declared by the Commission to be effective under the Securities Act, he, she, or it will not, without the prior written consent of the Representative, publicly offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Common Shares or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, Common Shares or other securities of the Company, including, without limitation, any Common Shares issuable pursuant to the terms of any employee stock options; provided, however, that such persons may offer, sell, contract to sell, grant an option for the sale of, or otherwise dispose of all or any part of his, her, or its Common Shares or other such security or instrument of the Company during such period if such transaction is private in nature and the transferee of such Common Shares or other securities or instruments agrees, prior to such transaction, to be bound by all of the provisions of such agreement. 14 (s) The Company is not, and does not intend to conduct its business in a manner in which it would be required to register as, an "investment company" as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations promulgated thereunder. (t) No person or entity has the right to require registration of Common Shares or other securities of the Company because of the filing or effectiveness of the Registration Statement, which right has not been waived. (u) Except as may be set forth in the Prospectus, the Company has not incurred any liability for a fee, commission, or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement. (v) Neither the Company or any Subsidiary, nor any of their respective affiliates, is presently doing business with the government of Cuba or with any person or affiliate located in Cuba. If, at any time after the date on which the Registration Statement is declared by the Commission to be effective under the Securities Act or with the Florida Department of Banking and Finance (the "Florida Department"), whichever is later, and prior to the end of the period referred to in the first clause of Section 2(b) hereof, the Company and any Subsidiary commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba, the Company will so inform the Florida Department within 90 days after such commencement of business in Cuba, and, during the period referred to in Section 2(2) hereof, will inform the Florida Department within 90 days after any change occurs with respect to previously reported information. 15 (w) No officer, director, or shareholder of the Company has any affiliation or association with the National Association of Securities Dealers, Inc. (the "NASD") or any member thereof. (x) Except as disclosed in the Prospectus, the Company, each of the Subsidiaries, and all shareholders of the Company have filed all necessary federal, state, local, and foreign income and franchise tax returns and other reports required to be filed and has paid all taxes shown as due thereon; and there is no tax deficiency which has been, or, to the knowledge of the Company, might be, asserted against the Company or any Subsidiary. (y) To the best knowledge of the Company, none of the activities or business of the Company or any Subsidiary is in violation of, or will cause the Company or any Subsidiary to violate, any law, rule, regulation, or order of the United States, any state, county, or locality, or of any agency or body of the United States or of any state, county, or locality, the violation of which would have a material adverse effect upon the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the Company and the Subsidiaries taken as a whole. (z) The Common Shares have been approved for quotation on the Nasdaq SmallCap Market and the _________ Stock Exchange (the "Stock Exchange"). (aa) The Company is in compliance with all U.S. and Cannadian federal, state, local, and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment, and wages and hours. There are no pending investigations involving the Company, by the U.S. Department of Labor, or any other U.S. or Canadian governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. There 16 is no unfair labor practice charge or complaint against either the Company pending before the National Labor Regulations Board or its Canadian counterpart or any strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the best knowledge of the Company, threatened against or involving the Company or any predecessor entity, and none has ever occurred. No representation question exists respecting the employees of the Company, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company. No grievance or arbitration proceeding is pending or threatened under any expired or existing collective bargaining agreements of the Company. No labor dispute with the employees of the Company exists, or, is imminent. (ab) Except as described in the Prospectus, the Company does not maintain, sponsor or contribute to nay program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multi employer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA" Plans"). The Company does not maintain or contribute, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan which could reasonably be expected to have a material adverse effect of the business, prospects, financial condition, or results of operations of the Company. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code, which could subject the Company to any tax penalty 17 on prohibited transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all material reporting, disclosure and other requirements of the Internal Revenue Code of 1986, as amended ("the "Code") and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401(a), stating that such ERISA Plan and the attendant trust are qualified therunder. The Company has never completely or partially withdrawn from a "multi employer plan." (ac) The Company has not been notified nor is otherwise aware that it is potentially liable, or is considered potentially liable, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any similar law ("Environmental Laws"). To the best knowledge of the Company, the Company is in compliance with all applicable existing Environmental Laws, except for such instances of non-compliance which would not have a material adverse effect on the business, prospects, financial condition, or results of operations. The term "Hazardous Material" means (i) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated biphenyl, and (v) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulation under or within the meaning of any other Environmental Law. To the best knowledge of the Company, no disposal, release or discharge of Hazardous Material has occurred on, in, at or about any of the facilities or properties of the Company except for those instances which are in compliance with Environmental Laws or in the aggregate would not have a material adverse effect on the 18 business, prospects, financial condition, or results of operations of the Company. Except as described in the Prospectus, to the best knowledge of the Company: (i) there has been no storage, disposal, generation, transportation, handling or treatment of Hazardous Material by the Company (or to the knowledge of the Company, and of its predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company in violation of any applicable law, ordinance, rule, regulation, order, judgement, decree or permit or which would require remedial action which has not been taken, under any applicable law, ordinance, rule, regulation, order, judgement, decree or permit, except for such violations and failures to take remedial action which would not result in, singularly or in the aggregate, a material adverse effect on the business, prospects, financial condition, or results of operations of the Company; and (ii) there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environmental surrounding such property by the Company of any Hazardous Material, except for such spills, discharge, leaks, emissions, injections, escapes, dumping or releases which are in compliance with Environmental Laws or would not result in, singularly or in the aggregate, a material adverse effect the business, prospects, financial condition, or results of operations of the Company. (ad) None of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities or Warrants to be considered a "purpose credit" within the meanings of Regulation G,T,U or X of the Board of Governors of the Federal Reserve Board. 19 3. Purchase, Sale, and Delivery of the Stock and the Representative's Warrants. (a) On the basis of the representations, warranties, covenants, and agreements of the Company herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, and, the Underwriters, severally and not jointly, agree to purchase from the Company, the numbers of shares of Firm Stock set forth opposite the respective names of the Underwriters in Schedule I hereto. The purchase price per share of the Firm Stock to be paid by the several Underwriters shall be $____. The initial public offering price per share of the Firm Stock shall be $_____. Payment for the Firm Stock by the Underwriters shall be made by certified or official bank check in New York Clearing House (next day) funds or by electronic wire transfer of next day funds, payable to the order of the Company, at the offices of Strasbourger Pearson Tulcin Wolff Incorporated, 61 Broadway, New York, New York 10005, or at such other place in the New York City metropolitan area as the Representative shall determine and advise the Company by at least two full days' notice in writing, upon delivery of the Firm Stock to the Representative for the respective accounts of the Underwriters. Such delivery and payment shall be made at 9:00 a.m., New York City local time, on the third business day following the time of the initial public offering, as defined in Section 11(a) hereof (unless such time and date is postponed in accordance with the provisions of Section 9(c) hereof), or at such other time as shall be agreed upon between the Representative and the Company. The time and date of such delivery and payment are hereinafter referred to as the "Closing Date." Certificates representing the Firm Stock shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two full 20 business days prior to the Closing Date. The Company shall permit the Representative to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (b) The Company hereby grants to the Underwriters' the Over-allotment Option to purchase up to an aggregate of 100,000 Common Shares, as may be necessary to cover over-allotments, at the same purchase price per share to be paid by the several Underwriters to the Company for the Firm Stock as provided for in this Section 3 hereof. The Over-allotment Options may be exercised only to cover over-allotments in the sale of shares by Underwriters' and shall be exercised pro rata to the numbers of Common Shares set forth opposite the names of such Underwriters in Schedule I hereto. The Over-allotment Option may be exercised by the Underwriters on the basis of the representations, warranties, covenants, and agreements of the Company herein contained, but subject to the terms and conditions herein set forth, at any time and from time to time on or before the forty-fifth day following the date on which the Registration Statement becomes effective under the Securities Act, by written notice by the Representative to the Company. Such notice shall set forth the aggregate number of shares of Additional Stock as to which the Over-allotment Option is being exercised, the name or names in which the certificates representing the Additional Stock are to be registered, the authorized denominations in which the Additional Stock is to be registered, and the time and date, as determined by the Representative, when such shares of Additional Stock are to be delivered (each such time and date are hereinafter referred to as an "Additional Closing Date"); provided, however, that no Additional Closing Date shall be earlier than the Closing Date nor earlier than the second business day after the date on which the notice of the exercise of the Over-allotment Option shall have been given nor later than the eighth business day after the date on which such notice shall have been given. 21 In the event the Company declares or pays a dividend or a distribution on the Common Shares, whether in the form of cash, Common Shares, or other consideration, prior to the Additional Closing Date, such dividend or distribution shall also be paid on the Additional Stock on the later of the Additional Closing Date and the date on which such dividend or distribution is payable. Payment for the shares of Additional Stock by the Underwriters shall be made by certified or official bank check in New York Clearing House (next day) funds or by electronic wire transfer of next day funds payable to the order of the Company at the offices of Strasbourger Pearson Tulcin Wolff Incorporated, 61 Broadway, New York, New York 10005, or at such other place in the New York City metropolitan area as the Representative shall determine and advise the Company by at least two full days' notice in writing, upon delivery of the shares of Additional Stock to the Underwriters' for their respective accounts. Certificates for the shares of Additional Stock shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two full business days prior to the Additional Closing Date with respect thereto. The Company shall permit the Representative to examine and package such certificates for delivery at least one full business day prior to the Additional Closing Date with respect thereto. (c) The Company hereby agrees to issue and sell to the Representative (individually and not as the representative of the several Underwriters) and/or its designees on the Closing Date the Representative's Warrants to purchase the Warrant Shares for an aggregate purchase price of $100.00. Delivery and payment for the Representative's Warrants shall be made on the Closing Date. The Company shall deliver to the Representative upon payment therefor, certificates representing 22 the Representative's Warrants in the name or names and in such authorized denominations as the Representative may request. The Representative's Warrants shall be exercisable for a period of four years commencing one year from the date on which the Registration Statement was declared effective under the Securities Act at an initial exercise price per Warrant Share equal to $______. (d) It is understood that the Representative may (but shall not be obligated to) make any and all the payments required pursuant to this Section 3 on behalf of any Underwriters whose check or checks shall not have been received by the Representative at the time of delivery of the Stock to be purchased by such Underwriter or Underwriters. Any such payment by the Representative shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. 4. Offering. The Underwriters are to make a public offering of the Firm Stock as soon, on or after the date on which the Registration Statement becomes effective under the Securities Act, as the Representative deems it advisable so to do. The Firm Stock is to be initially offered to the public at the initial public offering price as provided for in Section 3(a) (such price being hereinafter referred to as the "public offering price"). After the initial public offering, the Representative may from time to time increase or decrease the public offering price, in the sole discretion of the Representative, by reason of changes in general market conditions or otherwise. 5. Covenants. The Company covenants that it will: (a) Use its best efforts to cause the Registration Statement to become effective under the Securities Act as promptly as possible and notify the Representative and counsel to the Underwriters immediately, and confirm such notice in writing, (i) when the Registration Statement and any post-effective amendment thereto become effective under the Securities Act, (ii) of the 23 receipt of any comments from the Commission or the "blue sky" or securities authority of any jurisdiction regarding the Registration Statement, any post-effective amendment thereto, the Prospectus, or any amendment or supplement thereto, (iii) of the filing with the Commission of any supplement to the Prospectus, and (iv) of the receipt of any notification with respect to a Stop Order or the initiation or threatening of any proceeding with respect to a Stop Order. The Company will use its best efforts to prevent the issuance of any Stop Order and, if any Stop Order is issued, to obtain the lifting thereof as promptly as possible. If the Registration Statement has become or becomes effective under the Securities Act with a form of prospectus omitting Rule 430A Information, or filing of the Prospectus with the Commission is otherwise required under Rule 424(b) of the Regulations, the Company will file with the Commission the Prospectus, properly completed, pursuant to Rule 424(b) of the Regulations within the time period prescribed and will provide evidence satisfactory to the Representative of such timely filing. (b) During the time when a prospectus relating to the Firm Stock or the Additional Stock is required to be delivered hereunder or under the Securities Act or the Regulations, comply with all requirements imposed upon it by the Securities Act, as now existing and as hereafter amended, and by the Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of, or dealings in, the Stock in accordance with the provisions hereof and the Prospectus. If, at any time when a prospectus relating to the Firm Stock or the Additional Stock is required to be delivered hereunder or under the Securities Act or the Regulations, any event shall have occurred as a result of which, in the reasonable opinion of counsel for the Company or counsel for the Underwriters, the Registration Statement or the Prospectus as then amended or supplemented contains any untrue statement of a material fact or omits to state any 24 material fact required to be stated therein or necessary to make the statements therein not misleading, or if, in the opinion of either of such counsel, it is necessary at any time to amend or supplement the Registration Statement or the Prospectus to comply with the Securities Act or the Regulations, the Company will immediately notify the Representative and promptly prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to the Representative and counsel to the Underwriters) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any such amendment declared effective under the Securities Act as soon as possible. (c) Deliver without charge to each of the several Underwriters such number of copies of each Preliminary Prospectus as may reasonably be requested by the Underwriters and, as soon as the Registration Statement, or any amendment thereto, becomes effective under the Securities Act or a supplement is filed with the Commission, deliver without charge to the Representative two signed copies of the Registration Statement, including exhibits, or such amendment thereto, as the case may be, and two copies of any supplement thereto, and deliver without charge to each of the several Underwriters such number of copies of the Prospectus, the Registration Statement, and amendments and supplements thereto, if any, without exhibits, as the Representative may reasonably request for the purposes contemplated by the Securities Act. (d) Endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective under the Securities Act, to qualify the Securities for offering and sale under the "blue sky" or securities laws of such jurisdictions as may be designated by the Representative; provided, however, that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would be subject to service of general 25 process or to taxation as a foreign corporation doing business in such jurisdiction to which it is not then subject. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees in writing that such action is not at the time necessary or advisable, file and make such statements or reports at such times as are or may be required by the laws of such jurisdiction. (e) Make generally available, within the meaning of Section 11(a) of the Securities Act and the Regulations, to its security holders as soon as practicable, but not later than _____________, an earnings statement, which need not be certified by independent certified public accountants unless required by the Securities Act or the Regulations, but which shall satisfy the provisions of Section 11(a) of the Securities Act and the Regulations, covering a period of at least 12 months beginning after the date on which the Registration Statement was declared effective under the Securities Act. (f) For a period of 18 months after the date of the Prospectus, not, without the prior written consent of the Representative, offer, issue, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Common Shares or other securities of the Company, or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, Common Shares, except as contemplated by Section 3 hereof and except for (i) the issuance of stock options, or Common Shares issuable upon the exercise thereof, which have been or may be granted pursuant to the Company's 1998 Stock Option Plan, up to an aggregate of 435,000 Common Shares, all as properly described in the Prospectus, (ii) upon the exercise of warrants outstanding on the date hereof, as properly described in the Prospectus, (iii) 26 the issuance of shares of Warrant Stock issuable upon exercise of the Representative's Warrants, and (iv) the issuance of Common Shares in connection with acquisitions by the Company. (g) For a period of five years after the date on which the Registration Statement was declared effective under the Securities Act furnish the Representative without charge, the following: (1) within 90 days after the end of each fiscal year, one copy of financial statements certified by independent certified public accountants, including a balance sheet, statement of operations, and statement cash flows of the Company and its then existing subsidiaries, if any, with supporting schedules, prepared in accordance with generally accepted accounting principles, as at the end of such fiscal year and for the 12 months then ended, which may be on a consolidated basis; (2) as soon as practicable after they have been sent to shareholders of the Company or filed with, or furnished to, the Commission, the NASD, or the Exchange one copy of each annual and interim financial and other report or communication sent by the Company to its shareholders or filed with, or furnished to, the Commission, the NASD, or the Exchange; (3) as soon as practicable, one copy of every press release and every material news item and article in respect of the Company, any Subsidiary, or their respective affairs which was released by the Company or any such Subsidiary; and (4) such additional documents and information with respect to the Company, any Subsidiary, and their respective affairs, as the Representative may from time to time reasonably request; provided, however, that such additional documents and information shall be received by the Representative on a confidential basis, unless otherwise disclosed to the public, and 27 shall not be used in violation of the federal securities laws and the rules and regulations promulgated thereunder. (h) Apply the net proceeds received by the Company from the offering contemplated by this Agreement in the manner set forth under the heading "Use of Proceeds" in the Prospectus. (i) Furnish to the Representative as early as practicable prior to the Closing Date and each Additional Closing Date, if any, as the case may be, but not less than two full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company which have been read by the Company's independent certified public accountants, as stated in their letters to be furnished pursuant to Section 7(f) hereof. (j) File no amendment or supplement to the Registration Statement or Prospectus at any time, whether before or after the date on which the Registration Statement was declared effective under the Securities Act, unless such filing shall comply with the Securities Act and the Regulations and unless the Representative shall previously have been advised of such filing and furnished with a copy thereof, and the Representative shall have approved such filing in writing. Until the later of (i) the completion by the Underwriters of the distribution of the Stock (but in no event more than nine months after the date on which the Registration Statement shall have been declared effective under the Securities Act) and (ii) 25 days after the date on which the Registration Statement shall have been declared effective under the Securities Act, the Company will prepare and file with the Commission, promptly upon the Representative's request, any amendments or supplements to the Registration Statement or the Prospectus which, in the sole opinion of the Representative, may be necessary or advisable in connection with the distribution of the Stock. 28 (k) File timely with the Commission an appropriate form to register the Common Shares, including the Stock, pursuant to Section 12(b) of the Exchange Act and comply with all registration, filing, and reporting requirements of the Exchange Act, which may from time to time be applicable to the Company. (l) Comply with all provisions of all undertakings contained in the Registration Statement. (m) Prior to the later of (A) the date referred to in the second sentence of clause (j) of this Section 5, and (B) any Additional Closing Date, issue no press release or other communication, directly or indirectly, and hold no press conference with respect to the Company, the financial condition, results of operations, business, properties, assets, liabilities of any the Company or any Subsidiary, or this offering, without the prior written consent of the Representative. (n) Make all filings required to maintain the inclusion of the Common Shares on the Nasdaq SmallCap Market and the Exchange for at least five years from the date of this Agreement. (o) On the Closing Date, sell to the Representative, individually and not as Representative of the several Underwriters, at the price of $.001 per warrant, warrants to purchase the Warrant Stock, which Representative's Warrants shall be substantially in the form set forth as an exhibit to the Registration Statement. On the Closing Date, execute and deliver to the Representative the Financial Advisory Agreement. (p) Until expiration of the Representative's Warrants, keep reserved sufficient Common Shares for issuance upon exercise of the Representative's Warrants. 29 (q) Deliver to the Representative, without charge, within a reasonable period after the last Additional Closing Date or the expiration of the period during which the Representative may exercise the Over-allotment Options, five sets of leather bound volumes of the Registration Statement and all related materials to the individuals designated by the Representative or counsel to the Underwriters. (r) For a period of three years after the effective date on which the Registration Statement is declared effective under the Securities Act, provide, at its sole expense, to the Representative copies of the Company's daily transfer sheets, if so requested by the Representative. (s) Maintain key-person life insurance payable to the Company on the life of Mr. Declan A. French, the President, Chairman of the Board of Directors, and Chief Executive Officer of the Company, in the amount of at least $__________ for the period of time equal to the longer of three years from the date on which the Registration Statement becomes effective under the Securities Act and the term of the employment agreement between the Company and such officer. (t) For a period of three years from the date on which the Registration Statement becomes effective under the Securities Act, the Representative shall have the right to designate a director or appoint a designee as an observer of the Company's Board of Directors. Such director or observer will have the right to attend all meetings of the Board of Directors. Such director or observer shall be entitled to receive reimbursement for all out-of-pocket expenses incurred in attending such meetings, including, but not limited to, food, lodging, transportation, and any fees paid to directors for attending meetings. The Representative shall be given notice of such meetings at the same time and in the same manner as directors of the Company are informed. The Representative and such director or observer shall be indemnified to the same extent as the other 30 directors. The Company will purchase directors and officers insurance in an amount of not less than $2,000,000, provided, however, that the Company shall not be required to pay more than $50,000 per year in order to maintain such insurance, and if insurance in such amount is not available at such cost, the Company shall purchase that amount of such insurance which is available at a cost of $50,000 per year. (u) For a period of three years from the date on which the Registration Statement becomes effective under the Securities Act, retain a transfer agent reasonably acceptable to the Representative. 6. Payment of Expenses. The Company hereby agrees to pay all expenses (other than fees of counsel for the Underwriters, except as provided in Section 6(c)) in connection with (a) the preparation, printing, filing, distribution, and mailing of the Registration Statement and the Prospectus and the printing, filing, distribution, and mailing of this Agreement and the Agreement Among Underwriters, any Selected Dealer Agreement and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments or supplements thereto supplied to the Underwriters in quantities as hereinabove stated, (b) the issuance, sale, transfer, and delivery (as applicable) of the Securities, including, without limitation, the purchase from the Company of the Stock by the Underwriters, the purchase by the Representative of the Representative's Warrants, the consummation by the Company of any of its obligations under the this Agreement, the Financial Advisory Agreement, or under the Representative's Warrants, the resale of the Stock by the Underwriters in connection with the distribution contemplated by this Agreement, and any transfer or other taxes payable thereon, (c) the qualification of the Securities under state or foreign "blue sky" or securities laws, including the 31 costs of printing and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel for the Underwriters ($35,000) and the disbursements in connection therewith, (d) the filing fees payable to the Commission, the NASD, NASD Regulation, Inc. ("NASDR"), and the jurisdictions in which such qualification is sought, (e) any fees relating to the listing of the Common Shares on the Exchange and any other stock market or exchange, (f) the cost of printing or engraving certificates representing the Securities, (g) the fees of the transfer agent for the Securities, (h) advertising costs and expenses, including, but not limited to, costs and expenses relating to the "road show," information meetings and presentations (including travel and hotel), bound volumes, prospectus memorabilia, and expenses relating to tombstone advertisements, (i) a non-accountable expense allowance equal to three percent of the gross proceeds of the sale of the Firm Stock and the Additional Stock (less amounts, if any, previously paid to the Representative by the Company in respect of such non-accountable expense allowance) to the Representative on the Closing Date. Notwithstanding the foregoing, if the offering contemplated hereby should be terminated, the Company agrees to pay the Representative only the out-of-pocket expenses incurred by the Underwriters in connection with this Agreement or the proposed offer, sale, and delivery of the Securities, (j) fees and expenses of counsel to, and independent certified public accountants of, the Company, and (k) costs and expenses in connection with due diligence investigations, including, but not limited to, fees of any independent counsel or consultant retained by the Underwriters. 7. Conditions of Underwriters' Obligations. The obligations of the several Underwriters to purchase and pay for the Firm Stock and the Additional Stock, as provided herein, and the obligation of the Representative, individually and not as representative of the several Underwriters, to purchase and pay for the Representative's Warrants, each as provided herein, shall 32 be subject, in the discretion of the Representative, to the continuing accuracy of the representations and warranties of the Company contained herein and in each certificate and document contemplated under this Agreement to be delivered to the Underwriters, as of the date hereof and as of the Closing Date (or any Additional Closing Date, as the case may be), to the performance by the Company of its obligations hereunder, and to the following conditions: (a) The Registration Statement shall have become effective under the Securities Act not later than 6:00 P.M., New York City local time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative; on or prior to the Closing Date, or any Additional Closing Date, as the case may be, no Stop Order shall have been issued and no proceeding shall have been initiated or threatened with respect to a Stop Order; and any request by the Commission for additional information shall have been complied with by the Company to the reasonable satisfaction of counsel for the Underwriters. If required, the Prospectus shall have been filed with the Commission in the manner and within the time period required by Rule 424(b) under the Securities Act. (b) (i) At the Closing Date and any Additional Closing Date, as the case may be, you shall have received the opinion of Messrs. Gersten, Savage, Kaplowitz & Fredericks, LLP, United Stated counsel for the Company, dated the date of delivery, addressed to the Underwriters, and in form and scope satisfactory to counsel for the Underwriters, with reproduced copies or signed counterparts thereof for each of the Underwriters. (ii) At the Closing Date and any Additional Closing Date, as the case may be, you shall have received the opinion of Messrs. McMillan Binch, Canadian counsel for the Company, dated the date of delivery, addressed to the Underwriters, and in form and scope 33 satisfactory to counsel for the Underwriters, with reproduced copies or signed counterparts thereof for each of the Underwriters. (c) On or prior to the Closing Date and any Additional Closing Date, as the case may be, the Underwriters shall have been furnished such information, documents, certificates, and opinions as they may reasonably require for the purpose of enabling them to review the matters referred to in Section 7(b), and in order to evidence the accuracy, completeness, or satisfaction of any of the representations, warranties, covenants, agreements, or conditions herein contained, or as the Representative may reasonably request. (d) At the Closing Date or any Additional Closing Date, as the case may be, (i) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Securities Act and the Regulations, and in all material respects conform to the requirements thereof, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) there shall have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, no material adverse change, or any development involving a prospective material adverse change, in the business, properties, or condition (financial or otherwise), results of operations, capital stock, long-term or short-term debt, or general affairs of the Company or any Subsidiary from that set forth in the Registration Statement and the Prospectus, except changes which the Registration Statement and Prospectus indicate might occur after the date on which the Registration Statement becomes effective under the Securities Act, and neither the Company nor 34 any Subsidiary shall have incurred any material liabilities or entered into any agreements not in the ordinary course of business other than as referred to in the Registration Statement and Prospectus, (iii) except as set forth in the Prospectus, no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation shall be pending, threatened, or in prospect (or any basis therefor) with respect to the Company or any Subsidiary or any of their respective operations, businesses, properties, or assets which would be required to be set forth in the Registration Statement, wherein an unfavorable decision, ruling, or finding would materially adversely affect the business, property, condition (financial or otherwise), results of operations, or general affairs of the Company or such Subsidiary, and (iv) the Stock be listed upon the Nasdaq SmallCap Market and the Exchange. (e) At the Closing Date and any Additional Closing Date, as the case may be, you shall have received a certificate of the chief executive officer, the chief financial officer, and the chief accounting officer of the Company, dated the Closing Date or such Additional Closing Date, as the case may be, to the effect, among other things, that (i) the conditions set forth in Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this Agreement and as of the Closing Date or such Additional Closing Date, as the case may be, the representations and warranties of the Company contained herein were and are accurate and correct in all material respects, and (iii) as of the Closing Date or such Additional Closing Date, as the case may be, the obligations to be performed by the Company hereunder on or prior to such time have been fully performed. (f) (1) At the time this Agreement is executed and at the Closing Date and any Additional Closing Date, as the case may be, you shall have received a letter, addressed to the Underwriters, and in form and substance satisfactory to the Representative, with reproduced copies 35 or signed counterparts thereof for each of the Underwriters, from Schwartz Levitsky Feldman, independent certified public accountants for the Company and each of the Subsidiaries, dated the date of delivery, in form and substance satisfactory to the Representative and counsel to the Underwriters. (g) All proceedings taken in connection with the issuance, sale, transfer, and delivery of the Securities shall be satisfactory in form and substance to the Representative and to counsel for the Underwriters, and the Underwriters shall have received from such counsel for the Underwriters the opinion, dated as of the Closing Date and the Additional Closing Date, as the case may be, with respect to such of the matters set forth under Section 7(b), and with respect to such other related matters, as the Representative may reasonably request. (h) NASDR, upon review of the terms of the public offering of the Stock shall not have objected to the Underwriters' participation in such offering. (i) Prior to or on the Closing Date, the Company shall have entered into the Financial Advisory Agreement and the Representative's Warrants with the Representative. (j) Prior to or on the Closing Date, the Company shall have provided to you copies of the agreements referred to in Section 2(r). Any certificate or other document signed by any officer of the Company and delivered to the Representative or to counsel for the Underwriters shall be deemed a representation and warranty by the Company hereunder to the Underwriters as to the statements made therein. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or any Additional Closing Date, as the case may be, is not so fulfilled, the Representative may, on behalf 36 of the several Underwriters, terminate this Agreement or, if the Representative so elects, in writing waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 8. Indemnification and Contribution. (a) Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its officers, directors, partners, employees, agents, and counsel, and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against any and all loss, liability, claim, damage, and expense whatsoever (which shall include, for all purposes of this Section 8, but not be limited to, attorneys' fees and any and all expense whatsoever incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever and any and all amounts paid in settlement of any claim or litigation) as and when incurred arising out of, based upon, or in connection with, (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto or (B) any application or other document or communication (for purposes of this Section 8, collectively referred to as an "application") executed by, or on behalf of, the Company or based upon written information furnished by, or on behalf of, the Company filed in any jurisdiction in order to qualify the Securities under the "blue sky" or securities laws thereof or filed with the Commission or any securities exchange; or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company as stated in Section 8(b) with respect to any Underwriter by, or on behalf of, such 37 Underwriter through the Representative expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any application, as the case may be, or (ii) any breach of any representation, warranty, covenant, or agreement of the Company contained in this Agreement. The foregoing agreement to indemnify shall be in addition to any liability the Company may otherwise have, including liabilities arising under this Agreement. If any action is brought against an Underwriter or any of its respective officers, directors, partners, employees, agents, or counsel, or any controlling persons of an Underwriter (an "indemnified party") in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, such indemnified party or parties shall promptly notify the Company in writing of the institution of such action (but the failure so to notify shall not relieve the Company from any liability it may have other than pursuant to this Section 8(a)) and the Company shall promptly assume the defense of such action, including, without limitation, the employment of counsel satisfactory to such indemnified party or parties and payment of expenses. Such indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have promptly employed counsel satisfactory to such indemnified party or parties to have charge of the defense of such action or such indemnified party or parties shall have concluded that there may be one or more legal defenses available to it or them or to other indemnified parties which are different from, or in addition to, those available to the Company, in any of which events such fees and expenses shall be borne by the 38 Company, and the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties. Anything in this paragraph to the contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or action effected without its written consent, which consent shall not be unreasonably withheld. The Company shall not, without the prior written consent of each indemnified party that is not released as described in this sentence, settle or compromise any action, or permit a default or consent to the entry of judgment or otherwise seek to terminate any pending or threatened action, in respect of which indemnity may be sought hereunder (whether or not any indemnified party is a party thereto), unless such settlement, compromise, consent, or termination includes an unconditional release of each indemnified party from all liability in respect of such action. The Company agrees promptly to notify the Underwriters of the commencement of any litigation or proceedings against the Company or any of its officers or directors in connection with the sale of the Securities, the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or any application. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, each director of the Company, each officer of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company to the several Underwriters in Section 8(a), but only with respect to statements or omissions, if any, made in the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, 39 written information furnished to the Company as stated in this Section 8(b) with respect to any Underwriter by, or on behalf of, such Underwriter through the Representative expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any application, as the case may be; provided, however, that the obligation of each Underwriter to provide indemnity under the provisions of this Section 8(b) shall be limited to the amount which represents the product of (i) the number of shares of Stock underwritten by such Underwriter hereunder and the (ii) the underwriting discount per Common Share set forth on the cover page of the Prospectus. For all purposes of this Agreement, the amounts of the selling concession and reallowance and the name of each of the Underwriters, and the number of shares of Firm Stock purchased by each of the Underwriters set forth in the Prospectus constitute the only information furnished in writing by, or on behalf of, such Underwriter expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended or supplemented), or any amendment or supplement thereto, or in any application, as the case may be. If any action shall be brought against the Company or any other person so indemnified based on the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any application, and in respect of which indemnity may be sought against any Underwriter pursuant to this Section 8(b), such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the indemnified parties, by the provisions of Section 8(a). (c) To provide for just and equitable contribution, if (i) an indemnified party makes a claim for indemnification pursuant to Section 8(a) or 8(b) (subject to the limitations 40 thereof), but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Agreement expressly provides for indemnification in such case or (ii) any indemnified or indemnifying party seeks contribution under the Securities Act, the Exchange Act, or otherwise, then the Company (including for this pur pose any contribution made by, or on behalf of, any director of the Company, any officer of the Company who signed the Registration Statement, and any controlling person of the Company), as one entity, and the Underwriters (including for this purpose any contribution by, or on behalf of, an indemnified party) as a second entity, shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, so that the Underwriters, in the aggregate, are responsible for the proportion thereof equal to the percentage which the underwriting discount per Common Share set forth on the cover page of the Prospectus represents of the initial public offering price per Common Share set forth on the cover page of the Prospectus and the Company is responsible for the remaining portion; provided, however, that if applicable law does not permit such allocation, then other relevant equitable considerations such as the relative fault of the Company and the Underwriters in connection with the facts which resulted in such losses, liabilities, claims, damages, and expenses shall also be considered. The relative fault, in the case of an untrue statement, alleged untrue statement, omission, or alleged omission, shall be determined by, among other things, whether such statement, alleged statement, omission, or alleged omission relates to information supplied by the Company or by the Underwriters, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement, alleged statement, omission, or alleged omission. The Company and the Underwriters agree that it would be unjust and inequitable if the respective obligations of the Company and the Underwriters 41 for contribution were determined by pro rata or per capita allocation of the aggregate losses, liabilities, claims, damages, and expenses (even if the Underwriters and the other indemnified parties were treated as one entity for such purpose) or by any other method of allocation that does not reflect the equitable considerations referred to in this Section 8(c). No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 8(c), each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each officer, director, partner, employee, agent, and counsel of any Underwriter shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the provisions of this Section 8(c). Anything in this Section 8(c) to the contrary notwithstanding, no party shall be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 8(c) is intended to supersede any right to contribution under the Securities Act, the Exchange Act, or otherwise. 9. Default by an Underwriter. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Stock or Additional Stock hereunder, and if the number of shares of Firm Stock or Additional Stock to which the defaults of all Underwriters in the aggregate relate does not exceed 10% of the number of shares of Firm Stock or Additional Stock, as the case may be, which all 42 Underwriters have agreed to purchase hereunder, then such shares of Firm Stock or Additional Stock to which such defaults relate shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder. (b) If such defaults exceed in the aggregate 10% of the number of shares of Firm Stock or Additional Stock, as the case may be, which all Underwriters have agreed to purchase hereunder, the Representative may, in its discretion, arrange to purchase itself or for another party or parties to purchase such shares of Firm Stock or Additional Stock, as the case may be, to which such default relates on the terms contained herein. If the Representative does not arrange for the purchase of such shares of Firm Stock or Additional Stock, as the case may be, within one business day after the occurrence of defaults relating to in excess of 10% of the Firm Stock or the Additional Stock, as the case may be, then the Company shall be entitled to a further period of one business day within which to procure another party or parties satisfactory to the Representative to purchase such shares of Firm Stock or Additional Stock, as the case may be, on such terms. If the Representative or the Company does not arrange for the purchase of the shares of Firm Stock or Additional Stock, as the case may be, to which such defaults relate as provided in this Section 9(b), this Agreement may be terminated by the Representative or by the Company without liability on the part of the Company (except that the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall survive such termination) or the several Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter of its liability, if any, to the other several Underwriters and to the Company for any damages occasioned by its default hereunder. (c) If the shares of Firm Stock or Additional Stock to which such defaults relate are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or 43 parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date or the Additional Closing Date, as the case may be, for a reasonable period but not in any event more than seven business days in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements with respect to the Firm Stock or the Additional Stock, and the Company agrees to prepare and file promptly any amendment or supplement to the Registration Statement or the Prospectus which in the opinion of counsel for the Underwriters may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 9 as if such party had originally been a party to this Agreement and had been allocated the number of shares of Firm Stock and Additional Stock actually purchased by it as a result of its original commitment to purchase Firm Stock and Additional Stock and its purchase of shares of Firm Stock or Additional Stock pursuant to this Section 9. 10. Representations and Agreements to Survive Delivery. All representations, warranties, covenants, and agreements contained in this Agreement shall be deemed to be representations, warranties, covenants, and agreements at the Closing Date and any Additional Closing Date, and such representations, warranties, covenants, and agreements of the Underwriters and the Company, including the indemnity and contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by, or on behalf of, any Underwriter or any indemnified person, or by, or on behalf of, the Company or any person or entity which is entitled to be indemnified under Section 8(b), and shall survive termination of this Agreement or the delivery of the Firm Stock and the Additional Stock, if any, to the several Underwriters. In addition, the provisions of Sections 5(a)(1), 6, 8, 10, 11, and 13 shall survive 44 termination of this Agreement, whether such termination occurs before or after the Closing Date or any Additional Closing Date. Notwithstanding anything in the second sentence of Section 6 hereof to the contrary, and in addition to the obligations assumed by the Company pursuant to the first sentence of Section 6 hereof, if the offering should be terminated, the Company shall be liable to the Underwriters only for out-of-pocket expenses incurred by the Underwriters in connection with this Agreement or the proposed, offer, sale, and delivery of the Securities. 11. Effective Date of This Agreement and Termination Thereof. (a) This Agreement shall become effective at 9:30 A.M., New York City local time, on the first full business day following the day on which the Registration Statement becomes effective under the Securities Act or at the time of the initial public offering by the Underwriters of the Firm Stock, whichever is earlier. The time of the initial public offering shall mean the time, after the Registration Statement becomes effective under the Securities Act, of the release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Firm Stock or the time, after the Registration Statement becomes effective under the Securities Act, when the Firm Stock is first released by the Representative for offering by the Underwriters or dealers by letter or telegram, whichever shall first occur. The Representative or the Company may prevent this Agreement from becoming effective without liability of any party to any other party, except as noted below in this Section 11, by giving the notice indicated in Section 11(d) before the time this Agreement becomes effective under the Securities Act. (b) If the purchase price of the Firm Stock has not been determined as provided for in Section 3 prior to 4:30 p.m., New York City local time, on the fifth full business day after the date on which the Registration Statement becomes effective under the Securities Act, this 45 Agreement may be terminated at any time thereafter either by the Representative or by the Company by giving notice to the other unless before such termination the purchase price for the Firm Stock has been so determined. If the purchase price of the Firm Stock has not been so determined prior to 4:30 p.m., New York City local time, on the tenth full business day after the date on which the Registration Statement becomes effective under the Securities Act, this Agreement shall automatically terminate forthwith. (c) In addition to the right to terminate this Agreement pursuant to Sections 7 and 9 hereof, the Representative shall have the right to terminate this Agreement at any time prior to the Closing Date or any Additional Closing Date, as the case may be, by giving notice to the Company, and, if exercised, the Over-allotment Option, at any time prior to any Additional Closing Date, by giving notice to the Company, (i) if any domestic or international event, act, or occurrence has materially and adversely disrupted, or, in the opinion of the Representative, will in the immediate future materially and adversely disrupt, the securities markets; or (ii) if there shall have been a general suspension of, or a general limitation on prices for, trading in the Common Shares or in securities generally on the New York Stock Exchange or the American Stock Exchange or in the over-the-counter market; or (iii) if there shall have been an outbreak or increase in the level of major hostilities or other national or international calamity; or (iv) if a banking moratorium has been declared by a state or federal authority; or (v) if a moratorium in foreign exchange trading by major international banks or persons has been declared; or (vi) if there shall have been a material interruption in the mail service or other means of communication within the United States; or (vii) if the Company shall have sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious act, whether or not such loss shall have 46 been insured, or from any labor dispute or court or government action, order, or decree, which will, in the opinion of the Representative, make it inadvisable to proceed with the offering, sale, or delivery of the Firm Stock or the Additional Stock, as the case may be; or (viii) if any material governmental restrictions shall have been imposed on trading in securities in general, which restrictions are not in effect on the date hereof; or (ix) if there shall be passed by the Congress of the United States or by any state legislature any act or measure, or adopted by any governmental body or authoritative accounting institute or board, or any governmental executive, any orders, rules, or regulations, which the Representative believes likely to have a material adverse effect on the business, financial condition, or financial statements of the Company or the market for the Common Shares; or (x) if there shall have been such material and adverse change in the market for the Company's securities or securities in general or in political, financial, or economic conditions as in the judgment of the Representative makes it impractical or inadvisable to proceed with the offering, sale, and delivery of the Firm Stock or the Additional Stock, as the case may be, on the terms contemplated by the Prospectus; or (xi) if the obligations of the Company set forth in Section 7 hereof have not been performed, satisfied, or waived or the Company shall have failed, refused, or been unable to perform all obligations and satisfy all conditions on its part to be satisfied or performed hereunder prior thereto; (xii) there shall have been a material adverse effect, or any development involving a prospective material adverse effect, in the business, prospects, financial condition, or results of operations of the Company, or any executive officer of the Company shall have suffered any injury or disability of a nature that materially adversely affects his ability to function in his or her respective capacities for the Company for more than six months, or any material acvction, suit, or proceeding shall be threatened, instituted, or pending, at law or in equity, 47 against the Company or any of its directors or executive officers, by any person or by any federal, state, or other governmental body or entity. (d) If the Representative elects to prevent this Agreement from becoming effective, as provided in this Section 11, or to terminate this Agreement pursuant to Section 7 of this Agreement or this Section 11, the Representative shall notify the Company promptly by telephone, telex, or telegram, confirmed by letter. If, as so provided, the Company elects to prevent this Agreement from becoming effective or to terminate this Agreement, the Company shall notify the Representative promptly by telephone, telex, or telegram, confirmed by letter. (e) Anything in this Agreement to the contrary notwithstanding other than Section 11(f), if this Agreement shall not become effective by reason of an election pursuant to this Section 11 or if this Agreement shall terminate or shall otherwise not be carried out within the time specified herein by reason of any failure on the part of the Company to perform any covenant or agreement or satisfy any condition of this Agreement by it to be performed or satisfied, the sole liability of the Company to the several Underwriters, in addition to the obligations the Company assumed pursuant to the first sentence of Section 6, will be to reimburse the several Underwriters for such out-of-pocket expenses (including the fees and disbursements of their counsel) as shall have been incurred by them in connection with this Agreement or the proposed offer, sale, and delivery of the Securities, and, upon demand, the Company agrees to pay promptly the full amount thereof to the Representative for the respective accounts of the Underwriters. Anything in this Agreement to the contrary notwithstanding other than Section 11(f), if this Agreement shall not be carried out within the time specified herein for any reason other than the failure on the part of the Company to perform any covenant or agreement or satisfy any condition of this Agreement by it to be performed 48 or satisfied, the Company shall have no liability to the several Underwriters other than for obligations assumed by the Company pursuant to Section 6. (f) Notwithstanding any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. Notwithstanding anything in the second sentence of Section 6 hereof to the contrary, and in addition to the obligations assumed by the Company pursuant to the first sentence of Section 6 hereof, if the offering should be terminated, the Company shall be liable to the several Underwriters only for out-of-pocket expenses incurred by the several Underwriters in connection with this Agreement or the proposed, offer, sale, and delivery of the Securities. 12. Notices. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and, if sent to any Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed by letter, to such Underwriter, c/o Strasbourger Pearson Tulcin Wolff Incorporated, 61 Broadway, New York, New York 10005, Attention: Mr. James Carrazza, with a copy to Brock Silverstein McAuliffe LLC, One Citicorp Center, 56th Floor, York, New York 10022, Attention: Robert Steven Brown; or if sent to the Company, shall be mailed, delivered, or telexed or telegraphed and confirmed by letter, to the Company, IT Staffing Ltd., 55 University Avenue, Toronto, Canada M5J 2H7, Attention: Delcan A, French, with a copy to Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, 9th Floor, New York 10022, Attention: Jay M. Kaplowitz, Esq. and Arthur S. Marcus, Esq. All notices hereunder shall be effective upon receipt by the party to which it is addressed. 49 13. Parties. The Representative, individually and not as the representative of the several Underwriters, represents that it is authorized to act as the Representative on behalf of the several Underwriters named in Schedule I hereto, and the Company shall be entitled to act and rely on any request, notice, consent, waiver, or agreement purportedly given on behalf of the Underwriters when the same shall have been given by the Representative on such behalf. This Agreement shall inure solely to the benefit of, and shall be binding upon, the several Underwriters, the Company, and the persons and entities referred to in Section 8 who are entitled to indemnification or contribution, and their respective successors, legal representatives, and assigns (which shall not include any buyer, as such, of the Firm Stock or the Additional Stock), and no other person shall have, or be construed to have, any legal or equitable right, remedy, or claim under, in respect of, or by virtue of this Agreement or any provision herein contained. Notwithstanding anything contained in this Agreement to the contrary, all of the obligations of the Underwriters hereunder are several and not joint. 14. Construction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to conflict of laws. Time is of the essence in this Agreement. 15. Consent to Jurisdiction. The Company irrevocably consents to the jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action or proceeding arising out of, or relating to, this Agreement, any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement, or a breach of this Agreement or any such document or instrument. In any such action or proceeding, the Company waives personal service of any summons, complaint, or other process and agrees that 50 service thereof may be made in accordance with Section 12. Within 30 days after such service, or such other time as may be mutually agreed upon in writing by the attorneys for the parties to such action or proceeding, the Company shall appear or answer such summons, complaint, or other process. Should the Company fail to appear or answer within such 30-day period or such extended period, as the case may be, the Company shall be deemed in default and judgment may be entered against the Company for the amount as demanded in any summons, complaint, or other process so served. The Company hereby irrevocably appoints Gersten, Savage, Kaplowitz & Fredericks, LLP, United States counsel to the Company, as the Company's agent to receive service of process in any action against the Company in any federal or state court of the State of New York arising out of this offering. 51 If the foregoing correctly sets forth the understandings among the Representative and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, IT STAFFING LTD. By: --------------------------------- Name: Title: Accepted as of the date first above written in New York, New York STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED* By: ------------------------------------ Name: Title: *On behalf of itself and the other several Underwriters named in Schedule I hereto. 52 SCHEDULE I
Total Number of Shares to be Underwriter Purchased ----------- --------- Total..........................................................................................1,000,000 --------- ---------
53 EX-3.1 3 EXHIBIT 3.1 Exhibit 3.1 BY-LAW NO. 1 A by-law relating generally to the conduct of the business and affairs of Declan Technologies Inc. (Herein called the "Corporation") CONTENTS 1. Interpretation 6. Notices 2. Director 7. Execution of Documents 3. Disclosure and Indemnification 8. Financial Year 4. Officers 9. Effective Date 5. Meetings of Shareholders 10. Repeal BE IT ENACTED as a by-law of the Corporation as follows: 1. INTERPRETATION 1.01 In this by-law and all other by-laws and resolutions of the Corporation, unless the context other requires: (a) "Act" means the Ontario Business Corporations Act together with the Regulations made pursuant thereto and any statute or regulations that may be substituted therefor, as amended from time to time; (b) "articles" means the articles of incorporation of the Corporation as amended from time to time; (c) "board" means the director acting as a board; (d) "by-laws" means this by-law and all other by-laws of the Corporation as amended from time to time, and from time to time in force and effect; (e) "Corporation" means this Corporation. 1.02 In this by-law where the context requires, words importing the singular including the plural and vice versa and words importing gender include the masculine, feminine and neuter genders. 1.03 Save as aforesaid, all the words and terms appearing in this by-law shall have the same definitions and application as in the Act. 2. DIRECTOR 2.01 Powers - The business and affairs of the Corporation shall be managed or supervised by a board composed of one director who may exercise all such powers and do all such things as may be exercised or done by the Corporation and are not by the by-laws or by the Act expressly directed or required to be done by the Corporation at meetings of the shareholder. 2.02 Place of Meetings - Meetings of the board may be held at any place within or outside Ontario and it shall not be necessary that, in any financial year of the Corporation, a majority of the meetings of the board be held at a place within Canada. 2.04 Resolution in lieu of Meeting - A resolution in writing, signed by the sole director, is as valid as if it had been passed at a meeting of the director. A copy of every such resolution shall be kept with the minutes of the proceedings of the director. 2.05 Resident Canadian - Except where the Corporation is a non-resident Corporation, the director shall be a resident Canadian. 2.06 Election and Term - The election of the director shall take place at the first meeting of shareholders and at each succeeding annual meeting at which an election of the director is required. The director shall hold office for an expressly stated term, which shall expire not later than the close of the third annual meeting of shareholders following his election. The incumbent director, if qualified, shall be eligible for re-election. If an election of the director is not held at the proper time, the incumbent director shall continue until his successor is elected. 2.07 Vacancy - If a vacancy occurs on the board, the shareholder shall forthwith fill the vacancy. 3. DISCLOSURE and INDEMNIFICATION 3.01 Disclosure of Interests in Contracts - Every director or officer of the Corporation who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation, or is a director or officer of or has a material interest in any person who is a party to a material contract or transaction with the Corporation, shall disclose in writing to the Corporation or request to have entered in the minutes of the meeting of directors the nature and extent of his interest at the time and in the manner required by the Act. Any such contract or proposed contract shall be referred to the board or shareholders for approval even if such contract is one that in the ordinary course of the Corporation's business would not require approval by the board or shareholders, and a director interested in a contract so referred to the board shall not cote on any resolution to approve the same except as provided by the Act. 3.02 Indemnity of Directors and Officers - Subject to the provisions of the Act, the Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such Corporation or body corporate if (a) He acted honestly and in good faith with a view to the best interests of the Corporation; and (b) In the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. 4. OFFICERS 4.01 Appointment - Subject to the provisions of the Act, the board may from time to time appoint a president, one or more vice-presidents (to which title may be added words indicating seniority or function), a secretary, a treasurer and such other officers as the board may determine, including one or more assistants to any of the officers so appointed. One person may hold more than one office. 4.02 Term, Remuneration and Removal - The terms of employment and remuneration of all officers elected or appointed by the board (including the president) shall be determined from time to time by resolution of the board. The fact that any officer or employee is a director or shareholder of the Corporation shall not disqualify him from receiving such remuneration as may be determined. All officers, in the absence of agreement to the contrary, shall be subject to removal by resolution of the board at any time with or without cause. 4.03 President - The president shall be the chief executive officer of the Corporation and as such shall, subject to the provisions of the Act, have the general supervision of the business and affairs of the Corporation, and he shall have such other powers and duties as the board may specify. 4.04 Secretary - The secretary shall attend all meetings of the board and shareholders and shall enter or cause to be entered in books kept for that purpose, minutes of all proceedings at such meetings and all resolutions passed and consented to by the director and all resolutions of the shareholder; he shall give, or cause to be given, when instructed, notices required to be given to the shareholder, the director and the auditor; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and all books, papers, records, documents and other instruments belonging to the Corporation; and he shall perform such other duties as may from time to time be prescribed by the board. 4.05 Other Officers - The duties of all other officers of the Corporation shall be such as the terms of their engagement call for or the board requires of them. Any of the powers and duties of the officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board otherwise directs. 5. MEETINGS OF THE SHAREHOLDER 5.01 Annual Meetings - Subject to Section 5.05 herein, the director shall call the first annual meetings of the shareholder not later than eighteen months after the Corporation comes into existence and, subsequently, not later than fifteen months after holding the last preceding annual meeting, for the purpose of receiving the reports and statements required by the Act to be laid before the annual meeting, electing the director, appointing auditors and fixing or authorizing the board to fix their remuneration, and for the transaction of such other business as may properly be brought before the meeting. 5.02 Special Meetings - The board may at any time call a special meeting of the shareholder for the transaction of any business which may properly be brought before such meeting of the shareholder. 5.03 Place of Meetings - Meetings of the shareholder shall be held at the registered office of the Corporation, or at such other place within or outside of Ontario as the board may determine. 5.04 Joint Shareholders - If shares are held jointly by two or more persons, any one of them present at a meeting of shareholders may, in the absence of the other, vote in respect of such share or shares; but, if more than one shall vote such shares, they shall vote together as one on the share or shares jointly held by them. 5.05 Resolution in Lieu of Meeting - Except where a written statement with respect to the subject matter of the resolution is submitted by the director or the auditors in accordance with the Act, 3. A resolution in writing signed by the shareholder entitled to vote on that resolution at a meeting of the shareholder is as valid as if it had been passed at a meeting of the shareholder; and 4. A resolution in writing dealing with any matter required by the Act to be dealt with at a meeting of the shareholder, and signed by the shareholder entitled to vote at that meeting, satisfies all the requirements of the Act relating to that meeting of shareholder. 6. NOTICES 6.01 Method of Giving Notice - Any notice, communication or other document required by the Act, the regulations, the articles or the by-laws to be given by the Corporation to a shareholder, director, officer, or auditor of the Corporation under any provision of the Act, the articles or by-laws or otherwise shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary mail or if sent to him at his recorded address by any means of any prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or delivered to the recorded address as aforesaid; a notice so mailed shall be deemed to have been received on the fifth day after mailing; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The secretary may change or cause to be changed the recorded address of a director shall be his latest address as shown in the records of the Corporation or in the most recent notice filed under the Ontario Corporation Information Act, whichever is the more current. 6.02 Computation of Time - In computing the date when notice must be given under any provision requiring a specified number of days' notice of any meeting or other event, "day" means a clear day and a period of days shall be deemed to commence on the day following the event that began the period and shall be deemed to terminate at midnight of the last day of the period except that if the last day of the period falls on a Sunday or holiday the period shall terminate at midnight of the day next following that is not a Sunday or holiday. 6.03 Omissions and Errors - The accidental omission to give any notice to any shareholder, director, officer or auditor, or the non-receipt of any notice by any shareholder, director, officer or auditor or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. 6.04 Notice to Joint Shareholders - All notices with respect to any shares registered in more than one name may, if more than one address appears on the records of the Corporation in respect of such holding, be given to such joint shareholders at the first address so appearing, and notice so given shall be sufficient notice to all holders of such shares. 6.05 Persons Entitled by Death or Operation of Law - Every person who by operation of law, by transfer or the death of a shareholder or otherwise becomes entitled to shares is bound by every notice in respect of such shares which has been duly given to the registered holder from whom he derives title prior to his name and address being entered on the records of the Corporation (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. 6.06 Waiver of Notice - Any shareholder (or his duly appointed proxy), director, officer, or auditor may waive any notice or abridge the time required for any notice required to be given under any provision of the Act, the articles or by-laws of the Corporation or otherwise, and such waiver or abridgement, whether given before or after the meeting or other even of which notice is required to be given, shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the board which may be given in any manner. 6.07 Signatures of Notices - The signatures to any notice to be given by the Corporation may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed. 7. EXECUTION OF DOCUMENTS 7.01 Signing Officers - Deeds, transfers, assignments, contracts and obligations of the Corporation may be signed by the president. Notwithstanding this, the board may at any time and from time to time direct the manner in which and the person or persons by whom any particular deed, transfer, contract or obligation or any class of deeds, transfers, contracts or obligations may be signed. 7.02 Seal - Any person authorized to sign any document may affix the corporate seal thereto. 8. FINANCIAL YEAR 8.01 Financial Year - The financial year of the Corporation shall end on the day of in each year until changed by a resolution of the board. 9. EFFECTIVE DATE 9.01 Effective Date - This by-law shall come into force when enacted by the director, subject to the provisions of the Act. 10. REPEAL 10.01 Repeal - Upon this by-law coming into force, By-law Number Corporation is repealed provided that such repeal shall not affect the previous operation of such by-law so repealed or affect the validity of any act done or right, privilege, obligation or liability acquired or incurred under the validity of any contract or agreement made pursuant to any such by-law prior to its repeal. ENACTED by the board the 11th day of February 1994. /s/ Declan A. French /s/ Declan A. French - ----------------------------------- -------------------------------- President Secretary Declan A. French Declan A. French (Corporate Seal) CONFIRMED by the sole shareholder the 11th day of February 1994. /s/ Christine French -------------------------------- Secretary Christine French (Corporate Seal) Resolved that the foregoing by-law is hereby enacted by the sole director of the Corporation, pursuant to the Ontario Business Corporations Act as evidenced by his signature hereto. Dated the 11th day of February 1994. /s/ Declan A. French -------------------------------- Declan A. French The foregoing by-law is hereby confirmed by the sole shareholder of the Corporation, pursuant to the Ontario Business Corporation Act as evidenced by his signature hereto. Dated the 11th day of February 1994. /s/ Christine French -------------------------------- Christine French EX-3.2 4 EXHIBIT 3.2 Exhibit 3.2 ARTICLES OF INCORPORATION 1. The name of the corporation is Declan Technologies, Inc. 2. The address of the registered office is 26 Wellington St. East, Suite 800, city of Toronto, Municipality of Metropolitan. 3. Number (or minimum and maximum number of direction is: Minimum 1, Maximum 10 4. The first director(s) are: Full residence address or of registered office or of principal place of business giving street and none or R.R. No., municipality and postal code 5410 Turney Drive, Mississauga, Ontario L5M 4Y8. 5. Restrictions, if any, on business the corporation may carry on or on powers the corporation may exercise. None. 6. The classes and any maximum number of shares that the corporation is authorized to issue, 100 Common Shares. 7. Rights, privileges, restrictions and conditions (if any) attaching to each class of shares and directors authority with respect to any class of shares which may be issued in series: None. 8. The issue, transfer or ownership of shares is/is not restricted and the restrictions (if any) are as follows: None 9. Other provisions, if any, are NIL 10. The names and addressed of the incorporation are: Declan A. French 11. Full residence address or of registered office or of principal place of business giving street and none or R.R. No., municipality and postal code 5410 Turney Drive, Mississauga, Ontario L5M 4Y8. These articles are signed in duplicate. By: /s/ Declan A. French ----------------------------------- Declan A. French, President EX-3.3 5 EXHIBIT 3.3 Exhibit 3.3 ARTICLES OF AMENDMENT 1. The name of the corporation is Declan Technologies, Inc. 2. The name of the corporation is changed to IT Staffing Ltd 3. Date of incorporation: 11 February 4. The articles of the corporation are amended as follows: Be it resolved that the name of the corporation be and is hereby changed from Declan Technologies Inc. to IT Staffing Ltd. 5. The Amendment has been duly authorized as required by Sections 167 and 169 (as applicable) of the Business Corporation Act. 6. The resolution authorizing the amendment was approved by the shareholders/directors (as applicable) of the corporation on 15 February 1996. These articles are signed in duplicate. Declan Technologies Inc. --------------------------------------- (name of corporation) By: /s/ Declan A. French --------------------------------------- Declan A. French, President EX-3.4 6 EXHIBIT 3.4 Exhibit 3.4 ARTICLES OF AMENDMENT 1. The name of the corporation is IT Staffing Ltd. 2. The name of the corporation is changed to (if applicable) 3. Date of incorporation: 1994 February 11 4. The articles of the corporation are amended as follows: A. The authorized shares of the Corporation are amended by removing the maximum number of common shares that the Corporation is authorized to issue so that after giving effect to the foregoing, the Corporation is authorized to issue common shares in an unlimited number. B. Article 8 of the articles of the Corporation with respect to the issue, transfer or ownership of shares is amended by deleting the word "None" and substituting the following in its place: No share shall be transferred without either: (a) the consent of the directors expressed by resolution or by an instrument or instruments signed by a majority of the directors, which consent may be given either prior or subsequent to the time of transfer of such shares: or (b) the consent of the holders of more than 50% of the outstanding voting shares of the Corporation expressed by resolution or by an instrument or instruments signed by such holders, which consent may be given either prior or subsequent to the time of transfer of such shares. C. Article 9 of the articles of the Corporation with respect to other provisions is amended by deleting the word "Nil" and substituting the following in its place: (a) The number of shareholders of the Corporation, exclusive of persons who are in its employment and exclusive of persons who, having been formerly in the employment of the Corporation, were, while in that employment, and have continued after the termination of that employment to be shareholders of the Corporation, is limited to not more than 50, 2 or more persons who are the joint registered owners of 1 or more shares being counted as I shareholder. (b) Any invitation to the public to subscribe for securities of the Corporation is prohibited. (c) The Corporation shall be entitled to a lien on a share registered in the name of a shareholder or his legal representative for a debt of that shareholder to the Corporation. (d) The directors may, without authorization of the shareholders, hypothetic any property, movable or immovable, present or future, which the Corporation may own. 5. The amendment has been duly authorized as required by Sections 168 and 170 (applicable) of the Business Corporations Act. 6. The resolution authorizing the amendment was approved by the shareholders/directors (as applicable) of the corporation on 15th April, 1998. These articles are signed in duplicate. IT Staffing Ltd. --------------------------------------- Name of Corporation By: /s/ Declan French --------------------------------------- Director EX-3.5 7 EXHIBIT 3.5 Exhibit 3.5 ARTICLES OF AMENDMENT 1. The name of the corporation is IT Staffing Ltd. 2. The name of the corporation is changed to (if applicable) 3. Date of incorporation: 1994 February 11 4. The articles of the corporation are amended as follows: A. To change the 1,281,667 issued common shares of the Corporation into 1,677,875.5 issued common shares. B. By removing the restrictions on the transfer of shares of the Corporation as set forth in subparagraph 4(B) of the Certificate of Amendment of Articles issued to the Corporation effective April 15, 1998 and providing that there shall be no restrictions on the transfer of shares of the Corporation. C. By removing subparagraphs 4(C) and 4(C)(b) of the Certificate of Amendment of Articles issued to the Corporation effective April 15, 1998. 5. The amendment has been duly authorized as required by Sections 168 & 170 (as applicable) of the Business Corporations Act. 6. The resolution authorizing the amendment was approved by the shareholders/directors (as applicable) of the corporation on 1998 August 6 IT Staffing Ltd. --------------------------------------- (name of corporation) /s/ Declan French --------------------------------------- Declan French, President EX-4.2 8 EXHIBIT 4.2 Exhibit 4.2 - -------------------------------------------------------------------------------- WARRANT AGREEMENT By and Between IT STAFFING LTD. and STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED Dated as of _________ __, 1999 - -------------------------------------------------------------------------------- WARRANT AGREEMENT WARRANT AGREEMENT dated as of _________ __, 1999 by and between IT STAFFING LTD., an Ontario corporation (the "Company"), and STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED ("Strasbourger"). The Company proposes to issue to Strasbourger warrants as hereinafter described (the "Strasbourger Warrants") to purchase up to an aggregate of 100,000 shares, subject to adjustment as provided in Section 8 hereof (such shares, as adjusted, being hereinafter referred to as the "Shares") of the Company's Common Stock, par value $0.001 per share (the "Common Shares"), each Strasbourger Warrant entitling the holder thereof to purchase one Common Share. All capitalized terms used herein and not otherwise defined herein shall have the same meanings as in that certain underwriting agreement, of even date herewith, by and between the Company and Strasbourger (the "Underwriting Agreement"). In this Agreement, the singular includes the plural and the plural includes the singular. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth and for other good and valuable consideration, the parties hereto agree as follows; 1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue, sell and deliver the Strasbourger Warrants to Strasbourger or its bona fide officers for an aggregate price of $100.00. The form of the Strasbourger Warrants and the form of election to purchase Shares to be attached thereto shall be substantially as set forth on Exhibit A attached hereto. The Strasbourger Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chief Executive Officer, President or any Vice President of the Company, under its corporate seal, affixed or in facsimile, and attested by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. 2. REGISTRATION. The Strasbourger Warrants shall be numbered and shall be registered in a Strasbourger Warrant register (the "Strasbourger Warrant Register"). The Company shall be entitled to treat the registered holder of any Strasbourger Warrant on the Strasbourger Warrant Register (the "Holder") as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Strasbourger Warrant on the part of any other person, and shall not be liable for any registration of transfer of Strasbourger Warrants which are registered or are to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with such knowledge of such facts that its participation therein amounts to bad faith. The Strasbourger Warrants shall be registered initially in the name of "Strasbourger Pearson Tulcin Wolff Incorporated" or in the names of such bonafide officers of Strasbourger as designated to the Company prior to the date hereof in such denominations as Strasbourger may request in writing to the Company. Any such designation regarding the Strasbourger Warrants will only be made by Strasbourger if it 2 determines that such issuances would not violate the Rules of Conduct of the National Association of Securities Dealers, Inc. (the "NASD"). 3. TRANSFER OF WARRANTS. The Strasbourger Warrants will not be sold, transferred, assigned or hypothecated, in part or in whole (other than by will or pursuant to the laws of descent and distribution), except to officers of Strasbourger and thereafter only upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original power of attorney, duly approved, or an official copy thereof, duly certified, shall be deposited with the Company. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited with the Company in its discretion. Upon any registration of transfer, the Company shall deliver a new Strasbourger Warrant or Strasbourger Warrants to the persons entitled thereto. The Strasbourger Warrants may be exchanged at the option of the Holder thereof for another Strasbourger Warrant, or other Strasbourger Warrants, of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Common Shares upon surrender to the Company or its duly authorized agent. Notwithstanding the foregoing, the Company shall have no obligation to cause Strasbourger Warrants to be transferred on its books to any person if such transfer would violate the Securities Act of 1933, as amended (the "Act"). 4. TERM OF WARRANTS; EXERCISE OF WARRANTS. Each Strasbourger Warrant entitles the registered owner thereof to purchase one Share at a purchase price of $____ per Share (the "Exercise Price") at any time from the first anniversary of the effective date of the Registration Statement until 5:00 p.m., New York City time, on ________ __, 2004 (the "Warrant Expiration Date"). Prior to the Warrant Expiration Date, the Company will not take any action which would terminate the Strasbourger Warrants. The Exercise Price and the Shares issuable upon exercise of the Strasbourger Warrants are subject to adjustment upon the occurrence of certain events pursuant to the provisions of Section 8 of this Agreement. Subject to the provisions of this Agreement, each Holder shall have the right, which may be exercised as set forth in such Strasbourger Warrants, to purchase from the Company (and the Company shall issue and sell to such Holder) the number of fully paid and nonassessable Common Shares specified in such Strasbourger Warrants, upon surrender to the Company, or its duly authorized agent, of such Strasbourger Warrants with the form of election to purchase attached thereto duly completed and signed, with signatures guaranteed by a member firm of a national securities exchange, a commercial bank or trust company located in the United States or a member of the NASD and upon payment to the Company of the Exercise Price, as adjusted in accordance with the provisions of Section 8 of this Agreement, for the number of Shares in respect of which such Strasbourger Warrants are then exercised. Payment of such Exercise Price may be made at the Holder's election (i) by certified or official bank check, (ii) in the event that the Holder holds Common Shares of the Company and such Common Shares are listed on a domestic stock exchange or quoted in the domestic over-the-counter market, by transferring to the Company an amount of such Common Shares which, when multiplied by the current market price of the Common Shares at the time of exercise of 3 such Strasbourger Warrant, equals the aggregate amount of the consideration payable upon such exercise, (iii) by surrendering to the Company the right to receive a portion of the number of Shares with respect to which such Strasbourger Warrant is then being exercised equal to the product obtained by multiplying such number of Shares by a fraction, the numerator of which is the Exercise Price in effect on the date of such exercise and the denominator of which is the current market price of the Common Shares in effect on such date, or (iv) by a combination of the foregoing methods of payment selected by the Holder. In any case where the consideration payable upon such exercise is being paid in whole or in part pursuant to the provisions of clause (ii) or clause (iii) of the preceding sentence, such exercise shall be accompanied by written notice from the Holder specifying the manner of payment thereof, and in the case of clause (ii), stating the amount of Common Shares of the Company to be applied to such payment, and in the case of clause (iii), containing a calculation showing the number of Shares with respect to which rights are being surrendered thereunder and the net number of Shares to be issued after giving effect to such surrender. No adjustment shall be made for any dividends on any Shares issuable upon exercise of a Strasbourger Warrant. Upon each surrender of Strasbourger Warrants and payment of the Exercise Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Holder of such Strasbourger Warrants and in such name or names as such Holder may designate, a certificate or certificates for the number of full Shares so purchased upon the exercise of such Strasbourger Warrants, together with cash, as provided in Section 9 of this Agreement, in respect of any fractional Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Shares as of the date of the surrender of Strasbourger Warrants and payment of the Exercise Price as aforesaid; provided, however, that if, at the date of surrender of such Strasbourger Warrants and payment of such Exercise Price, the transfer books for the Common Shares or other class of securities issuable upon the exercise of such Strasbourger Warrants shall be closed, the certificates for the Shares shall be issuable as of the date on which such books shall next be opened (whether before, on or after the Warrant Expiration Date) and until such date the Company shall be under no duty to deliver any certificate for such Shares; provided, further, however, that the transfer books of record, unless otherwise required by law, shall not be closed at any one time for a period longer than twenty (20) days. The rights of purchase represented by the Strasbourger Warrants shall be exercisable, at the election of the Holders thereof, either in full or from time to time in part and, in the event that any Strasbourger Warrant is exercised in respect of less than all of the Shares issuable upon such exercise at any time prior to the Warrant Expiration Date, a new Strasbourger Warrant or Strasbourger Warrants will be issued for the remaining number of Shares specified in the Strasbourger Warrant so surrendered. 5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if any, attributable to the issuance of Shares upon the exercise of Strasbourger Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any certificates for Shares in a name other than that of the Holder of Strasbourger Warrants in respect of which such Shares are issued. 6. MUTILATED OR MISSING WARRANTS. In case any of the Strasbourger Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and deliver in 4 exchange and substitution for and upon cancellation of the mutilated Strasbourger Warrant, or in lieu of and substitution for the Strasbourger Warrant lost, stolen or destroyed, a new Strasbourger Warrant of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company of such mutilation, loss, theft or destruction of such Strasbourger Warrant and indemnity, unless mutilated, also reasonably satisfactory to the Company. An applicant for such substitute Strasbourger Warrants shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. 7. RESERVATION OF SHARES, ETC. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and unissued Common Shares, a number of Common Shares sufficient to provide for the exercise of the rights of purchase represented by the outstanding Strasbourger Warrants. Continental Stock Transfer & Trust Company, transfer agent for the Common Shares (the "Transfer Agent"), and every subsequent transfer agent, if any, for the Company's securities issuable upon the exercise of the Strasbourger Warrants will be irrevocably authorized and directed at all times until the Warrant Expiration Date to reserve such number of authorized and unissued Common Shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent of the Company's securities issuable upon the exercise of the Strasbourger Warrants. The Company will supply the Transfer Agent or any subsequent transfer agent with duly executed certificates for such purpose and will itself provide or otherwise make available any cash which may be distributable as provided in Section 9 of this Agreement. All Strasbourger Warrants surrendered in the exercise of the rights thereby evidenced shall be canceled, and such canceled Strasbourger Warrants shall constitute sufficient evidence of the number of Shares that have been issued upon the exercise of such Strasbourger Warrants. No Common Shares shall be subject to reservation in respect of unexercised Strasbourger Warrants subsequent to the Warrant Expiration Date. 8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise Price and the number and kind of securities issuable upon exercise of each Strasbourger Warrant shall be subject to adjustment from time to time upon the happening of certain events, as follows: (a) In case the Company shall (i) declare a dividend on its Common Shares in Common Shares or make a distribution of Common Shares, (ii) subdivide its outstanding Common Shares, (iii) combine its outstanding Common Shares into a smaller number of Common Shares or (iv) issue by reclassification of its Common Shares other securities of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), the number of Shares purchasable upon exercise of each Strasbourger Warrant immediately prior thereto shall be adjusted so that the Holder of each Strasbourger Warrant shall be entitled to receive the kind and number of Shares or other securities of the Company which he would have owned or have been entitled to receive after the happening of any of the events described above, had such Strasbourger Warrant been exercised immediately prior to the happening of such event or any record date with respect 5 thereto. An adjustment made pursuant to this paragraph (a) shall become effective immediately after the effective date of such event retroactive to immediately after the record date, if any, for such event. (b) In case the Company shall issue rights, options or warrants to all holders of its Common Shares, without any charge to such holders, entitling them (for a period expiring within 45 days after the record date mentioned below in this paragraph (b)) to subscribe for or to purchase Common Shares at a price per share that is lower at the record date mentioned below than the then current market price per Common Share (as defined in paragraph (d) below), the number of Shares thereafter purchasable upon exercise of each Strasbourger Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of each Strasbourger Warrant by a fraction, of which the numerator shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares offered for subscription or purchase, and of which the denominator shall be the number of Common Shares outstanding on such record date plus the number of shares which the aggregate offering price of the total number of Common Shares so offered would purchase at the then current market price per Common Share. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively to immediately after the record date for the determination of shareholders entitled to receive such rights, options or warrants. (c) In case the Company shall distribute to all holders of its Common Shares stock other than Common Shares or evidences of its indebtedness or assets (excluding cash dividends payable out of consolidated earnings or retained earnings and dividends or distributions referred to in paragraph (a) above) or rights, options or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Common Shares (excluding those referred to in paragraph (b) above), then in each case the number of Shares thereafter issuable upon the exercise of each Strasbourger Warrant shall be determined by multiplying the number of Shares theretofore issuable upon the exercise of each Strasbourger Warrant, by a fraction, of which the numerator shall be the current market price per Common Share (as defined in paragraph (d) below) on the record date mentioned below in this paragraph (c), and of which the denominator shall be the current market price per Common Share on such record date, less the then fair value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the shares of stock other than Common Shares or assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible or exchangeable securities applicable to one Common Share. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to immediately after the record date for the determination of shareholders entitled to receive such distribution. 6 (d) For the purpose of any computation under paragraphs (b) and (c) of this Section 8, the current market price per Common Share at any date shall be the average of the daily closing prices for fifteen (15) consecutive trading days commencing twenty (20) trading days before the date of such computation. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in either case on the principal national securities exchange on which the shares are listed or admitted to trading, or if they are not listed or admitted to trading on any national securities exchange, but are traded in the over-the-counter market, the closing sale price of the Common Shares or, in case no sale is publicly reported, the average of the representative closing bid and asked quotations for the Common Shares on the Nasdaq SmallCap Market or any comparable system, or if the Common Shares are not listed on the Nasdaq SmallCap Market or a comparable system, the closing sale price of the Common Shares or, in case no sale is publicly reported, the average of the closing bid and asked prices as furnished by two members of the NASD selected from time to time by the Company for that purpose. (e) No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of Shares purchasable upon the exercise of each Strasbourger Warrant; provided, however, that any adjustments which by reason of this paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment, but not later than three years after the happening of the specified event or events. All calculations shall be made to the nearest one thousandth of a share. Anything in this Section 8 to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the number of Shares purchasable upon the exercise of each Strasbourger Warrant, in addition to those required by this Section 8, as it in its discretion shall determine to be advisable in order that any dividend or distribution in shares of Common Shares, subdivision, reclassification or combination of Common Shares, issuance of rights, warrants or options to purchase Common Shares, or distribution of shares of stock other than Common Shares, evidences of indebtedness or assets (other than distributions of cash out of consolidated earnings or retained earnings) or convertible or exchangeable securities hereafter made by the Company to the holders of its Common Shares shall not result in any tax to the holders of its Common Shares or securities convertible into Common Shares. (f) Whenever the number of Shares purchasable upon the exercise of each Strasbourger Warrant is adjusted, as herein provided, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to 7 such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of each Strasbourger Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (g) For the purpose of this Section 8, the term "Common Shares" shall mean (i) the class of stock designated as the Common Shares of the Company at the date of this Agreement or (ii) any other class of stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, or from no par value to par value, or from par value to no par value. In the event that at any time, as a result of an adjustment made pursuant to paragraph (a) above, the Holders shall become entitled to purchase any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so purchasable upon exercise of each Strasbourger Warrant and the Exercise Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in paragraphs (a) through (f), inclusive, and paragraphs (h) through (m), inclusive, of this Section 8, and the provisions of Sections 4, 5, 7 and 10, with respect to the Shares, shall apply on like terms to any such other shares. (h) Upon the expiration of any rights, options, warrants or conversion rights or exchange privileges, if any thereof shall not have been exercised, the Exercise Price and the number of Common Shares purchasable upon the exercise of each Strasbourger Warrant shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be) as if (i) the only Common Shares so issued were the Common Shares, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion rights or exchange privileges and (ii) such Common Shares, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all of such rights, options, warrants or conversion rights or exchange privileges whether or not exercised; provided, however, that no such readjustment shall have the effect of increasing the Exercise Price by an amount in excess of the amount of the adjustment initially made in respect to the issuance, sale or grant of such rights, options, warrants or conversion rights or exchange privileges. (i) The Company may, at its option, at any time during the term of the Strasbourger Warrants, reduce the then current Exercise Price to any amount deemed appropriate by the Board of Directors of the Company. (j) Whenever the number of Shares issuable upon the exercise of each Strasbourger Warrant or the Exercise Price of such Shares is adjusted, as herein provided, the Company shall promptly mail by first class mail postage prepaid, to each Holder notice of such adjustment or adjustments. The Company shall retain 8 a firm of independent public accountants (who may be the regular accountants employed by the Company) to make any computation required by this Section 8 and shall cause such accountants to prepare a certificate setting forth the number of Shares issuable upon the exercise of each Strasbourger Warrant and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such certificate shall be conclusive on the correctness of such adjustment and each Holder shall have the right to inspect such certificate during reasonable business hours. (k) Except as provided in this Section 8, no adjustment in respect of any dividends shall be made during the term of the Strasbourger Warrants or upon the exercise of the Strasbourger Warrants. (l) In case of any consolidation of the Company with or merger of, the Company with or into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation (or an affiliate of such successor or purchasing corporation), as the case may be, agrees that each Holder shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of each Strasbourger Warrant the kind and amount of shares and other securities and property (including cash) which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had such Strasbourger Warrant been exercised immediately prior to such action. The provisions of this paragraph (l) shall similarly apply to successive consolidations, mergers, sales or conveyances. (m) Notwithstanding any adjustment in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Strasbourger Warrants pursuant to this Agreement, certificates for Strasbourger Warrants issued prior or subsequent to such adjustment may continue to express the same price and number and kind of Shares as are initially issuable pursuant to this Agreement. 9. FRACTIONAL INTERESTS. The Company shall not be required to issue fractions of Shares on the exercise of Strasbourger Warrants. If more than one Strasbourger Warrant shall be presented for exercise in full at the same time by the same Holder, the number of Shares which shall be issuable upon the exercise thereof shall be computed on the basis number of Shares issuable on exercise of the Strasbourger Warrants so presented. If any fraction of a Share would, except for the provisions of this Section 9, be issuable on the exercise of any Strasbourger Warrant (or specified portions thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the current market price per Common Share (determined as provided in the second sentence of Section 8(d) of this Agreement) on the date of exercise. 9 10. REGISTRATION RIGHTS. (a) DEMAND REGISTRATION RIGHTS. The Company covenants and agrees with Strasbourger and any other or subsequent Holders of the Registrable Securities (as defined in paragraph (e) of this Section 10) that, upon written request of the then Holder(s) of at least a majority of the aggregate of the Registrable Securities which were originally issued on the date hereof to Strasbourger or its designees, made at any time within the period commencing one year and ending five years after the Effective Date, the Company will file as promptly as practicable and, in any event, within 45 days after receipt of such written request, at its sole expense, no more than once, a post-effective amendment (the "Amendment") to the Registration Statement, or a new Registration Statement or a Regulation A Offering Statement (an "Offering Statement") under the Act, registering or qualifying the Registrable Securities for sale. Within fifteen (15) days after receiving any such notice, the Company shall give notice to the other Holders of the Registrable Securities advising that the Company is proceeding with such Amendment, Registration Statement or Offering Statement and offering to include therein the Registrable Securities of such Holders. The Company shall not be obligated to any such other Holder unless such other Holder shall accept such offer by notice in writing to the Company within ten (10) days thereafter. No other securities of the Company shall be entitled to be included in such Amendment, Registration Statement or Offering Statement. The Company will use its best efforts, through its officers, directors, auditors and counsel in all matters necessary or advisable, to file and cause to become effective such Amendment, Registration Statement or Offering Statement as promptly as practicable and for a period of at least twelve months thereafter to reflect in the Amendment, Registration Statement or Offering Statement financial statements which are prepared in accordance with Section 10(a)(3) of the Act and any facts or events arising that, individually, or in the aggregate, represent a fundamental and/or material change in the information set forth in the Amendment, Registration Statement or Offering Statement to enable any Holders of the Strasbourger Warrants to either sell such Strasbourger Warrants or to exercise such Strasbourger Warrants and sell Shares, or to enable any holders of Shares to sell such Shares, during said twelve-month period. The Holders may sell the Registrable Securities pursuant to the Amendment, Registration Statement or the Offering Statement without exercising the Strasbourger Warrants. If any registration pursuant to this paragraph (a) is an underwritten offering, the Holders of a majority of the Registrable Securities to be included in such registration shall be entitled to select the underwriter or managing underwriter (in the case of a syndicated offering) of such offering. (b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees with Strasbourger and any other Holders or subsequent Holders of the Registrable Securities that if, at any time within the period commencing one year and ending five years after the Effective Date, it proposes to file a Registration Statement or Offering Statement with respect to any class of security (other than in connection with an offering to the Company's employees) under the Act in a primary registration on behalf of the Company and/or in a secondary registration on behalf of holders of such securities and the registration form or Offering Statement to be used may be used for registration of the Registrable Securities, the Company will give prompt written notice (which, in the case of a Registration Statement or notification pursuant to the exercise of demand registration rights other than those provided in Section 10(a) 10 of this Agreement, shall be within ten (10) business days after the Company's receipt of notice of such exercise, in any event, shall be at least 45 days prior to such filing) to, the Holders of Registrable Securities (regardless of whether some of the Holders shall have theretofore availed themselves of the right provided in Section 10(a) of this Agreement) at the addresses appearing on the records of the Company of its intention to file a Registration Statement or Offering Statement and will offer to include in such registration statement or Offering Statement to the maximum extent possible, and limited, in the case of a Regulation A offering, to the amount of the available exemption, subject to sub-paragraphs (i) and (ii) of this paragraph (b), such number of Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) days after the giving of notice by the Company. All registrations requested pursuant to this Section 10(b) are referred to herein as "Piggyback Registrations." All Piggyback Registrations pursuant to this Section 10(b) will be made solely at the Company's expense. This paragraph is not applicable to a Registration Statement filed by the Company with the Commission on Forms S-4 or S-8 or any successor forms. (i) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration includes an underwritten primary registration on behalf of the Company and the underwriter(s) for the offering being registered by the Company shall determine in good faith and advise the Company in writing that in its/their opinion the number of Registrable Securities requested to be included in such registration exceeds the number that can be sold in such offering without materially adversely affecting the distribution of such securities by the Company, the Company will include in such registration (A) first, the securities that the Company proposes to sell and (B) second, the Registrable Securities requested to be included in such registration, apportioned pro rata among the Holders of Registrable Securities and (C) third, securities of the holders of other securities requesting registration. (ii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration consists only of an underwritten secondary registration on behalf of holders of securities of the Company (other than pursuant to Section 10(a)), and the underwriter(s) for the offering being registered by the Company advise the Company in writing that in its/their opinion the number of Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering without materially adversely affecting the distribution of such securities by the Company, the Company will include in such registration (A) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in such registration above, pro rata, among all such holders on the basis of the number of shares requested to be included by each such holder and (B) second, other securities requested to be included in such registration. 11 Notwithstanding the foregoing, if any such underwriter shall determine in good faith and advise the Company in writing that the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by the Company would materially adversely affect the distribution of such securities by the Company, then the Holders of such Registrable Securities shall delay their offering and sale for such period ending on the earliest of (1) 90 days following the effective date of the Company's registration statement, (2) the day upon which the underwriting syndicate, if any, for such offering shall have been disbanded or, (3) such date as the Company, managing underwriter and Holders of Registrable Securities shall otherwise agree. In the event of such delay, the Company shall file such supplements, post-effective amendments and take any such other steps as may be necessary to permit such Holders to make their proposed offering and sale for a period of 120 days immediately following the end of such period of delay. If any party disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company, the underwriter, and Strasbourger. Notwithstanding the foregoing, the Company shall not be required to file a registration statement to include Shares pursuant to this Section 10(b) if an opinion of independent counsel, reasonably satisfactory to counsel for the Company and counsel for Strasbourger, that the Shares proposed to be disposed of may be transferred pursuant to the provisions of Rule 144 under the Act, shall have been delivered to counsel for the Company. (c) OTHER REGISTRATION RIGHTS. In addition to the rights above provided, the Company will cooperate with the then Holders of the Registrable Securities in preparing and signing any Registration Statement or Offering Statement, in addition to the Registration Statements and Offering Statements discussed above, required in order to sell or transfer the Registrable Securities and will supply all information required therefor, but such additional Registration Statement or Offering Statement shall be at the then Holders' cost, and expense; provided, however, that if the Company elects to register or qualify additional Common Shares, the cost and expense of such Registration Statement or Offering Statement will be pro rated between the Company and the Holders of the Registrable Securities according to the aggregate sales price of the securities being issued. Notwithstanding the foregoing, the Company will not be required to file a Registration Statement or Offering Statement at a time when the audited financial statements required to be included therein are not available, which time shall be limited to the period commencing 45 days after the end of a fiscal year and ending 90 days after the end of such fiscal year. (d) ACTION TO BE TAKEN BY THE COMPANY. In connection with the registration of Registrable Securities in accordance with paragraphs (a), (b) or (c) of this Section 10, the Company agrees to: (i) Bear the expenses of any registration or qualification under paragraphs (a) or (b) of this Section 10, including, but not limited to, legal, accounting and printing fees; provided, however, that in no event shall the Company be obligated to pay (A) any fees and disbursements of special counsel for Holders of Registrable Securities, or (B) any underwriters' discount or commission in respect of such Registrable Securities, or 12 (C) upon the exercise of and demand registration right provided for in paragraph (a) of this Section 10, the cost of and liability or similar insurance required by an underwriter, to the extent that such costs are attributable solely to the offering of such Registrable Securities, payment of which shall, in each case, be the sole responsibility of the Holders of the Registrable Securities; (ii) Use its best efforts to register or qualify the Registrable Securities for offer or sale under state securities or Blue Sky laws of such jurisdictions as Strasbourger shall reasonably request and to do any and all other acts and things which may be necessary or advisable to enable the holders to consummate the proposed sale, transfer or other disposition of such securities in any jurisdiction; and (iii) Enter into a cross-indemnity agreement, in customary form, with each underwriter, if any, and each holder of securities included in such Amendment, Registration Statement or Offering Statement, (e) For purposes of this Section 10, (i) the term "Holder" shall include holders of Shares, and (ii) the term "Registrable Securities" shall mean the Strasbourger Warrants and the Shares, issued upon exercise of the Strasbourger Warrants. 11. NOTICES TO HOLDERS. (a) Nothing contained in this Agreement or in any of the Strasbourger Warrants shall be construed as conferring upon the Holders thereof the right to vote or to receive dividends or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company; provided, however, that in the event that a meeting of shareholders shall be called to consider and take action on a proposal for the voluntary dissolution of the Company, other than in connection with a consolidation, merger or sale of all, or substantially all, or its property, assets, business and good will as an entirety, then and in that event the Company shall cause a notice thereof to be sent by first-class mail, postage prepaid, at least twenty (20) days prior to the date filed as a record date or the date of closing the transfer books in relation to such meeting, to each registered Holder of Strasbourger Warrants at such Holder's address appearing in the Strasbourger Warrant Register; but failure to mail or to receive such notice or any defect therein or in the mailing thereof shall not affect the validity of any action taken in connection with such voluntary dissolution. If such notice shall have been so given and if such a voluntary dissolution shall be authorized at such meeting or any adjournment thereof, then from and after the date on which such voluntary dissolution shall have been duly authorized by the shareholders, the purchase rights represented by the Strasbourger Warrants and all other rights with respect thereto shall cease and terminate. (b) In the event the Company intends to make any distribution on its Common Shares (or other securities which may be issuable in lieu thereof upon the exercise of 13 Strasbourger Warrants), including, without limitation, any such distribution to be made in connection with a consolidation or merger in which the Company is the continuing corporation, or to issue subscription rights or warrants to holders of its Common Shares, the Company shall cause a notice of its intention to make such distribution to be sent by first-class mail, postage prepaid, at least twenty (20) days prior to the date fixed as a record date or the date of closing the transfer books in relation to such distribution, to each registered Holder of Strasbourger Warrants at such Holder's address appearing on the Strasbourger Warrant Register, but failure to mail or to receive such notice or any defect therein or in the mailing thereof shall not affect the validity of any action taken in connection with such distribution. 12. NOTICES. Any notice pursuant to this Agreement to be given or made by the Holder of any Strasbourger Warrant and/or the holder of any Share to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed as follows or to such other address as the Company may designate by notice given in accordance with this Section 12, to the Holders of Strasbourger Warrants and/or the holders of Shares: IT Staffing Ltd. 55 University Avenue Toronto, Ontario, Canada M5J 2H7 Attn.: Declan A. French with a copy to: Gersten, Savage, Kaplowitz & Fredericks, LLP 101 East 52nd Street, 9th Floor New York, New York 10022 Attn.: Arthur S. Marcus, Esq. Notices or demands authorized by this Agreement to be given or made by the Company to or on the Holder of any Strasbourger Warrant and/or the holder of any Share shall be sufficiently given or made (except as otherwise provided in this Agreement) if sent by first-class mail, postage prepaid, addressed to such Holder or such holder of Shares at the address of such Holder or such holder of Shares as shown on the Strasbourger Warrant Register or the books of the Company, as the case may be. 13. GOVERNING LAW. THIS AGREEMENT AND EACH STRASBOURGER WARRANT ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The Company hereby agrees to accept service of process by notice given to it pursuant to the provisions of Section 12. 14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts together shall constitute but one and the same agreement. 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day, month and year first above written. (Corporate Seal) IT STAFFING LTD. Attest: By: -------------------------------- Name: Declan A. French Title: President - ----------------------------- Secretary (Corporate Seal) STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED Attest: By: -------------------------------- Name: Michael J. Schumacher Title: President - -------------------------- 15 EXHIBIT A No. ________ ________ Warrants VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON _________, 2004 IT STAFFING LTD. Warrant Certificate THIS CERTIFIES THAT for value received ______________ or registered assigns, is the owner of the number of warrants set forth above, each of which entitles the owner thereof to purchase at any time from ________ ___, 2000, until 5:00 p.m., New York City time on _________, 2004 (the "Warrant Expiration Date"), one fully paid and nonassessable Common Share, without par value (the "Common Shares"), of IT Staffing Ltd., an Ontario corporation (the "Company"), at the purchase price of $____ per share (the "Exercise Price") upon presentation and surrender of this Warrant Certificate with the Form of Election to Purchase duly executed. The number of Warrants evidenced by this Warrant Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Exercise Price per share set forth above, are the number and Exercise Price as of the date of original issuance of the Warrants, based on the Common Shares of the Company as constituted at such date. As provided in the Warrant Agreement referred to below, the Exercise Price and the number or kind of shares which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment. This Warrant Certificate is subject to, and entitled to the benefits of, all of the terms, provisions and conditions of an agreement dated as of ________ ___, 1999 (the "Warrant Agreement") between the Company and Strasbourger Pearson Tulcin Wolff Incorporated which Warrant Agreement is hereby incorporated herein by reference and made a part hereof and to which Warrant Agreement reference is hereby made for a full description of the rights, limitations of rights, duties and immunities hereunder of the Company and the holders of the Warrant Certificates. Copies of the Warrant Agreement are on file at the principal office of the Company. 16 This Warrant Certificate, with or without other Warrant Certificates, upon surrender at the principal office of the Company, may be exchanged for another Warrant Certificate or Warrant Certificates of like tenor and date evidencing Warrants entitling the holder to purchase a like aggregate number of Common Shares as the Warrants evidenced by the Warrant Certificate or Warrant Certificates surrendered entitled such holder to purchase. If this Warrant Certificate shall be exercised in part, the holder hereof shall be entitled to receive upon surrender hereof another Warrant Certificate or Warrant Certificates for the number of whole Warrants not exercised. No fractional Common Shares will be issued upon the exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Warrant Agreement. No holder of this Warrant Certificate shall be entitled to vote or receive dividends or be deemed the holder of Common Shares, any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained in the Warrant Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or, except as provided in the Warrant Agreement, to receive notice of meetings, or to receive dividends or subscription rights or otherwise, until the Warrant or Warrants evidenced by this Warrant Certificate shall have been exercised and the shares shall have become deliverable as provided in the Warrant Agreement. If this Warrant shall be surrendered for exercise within any period during which the transfer books for the Company's Common Shares or other class of stock purchasable upon the exercise of this Warrant are closed for any purpose, the Company shall not be required to make delivery of certificates for shares purchasable upon such exercise until the date of the reopening of said transfer books. 17 IN WITNESS WHEREOF, IT Staffing Ltd. has caused the signature (or facsimile signature) of its President and its Secretary to be printed hereon and its corporate seal (or facsimile) to be printed hereon. Dated: __________________, 1999 IT STAFFING LTD. By: -------------------------------- Name: Declan A. French Title: President [Corporate Seal] Attest: - ----------------------------- Secretary 18 FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Warrant Certificate.) TO: _______________________ The undersigned hereby irrevocably elects to exercise Warrants represented by this Warrant Certificate to purchase the Common Shares issuable upon the exercise of such Warrants and requests that certificates for such shares be issued in the name of: Please insert social security or other identifying number - --------------------------------------------- ----------------------------------------------------------------- (Please print name and address) ----------------------------------------------------------------- If such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, a new Warrant Certificate for the balance remaining of such Warrants shall be registered in the name of and delivered to: Please insert social security number or other identifying number - --------------------------------------------- - --------------------------------------------- ----------------------------------------------------------------- (Please print name and address) ----------------------------------------------------------------- Dated: ______________, _______ ------------------------------ Signature (signature must conform in all respects to name of holder as specified on the face of this Warrant Certificate) Signature Guaranteed: 19 FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant Certificates.) FOR VALUE RECEIVED, ________________________ hereby sells, assigns and transfers unto [_____________________________] this Warrant Certificate, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ________________, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________, ____ Signature ----------------- Signature Guaranteed: NOTICE The signature of the foregoing Assignment must correspond to the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. 20 EX-5.1 9 OPINION OF MCMILLAN BINCH Exhibit 5.1 [MCMILLAN BINCH LETTERHEAD] January 6, 1999 IT Staffing Ltd. 55 University Avenue Toronto, Ontario M5J 2H7 Dear Sirs/Mesdames: RE: REGISTRATION STATEMENT ON FORM SB-2 - REGISTRATION NO. 333-63909 We act as Canadian counsel to IT Staffing Ltd., a corporation formed under the laws of the Province of Ontario (the "Company"), in connection with the registration of certain securities of the Company under the United States Securities Act of 1933, as amended (the "Securities Act"). In that regard, we have reviewed the Registration Statement on Form SB-2 as filed under the Securities Act by the Company with the Securities and Exchange Commission (the "Commission") on September 21, 1998 (the "Registration Statement"). The Registration Statement has been filed for the purpose of registering the proposed offering of (i) 1,150,000 common shares, no par value, of the Company (the "Common Stock") offered for sale by the Company, inclusive of securities issuable on exercise of the over-allotment option described in the Registration Statement; (ii) warrants exercisable for 100,000 shares of Common Stock, issuable to the representative of the underwriters who will participate in the proposed offering (the "Representative=s Warrant"); and (iii) 100,000 shares of Common Stock reserved for issuance upon exercise of the Representative=s Warrant. In rendering this opinion, we have examined originals or copies certified or otherwise identified to our satisfaction as being true copies of the Registration Statement, the Articles of Incorporation of the Company, as amended, the By-laws of the Company, resolutions of the Company=s sole director and such other documents as we have deemed relevant and necessary as a basis for this opinion. In such examinations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic, original documents of all documents submitted to us as copies. In expressing the opinion in paragraph 1 below, we have relied solely upon a Certificate of Status dated January 6, 1999 issued by the Ministry of Consumer and Commercial Relations of the Province of Ontario. IT Staffing Ltd. January 6, 1999 Page 2 We are qualified to practice law in the Province of Ontario. The following opinions are limited to the laws of the Province of Ontario and the federal laws of Canada applicable therein, and we express no opinion as to the laws of any other jurisdiction. Based upon and subject to the foregoing, we are of the opinion that: 1. The Company is a corporation validly existing under the laws of the Province of Ontario with corporate power to conduct its business as described in the Registration Statement. 2. The Common Stock, the Representative=s Warrant and the Common Stock issuable upon exercise of the Representative=s Warrant have been duly and validly authorized for issuance by the Company and, when the Shares of Common Stock are issued, paid for and delivered by the Company in the manner set forth in the Registration Statement, will be fully paid and non-assessable. 3. Under the laws of the Province of Ontario, shareholders of the Company are not personally liable for debts of the Company solely by reason of their ownership of the Common Stock. 4. The attributes of the Common Stock conform to the description contained in the section "Description of Securities" in the prospectus forming a part of the Registration Statement. We consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to McMillan Binch in the prospectus forming a part of the Registration Statement under the heading "Legal Matters". Yours very truly, McMILLAN BINCH EX-10.1 10 EXHIBIT 10.1 Exhibit 10.1 DRAFT 1/5/99 FINANCIAL CONSULTING AGREEMENT The parties to this Agreement are Strasbourger Pearson Tulcin Wolff Incorporated ("Consultant") and IT Staffing Ltd., an Ontario corporation ("Company"). The Company intends to undertake a public offering of its securities (the "Offering") and desires to contract with Consultant for certain financial services, and Consultant is willing to render such services as hereinafter more fully set forth. THEREFORE, in consideration of the mutual agreements and covenants set forth in this Agreement, the parties agree as follows: 1. ENGAGEMENT OF CONSULTANT. Company hereby engages and retains Consultant to render to Company the financial services described in Section 2 hereof (the "Financial Services") for the period commencing on the date hereof and ending 24 months thereafter (the "Consulting Period"). 2. DESCRIPTION OF FINANCIAL SERVICES. The Financial Services rendered by Consultant hereunder shall consist of consultations with management of Company as such management may from time to time require during the term of this Agreement. Such consultations shall be with respect to the operation and financing of Company's business, Company's relationship with its securities holders, the preparation and distribution of periodic reports and such other matters as may be agreed upon between Company and Consultant. In addition to such consultations, Company may request that Consultant prepare written reports on financial matters, attend meetings of Company's Board of Directors, or review, analyze and report on proposed investment opportunities, short-term and long-term investment policies and/or future public and private financings. Unless specifically requested and provided for by Company, no travel shall be required in connection with the provision of such services. 3. EXTENT OF CONSULTING SERVICES PROVIDED. Consultant shall be available to provide Financial Services for not less than one person/day per month during the term of this Agreement ("Minimum Financial Services"). In addition, Consultant shall be available during the term of this Agreement for an additional one person/day per month at the request of Company for the purpose of providing additional Financial Services ("Additional Financial Services"). Consultant may, but shall not be required to, devote such additional time to Company as may be requested by Company. 4. PAYMENT FOR SERVICES RENDERED. Company agrees to pay Consultant for the Minimum Financial Services hereunder the sum of $150,000, $100,000 of which shall be payable in advance upon execution of this Agreement and the remainder of which shall be due on the first anniversary of the date hereof. In addition, subject to the provisions of Section 5 hereof, if Consultant provides Additional Financial Services to Company, it shall be compensated for such Additional Financial Services at the rate of $1,000 for each such additional person/day, payable on the first day of the month following the month in which such Additional Financial Services were rendered. 5. ACCUMULATION OF MINIMUM FINANCIAL SERVICES. Any person/day of Minimum Financial Services not requested in the first month in which Company is entitled thereto may be requested only in the next month during the term of this Agreement. 6. SERVICE AS BOARD MEMBER. For the purposes of this Agreement, time spent by any officer, director or employee of Consultant in connection with such person's duties as a director of Company or in attendance at board meetings shall be considered a person/day of Financial Services, but compensation paid to such person for service as a director shall not offset any payments or obligations arising hereunder. 7. NONEXCLUSIVITY OF THIS AGREEMENT. Company expressly understands and agrees that Consultant shall not be prevented or barred from rendering services of the same nature as or a similar nature to those described herein, or of any nature whatsoever, for or on behalf of any person, firm, corporation or entity other than Company. Consultant understands and agrees that Company shall not be prevented or barred from retaining other persons or entities to provide services of the same nature or similar nature as those described herein or of any nature whatsoever. 8. DISCLAIMER OF RESPONSIBILITY FOR ACTS OF COMPANY. The obligations of Consultant described in this Agreement consist solely of the furnishing of information and advice to Company. In no event shall Consultant be required by this Agreement to act as the agent of Company or otherwise to represent or make decisions for Company. All final decisions with respect to acts of Company or its affiliates, whether or not made pursuant to or in reliance on information or advice furnished by Consultant hereunder, shall be those of Company or such affiliates, and Consultant shall under no circumstances be liable for any expense incurred or loss suffered by Company as a consequence of such decisions. 9. TERMINATION. Consultant may terminate this Agreement by giving notice to Company, accompanied by the pro rata share of the initial payment described in Section 4, based on the number of months remaining in the original term of this Agreement on the effective date of the termination, without interest. In the event of termination pursuant to this Section 9, neither party shall have any rights or obligations hereunder after the date of such termination. Any termination pursuant to this Section 9 shall be effective at the close of business on the first day of the third month following the date of receipt of notice thereof by the receiving party. 10. AMENDMENT. No amendment to this Agreement shall be valid unless such amendment is in writing and is signed by authorized representatives of all the parties to this Agreement. 11. WAIVER. Any of the terms and conditions of this Agreement may be waived at any time and from time to time in writing by the party entitled to the benefit thereof, but a waiver in one instance shall not be deemed to constitute a waiver in any other instance. A failure to -2- enforce any provision of this Agreement shall not operate as a waiver of the provision or of any other provision hereof. 12. SEVERABILITY. In the event that any provision of this Agreement shall be held to be invalid, illegal or unenforceable in any circumstances, the remaining provisions shall nevertheless remain in full force and effect and shall be construed as if the unenforceable portion or portions were deleted. 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 14. NOTICES. All notices, requests, payments, instructions, claims or other communications hereunder shall be in writing and shall be deemed to be given or made when delivered by first-class, registered or certified mail to the following address or addresses or such other address or addresses as the parties may designate in writing in accordance with this Section: If to Company: IT Staffing Ltd. 55 University Avenue Toronto, Ontario, Canada M5J 2H7 Attn: Declan A. French If to Consultant: Strasbourger Pearson Tulcin Wolff Incorporated 120 Wall Street New York, New York 10005 Attn: Mr. Allan Levine 15. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that this Agreement shall not be binding on or inure to the benefit of any successor or assign of Consultant where, as a result of such succession or assignment, control of the entity which would otherwise succeed to the rights and obligations of this Agreement is materially different from the control of the entity having such rights and obligations prior to such succession or assignment. 16. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Dated: _________ __, 1999 IT STAFFING LTD. By: --------------------------------- -3- STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED By: --------------------------------- -4- EX-10.3(B) 11 EXHIBIT 10.3(B) [LETTERHEAD OF THE PORT AUTHORITY OF NY & NJ] October 6, 1998 Mr. Declan A. French President IT Staffing Ltd. 1 World Trade Center Suite 7967 New York, NY 10048 REFERENCE: ONE WORLD TRADE CENTER - SUITE NO. 7847 Dear Mr. French: Below, please find a proposal detailing the basic terms and conditions applicable to the space you selected. Upon acceptance, the following will be incorporated into the lease documents. LESSEE: IT Staffing Ltd. ADDRESS: One World Trade Center New York, NY 10048 REPRESENTATIVE: Mr. Declan A. French STATE OF INCORPORATION: New York USE OF SPACE: Administrative, clerical and executive offices for the lessee's business as an international personnel recruitment office. FLOOR AND AREA: 1,214 rentable square feet SUITE: # 7847 [LETTERHEAD OF THE PORT AUTHORITY OF NY & NJ] TERM: Three (3) years LEASE & RENT COMMENCEMENT DATE: November 1, 1998 subject to postponement RENTAL RATE: PERIOD-YR RENT-RSF RENT-MO RENT-YR YRS. 1-3 $39 $3,946 $47,352 TAX BASE: (1998/1999) Tax Base Year - the lessee will pay for all PILOT increases above that amount. OPERATING EXPENSE Based on Porter's Wage in effect on January 1, ESCALATION: 1998 and escalated annually on a $0.01/$0.01 formula, including fringe benefits. SECURITY DEPOSIT: To be determined upon review of lessee's financials LIABILITY INSURANCE: $1,000,000 combined singled limit liability and general liability insurance. TAX I.D. NO.: To be determined CLEANING: Cleaning is included in rent. ELECTRICITY: Tenant will pay for electricity used as determined by survey. LANDLORD'S WORK: Space will be taken in its "as-is" condition. RELOCATION: The Port Authority will have a right to relocate the lessee during the term of the letting to comparable space in the World Trade Center. In the event of such a move, the Port Authority will pay all reasonable relocations costs. THIS PROPOSAL DOES NOT REPRESENT AN AGREEMENT OF ANY KIND AND THE PARTIES SHALL HAVE NO LIABILITY WHATSOEVER IN CONNECTION WITH IT UNLESS AND UNTIL A LEASE AGREEMENT IS SIGNED BY BOTH PARTIES. THE PORT AUTHORITY OF NY & NJ ONE WORLD TRADE CENTER NEW YORK, NY 10048 (212) 435-7000 (973) 961-6600 -3- If the above is acceptable, please sign below as indicated and return same to me. I will then proceed with the preparation of the appropriate documents. Sincerely, /s/ Gilbert Weinstein Gilbert Weinstein Assistant Manager International Sales and Leasing The World Trade Center IT STAFFING LTD. CONCURRED: Declan French ----------------------------------------- (Print Name) SIGNATURE: /s/ Declan French ----------------------------------------- TITLE: President ----------------------------------------- DATE: October 6, 1998 ----------------------------------------- EX-10.3(E) 12 EXHIBIT 10.3(E) LEASE AMENDING AGREEMENT THIS AGREEMENT dated the 4th day of September, 1996. BETWEEN:
YONGE HILLCREST CORPORATION (hereinafter called the "Landlord") OF THE FIRST PART - and - INTERNATIONAL CAREER SPECIALISTS LTD. (hereinafter called the "Tenant") OF THE SECOND PART - and - JOHN A. IRWIN (hereinafter called the "Indemnifiee') OF THE THIRD PART
WHEREAS by a lease made as of the 26th day of July, 1994 (the "Lease"), the Landlord leased to the Tenant for a term of three (3) years, commencing on the 12th day of September, 1994 and ending on the 1 lth day of September, 1997, certain premises comprising an area of approximately 2,037 square feet of Rentable Area on the second floor of the building municipally known as 5075 Yonge Street, North York, and more particularly described in Schedule "A" attached to the Lease (the "Leased Premises"); AND WHEREAS the Landlord and the Tenant have agreed that the Landlord will lease to the Tenant and the Tenant will lease from the Landlord additional space of approximately seven hundred and eight (708) square feet (the "Additional Premises") from and including September 15, 1996 for the balance of the Term of the Lease, at an annual rent of four dollars ($4.00) per square foot of Rentable Area of the Additional Premises upon the terms and conditions set out in this Agreement, and which Additional Premises are known as Suite 203. NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum of Two Dollars ($2.00) paid by each of the parties hereto to the other, the receipt and sufficiency whereof is hereby by each acknowledged, and for other good and valuable consideration, the Landlord and Tenant covenant and agree as follows: 1. The foregoing recitals are true in substance and in fact and form part of this Agreement. 2. The Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord the Additional Premises from and including September 15, 1996 (the "Effective Date") to and including September 11, 1997 upon the terms and conditions set out in the Lease, as amended by this Agreement. 3. The Lease shall be and the same is hereby amended to include the Additional Premises in any reference to Leased Premises contained in the Lease. The Landlord and the Tenant acknowledge and agree that the Leased Premises (including the Additional Premises) contain a Rentable Area of two thousand, seven hundred and forty five (2,745) square feet in the Building. 4. The Tenant acknowledges and agrees that from and after the Effective Date, its Proportionate Share as defined in the Lease will be increased to reflect the inclusion of the Additional Premises in the meaning attributable to "Rentable Area of the Leased Premises" and the Tenant will pay annual rent on the Additional Premises as provided for in paragraph 5 of this Agreement, and will pay throughout the Term the Tenant's Proportionate Share of Taxes and Operating Costs, as set out in Article V of the Lease. 5. The Lease shall be and the same is hereby amended with respect to the annual rent payable under the Lease to the extent that the first paragraph of Section 2.3 of the Lease is deleted in its entirety and, the following is inserted in its place: 'Base Rent: YIELDING AND PAYING therefor yearly and every year during the period commencing on September 12, 1994 up to and including September 14, 1996, a rent of SIXTEEN THOUSAND, TWO HUNDRED AND NINETY SIX DOLLARS ($16,296.00) of lawful money of Canada, to be paid in equal consecutive monthly instalments of ONE THOUSAND, THREE HUNDRED AND FIFTY-EIGHT DOLLARS ($1,358.00) each on the first day of each month in each year (calculated at the rate of eight dollars ($8.00) per square foot of Rentable Area of the Leased Premises per annum). YIELDING AND PAYING therefor yearly and every year for the period commencing on September 15. 1996 up to and including September 11. 1997, a rent of NINETEEN THOUSAND, ONE HUNDRED AND TWENTY-EIGHT DOLLARS ($19.128.00) of lawful money of Canada to be paid in advance in equal consecutive monthly instalments of ONE THOUSAND FIVE HUNDRED AND NINETY-FOUR DOLLARS ($1,594. 00) each on the first day of each month in each year (calculated at the rate of three dollars and fifty cents ($3.50) per square foot for 2,037 square feet of Rentable Area of the Leased Premises per annum and at four dollars ($4. 00) per square foot for 708 square feet of Rentable Area of the Leased Premises per annum). 6. The parties hereto agree that the Tenant is accepting the Additional Premises "as is" but subject to the following work to be completed by the Landlord; (a) removal of demising wall between Suites 203 and 204; (b) repair of hole in wail near door; (c) removal of all existing walls; and (d) cleaning and repair of carpet. The existing counter-top, cupboards and shelf units will remain in the Additional Premises. 7. The lease to the Tenant of the Additional Premises is subject to termination by the Landlord on sixty (60) days prior written notice (the "Notice"). On the date specified in the Notice, the Tenant shall return vacant possession of the Additional Premises to the Landlord, 8. The Taxes, Operating Costs and Hydro for 1996 are estimated to be $13.83 per square foot of Rentable Area of the Leased Premises. This amount is subject to adjustment by the Landlord once the actual costs for 1996 are determined. 9. Each of the Landlord and the Tenant covenants with the other that it has in itself the absolute right, full power and authority to execute this Agreement and amend the Lease as provided herein and that neither party has taken any action whereby the Lease, the Leased Premises or the unexpired residue of the Term is or may be charged, encumbered, transferred or assigned. 10. The Lease as amended by this Agreement is hereby ratified and confirmed and shall remain in full force and effect. 11. Each of the Landlord and the Tenant covenants and agrees with the other that it will, and at all times hereafter, at the reasonable request of the other, make or, procure to be made, done or executed, all such further assurances as may be reasonably required from time to time to give effect to the terms of this Agreement. 12. This Agreement shall enure to the benefit of and be binding upon the Landlord and Tenant and their respective successors and assigns, IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of the date and year first written above. YONGE HILLCREST CORPORATION Per: c/s ------------------------------------------- Nbme: PETER MENKES Title: VICE PRESIDENT INTERNATIONAL CAREER SPECIALISTS LTD. Per: c/s ------------------------------------------- Name: John Irwin Title: President cl WITNESSF.. JOHN A. IRWIN EX-10.5 13 EXHIBIT 10.5 Exhibit 10.5 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of January 1, 1998 by and between INTERNATIONAL CAREER SPECIALISTS LTD., a corporation incorporated under the laws of the Province of Ontario, (the "Company") and JOHN IRWIN, an individual residing in the Tovn of Markham in the Province of Ontario (the "Executive"). FOR VALUE RECEIVED by each of the parties hereto, receipt and sufficiency of which is hereby acknowledged by each of them, it is hereby agreed as follows: As from January 1, 1998 (the "Commencement Date") the Executive shall be employed by the Company under the terms of this agreement. This Agreement shall be conditional, and shall become effective, as of the Commencement Date, upon the completion of the purchase by IT STAFFING LTD. ("IT") of all the issued and outstanding shares in the capital of the Company under that certain Share Purchase Agreement dated as of January 1, 1998. 2. The Company shall employ the Executive and the Executive shall continue to hold office and serve the Company as President and Chief Executive Officer (the "Appointment"). The Executive shall during the course of his employment hereunder perform the duties and exercise the powers consistent with the Appointment, 'mcluding the making (subject to the terms hereof) of all management decisions affecting generally the Company, and those specific matters which may from time to time be reasonably assigned to or vested in him by the Board of Directors of the Company (the "Board") and shall from time to time give to the Board all such information regarding such matters as it shall require and implement and apply the policy of the Company as set forth by the Board firom time to time, provided that: (a) during the period from the Conunencement Date to and including the date on which the shares in the capital of IT are listed on a recognized stock exchange or quoted on a national quotation system (a "Public Offering"), the Executive shall not without the consent of IT make any material change in the customary terms or conditions upon which the Company has historically (i.e., prior to its acquisition by IT) done business, and shall otherwise apply his reasonable best efforts (consistent otherwise with the nature of the Appointment) to preserve the business organization and the goodwill of the suppliers, staff, customers and business of the Company and to continue upon such terms and conditions to build such business; and (b) the Executive cannot without obtaining the specific approval of the Board, do any of the following on behalf of the Company: (i) incur any single capital expenditure exceeding $25,000; (ii) hire any employee at a salary exceeding $75,000 per annum; (iii) open any new branch offices; (iv) make any material change in the undertaking of the business of the Company; or (v) enter into any agreements or other obligations with any person otherwise than in the ordinary course of the business of the Company. 3. The Appointment shall continue for a period of 3 years from the Commencement Date (the "Contract Period"), during which the Company shall not be entitled to terminate the Executive's employment except in accordance with and upon the occurrence of any of the events or causes specified 'M Section 9. 4. (a) The Company shall pay to the Executive during the continuance of his employment hereunder a salary at the rate of Cdn.$200,000 per annum (the "Salary"), to accrue from day to day and be payable (by direct deposit to the Executive's designated bank account) in equal bi-weekly mstahnents in arrears on the last day of each bi-weekly period; (b) the Company shall provide to the Executive: (i) an automobile and cellular phone allowance of Cdn.$ 1,000 per month; and I (i') a corporate American Express card, to be used by the Executive for business expenses; (c) the Company shall pay to the Executive a bonus (the "Bonus") of 2% of Production in each of the Company's fiscal quarters (a "Quarter"). The first payment date for purposes hereof shall be July 1, 1998, in respect of the Quarter ending on June 30, 1998. "Production" for purposes of the Bonus, and in respect of any Quarter, shall mean the aggregate of the following amounts: (i) total full time placement fees (exclusive of GST), before tax, billed by the Company in such Quarter; and (ii) total spread, representing pre-tax profit to the Company, for such Quarter, in respect of all billable hours of contract placements and consulting fees; m each case as determined (such determination to be conclusive in the absence of manifest error) by the Company's accountants in accordance with generally accepted accounting principles, for each such Quarter, and within 7 days of the end of any such Quarter. The Executive's right to receive Bonus payments from the Company shall continue in full force and effect for a period of one full year after the date upon which his employment hereunder ceases, whether as the result of the expiry of the tenn hereof or his earlier resignation or termination, provided that such entitlement shall cease and determine upon his becoming employed by or otherwise directly or indirectly interested or concerned 'M any business, company or finn carrying on a business in the Province.of Ontario or any other jurisdiction in which the Company may be carrying on business which is competitive with the business carried on by the Company (otherwise than through the Executive's holding or being beneficially interested in any class of securities in any company if such class of securities is listed on any recognized stock exchange and the Executive neither holds nor is beneficially interested in more than a total of ten per cent of all securities of that class); and (d) In order to induce him to enter into this Employment Agreement the Company shall procure the granting to the Executive by IT, contemporaneously herewith, by IT of an option to acquire additional shares in the capital of IT, in the form attached as Schedule "A" hereto. o . The Company shall also pay to the Executive (on production of such evidence as the Company may reasonably require) the amount of all hotel, travelling and other expenses reasonably and properly incurred by him in the discharge of his duties contemplated hereunder. 6. Subject to Section 9 and to the production of satisfactory evidence from a registered medical practitioner in respect of any period of absence in excess of 90 consecutive days, the Executive shall be paid in fun during any period of absence from work due to sickness or injury. 7. The Executive shall be entitled to 6 weeks holiday with pay in every calendar year in addition to recognized public holidays. The entitlement to holiday (and on termination of employment to holiday pay in lieu of holiday) accrues pro rata throughout each calendar year of employment. 8 (a) Subject to his rights under the Share Purchase Agreement of even date herewith between the Executive, as vendor and IT, as purchaser of shares in the Company (the "SPA"), the Executive shall not, either dur'mg the continuance of his employment hereunder, except so far as necessary in the perfomiance of his duties or thereafter, without the consent in wn't'mg of the Board being first obtained, diulge to any person and shall use his best endeavours to prevent the publication or disclosure of any information concerning the business, accounts, fmances, dealings, transactions or affairs of the Company which has or may come to his knowledge during the course of his employment hereunder or during any previous service with the Company; and (b) the Executive shall not, during the continuance of his employment directly or indirectly be mterested or concerned in any business, company or firm carrying on a business in the Province of Ontario or any other jurisdiction in which the Company may, from to time, conduct busiess which is competitive with the business carried on by the Company or IT, provided @t nothing he,,em contamed shall prevent the Executive fom being the holder of or from being beneficially interested 'M any class of securities in any company if such class of securities is listed on any recognized stock exchange and the Executive neither holds nor is beneficially interested in more than a total often per cent of all securities of that class. 9. The Executive's employment is guaranteed for the entirety of the Contract Period, without restrictions, provided however that is the Executive shall: (a) die; (b) be adjudged or declared bankrupt or shall take advantage of any statute for the time being in force offering relief for 'msolvent debtors; or (c) become a person whose person or estate is liable to be dealt with under the law relating to mental health; or (d) otherwise become or be unable substantially to perform his duties hereunder by reason of ill-health, accident or otherwise for a period or periods aggregating at least 180 days in any period of 12 consecutive months; than the Company may in any such case by written otice to the Executive (or his representative, as applicable) forthwith temiinate his employment hereunder, but no notice under subsection (c) of this Section shall be given by the Company to the Executive after the expiration of three calendar months from the end of any such periods or periods aggregating at least 180 days. 10. Any notice 'm writing required or permitted to be given to the Executive hereunder shall be suffic'ently given if delivered to him personally or if mailed by registered mail to the Executive's last home address Of which the Company has notice. Any notice in writing required or permitted to be given to the Company hereunder shall be sufficiently given if delivered or mailed by registered mail to the Company at its head office c/o Mr. Declan French, IT Staffing Ltd., 55 University Avenue, Suite 505, Toronto, ON M5H 3L9. Any such notices mailed as aforesaid shall be deemed to have been received on the fifth business day following the date of the mailing. Any address for the giving of notices hereunder may be changed by notice in writing in the manner provided in this Section for the giving of notices. 11. This agreement shall be governed by and constued in accordance with the laws of the Province of Ontario. 12. This agreement shall ensure to the benefit of and be binding upon the heirs, executors, administrators and legal personal representative of the Executive and the successors and assigns of the Company. 13. Other than the other agreements contemplated expressly herein, each of even date herewith (collectively, the "Transaction Agreements"), this agreement constitutes and contains the entire and only agreement among the parties relating to the matters described herein and supersedes and cancels any and all previous agreements and understandigs between all or ay of the parties relative hereto. Any and all prior and contemporaneous negotiations, memoranda of understandig or position, and prelimiay drafts and prior versions of this Agreement, whether signed or unsigned, between the parties leading up to the execution hereof shall not be used by any party to construe the terms or affect the validity of tli's Agreement. There are no representations, inducements, promises, understandings, conditions or waranties express, implied or statutory, between the parties other than as expressly set forth in this Agreement or any of the Transaction Agreements. IN WITNESS HEREOF this agreement has been executed by the paties hereto on the day ofmay, 1998, effective as at the day and year first here'm above set out. SIGNED, SEALED AND DELIVERED in the presence of.. /s/ John Irwin JOHN IRWIN INTERNATIONAL C- IR SPECIALISTS LTD. EX-10.6 14 EXHIBIT 10.6 Exhibit 10.6 February 11th, 1998 John F. Wilson Enterprises Inc. 3300 Bloor St West Toronto, Ontario RE: Contract Agreement Dear John, This will serve to confirm our understanding that from January 2, 1997 to the completion of a listing on a Public Exchange you have and will continue in the capacity of President and Chief Executive Officer of Systemsearch Consulting Services Inc. (hereinafter referred to as Systems) and Systems PS Inc. (hereinafter referred to as PS). During the interim period from January 2, 1997 until the closing of the share purchase transaction contemplated in the share purchase agreement dated February 1lth. 1998 you shall conduct the business in the ordinary course, completely autonomously but you shall not make any material change in the customary terms and conditions upon which Systems and PS historically did Business unless otherwise agreed by IT. You shall use your best effort to preserve the Business organization and Goodwill of the suppliers, :staff, customers and Businesr, of Systems and PS and to continue to build the Business. It is understood that Systems and PS currently operate from two offices being located in Toronto and Tampa. Subsequent to the closing of the share purchase agreement as aforesaid there will be no change in your position and you will continue as President and Chief Executive Officer. Your contract will be $120,000.00 per annum paid on a bi-weekly basis by direct deposit into your bank. You will be entitled to a $2,500.00 per month auto and cell phone allowance and the use of a corporate American Express card for business expenses. You will also be entitled to the following bonus plan: A 10% Management Bonus on all permanent placements. This override/bonus comprises the full management override bonus and may be distributed to other managers at your sole discretion. $1.00 per billed hour for each contractor signed after February 1st, 1998, including renewals, providing the margin is a minimum of $10.00. This employment is guaranteed for a period of 3 years without restrictions. In the event that this employment contract is terminated by IT thereafter you shall still be entitled to the above bonus of $1.00 per contract hour for a further period of 1 year provided you do not get involved with a competing business. Scope of Authority It is understood and agreed that Syrtems and PS will continue ar. an independently run organization, and that all day to day management decisions and the overall management of the company will continue to be your sole responsibility. Any capital expenditures exceeding $25,000, new hire exceeding $75,000 per annum, new branch opening or any other out of the ordinary day to day decision making will require board of directors approval. I trust that you will find the terms and conditions set out above acceptable. On behalf of IT Staffing Ltd., I am pleased that you have agreed to join us and wish you a long and successful association. /s/ Declan French ----------------------------- Date 2/11/98 Declan French ----------------------- By my signature below, I hereby accept the offer of contract outlined above and acknowledge receiving a duplicate c s letter of agreement on the date indicated below. /s/ John Wilson ----------------------------- John R. Wilson Enterprise EX-10.11 15 EXHIBIT 10.11 Exhibit 10.11 SHARE PURCHASE AGREEMENT THIS AGREEMENT made effective as of the 2nd day of January, 1997 AMONG IT STAFFING LTD., an Ontario Corporation (hereinafter called IT) And John Robert Wilson, an individual resident in the Town of Rockwood, in the Province of Ontario (hereinafter called "vendor") And Systemsearch Consultants Inc., an Ontario Corporation (hereinafter called "Systems") And Systems PS Inc., an Ontario Corporation (hereinafter called "PS") WHEREAS: John Wilson is the legal beneficial owner of 100% of the issued and outstanding shares in capital stock of both Systems and PS. IT desires to acquire, on the terms and conditions as set forth below, 100% of the issued and outstanding shares in the capital stock of both Systems and PS. The Vendor desires to sell, on the terms and in the manner set forth below, 100% of the issued and outstanding shares in the capital stock of both Systems and PS. The Vendor, as a consequence of the payment of the purchase price will become a significant shareholder of IT. NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the premises set forth above, the mutual covenants and agreements and such other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: PURCHASE OF SHARES (A) Closing. The Parties agree to use their best efforts towards the closing of this agreement on or before March 16th, 1998 but in any event no later than April 30th, 1998 at the offices of IT. The Vendor and IT may agree in writing to close the transaction at another time and place; (B) Purchase Price is $550,000 paid as follows: The aggregate purchase price for the issued and outstanding shares in the capital stock of Systems and P.S. is $550,000.00 and is to be paid as follows i) A deposit in the sum of $5,000.00. ii) On closing, a further deposit of $145,000 by certified cheque iii) On or before closing, 133,333 shares in the capital stock of IT resulting in percentage ownership to John Wilson on closing of 13.3 percent of all of outstanding and issued shares in the capital stock of IT. iv) IT herein guarantees that the dollar value of the 133,333 shares at the time of a listing on a Public Exchange based on the share issue price therein shall have a minimum value of $400,000.00, on the terms of this agreement, or in the alternative sufficient shares will be issued to the Vendor, such that the Vendor receives a total minimum consideration of $400,000.00. v) Said shares shall be issued to the Vendor and held in escrow until closing of this transaction and until the shares have been listed on a public exchange. vi) Delivery of share certification. On closing the Vendor shall deliver to IT share certificates representing 100% of the issued and outstanding shares in Systems and PS duly endorsed in blank for transfer to IT and the share certificates are to be held in escrow pending the listing of the shares of IT on a public exchange vii) The parties hereby agree that in the event IT is unsuccessful in listing its shares on a public exchange within fifteen months of closing, then the shares of IT will be released from escrow to IT and the shares of Systems and PS shall be released from escrow to John Wilson and John Wilson shall be entitled to retain his deposits as liquidated damages and not as penalty. CONDUCT OF BUSINESS Interim Operation from January 2, 1997 until the Closing Date: (a) The Vendor, Systems and PS shall conduct the Business in the ordinary course, completely autonomously but they shall not make any material change in the customary terms and conditions upon which they historically did business unless otherwise agreed by IT and the Vendors. (b) The Vendor, Systems and PS shall use their best effort to preserve the Business organization and goodwill of the suppliers, staff, customers and Business of Systems and PS. DUE DILIGENCE (A) Period. The purchaser shall have until February 16,1998 to conduct its investigations and at its sole discretion, by written notice and within the time specified, cause this agreement to be null and void. VENDOR COVENANTS The Vendor hereby covenants: (a) That it shall not take any action or omission which will in any way prejudice the completion of this transaction; (b) That upon acceptance of this agreement, a binding contract of purchase and sale is constituted; (c) That it has not been induced into entering into this Agreement by oral or written representation or promises except as set out in the Agreement; (d) That it is not now and will not be on Closing Date a non-resident as defined in the Income Tax Act; (e) There is no material information or knowledge which has been withheld from IT relating to either Systems or PS, which if known would cause the purchaser to alter his decision to purchase the shares of either Systems or PS. IT ACKNOWLEDGEMENTS IT hereby acknowledges: (a) The government filings for both GST and Corporate taxes are delinquent. (b) Judd Bedford has a claim outstanding that is not reflected in the books of Systems and PS. (c) All professional fees related to this acquisition are for the account of Systems and PS. and will be paid on closing. (d) That there is a management salary liability of $30,000 pertaining to 1996 which will be paid asap. And IT acknowledges that it will be responsible for same after closing. IT shall enter into an employment or consulting agreement with John Wilson or John R. Wilson Enterprises Inc. as John Wilson may direct, substantially in the form annexed. CONFIDENTIALITY IT, Vendor, Systems and PS agree that any information obtained during examination of the financial records and/or other legal documentation is confidential and warrant that any such information will not be transmitted to anyone other than their respective advisors. If any term, representation or condition of this Agreement is determined invalid or to any extent unenforceable, that provision insofar as it related to that party or circumstances shall be deemed not to be included herein and the balance of this Agreement shall remain in full force and effect and continue to be binding upon the parties hereto. IN WITNESS WHEREOF the partied here to have duly executed this Agreement as of the 4th day of February, 1998. IT STAFFING LTD. Per: /s/ Declan French ------------------------------ SYSTEMSEARCH CONSULTANTS INC. SYSTEMS PS INC. Per: /s/ John Robert Wilson Per:/s/ John Robert Wilson ------------------------------ --------------------------- /s/ John Robert Wilson ------------------------------ John Robert Wilson AMENDING AGREEMENT THIS AGREEMENT made as of January 2, 1997 A M O N G: IT STAFFING LTD., a corporation existing under the laws of the Province of Ontario ("IT") - and - John Robert Wilson, an individual, resident in the Town of Rockwood, in the Province of Ontario ("Vendor") - and- SYSTEMSEARCH CONSULTING SERVICES INC., a corporation existing under the laws of the province of Ontario ("Systemsearch") - and - SYSTEMSEARCH PS INC. a corporation existing under the laws of the Province of Ontario ("PS") - and - Declan French, an individual, resident in the City of Toronto, in the Province of Ontario FOR VALUE RECEIVED the parties agree as follows: 1. INTERPRETATION 1.1 Definitions. In this Agreement: (a) "Share Purchase Agreement" means the agreement dated effective as of January 2, 1997 among IT, Vendor, Systemsearch and PS without regard to this Agreement; (b) All other capitalized terms used in this Agreement have the meanings given to them in the Share Purchase Agreement. 1.2 Headings. The division of this Agreement into sections and the insertion of headings are for the convenience of reference only and are not to affect the construction or interpretation of this Agreement. 1.3 References. Unless otherwise specified, all references to Sections in this Agreement are to sections of the Share Purchase Agreement. 1.4 Governing Law. This Agreement is governed by, and is to be construed and interpreted in accordance with, the laws of the Province of Ontario and the laws of Canada applicable in the Province of Ontario. 1.5 One Agreement. This Agreement amends the Share Purchase Agreement. This Agreement and The Share Purchase Agreement shall be read together and constitute one agreement with the same effect as if the amendments made by this Agreement had been contained in the Share Purchase Agreement as of the date of this Agreement. 1.6 Conflict. If there is a conflict between any provision of this Agreement and any provision of the Share Purchase Agreement, the relevant provision of this Agreement is to prevail. 2. AMENDMENTS 2.1 The parties confirm that Systemsearch is the proper party to the Share Purchase Agreement and acknowledge and agree that the reference in the Share Purchase Agreement to "Systemsearch Consultants Inc." was meant to be a reference to Systemsearch. 2.2 Section (B) iv) of the Share Purchase Agreement under the heading "Purchase Of Shares" is amended by deleting the figure "$4000,000" in the third and fifth lines thereof and inserting instead "$3.00 per share" 2.3 Section (B) of the Share Purchase Agreement under the heading "Purchase of Shares" is amended by deleting subsections v), vi) and vii) in their entirety. 2.4 The Share Purchase Agreement is amended by adding a new Section (C) under the heading "Purchase of Shares" as follows: (C) Failure of IT to Gain Listing on Stock Exchange 1. Re-Purchase of IT Shares 1.1 In the event that the 133,000 common shares of IT (the "IT Shares") to be issued to the Vendor hereunder are not listed and posted for trading on a North American stock exchange (a "Public Exchange") prior to July 31, 1999, or in the event that the value of the IT Shares owned by the Vendor on the date on which they are listed and posted for trading on a Public Exchange (the "Listing Date") is less than $3.00 per share and IT is unable to fulfil its obligations to Vendor under Section B iv), IT shall, upon written request from the Vendor, which request shall be made within 30 days of the earlier of the Listing Date and July 31, 1999, purchase from Vendor for cancellation all of the IT Shares then owned by the Vendor (the "Re-Purchased Shares") for a purchase price of $3.00 per share (the "Purchase Price"), subject to Section 1.4 below. 1.2 The closing of the transaction of purchase and sale contemplated in Section C 1.1 of this Agreement shall take place at the offices of IT at such time and date as shall be mutually agreed by the parties, but not later than 10 days after July 31, 1999 (the "IT Closing Date"). 1.3 On the IT Closing Date: (a) the Vendor shall deliver to IT the certificate or certificates representing the Re-Purchased Shares, together with a duly endorsed share transfer instrument and a representation and warranty executed by Vendor in favour of IT that the Re-Purchased Shares are owned of record and beneficially by Vendor with a good and marketable title thereto, free and clear of all encumbrances of any kind; (b) IT shall deliver to the Vendor the Purchase Price in cash or by certified cheque or bank draft payable to the Vendor; and (c) If requested by the Vendor, IT shall cause Systemsearch and PS to change their respective names and shall do all such acts and things as are reasonably required and within its power in connection therewith to make such names available for use by the Vendor. 1.4 If, for any reason other than the fault of the Vendor, IT fails to complete the purchase of the Re-Purchased Shares on the IT Closing Date, then in consideration of the sum of two dollars and other good and valuable consideration, including the benefit derived by French from the completion of the transactions contemplated by the Share Purchase Agreement in his capacity as a shareholder of IT, French agrees to purchase from the Vendor all of the Re-Purchased Shares for the Purchase Price and upon payment of the Purchase Price by French, IT shall have no further rights or obligations to the Vendor hereunder, except under Section 1.6 (C). 1.5 The closing of the transaction of purchase and sale contemplated in Section C 1.2 of this Agreement shall take place at the offices of IT at such time and date as shall be mutually agreed by the parties, but not later than 5 days after the IT Closing Date (the "French Closing Date"). 1.6 On the French Closing Date: (a) the Vendor shall deliver to French the certificate or certificates representing the Re-Purchased Shares, together with a duly endorsed share transfer instrument and a representation and warranty executed by Vendor in favour of French that the Re-Purchased Shares are owned of record and beneficially by Vendor with a good and marketable title thereto, free and clear of all encumbrances of any kind; and (b) IT shall deliver to the Vendor the Purchase Price in cash or by certified cheque or bank draft payable to the Vendor; and (c) If requested by the Vendor, IT shall cause Systemsearch and PS to change their respective names and shall do all such acts and things as are reasonably required and within its power in connection therewith to make such names available for use by the Vendor. 1.7 Notwithstanding anything in the Employment Agreement dated February 11, 1998 (the "Employment Agreement") between the Vendor and IT, upon the completion of the transaction of purchase and sale of the Repurchased Shares, the Employment Agreement shall be terminated and neither the Vendor nor IT shall have any further obligations to the other except with respect to such remuneration as shall have been earned by the Vendor pursuant to the Employment Agreement prior to such termination and the Vendor shall not be restricted from competing with the business of IT. 3.0 GENERAL 3.1 Benefit of Agreement. This Agreement enures to the benefit of and binds the parties and their respective heirs, executors, administrators, personal and legal representatives successors and permitted assigns. 3.2 Further Assurances. Each party shall from time to time promptly execute and deliver all further documents and take all further action reasonably necessary or appropriate to give effect to the provisions and intent of this Agreement. 3.3 Execution in Counterparts. This Agreement may be executed and delivered in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument. IN WITNESS WHEREOF the parties have executed this Agreement as of the date first written above. IT STAFFING LTD SYSTEMSEARCH CONSULTING SERVICES INC. By: /s/ John Robert Wilson By: /s/ John Robert Wilson ----------------------- -------------------------- SYSTEMSEARCH PS INC. By: /s/ John Robert Wilson /s/ John Robert Wilson ----------------------- ----------------------------- John Robert Wilson EX-10.13 16 EXHIBIT 10.13 Exhibit 10.13 JOINT VENTURE AGREEMENT BETWEEN: IT Staffing Ltd 55 University Avenue, Suite 505 Toronto, ON M5J 2H7 (hereinafter referred to as "Partner A") AND: Great Lakes Research and Development Ltd. 2000 Argentia Rd., Plaza III, Suite 301 Mississauga, ON L5N 1V9 (hereinafter referred to as "Partner B") (Partner A and Partner B hereinafter collectively referred to as the "Parties" or the "Partners") ================================================================================ PREAMBLE WHEREAS the Parties wish to collaborate together in a reciprocal exclusive manner in the establishment of a joint venture for the purposes hereinafter described; WHEREAS, consequently, the Parties wish to establish a joint venture and set the terms and conditions to which they shall be subject to; WHEREAS the Parties wish to confirm their agreement in writing; WHEREAS the Parties are duly authorized and have the capacity to enter into and execute this Agreement; NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS: 1.00 PREAMBLE The preamble is an integral part of this Agreement. 2.00 SCOPE 2.01 ESTABLISHMENT OF THE JOINT VENTURE: The Parties hereby jointly establish a joint venture (hereinafter referred to as the "Joint Venture"). 2.02 PURPOSE OF THE JOINT VENTURE: The purpose of the Joint Venture is to build several applications software products, starting with Workbench and Apptracker, geared to the corporate HR areas. 2.03 NAME OF THE JOINT VENTURE: The name of the Joint Venture shall be ITS/GLRD 2.04 HEAD OFFICE: The head office of the Joint Venture shall be located at 55 University Ave., Suite 505, Toronto, Ontario. 3.00 OPERATION AND MANAGEMENT 3.01 MANAGEMENT: The Joint Venture shall be managed by Helge Knudson CEO GLRD and Declan French, CEO ITS who will constitute a management board ("Board")and shall take all decisions and appropriate measures in order to achieve the Joint Venture's purposes and to harmoniously and efficiently fulfill its obligations to both companies. More specifically but without restricting the aforesaid, the Board shall: a) have control and supervision over the Joint Venture administrative and financial management; b) prepare the operating budget and submit it to the boards of the respective companies. c) open one or several bank accounts with a certified financial institution and deposit all sums of money and bills of exchange in connection with the Joint Venture or the Project; d) authorize all Project's necessary expenses; e) plan, have control and supervision over the Project realization and time schedule; f) coordinate and control all stages of the Project; g) appoint any authorized person to bind the Joint Venture on a financial basis; h) have the bookkeeping made and the Joint Venture's financial statement prepared by an independent accounting firm, in accordance with generally accepted accounting principles; i) subscribe to any appropriate and sufficient insurance policy in connection with the Project; j) settle, in a rapid and efficient manner, any dispute arising during the Project realization; k) retain the services of a legal advisor to act for and on behalf of the Joint Venture, depending on the situation and the needs; 3.04 MEETINGS: Periodically and as often as required, the Board shall hold meetings at any place it determines, following at least a five days written prior notice sent to each member 3.05 DECISIONS: All decisions of the Board shall be unanimously made. 3.06 MINUTES: Minutes shall be taken for each meeting of the Board, be signed by the President or the Secretary and inserted in a special register kept at the Joint Venture's head office. Should a meeting be held by any telecommunication mean, decisions made at this meeting shall be confirmed by the Board members by sending a duly signed written notice by telecopier. 3.07 COSTS All costs, including development and marketing will be shared equally by ITS and GLRD and where one partner has not contributed equally then the difference is charged to the Project on a first priority basis; this means that the partner who has contributed the most will get to take out the difference before there is a splitting of profits. The Joint Venture shall be liable for any decision or measure taken by the Board in accordance with the provisions of this Agreement. Partners shall be jointly liable for all decisions and measures taken by the Board. 3.08 BANK TRANSACTIONS: The banking transactions of the Joint Venture shall be authorized by at least one Board member and all cheques and bills of exchange (cheques, drafts, etc.) issued by the Joint Venture shall be signed by a member appointed by each Partner. 4.00 SPECIAL PROVISIONS 4.01 CONTRIBUTIONS OF THE PARTNERS: a) INITIAL CONTRIBUTION: The initial contribution of the Partners shall be: Partner A: GLRD is responsible for the establishment of a team of programmers to design and implement Workbench and Apptracker. Partner B: ITS is responsible for contributing the macro design, marketing and all recruitment needs of GLRD. b) SUBSEQUENT CONTRIBUTIONS: Future contributions of the Partners, required in the interest of the Joint Venture, shall upon decision by the Board be in proportion to each Partner's share in the Joint Venture. 4.02 PARTNERS' PARTICIPATION: The Partners' shares in the Joint Venture shall be as follows: Partner A: Fifty per cent (50%) Partner B: Fifty per cent (50%) 4.03 SHARING THE PROFITS: The Partners shall share the profits of the Joint Venture in proportion to the above stated percentages. 4.04 SHARING THE ASSETS: When liquidating the Joint Venture, the Partners shall share the assets in proportion to the above stated percentages. 4.05 SHARING THE LOSSES: The Partners shall share the losses of the Joint Venture in proportion to the above stated percentages. 4.06 WORKING CAPITAL ACCOUNT: Upon the Board request and in proportion to the above stated percentages, each Partner shall, from time to time, contribute to the Joint Venture working capital account. 4.07 SURETYSHIP: Each Partner shall provide sums of money or guarantees requested by any surety company as to any suretyship in connection with the Project realization (tender bond, performance bond, workmanship bond, etc.) in proportion to his share in the Joint Venture. Each Partner shall also fill in and sign any form requested by such company. 4.08 BOOKS: All books of the Joint Venture, including the accounting books, shall be continuously updated. The Partners and the accountants appointed by them may have access to these books at all times during the business hours of the Joint Venture, for examination or copying. These books shall be kept at the head office of the Joint Venture. 4.09 FISCAL YEAR: The fiscal year of the Joint Venture shall end on December 31st of each year or on any other date as determined by the Board. 4.10 USE OF JOINT VENTURE'S NAME: Partners shall not use or take advantage of the Joint Venture's name unless they act on its behalf. 4.11 COSTS AND EXPENSES: The Joint Venture shall not reimburse Partners for costs or expenses they have incurred on its behalf in the tendering process or when negotiating and concluding the contract with the Client. Moreover, the Joint Venture shall not pay any costs or expenses to Partners or members of the Board for their presence to the meetings. However, expenses first approved by the Board shall be paid on presentation of supporting documents. 4.12 COMPLIANCE WITH THE LAW: Each Partner shall comply with and enforce any law or by-law in connection to services, work and materials he shall provide or supply in relation to his share of the Project attributed to him. 4.13 PERMITS AND LICENSES: Each Partner shall apply for, at his expense, or shall hold and keep in force any necessary license, permit or authorization to perform the share of the Project attributed to him. 4.14 TAXES: Each Partner shall pay to appropriate authorities any tax, duty, charge, withholding, or other mandatory contribution imposed by any law, by-law or order in connection with his interest in this Agreement or the share of the Project attributed to him. 4.15 JOINT LIABILITY: Notwithstanding any jointly and solidarily obligation of the Partners towards a third person as partners in the Joint Venture, they shall be liable among them to fulfill such obligation and ensuing payment only in proportion to the share they hold in the Joint Venture. 4.18 RESTRICTIONS ON THE TRANSFER OF SHARES: The Partners shall not sell, transfer, assign, secure by mortgage, engage, pledge, alienate, dispose of or affect in any manner whatsoever, their share in the Joint Venture, as well as any loans granted to the Joint Venture, without the written consent of the other Partner. 4.19 NON-COMPETITION: Each Partner may, for his own behalf or on behalf of a third party, continue to perform his regular activities and even compete against the other Partner. These activities and competition shall absolutely not involve the Client, either directly or indirectly, or be exercised against the object of this Agreement. 4.20 NON-SOLICITING: For whatsoever reason and throughout the whole term of this Agreement and for two (2) years following its termination, Partners shall not employ or retain the services of the other Partner's employees (or becoming former-employees). 4.21 COLLABORATION: Partners shall collaborate in the Joint Venture and bring mutual support (including their cooperation at the technical, commercial and industrial levels) and as to all required resources in order to harmoniously and efficiently perform the Project 4.22 ABSENCE OF COMMITMENT: At the signing of this Agreement and throughout the realization of the Project, Partners are not and shall not commit themselves in other activities which can prevent them to fully collaborate or bring the above-mentioned resources, to perform their share of the Project or to fulfill their obligations under this Agreement. 4.23 SERVICES AND WORK: The Joint Venture shall render, for the Client, all services as well as it shall perform all works. However, each Partner shall provide his share of human resources, facilities and other necessary resources for the Project. 4.24 BILLING: Each Partner shall bill the Joint Venture, monthly or at request of the Board, for rendered services, performed work and supplied materials, in the proportion previously established by the Board, in connection with the Project. However, the ratio obtained by dividing the said value established by the Board by the value of the services rendered, work performed and materials supplied by the Joint Venture for the benefit of the Client during the same period of time shall not, in any way, exceed the Partners' participation percentage in the Project. 4.25 DEFECT AND POOR WORKMANSHIP: Each Partner shall be liable towards the Joint Venture and towards the Client for any poor workmanship, defect and other problem which may occur from time to time following the rendering of services, the performance of work and the supply of materials. 4.26 PARTNERS' PROPERTY: Each Partner remains the owner of his contributing property in the Joint Venture. 4.27 JOINT VENTURE'S PROPERTY: Any property acquired by the Joint Venture for the Project (equipment, tools, furniture, machinery, rolling stock, etc.) shall belong to the Joint Venture. At the time of its liquidation, the said property shall be distributed among the Partners as per their respective share. 4.28 USE OF JOINT VENTURE PROPERTY: Each Partner may use the property of the Joint Venture, provided he shall use it in the interest of the Joint Venture and according to its destination, and in such a way as not to prevent the other Partner from using it as he is entitled to. 4.29 SUBSIDIARY: Partners, as well as their subsidiaries which may be involved in the Project, are bound by this Agreement. 4.30 ASSOCIATION WITH A THIRD PARTY: Subject to any of the provisions contained herein, a Partner shall not associate himself with a third party for the purposes of sharing his share in the Joint Venture, nor allowing a third party to enter into the Joint Venture without the written consent of the other Partner. 4.31 MAINTAINING OF COMMON PROPERTY: A Partner may compel the other Partner to incur any expenses necessary for the preservation of the common property, but shall not proceed with any modifications as to the state of such property without the written consent of the other Partner, regardless of how advantageous such changes may be. 4.33 ABSENCE OF MANDATE: A Partner cannot or shall not act as the other Partner's mandatory, nor to contract or fulfill an obligation on his behalf without the latter's prior written consent. 4.33 INDEPENDENT PARTIES: This Agreement binds Partners only to the performance of the Project. Consequently, the provisions contained herein shall not be interpreted, in any way, as to establish some general partnership between the Parties or as to restrict the Partners to operate their respective businesses. 4.34 LOSS OF STATUS AS PARTNER: A Partner shall lose his status as Partner in any of the following circumstances: a) his dissolution or voluntary or forced bankruptcy; b) he seeks the protection of the BANKRUPTCY AND INSOLVENCY ACT or any other similar law; c) by his own will or if a judgment orders the seizure of his property; d) if he fails to comply with any provision contained herein and fails to remedy the said default within 30 days following the receipt of the other Partner's formal notice of default. In any one of the above-mentioned cases, this Agreement shall terminate and the following terms and conditions shall then apply: 1) The other Partner shall liquidate the Joint Venture and may then continue and complete the Project to his own benefit. 2) The former Partner or his legal representatives, as the case may be, shall be deprived of any right previously held by the former Partner in this Agreement, in the Joint Venture, in its assets and in any surplus made after the loss of status as Partner. 3) Once the Project has been completed and final payment has been received from the Client, the other Partner shall render account and remit to the former Partner or his legal representatives, as the case may be, the sum of money equivalent to sums due to the former Partner at the time he lost his status of Partner, less his proportional share of expenses and obligations existing at that precise time. If his share of such expenses and obligations exceeds the sums due, the former Partner shall immediately pay the other Partner the sums in excess. 4) Despite the loss of his status of Partner, the former Partner remains liable, in proportion to his share, for any deficit of the Joint Venture until the Project has been completed. 5.00 DISSOLUTION AND LIQUIDATION OF THE JOINT VENTURE When dissolving the Joint Venture, the Board: a) shall act as liquidator; b) shall take the seizure of the Joint Venture's property and act as an administrator of others' property entrusted with full power to administrate; c) is entitled to require from the Partners any document and any explanation concerning the rights and obligations of the Joint Venture; d) shall repay the debts and then, reimburse the capital contribution; e) if applicable, shall proceed to the partition of the assets among Partners in proportion to their respective shares, and; f) shall remit to the Partners a final rendering of account, prepared by an independent accounting firm in accordance with generally accepted accounting principles. After the Joint Venture's liquidation, Partners shall make adjustments among them, if applicable, and give themselves mutual discharge. 6.00 GENERAL PROVISIONS Unless otherwise stated in this Agreement, the following provisions apply. 6.01 "FORCE MAJEURE": Neither party shall be considered in default of this Agreement if the fulfillment of all or part of its obligations are delayed or prevented due to "force majeure". "Force majeure" is an external unforeseeable and irresistible event, making it absolutely impossible to fulfill an obligation. 6.02 SEVERABILITY: If any section, paragraph, or provision (in all or in part) in this Agreement is held invalid or unenforceable, it shall not, in any way, have any effect on any other section, paragraph or provision in this Agreement, nor on the remaining section, paragraph, or provision unless otherwise clearly provided for under this Agreement. 6.03 NOTICES: Any notice intended for any one party is deemed to be validly given if it is done in writing and sent by registered or certified mail, by bailiff or by courier service to such party's address as stated in this Agreement, or to any other address that the concerned party may have notified in writing to the other party. 6.04 HEADINGS: The headings in this Agreement are used only for reference and convenience purposes; they do not modify in any manner the significance or the object of the provisions they designate. 6.05 SCHEDULES: Whenever the Schedules of this Agreement are duly initialed by all Parties, they are considered as an integral part of this Agreement. 6.06 NON-WAIVER: The apathy, negligence or tardiness of a party to use a right or a recourse provided for under this Agreement shall not, in any case, be considered as a renunciation to such right or recourse. 6.07 CUMULATIVE RIGHTS: All rights mentioned in this Agreement are cumulative and non-alternative. The waiving of a right shall not be interpreted as waiving any other right. 6.08 ENTIRE AGREEMENT: This Agreement constitutes the entire agreement entered into between the Parties. Declarations, representations, promises or conditions other than those stated in this Agreement cannot be construed in any way as to contradict, modify or affect the provisions of this Agreement. 6.09 AMENDMENT: This Agreement cannot be amended or modified except by another written document duly signed by all Parties. 6.10 GENDER AND NUMBER: Where appropriate the singular number set forth in this Agreement shall be interpreted as plural and the gender as masculine, feminine or neuter, as the context dictates. 6.11 NON-TRANSFER: Neither of the Parties shall assign, transfer nor convey, in any way, his rights in this Agreement to any third party without first obtaining the written consent of the other. 6.12 COMPUTATION OF TIME: In all computations of time periods under this Agreement: a) the first day of the period shall not be taken into account, but the last one shall be; b) the non-juridical days i.e. Saturdays, Sundays and public holidays shall be taken into account; c) whenever the last day is a non-juridical one, the period shall be extended to the next juridical day. 6.13 CURRENCY: The currency used for purposes of this Agreement shall be in Canadian Dollars. 6.14 GOVERNING LAW: This Agreement shall be construed and enforced in accordance with the laws in force in the Province of Ontario. 6.15 ELECTION OF DOMICILE: The Parties agree to elect domicile in the judicial district of . Toronto in the Province of Ontario for the hearing of any claim arising from the interpretation, application, completion, term, validity and effects of this Agreement. 6.16 NUMEROUS COPIES: Each copy of this Agreement is considered as an original whenever duly initialed and signed by all Parties, it being understood however that all of these copies refer to the one and same Agreement. 6.17 SUCCESSORS: This Agreement shall be binding upon and inure to the benefit of each of the Parties and their respective successors, heirs and assigns. 6.18 JOINT AND SEVERAL LIABILITY: Whenever one of the Parties is constituted of two or more persons, these persons are jointly and severally obligated and liable towards the other party. 6.19 ELAPSED TIME: Whenever one of the Parties fails to fulfill an obligation under this Agreement within a limited period of time, the mere lapse of time passing by shall constitute a formal notice of default to the said party. 7.00 COMING INTO FORCE This Agreement comes into force on March 19, 1998. 8.00 TERM This Agreement shall be in force until its full execution by the Partners, subject to section 9.00 of this Agreement. 9.00 TERMINATION This Agreement shall terminate: a) upon a written agreement between the Parties; b) if the Client does not retain the Joint Venture's tender; c) after the Project is completed and final account is rendered to the Board; d) in any case mentioned in Section 4.33 of this Agreement. At its termination, the Partners shall cease using their powers to act under this Agreement, except for any measure that is necessary for current operations. 10.00 ACKNOWLEDGEMENT BY THE PARTIES THE PARTIES HEREBY ACKNOWLEDGE THAT: A) PRIOR TO THE DRAFTING OF THIS AGREEMENT, DUE NEGOTIATIONS HAVE TAKEN PLACE BETWEEN THEM; B) THIS AGREEMENT TRULY AND COMPLETELY DEFINES THE AGREEMENT REACHED BETWEEN THEM; C) ALL AND EACH ONE OF THE SECTIONS IN THIS AGREEMENT ARE LEGIBLE; D) THE UNDERSTANDING OF THE AFORESAID SECTIONS CAUSES NO DIFFICULTY WHATSOEVER; E) BEFORE SIGNING THIS AGREEMENT, EACH PARTY HAD THE OPPORTUNITY TO CONSULT A LEGAL ADVISER; F) EACH PARTY HAS RETAINED A COPY OF THIS AGREEMENT, IMMEDIATELY AFTER THE SIGNING OF IT BY ALL PARTIES. SIGNED AT TORONTO ON THE 30TH DAY OF OCTOBER 1998. IT STAFFING LTD. GREAT LAKES RESEARCH AND DEVELOPMENT LTD. - ----------------------------- ---------------------------- EX-10.14 17 EXHIBIT 10.14 Exhibit 10.14 MANAGEMENT CONSULTING AGREEMENT THIS MANAGEMENT CONSULTING AGREEMENT (the "Agreement") has been entered into by and between IT Staffing, Ltd., an Ontario company having its principal place of business at 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7 Canada (the "Company") and Robert M. Rubin, an individual residing at 6060 Kings Gate Circle, Delray Beach, Florida ("Rubin"), reflecting the agreement between the Company and Rubin as of May 7, 1998. WHEREAS, Rubin possesses significant expertise in analyzing and addressing management requirements, identifying and structuring strategic alliances and mergers and acquisitions, negotiating purchase and merger agreements and certain other areas of strategic planning; WHEREAS, the Company desires to avail itself of the services of Rubin, and Rubin desires to provide to the Company the benefit of such services; and WHEREAS, the Company and Rubin expect to benefit from the carrying out of the subject matter of this Agreement. NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Rubin hereby agree as follows: 1. Engagement. The Company hereby engages Rubin and Rubin accepts such engagement and agrees to use his best efforts in a good and businesslike manner to provide services to the Company in accordance with the terms of this Agreement. 2. Nature of Services. Upon the request of the Company, Rubin shall render assistance to the Company by (a) analyzing and addressing the Company's management requirements; (b) developing strategic initiatives and related industry partnerships, including providing assistance with respect to acquisitions, joint ventures, and strategic business alliances; (c) assisting with the negotiation of contracts between the Company and its customers; (d) meeting with and advising the Company's board of directors at the request of the Board at least 1 time per quarter; and (e) conduct certain interviews relating to the Company's New York office. 3. Term. The term of this Agreement shall commence as of May 7, 1998, and continue for a period of sixty (60) months. 4. Remuneration. The consideration to be paid by the Company to Rubin for services to be rendered hereunder shall be as follows: (i) The Company shall immediately issue to Rubin an option to purchase an aggregate of 200,000 shares of Common Stock at an exercise price of $2.10 (U.S.) per share. Such options shall be exercisable for a period of seven years from the date of issuance and shall not be adjusted for the forward stock split contemplated for July 1998. (ii) The Company shall pay to Rubin an annual consulting fee of $80,000 per year throughout the Term of this Agreement. Such payments shall be payable quarterly commencing six months from the date of this Agreement. (iii) In the event that Rubin is instrumental in introducing the Company to a particular merger or acquisition candidate, if upon the closing of a merger or acquisition with such candidate there results in an increase in the Company's revenues or pre-tax profits of at least 25%, the Company and Rubin agree to mutually arrive at a fair arrangement to provide for extra compensation. 5. Resale Restriction. Rubin agrees that he will not sell any shares of the Company's Common Stock (received in connection with the exercise of the options) for a period of two years from exercise without the Company's prior written consent. 6. Reimbursement of Expenses. The Company shall reimburse Rubin for his out-of-pocket expenses incurred in the performance of his services hereunder, including all costs associated with travel to the Company. 7. Status of Rubin. The services of Rubin provided pursuant to this Agreement shall be performed for the benefit of the Company by Rubin in the capacity of an independent contractor. Rubin shall not be considered, at any time that this Agreement is in force, to be an employee of the Company. 8. Confidentiality. Rubin will not at any time disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, financing methods, plans, or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company; provided, however, that the foregoing shall not apply to information that is not unique to the Company or that is or becomes through no fault of Rubin generally known to the industry or the public. All files and records relating to the Company compiled by Rubin shall be the property of the Company and shall be returned to the Company upon termination of this Agreement. 9. Waiver of Rights. The failure of either party to insist, in one or more instances, upon the performance of any of the terms, covenants, agreements, or conditions of this Agreement, or to exercise any rights hereunder, shall not be construed as a waiver or relinquishment of such party's right to insist upon the future performance of such term, covenant, agreement, or condition, or to the future exercise of any such right, and the obligations of the other party with 2 respect to such future performance shall continue in full force and effect. 10. Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect as if the invalidated provision had not been included herein. 11. Notices. Any notice required or desired to be given pursuant to this Agreement shall be in writing and shall be deemed given when delivered by facsimile transmission or three (3) days after it is deposited in the mail to the addresses set forth below, or at such subsequent address provided by the parties: If to Rubin: Robert M. Rubin 6060 Kings Gate Circle Delray Beach, Florida If to the Company: IT Staffing Ltd. 55 University Avenue, Suite 505 Toronto, Ontario M5J 2H7 Canada Attn: Declan French 11. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 12. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties regarding services to be furnished to the Company by Rubin, and any and all prior agreements and/or understandings relating thereto are superseded in their entirety by this Agreement. IN WITNESS WHEREOF, the Company and Rubin have executed this Agreement as of the date and year first above written. IT STAFFING LTD. ----------------------------------- By: Title: /s/ Robert M. Rubin ----------------------------------- Robert M. Rubin 3 EX-10.15 18 EXHIBIT 10.15 DRAFT: 11/6/98 EXHIBIT 10.15 EMPLOYMENT AGREEMENT BETWEEN IT STAFFING LTD. AND (NAME) PROBATION - --------- You acknowledge that IT Staffing Ltd. must be at liberty, during the initial period of employment to assess your ability to perform the duties of the position of TECHNICAL RECRUITMENT SPECIALIST and to work effectively with our Organisation. Accordingly, you understand and agree that the first 90 days of employment shall constitute a probationary period during which period IT Staffing Ltd. may, in its absolute discretion, terminate your employment, with or without cause, without notice or payment in lieu thereof, notwithstanding any other provision in this agreement. EXCLUSIVITY - ----------- During the term of your employment, you agree to serve IT Staffing Ltd. diligently and faithfully and agree that you shall not, during the term, be employed or engaged in any capacity. in promoting, undertaking or carrying on any other business. You shall be employed on a full time basis for IT Staffing Ltd. and it is understood that the hours of work involved may vary and be irregular and are those hours of work required to meet the objectives of the employment. You acknowledge that this paragraph constitutes agreement to work hours above and beyond where the agreement is required by legislation. You agree that your duties, responsibilities, reporting relationships and the location of your employment may be changed from time to time by IT Staffing Ltd. as the company may deem appropriate, and that these changes will not effect or change any other part of this agreement. CONFIDENTIALITY - --------------- You acknowledge that as a TECHNICAL RECRUITMENT SPECIALIST employed by IT Staffing Ltd. and in other positions and responsibilities as you may hold from time to time, you will acquire information about certain matters which are confidential to the company, which information is the exclusive property of the IT Staffing Ltd.. You acknowledge that such information is the sole property of the IT Staffing Ltd. and could be used to the detriment of the IT Staffing Ltd., Accordingly, you undertake to keep all such information in the strictest confidence and agree not to disclose it to any other person or entity either during or following your term of employment, except as may be strictly necessary to perform your duties. except with the written permission of the Chief Executive Officer of the company or his designate. TERMINATION - ----------- Subject to paragraph 2 above, your employment pursuant to this agreement may be terminated in the following manner in the specified circumstances: a) By you, on the giving of two weeks advance notice in writing to IT Staffing Ltd. The company may waive notice, in whole or in part. b) By IT Staffing Ltd., without notice or payment in lieu thereof, for cause. For the purposes of this agreement, "cause" shall mean: i) any material breach of the provisions of this agreement by you; ii) incompetence or failure to discharge any of the responsibilities set out above to the satisfaction of the IT Staffing Ltd.; iii) insubordination or dishonesty; iv) your absence from work or any reason which results in your inability to perform your duties in accordance with this agreement for a period of 20 regular or scheduled work days in any 180 day period; v) all omissions which would have been cause at law, in addition to the above. c) By the company at its sole discretion and for any reason whatsoever on the giving of notice to you in writing in accordance with the following, or on payment in lieu thereof: LENGTH OF SERVICE PERIOD OF NOTICE Less than 6 months one week After 6 months but less than 1 year two weeks After I year but less than 2 years three weeks After 2 years 4 weeks The failure of IT Staffing Ltd. to rely on provision (b) at any time or times shall not constitute a precedent or be deemed a waiver. The company may, in its sole discretion, give notice of termination or payment in lieu thereof without prejudice to its right to allege cause for termination. COMPETITION - ----------- It is agreed by you that; (a) you recognise and acknowledge the competitive advantage that would be provided by and the confidential nature of all material, including but without limitation, non-public financial 2 and business information and documents, which have been made available to you during the course of your employment by IT Staffing Ltd. (b) you confirm and agree that, except as required by law, you will not disclose. release, remove or retain any of the information or documents made available to, or obtained by you, during the course of your employment by IT Staffing Ltd. without the prior written consent of IT Staffing Ltd. (c) you will not, without the prior written consent of IT Staffing Ltd. for a period of two years (2) from the date of your termination, directly or indirectly, solicit for employment by you or any other person, firm or corporation, any person who is at the date of termination employed by, whether full time or part time or by any arrangement, IT Staffing Ltd. and; (d) you will not, without the prior written consent of IT Staffing Ltd. for a period of two (2) years from the date of your termination, directly or indirectly perform services relating to the computer contracting or information technology recruitment business for any competitor of IT Staffing Ltd. Ltd. located within 1 00 kilometre's of Metropolitan Toronto. I trust that you will find the terms and conditions set out above acceptable. On behalf of IT Staffing Ltd., I am pleased that you have agreed to join us and wish you a long and successful association. ____________________________________ _______________________________ Declan French Date President IT Staffing Ltd. I have read and fully understood the provision of the letter of agreement set out on the preceding pages above. I acknowledge having had an opportunity to seek such advice with respect to its contents as I consider appropriate. By my signature below, I hereby accept the offer of employment outlined in the attached letter and acknowledge receiving a duplicate copy of this letter of agreement on the date indicated below. ____________________________________ _________________________________ {Name} Date 3 ALPHA TEST SOFTWARE LICENSE AGREEMENT GREAT LAKES RESEARCH & DEVELOPMENT LTD. ("GLRD") 2000 Argentia Road, Plaza III, Suite 301 Mississauga, Ontario L5N 1V9 CUSTOMER INFORMATION - -------------------------------------------------------------------------------- Location: Contact Person: - -------------------------------------------------------------------------------- GLRD: CUSTOMER: - -------------------------------------------------------------------------------- ALPHA TEST SOFTWARE DESCRIPTION: - -------------------------------------------------------------------------------- Recruiting management software known as "AppTracker" - -------------------------------------------------------------------------------- TERM OF LICENSE: - -------------------------------------------------------------------------------- 60 days from date of delivery of the Extension/Renewal: N/A Alpha Test Software - -------------------------------------------------------------------------------- 1. GRANT OF RIGHTS 1.1 In consideration of CUSTOMER's assistance in evaluating GLRD's Alpha test software (the "Software") as described above, GLRD hereby grants to CUSTOMER licenses for the Software without charge on a royalty-free, non-exclusive, nontransferable basis for the sole purpose of evaluating the Software. 2. OWNERSHIP OF THE SOFTWARE 2.1 Title and all other rights associated with the Software remain vested in GLRD or GLRD's affiliated companies or licensors. These rights are protected by United States, Canadian and English intellectual property right laws, international treaty provisions and other applicable national laws. 3. CONDITIONS OF SOFTWARE USE 3.1 CUSTOMER will: (a) use the Software for internal Alpha testing purposes only, which may include using the software in a test environment which simulates the operational business activities of CUSTOMER but which does not include using the software for CUSTOMER's actual operational business activities; (b) be free to make one (1) copy of the Software for archival or backup purposes. Except for this one (1) copy, no portion of the Software may be reproduced photographically, magnetically, or by any other means. Unauthorized disclosure, use or production of the Software could result in legal action by GLRD; (c) not modify the Software in any manner whatsoever, without the prior written consent of GLRD; (d) to the extent permitted by law, not attempt to reverse engineer or otherwise render the Software to a human-readable form in order to understand the Software structure or details in any way, or to produce any work derived from the Software; (e) not attempt to defeat the mechanisms that control the number of copies of the Software allowed to operate simultaneously during any particular time period; or (f) allow the Software only to be used and accessed by CUSTOMER's employees or agents for the purposes of this Agreement. CUSTOMER hereby accepts full responsibility and liability for the actions or omissions of its employees and agents. 4. ACKNOWLEDGMENT OF ALPHA TESTING 4.1 CUSTOMER acknowledges and agrees that the Software is an Alpha test version that may contain bugs, defects and errors and that the Software is not expected to function fully upon installation. CUSTOMER further acknowledges and agrees that the Software is being supplied to CUSTOMER without charge in exchange for CUSTOMER's evaluation of the Software. 4.2 CUSTOMER agrees that GLRD will have the right to use, in any manner and for any purpose, any information gained as a result of CUSTOMER's use and evaluation of the Software. Such information shall include but not be limited to changes, modifications and corrections to the Software. GLRD will have the right to use, at its sole discretion, all such information, including but not limited to use by incorporation of such information into computer programs and documentation for assignment, license, or other transfer to third parties. 5 RESPONSIBILITIES OF THE PARTIES 5.1 GLRD will provide telephone support and on-site support, as required, to assist CUSTOMER in installing, using and evaluating the Software. 5.2 CUSTOMER will: (a) use and evaluate the Software in accordance with the Alpha Test Plan attached hereto as Schedule 1; (b) participate in meetings and/or conference calls during and, as required, following the Alpha test period to provide feedback to GLRD; and (c) allow GLRD, at manually agreed times, to have reasonable access to the Software on CUSTOMER's computer system for the purpose of using, testing, modifying and correcting the Software. 2 6. LEGAL RISK MANAGEMENT 6.1 The parties have agreed that the following will apply for all purposes relating to this Agreement: (a) IN NO EVENT WILL GLRD BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS, ANTICIPATED REVENUE, SAVINGS OR GOODWILL, OR OTHER ECONOMIC LOS EVEN IF ADVISED OF THE POSSIBILITY THEREOF, THE PARTIES AGREE THAT THE SOFTWARE IS PROVIDED "AS IS, WHERE IS" AND THAT GLRD MAKES NO WARRANTY AS TO THE SOFTWARE, THE OBLIGATIONS OF GLRD EXPRESSLY STATED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES OR CONDITIONS EXPRESSED OR IMPLIED. (b) CUSTOMER AGREES THAT IT SHALL HAVE THE SOLE RESPONSIBILITY FOR PROTECTING ITS DATA USED IN CONNECTION WITH THE SOFTWARE. (c) CUSTOMER AGREES THAT GLRD'S LIABILITY FOR ANY AND ALL DIRECT, COMPENSATORY LOSS OR DAMAGES, UNDER ANY THEORY OF LAW OR EQUITY, WHETHER FOR BREACH OF CONTRACT, TORT OR OTHERWISE, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE INTENDED FULFILLMENT OF GLRD'S OBLIGATIONS HEREUNDER IS LIMITED IN THE AGGREGATE TO THE REPLACEMENT VALUE OF THE SOFTWARE. 7. INDEMNITIES 7.1 CUSTOMER does hereby indemnify and hold GLRD harmless from all claims, demands, costs, expenses, damages, liabilities and suits, paid, suffered or incurred by GLRD with respect to this Agreement for which it is responsible by breach of contract, bad faith, negligence, omission, error or otherwise. 7.2 GLRD agrees to indemnify and hold CUSTOMER harmless from any losses, damages and expenses that arise out of any action or claim that the Software infringes or violates any patents, copyrights or trade secrets of any third party. 7.3 GLRD will, at its own expense, defend any such action or claim and CUSTOMER will, at GLRD's expense (excluding expenses which are solely internal to CUSTOMER), assist in the defense, provided that GLRD will control the defense and all negotiations related thereto. 8. CONFIDENTIALITY 8.1 All information concerning the current products, future products, business plans, marketing plans or research and development of either party, or any third party proprietary information given to either party, whether disclosed in written, oral, or other media form to the other party, is its employees, consultants or agents, and is marked or otherwise identified as "confidential" or "proprietary", or which ought to be considered as confidential from its nature or from the circumstances surrounding its disclosure, is hereby deemed to be the propriety and confidential information of each respective its party ("Confidential Information"). 8.2 The receiving party shall disclose and grant access to the Confidential Information only to 3 those of its employees, agents and consultants who shall have a legitimate need to know the Confidential Information for the fulfilment of its responsibilities and obligations under this Agreement. The receiving party shall employ the same safeguards to keep the Confidential Information confidential of the other party as it employs to safeguard its own trade secrets. 8.3 The obligations set forth in this Section shall not apply to information which: (a) is known to the receiving party before receipt thereof from the other party, as evidenced by the receiving party's written records; (b) is disclosed to the receiving party in good faith by a third party who had a right to make such disclosure; (c) is made public by the originating party, or is established to be a part of the public domain otherwise than as a consequence of a breach by the receiving party of its obligations hereunder; (d) is required to be disclosed by law or by a valid order of any governmental body or competent securities regulatory authority, provided that the receiving party shall give the disclosing party reasonable notice of such disclosure; or (e) can be demonstrably proven to have been independently developed by the receiving party. 9. TERMINATION 9.1 Either party may terminate this Agreement upon five (5) days written notice to the other party; 9.2 Upon termination of this Agreement by either GLRD or CUSTOMER, CUSTOMER agrees to (i) immediately return to GLRD all copies of the Software and any related Confidential Information, including any copies of computer programs on magnetic media and any Software Documentation, and (ii) immediately delete from all computer systems all copies of the Software. 10. GENERAL 10.1 This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and merges all prior communications. 10.2 This Agreement shall not be assigned by CUSTOMER without the prior written approval of GLRD. CUSTOMER shall not sublicense its rights under this Agreement to any other person or entity and any such sub-license shall be null and void. GLRD shall have the right to assign the agreement without notice or consent of CUSTOMER. 10.3. This Agreement may be executed in several counterparts. It is not necessary that each of the parties named below signed all or any one of the counterparts, but each party must sign at least one counterpart for this Agreement to be effective. 10.4 The execution and delivery of this Agreement by either party hereto by facsimile transmission will constitute valid execution and delivery of this Agreement. 10.5 This Agreement shall be governed by and construed in accordance with the laws of Province of Ontario, Canada and the parties agree to submit to the exclusive jurisdiction of the courts of the Province of Ontario as regards any claim or matter arising in relation to this Agreement. 10.6 Sections 2, 6, 7 and 9 shall survive termination of this Agreement. 10.7 Schedule 1, "Alpha Test Plan" is the only schedule to this Agreement and is deemed to be 4 a part of it for all purposes. CUSTOMER: GREAT LAKES RESEARCH & DEVELOPMENT LTD.: ____________________________ ______________________________________ Signature Signature ____________________________ _______________________________________ Name Name ___________________________ ______________________________________ Title: Title: ___________________________ _______________________________________ Date Date 5 EX-10.16 19 EXHIBIT 10.16 Exhibit 10.16 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is made this ___ day of November, 1998 by and between IT STAFFING, LTD., a corporation duly organized under the laws of the Province of Ontario and authorized to conduct business in the State of New York ("Buyer") and SOUTHPORT CONSULTING CO., a corporation duly organized under the laws of the State of New Jersey ("Seller"). WHEREAS Seller is the owner of certain assets used in connection with the operation of its business; and WHEREAS Buyer desires to purchase the hereinafter described assets of Seller pursuant to the terms and conditions set forth herein; and WHEREAS Seller desires to sell and transfer such assets to Buyer pursuant to the terms and conditions set forth herein: NOW, THEREFORE, for and in consideration of the premises and mutual promises and covenants hereinafter contained, it is agreed between Buyer and Seller as follows: 1. SALE OF ASSETS Subject to the terms and conditions set forth herein, Seller shall sell, assign, convey, transfer and set over to Buyer, and Buyer shall purchase, assume and accept from Seller, free and clear of any and all liens, claims, encumbrances, liabilities, obligations, security interests and debts, full and complete title to the following tangible and intangible properties and assets of Seller, wherever located, as more particularly set forth on Schedule 1(i) (the "Assets"). The Assets are all of the Assets necessary to enable Buyer to operate the business related to the Assets. In that 1 connection, on the date of the closing of the transactions contemplated herein (the "Closing"), Seller shall deliver to Buyer: (i) a bill of sale in the form of Exhibit 1(i) covering the Assets; and (ii) an assignment of the trade name Southport Consulting. The Purchase Price (as hereinafter defined) shall be allocated as set forth on Schedule 1(i). 2. LIABILITIES. Buyer does not hereby and shall not at any time assume any liabilities or obligations of Seller of any nature whatsoever. 3. PURCHASE PRICE. 3.1 As consideration for the Assets being purchased hereby, subject to adjustment as provided in Paragraph 3.1(c) hereinbelow, Buyer shall pay to Seller or any designee(s) of Seller the sum of Two Hundred Fifty Thousand United States Dollars (USD$250,000) (the "Purchase Price"): (a) Fifty Thousand United States Dollars (USD$50,000) by bank or certified check or by wire transfer of funds upon the execution hereof; and (b)(i) in the event that certain registration statement bearing number 333-___________ becomes effective on or before January 29, 1999 (the "Registration Statement"), that number of shares of unregistered common stock of Buyer ("IT Shares") equal to Two Hundred Thousand United States Dollars (USD$200,000) based upon the offering price per share set forth in the Registration Statement. Such IT Shares shall be recorded on the books and records of Buyer and shall be delivered to the Seller simultaneously with the execution hereof; or 2 (b)(ii) in the event that the Registration Statement does not become effective on or before January 29, 1999, Buyer shall pay and deliver to Seller, on February 1, 1999, Fifty Thousand (50,000) IT Shares. (c) In the event that Buyer furnishes consideration to Seller in the form described in Paragraph 3.1(b) above and on each date that Seller is first permitted to sell IT Shares pursuant to Rule 144 and any applicable contractual arrangement (each such date being hereinafter referred to as a "Sale Date"), and the value of the IT Shares available for sale on such Sale Date is less than Five United States Dollars (USD$5.00) per share (the "Target Price Per Share"), unless the price to the public pursuant to the Registration Statement is less than Five United States Dollars (USD$5.00) per share, in which case the Target Price Per Share shall be the price to the public at the Buyer's initial public offering pursuant to the Registration Statement, subject to notice to be furnished to Buyer pursuant to Paragraph 3(d) hereinbelow, Buyer shall, on each such date, deliver to Seller, at Buyer's option, (i) cash or that number of registered shares of common stock of the Seller equal to the difference between (A) the number of IT Shares available for sale on the applicable Sale Date multiplied by the Target Price Per Share, and (B) the value of said shares on the applicable Sale Date as determined by the closing bid on the applicable Sale Date if the Registration Statement became effective, or by the book value of Buyer on said date in the event that the Registration Statement did not become effective (either such valuation being hereinafter referred to as the "Market Price"), or (ii) Two Hundred Thousand United States Dollars (USD$200,000) in exchange for the IT Shares delivered to Seller under paragraphs 3(b)(i) or 3(b)(ii), as applicable. (d) In the event that the Target Price Per Share is less than the Market Price per share, Seller shall furnish to Buyer notice thereof within Ten (10) business days following the 3 applicable Sale Date which notice shall set forth the amount of cash and IT Shares owed by Buyer to Seller. Buyer shall pay and deliver to Seller, within Ten (10) business days following receipt of said notice, at Buyer's option, the cash, by certified check or wire transfer of funds, or a certificate representing the applicable number of IT Shares. (e) All IT Shares delivered to Seller under this Agreement shall be subject to the same limitations in connection with transferability and registration rights as those of senior management of the Buyer; provided, however, that Buyer shall (i) not permit said rights to be any more restrictive to Seller as same exist on the date hereof, and (ii) cause Seller to be furnished with tag-along rights, drag-along rights, and registration rights and the like on the same terms and at the same time(s) as same may be offered to senior management of the Buyer from time to time. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller represents, warrants, and covenants to Buyer as follows: 4.1 EXISTENCE/AUTHORIZATION. Seller is a corporation duly organized and validly existing under the laws of the State of New Jersey. Seller has the corporate power to own and operate its properties and the Assets and to carry on its business as it is now being conducted. Seller conducts business only in New York and New Jersey and is not authorized and has not applied to become authorized to conduct business in any other jurisdiction. 4.2 CORPORATE POWER. Seller has full power and authority to execute and deliver this Agreement and such other agreements and instruments to be executed and delivered by it pursuant hereto, and to consummate the transactions contemplated hereby and thereby. All corporate acts and other proceedings required to be taken by or on the part of Seller to authorize it 4 to execute, deliver and perform this Agreement and such other agreements, instruments and transactions contemplated hereby have been duly and properly taken. 4.3 BINDING OBLIGATION. This Agreement has been duly executed and delivered by Seller and constitutes, and such other agreements and instruments contemplated hereby when duly executed and delivered by Seller will constitute, legal, valid and binding obligations of Seller enforceable in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally from time to time in effect, and subject to any equitable principles limiting the right to obtain specific performance of certain obligations of Seller hereunder and thereunder. 4.4 SECURITIES ACT. (a) Seller is acquiring the IT Shares for its own account for investment and not with a view to the distribution thereof within the meaning of the United States Securities Act of 1933 (the "Act"). (b) Seller understands that the IT Shares have not been registered under the Act by reason of their issuance by the Buyer in a transaction exempt from the registration requirements of the Act and that the IT Shares must be held by Seller for a period of at least one (1) year unless registered under the Act or exempt from registration thereunder. (c) Seller further understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to Seller) promulgated under the Act depends on the satisfaction of various conditions, and that, if applicable, sales made pursuant to Rule 144 may only be made in limited amounts. 5 (d) In addition to complying with all applicable restrictions and other provisions in this Agreement, Seller represents and warrants to Buyer that it will not transfer any of the IT Shares except in compliance with United States federal and applicable state securities laws. (e) It is understood and agreed that the certificates evidencing the IT Shares will bear a legend stating, in addition to any other applicable legend, in substance: "The securities represented hereby have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged, hypothecated or otherwise disposed of unless they are registered under the Act or an exemption from registration is available." 4.5 TITLE TO ASSETS. Seller has good and valid title to all of the Assets, free and clear of all mortgages, liens, or encumbrances. The performance by Seller of its obligations hereunder will vest in the Buyer full and complete title in and to the Assets, free and clear of any and all liens, claims and encumbrances. 4.6 CUSTOMER INFORMATION. At the Closing, Seller shall deliver to Buyer files containing complete and accurate customer lists and customer databases used by or for Seller (the "Customer Information") as of Closing. The Customer Information will set forth the name and address of all of Seller's customers as of the date of the Closing. 4.7 INTELLECTUAL PROPERTY. Southport Consulting is the only trade name employed by Seller. 4.8 FINANCIAL STATEMENTS. (a) Seller has heretofore delivered to Buyer its unaudited balance sheet (the "1996 and 1997 Balance Sheet") for the years ended December 31, 1996 and 1997 and the 6 related statement of income and retained earnings (collectively the "1996 and 1997 Financial Statements"). (b) The 1996 and the 1997 Financial Statements have been prepared in accordance with the books and records of Seller. (c) From January 1, 1998 through the date of the Closing (the "Closing Date"), Seller has conducted its business and affairs prudently and in a consistent manner. 4.9 COMPLIANCE WITH APPLICABLE LAWS. To the best of Seller's knowledge, Seller and the Assets are in material compliance with all applicable statutes, laws, ordinances, rules and regulations of any governmental authority or instrumentality, domestic or foreign. 4.10 RECORDS AND SYSTEMS. All data and information of the business relating to the Assets of Seller are recorded, stored, maintained or operated or otherwise held by Seller, are included in the Assets, and are not wholly or partly dependent on any facilities which are not under the exclusive ownership or control of Seller. 4.11 SOFTWARE LICENSES. Seller is licensed to use all software necessary to enable it to continue to conduct its business and use its computerized records for the foreseeable future in the same manner in which they have been used prior to the Closing Date. All such licenses to use are included in the Assets, and Seller does not share any user rights in respect of such software with any other person or entity, but consent is required to assign Seller's rights in such licenses to Buyer. To the extent available to Seller, Seller shall use reasonable efforts to cause all software licenses to be transferred to Buyer. 4.12 BROKERS/FINDERS. Neither Seller nor any of Seller's directors, employees or agents has employed any broker, finder, investment banker or other person and none of the foregoing 7 has incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated hereby. 4.13 NON-COMPETITION. Seller shall cause Michael Carrazza to execute a non-competition agreement in the form of Exhibit 4.13 annexed hereto. 4.14 FINANCIAL SOPHISTICATION OF SELLER. The Seller has knowledge and experience in financial and business matters such that it is capable of evaluating the merits and risks, including the risk of loss, attendant to its capacity as a stockholder in Buyer. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. Buyer hereby represents, warrants and covenants to Seller as of the date hereof and at the Closing as follows: 5.1 EXISTENCE. Buyer is a corporation duly organized and validly existing under the laws of the Province of Ontario. Buyer is authorized to conduct business in the State of New York. Buyer has the corporate power to own and operate its properties and to carry on its business as it is now being conducted. 5.2 CORPORATE POWER. Buyer has full corporate power and authority to execute and deliver this Agreement and such other agreements and instruments to be executed and delivered by it pursuant hereto, and to consummate the transactions contemplated hereby and thereby. All corporate acts and other proceedings required to be taken by or on the part of the Buyer to authorize it to execute, deliver and perform this Agreement and such other agreements, instruments and transactions contemplated hereby have been duly and properly taken. 5.3 BINDING OBLIGATION; GOVERNMENTAL CONSENTS. This Agreement has been duly executed and delivered by Buyer and constitutes, and such other agreements and instruments when 8 duly executed and delivered by Buyer will constitute, legal, valid and binding obligations of Buyer enforceable in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally from time to time in effect, and subject to any equitable principles limiting the right to obtain specific performance of certain obligations of Buyer hereunder and thereunder. All consents of governmental and other regulatory authorities and of other parties required to be received by or on the part of Buyer to enable it to enter into and carry out this Agreement and the transactions contemplated hereby have been obtained. Without limiting the foregoing, Buyer has made all such filings and submissions which may be required under applicable law for Buyer to consummate the transactions contemplated hereby. Neither the execution and delivery of this Agreement nor the consummation by Buyer of the transactions contemplated hereby will (i) violate or conflict with any of the provisions of the Articles of Incorporation or By-laws of Buyer; or (ii) violate or constitute a default under any note, bond, mortgage, indenture, contract, agreement, license or other instrument or any order, judgment or ruling of any governmental authority to which Buyer is a party or by which any of its properties are bound. No other consent, approval, license, permit, or authorization of, or registration, declaration or filing with, any state or federal court, administrative agency or commission or other governmental authority or instrumentality, or of any other third party, is required to be obtained or made by Buyer in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby other than those that may be required solely by reason of Seller's or the Stockholders' (as opposed to any third party's) participation in the transactions contemplated hereby. 5.4 RESTRICTIONS RELATING TO THE IT SHARES. Except for restrictions on the transfer of the IT Shares in that they have not been registered under the United States securities laws, good 9 and marketable title to the IT Shares will pass to Seller, free and clear of any claims, liens, encumbrances, security interests, options, charges or restrictions whatsoever. The IT Shares are not subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding, including any such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting, dividend rights or disposition of the IT Shares. Buyer shall cause the IT Shares and the holder(s) thereof to have anti-dilution protection, pre-emptive rights and other rights relating to the IT Shares on terms no less favorable to current management and non-management shareholders of Buyer. Attached hereto as Exhibit 5.4 are copies of all agreements and proposals relating to rights and obligations of shareholders of Buyer including without limitation, shareholders agreements, registration rights agreements and lock-up agreements. 5.5 CAPITAL STOCK. The IT Shares issued and to be issued pursuant hereto are, or when issued will be, validly issued and outstanding and fully paid. Upon the Closing, the Seller will be the registered holder of the IT Shares issuable hereunder and to be delivered on the Closing Date. Such IT Shares have not been and will not be issued in violation of, and are not subject to, any preemptive or subscription rights. Except as set forth herein, there are no outstanding warrants, options, agreements, subscriptions, convertible or exchangeable securities or other commitments pursuant to which Seller is or may become obligated to issue, sell, purchase, return or redeem any or all of the IT Shares issued or issuable to it and there are no shares of capital stock. 5.6 THE IT SHARES. Upon Closing and upon each issuance hereunder, the Seller will have, good, valid and legal title to the IT Shares issued to it, free and clear of any claims, liens, encumbrances, options, charges or restrictions whatsoever (except for any restrictions imposed by the Buyer's underwriter underwriting the Registration Statement of Buyer's initial public offering and by virtue of any of the IT Shares not being registered under the Securities Act of 1933). At the 10 Closing, good, valid and legal title to the IT Shares will pass to Seller, free and clear of any claims, liens, encumbrances, options, charges or restrictions whatsoever, except as provided herein. The IT Shares issuable hereunder are not subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding, including any such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting, dividend rights or disposition of such IT Shares, except as disclosed herein. 6. INDEMNIFICATION. 6.1 INDEMNIFICATION BY SELLER. Seller hereby agrees to indemnify and defend Buyer against and hold it harmless from any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) suffered or incurred by Buyer to the extent arising from any breach of any representation, warranty or covenant of the Seller contained in this Agreement and for any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) suffered or incurred by Buyer to the extent arising from Seller's conduct or omission occurring prior to the Closing Date. In addition, Seller hereby agrees to indemnify Buyer against all liability for reasonable legal, accounting and other fees and expenses directly attributable to any such indemnification. 6.2 INDEMNIFICATION BY BUYER. Buyer hereby agrees to indemnify and defend Seller against, and hold it harmless from, any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) suffered or incurred by Seller to the extent arising from any breach of any representation, warranty or covenant of Buyer set forth herein or arising from the conduct of the business relating to the Assets after the Closing. In addition, Buyer agrees to indemnify Seller from and against all liability for reasonable legal, accounting and other fees and expenses directly attributable to any such indemnification. 11 6.3 PROCEDURES RELATING TO INDEMNIFICATION. (a) In order for a party (the "Indemnified Party") to be entitled to any indemnification provided for under Paragraph 6.1 or 6.2 of this Agreement in respect of, arising out of, or involving a Claim (as hereinafter defined) or demand made by any person, firm, governmental authority or corporation against the Indemnified Party (a "Claim" or a "Third Party Claim"), such Indemnified Party shall notify the indemnifying party as soon as practicable following receipt of written notice of said Third Party Claim; PROVIDED, HOWEVER, that the failure to give or delay in giving such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure or delay. Thereafter, the Indemnified Party shall deliver to the indemnifying party, as soon as practicable following the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third Party Claim. In providing notice to the indemnifying party, the Indemnified Party acknowledges its responsibility to provide said notice as promptly as possible in order that the indemnifying party shall be able to engage counsel and to submit appropriate answers to any Third Party Claim within the time period required by law. (b) If a Third Party Claim is made against an Indemnified Party, the indemnifying party shall assume the defense thereof with counsel selected by the indemnifying party and reasonably acceptable to the Indemnified Party. The Indemnified Party may participate in the defense of such Third Party Claim; PROVIDED, HOWEVER, the indemnifying party will not be liable to the Indemnified Party for legal expenses incurred by the Indemnified Party in connection with such defense subsequent to the assumption thereof by the indemnifying party. The indemnifying party shall be liable for the fees and expenses of counsel employed by the Indemnified Party for any period 12 during which the indemnifying party has not assumed the defense thereof. All of the parties hereto shall cooperate in the defense or prosecution of any Third Party Claim. Such cooperation shall include the retention and (upon the indemnifying party's written request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the indemnifying party's prior written consent. 7. DURATION OF REPRESENTATIONS. The representations, warranties, covenants and indemnities in this Agreement and in any other document delivered in connection herewith shall survive the Closing of this Agreement and shall terminate on the later of (i) the close of business on December 31, 1999, and (ii) the final resolution of any claim, with respect to that claim, made on or prior to December 31, 1999. 8. CONFIDENTIAL INFORMATION. Each party agrees to maintain as confidential all information which is delivered to it by the other and agrees further not to disclose the same to any third party whatsoever or use any such information for any purpose except in connection with the implementation of the undertakings of the parties described herein. 9. CLOSING. The Closing of the transactions contemplated hereby shall take place at the offices of Buyer, 420 Lexington Avenue, Suite 300, New York, New York and shall occur on or about October 20, 1998. 13 10. ANCILLARY DOCUMENTS AND RELATED ACTIONS OR CONDITIONS PRECEDENT TO CLOSING. (a) The obligation of Buyer to consummate the transactions contemplated herein and to perform its obligations hereunder on or prior to the Closing Date is, at the option of Buyer, subject to the following conditions, any or all of which may be waived by Buyer in whole or in part at or prior to the Closing: (i) no action or proceeding shall have been instituted or threatened or claim or demand made against Buyer and/or Seller before any court or other governmental body, seeking to restrain or prohibit, or to obtain damages with respect to, the consummation of the transactions contemplated hereby, or which, if adversely determined to Buyer and/or Seller, might have a material adverse effect on the Assets or the business, operations or prospects of Buyer or Seller; (ii) Seller shall deliver to Buyer evidence satisfactory to Buyer that the name of Seller has been changed; and (iii) Michael Carrazza shall execute a Non-Competition Agreement in the form of Exhibit 4.13 annexed hereto. (b) The obligation of Seller to consummate the transactions contemplated herein and to perform their obligations hereunder on and after the Closing Date is, at the option of the Seller, subject to the following conditions, any or all of which may be waived by Seller in whole or in part at or prior to the Closing: (i) no action or proceeding shall have been instituted or threatened or claim or demand made against Buyer and/or Seller before any court or other governmental body, seeking to restrain or prohibit, or seeking to obtain damages with respect to, the consummation of the transactions contemplated hereby; 14 (ii) Buyer shall deliver to Seller a certificate of an officer of Buyer stating that the transactions contemplated hereby have been approved by Seller's board of directors; and (iii) Buyer shall have furnished the Seller with a legal opinion of its counsel in form and substance reasonably satisfactory to Seller and its counsel. 11. MISCELLANEOUS PROVISIONS. 11.1 FURTHER ASSURANCES. Each party hereto agrees to execute and deliver such other documents, agreements or instruments and take such further action as may be reasonably requested by any other party hereto for the implementation of this Agreement and the consummation of the transactions contemplated hereby. 11.2 NOTICES. Any notices required or permitted hereunder shall be sufficiently given if in writing and personally delivered, by telecopy and confirmed by telephone, or by internationally recognized overnight courier, addressed as follows or to such other address as the parties shall have given notice of pursuant hereto: (a) If to the Seller: Mr. Michael Carrazza 48 Davey Drive West Orange, NJ 07052 with a copy to: Eric J. Dale, Esq. Lev, Berlin & Dale, P.C. 535 Connecticut Avenue Norwalk, Connecticut 06854 tel. (203) 838-8500 fax. (203) 854-1652 15 (b) If to Buyer: Mr. Declan French IT Staffing Ltd. 55 University Avenue Suite 525 Toronto, Ontario, Canada M5J 2H7 tel. (416) 364-8800 fax. (416) 364-2424 with a copy to: Jay M. Kaplowitz, Esq. Gersten, Savage, Kaplowitz & Fredericks, LLP 101 East 52nd Street 9th Floor New York, New York 10022 tel. (212) 752-9700 fax. (212) 752-9713 All such notices shall be effective upon the earlier of receipt, date of confirmation, or, in the case of registered mail, seven (7) days after depositing in the mail, postage prepaid, return receipt requested and addressed as shown above. 11.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) represents the entire understanding and agreement between the parties with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the parties hereto. This Agreement supersedes all prior agreements and arrangements between the parties hereto and their affiliates. 11.4 SUCCESSORS AND ASSIGNS; BENEFITS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and, except as otherwise provided below, their respective successors and assigns. Nothing contained in this Agreement or in any of the Schedules or Exhibits hereto is intended to create any rights in any person or entity that is not a party to this Agreement and no person or entity shall be deemed to be a third party beneficiary hereof or thereof. 16 11.5 SECTION HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.6 APPLICABLE LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to the principles thereof relating to conflicts of law. The parties hereto consent to the jurisdiction of the courts of the State of New York in Manhattan and the United States District Court for the Southern District of New York. 11.7 EXPENSES. Except as otherwise provided herein, the parties hereto shall pay their own respective fees and expenses, including without limitation, attorneys' fees. Notwithstanding the foregoing, in the event that Seller commences legal action to recover any amounts owed hereunder, Buyer shall pay all professional fees and expenses, including without limitation, attorneys' fees and expenses. 11.8 SEVERABILITY. If any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. 11.9 PUBLICITY. None of the parties hereto shall issue any press release or make any other public statement or announcement relating to, connected with or arising out of this Agreement or the matters contained herein, without obtaining the prior written approval of the other parties hereto to the contents and the manner of presentation and publication thereof. Notwithstanding the foregoing, after the Closing Buyer may issue any such release, statement or announcement as it reasonably deems appropriate in connection with its responsibilities as a publicly traded company. 17 11.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. This Agreement may be executed by telecopied signatures with the same effect as original signatures. 11.11 SCHEDULES AND EXHIBITS. All Schedules and Exhibits referenced herein are incorporated herein by reference and shall be initialed by both parties in order to be deemed an integral part of this Agreement. The contents of such Schedules and Exhibits are deemed to be disclosures to Buyer by Seller. In the event that any Schedule or Exhibit provided for herein is incomplete or has not been prepared by Seller and attached hereto as of the execution and delivery of this Agreement, it shall be a condition precedent to Closing that such Schedule or Exhibit shall be in form and substance reasonably satisfactory to Buyer. IT STAFFING LTD. SOUTHPORT CONSULTING CO. By: By: --------------------------- ---------------------------- Declan French Michael Carrazza Its President Its President Hereunto duly authorized Hereunto duly authorized 18 EX-10.17 20 EXHIBIT 10.17 Exhibit 10.17 IT STAFFING LTD. 55 UNIVERSITY AVENUE SUITE 525 TORONTO, ONTARIO, CANADA M5J 2H7 CONSULTING AGREEMENT November 1, 1998 Mr. Michael Carrazza 48 Davey Drive West Orange, NJ 07052 Re: IT Staffing Ltd. Dear Michael This will confirm the arrangements, terms and conditions, whereby you (hereinafter referred to as the "Consultant") shall serve as consultant to IT Staffing Ltd. (hereinafter referred to as the "Company"). The undersigned hereby agree to the following terms and conditions: 1. CONSULTING SERVICES. For the term set forth in Paragraph 2 hereinbelow, and based upon the compensation schedule set forth in Paragraph 3 hereinbelow, the Consultant shall provide to the Company the Services (as hereinafter defined) described in Sub-Paragraphs 1(i) and 1(ii). Consultant shall not be required to expend any time at the offices of the Company and may render the Services from any location. Consultant shall not be required to furnish a minimum number of hours in order to receive the compensation, except as otherwise specifically provided herein. The Services shall be as follows: (1) assisting Company senior management in the transition of the business related to the assets acquired by the Company from Southport Consulting Co., including without limitation, client relations, consultant relations, billing, collections, marketing, management and related services (the "Transition Services"); and (2) introduction of leads and/or new business on or after the date hereof in connection with the direct placement of Company consultants (the "Placement Services", together with the Transition Services shall be referred to herein as the Services). 2. TERM. The Consultant shall commence rendering the Services on January 4, 1999 (the "Commencement Date") and shall continue until December 31, 2000 (the "Term"), subject to the terms and conditions set forth herein. 3. COMPENSATION. The Company shall pay the Consultant or his designee(s) for the Services compensation as follows: (1) Two Hundred and Fifty Thousand United States Dollars (USD$250,000) for the Transition Services, payable as follows: (A) One Hundred Twenty Five Thousand United States Dollars (USD$125,000) on January 4, 1999, payable by certified check or wire transfer of funds; and (B) One Hundred Twenty Five Thousand United States Dollars (USD$125,000) on June 1, 1999, payable by certified check or wire transfer of funds. The parties hereto understand and agree that said payments are attributable to the rendition of services throughout the Term and that notwithstanding the actual payment thereof, shall be allocated to Consultant during the term in equal monthly installments of Ten Thousand Four Hundred and Seventeen United States Dollars (USD$10,417); (ii) Five Percent (5%) of the gross margin attributable to the Placement Services, payable within Fifteen (15) calendar days following each calendar quarter for the immediately preceding calendar quarter. 4. EXPENSE REIMBURSEMENT. Consultant shall be entitled to reimbursement by the Company for ordinary and necessary business expenses incurred by Consultant in the performance of his duties, which types of expenditures shall be determined and approved by the Company and further provided that the Company must approve any reimbursement of expenses in excess of Two Hundred and Fifty Dollars United States Dollars (USD$250) per month. 5. RELATIONSHIP. Nothing contained herein shall be deemed to confer upon or assign, sell or transfer to the Consultant any ownership interest whatsoever in the Company. Furthermore, nothing herein shall be deemed to constitute an employment or agency relationship between the Consultant and the Company. Except as expressly agreed in writing, the Consultant shall not have the authority to obligate, bind or commit the Company in any manner whatsoever. 6. ASSIGNMENT AND TERMINATION. This Agreement shall not be assignable by either party except to successors to all or substantially all of the business of the Company; provided, however, that Consultant may assign some or all of his rights to receive compensation hereunder at any time or from time to time. This Agreement may not be terminated by either party hereto for any reason other than gross negligence or willful misconduct of the non-terminating party. 7. FURTHER ASSURANCES. Each party hereto agrees to execute and deliver such other documents, agreements or instruments and take such further action as may be reasonably requested by any other party hereto for the implementation of this agreement and the consummation of the transactions contemplated hereby. 8 NOTICES. Any notices required or permitted hereunder shall be sufficiently given if in writing and personally delivered, by telecopy and confirmed by telephone, or by internationally recognized overnight courier, addressed as follows or to such other address as the parties shall have given notice of pursuant hereto: (a) If to Consultant: Mr. Michael Carrazza 48 Davey Drive West Orange, NJ 07052 with a copy to: Eric J. Dale, Esq. Lev, Berlin & Dale, P.C. 535 Connecticut Avenue Norwalk, Connecticut 06854 tel. (203) 838-8500 fax. (203) 854-1652 (b) If to Company: Mr. Declan French IT Staffing Ltd. 55 University Avenue Suite 525 Toronto, Ontario, Canada M5J 2H7 tel. (416) 364-8800 fax. (416) 364-2424 with a copy to: Jay M. Kaplowitz, Esq. Gersten, Savage, Kaplowitz & Fredericks, LLP 101 East 52nd Street 9th Floor New York, New York 10022 tel. (212) 752-9700 fax. (212) 752-9713 All such notices shall be effective upon the earlier of receipt, date of confirmation, or, in the case of registered mail, seven (7) days after depositing in the mail, postage prepaid, return receipt requested and addressed as shown above. 9. ENTIRE AGREEMENT. This agreement represents the entire understanding and agreement between the parties with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this agreement signed by the parties hereto. This agreement supersedes all prior agreements and arrangements respecting the subject matter hereof between the parties hereto and their affiliates. 10. SUCCESSORS AND ASSIGNS; BENEFITS. This agreement shall be binding upon and shall inure to the benefit of the parties hereto and, except as otherwise provided below, their respective successors and assigns. Nothing contained in this agreement is intended to create any rights in any person or entity that is not a party to this agreement and no person or entity shall be deemed to be a third party beneficiary hereof or thereof. 11. SECTION HEADINGS. The section headings contained in this agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 12. APPLICABLE LAW. This agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to the principles thereof relating to conflicts of law. The parties hereto consent to the jurisdiction of the courts of the State of New York in New York County and the United States District Court for the Southern District of New York. 13. EXPENSES. Except as otherwise provided herein, the parties hereto shall pay their own respective fees and expenses, including without limitation, attorneys' fees. Notwithstanding the foregoing, in the event that Consultant commences legal action to recover any amounts owed hereunder, Company shall pay all professional fees and expenses, including without limitation, attorneys= fees and expenses. 14. SEVERABILITY. If any provision of this agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this agreement. 15. COUNTERPARTS. This agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. This agreement may be executed by telecopied signatures with the same effect as original signatures. IT STAFFING LTD. By:/S/ DECLAN FRENCH --------------------------------- Declan French Its President Hereunto duly authorized Agreed to and accepted this 1st day of November, 1998 /S/ MICHAEL CARRAZZA - -------------------------------------- Michael Carrazza EX-23.1 21 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF SCHWARTZ LEVITSKY FELDMAN The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of our name and the use of our opinion dated July 27, 1998 for IT Staffing Ltd. (the "Company") as filed with its Registration Statement on Form SB-2 being filed by the Company. /s/ Schwartz Levitsky Feldman Schwartz Levitsky Feldman Chartered Accountants January 18, 1999 EX-23.2 22 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF SCHWARTZ LEVITSKY FELDMAN The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of our name and the use of our opinion dated July 27, 1998 for International Career Specialists Ltd. as filed with IT Staffing Ltd.'s Registration Statement on Form SB-2 being filed by IT Staffing Ltd. /s/ Schwartz Levitsky Feldman Schwartz Levitsky Feldman Chartered Accountants January 18, 1999 EX-23.3 23 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF SCHWARTZ LEVITSKY FELDMAN The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of our name and the use of our opinion dated July 27, 1998 for Systemsearch Consulting Services, Inc. as filed with IT Staffing Ltd's Registration Statement on Form SB-2 being filed by IT Staffing Ltd. /s/ Schwartz Levitsky Feldman Schwartz Levitsky Feldman Chartered Accountants January 18, 1999 EX-23.4 24 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF GERSTEN, SAVAGE, KAPLOWITZ & FREDERICKS, LLP The undersigned, Gersten, Savage, Kaplowitz & Fredericks, LLP, hereby consents to the use of our name and the use of our opinion for IT Staffing Ltd. (the "Company") as filed with its Registration Statement on Form SB-2, and any amendments thereto. /s/ Gersten, Savage, Kaplowitz & Fredericks, LLP ------------------------------------ Gersten, Savage, Kaplowitz & Fredericks, LLP January 6, 1999 EX-23.5 25 EXHIBIT 23.5 EXHIBIT 23.5 CONSENT OF MCMILLAN BINCH The undersigned, McMillan Binch, hereby consents to the use of our name and the use of our opinion for IT Staffing Ltd. (The "Company") as filed with its Registration Statement on Form SB-2, and any amendments thereto. /s/ McMillan Binch --------------------------- McMillan Binch Barristers & Solicitors January 6, 1999 -----END PRIVACY-ENHANCED MESSAGE-----