Exhibit 10.4
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (this "AGREEMENT") is dated as of
September 29, 2004 by and among Intelligroup, Inc., a New Jersey corporation
(the "COMPANY"), and each purchaser identified on the signature page hereto
(each a "PURCHASER" and collectively, the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as
amended, the Company desires to issue and sell to each Purchaser, and each
Purchaser desires to purchase from the Company, common stock of the Company as
more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"ACT" means the New Jersey Shareholders Protection Act.
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" means any day other than Saturday, Sunday or a
federal holiday on which the offices of the Commission are not open.
"CLOSING" means the closing of the sale and purchase of the Shares
pursuant to Section 2.1.
"CLOSING DATE" means the date of the Closing.
"COMMISSION" and "SEC" each mean the Securities and Exchange
Commission.
"COMMON STOCK" means the common stock of the Company.
"COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
"COMPANY COUNSEL" means Xxxxxx & Xxxxxxx LLP.
"COMPANY LOCAL COUNSEL" means Xxxxxxx Xxxxx LLP.
"CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for Common
Stock.
"CREDIT AGREEMENT" means that certain Amended and Restated
Revolving Credit Loan and Security Agreement among the Company,
Empower, Inc. and PNC Bank, National Association, dated May 31, 2000,
as amended to date.
"EFFECTIVE DATE" means the date that the Registration
Statement is first declared effective by the Commission, which shall
not be later than 270 days after the Closing Date; provided that the
Effective Date may be extended to 365 days after the Closing Date as
described herein if the Company is not listed on an Eligible Market.
"ELIGIBLE MARKET" means any of the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market or the Nasdaq
Small Cap Market.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" means the issuance of Common Stock (A) upon
exercise or conversion of any options or other securities described in
Schedule 3.1(f) (provided that such exercise or conversion occurs in
accordance with the terms thereof, without amendment or modification,
and that the applicable exercise or conversion price or ratio is
described in such schedule), (B) in connection with any grant of
options to employees, officers, directors or consultants of the Company
approved by the Board or compensation committee thereof, pursuant to a
stock option plan duly adopted by the Board or in respect of the
issuance of Common Stock upon exercise of any such options, (C) in
connection with a bona fide transaction under Rule 144A placed on a
firmly underwritten basis, (D) in connection with acquisitions,
strategic alliances or other similar business combinations approved by
the Board including at least one Investor Director, or (E) in
connection with any debt financing from a bank or similar financial
institution that is approved by the Board including at least one
Investor Director.
"LIEN" means any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction.
"LOSSES" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including, without limitation, costs of
preparation and reasonable attorneys' fees.
"OPTIONS" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
"PERSON" means any individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or any court or other federal, state, local or
other governmental authority or other entity of any kind.
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"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"PURCHASER COUNSEL" means Xxxxxx Godward LLP.
"REGISTRABLE SECURITIES" means any Common Stock issued or issuable
pursuant to the Transaction Documents, together with any securities
issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the
foregoing.
"REGISTRATION STATEMENT" means each registration statement
required to be filed under Article VI, including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"REQUIRED EFFECTIVENESS DATE" means the earliest of (i) the 270th
day following the Closing Date, and (ii) the 5th Business Day following
the date the Company learns that no review of the Registration
Statement will be made by the staff of the Commission or that the staff
of the Commission has no further comments on the Registration Statement
and the Company may request acceleration of effectiveness; provided
that the time period in clause (i) shall be extended, as necessary, up
to the 365th day following the Closing Date if the Company is not
listed on an Eligible Market and the Board determines in good faith
that it would be materially detrimental to the Company to have the
Registration Statement declared effective for reasons other than the
potential effect on the share price of the Common Stock.
"RIGHTS PLAN" means the Shareholder Protection Rights Plan
Agreement dated as of November 6, 1998 between Intelligroup, Inc. and
American Stock & Trust Company.
"RULE 144," "RULE 144A," "RULE 415," and "RULE 424" means Rule
144, Rule 144A, Rule 415 and Rule 424, respectively, promulgated by the
Commission pursuant to the Securities Act, as such Rules may be amended
from time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such Rule.
"SAIF" means SB Asia Infrastructure Fund, L.P.
3.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means an aggregate of 17,647,058 shares of Common Stock
to be issued and sold to the Purchasers at the Closing.
"SUBSIDIARY" means any Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest
that are required to be listed in Schedule 3.1(a).
"TRADING DAY" means (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, (b) if the
Common Stock is not then listed or quoted and traded on any Eligible
Market, then a day on which trading occurs on the NASDAQ Small Cap
Market (or any successor thereto), or (c) if trading does not occur on
the NASDAQ Small Cap Market (or any successor thereto), any Business
Day.
"TRADING MARKET" means the NASDAQ National Market or any other
Eligible Market on which the Common Stock is then listed or quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Transfer Agent
Instructions and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"TRANSFER AGENT" means the Company's transfer agent.
"TRANSFER AGENT INSTRUCTIONS" means the Irrevocable Transfer Agent
Instructions, in the form of Exhibit C, executed by the Company and
delivered to and acknowledged in writing by the Transfer AGENT.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall purchase from the Company, the number of Shares at the
aggregate purchase price as indicated below such Purchaser's name on the
signature page of this Agreement. The Closing shall take place upon satisfaction
or waiver of all applicable conditions in Section 5 below, or at such other time
as the parties may mutually agree. The Closing shall occur at the offices of
Cooley Godward LLP, 0000 Xxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 or at such
other location as the parties may mutually agree. The purchase price of the
Shares shall be eighty-five cents ($0.85) per Share.
2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) one or more stock certificates, or such other evidence of
stock ownership as such Purchaser may reasonably request, free and
clear of all restrictive and other legends (except as expressly
provided in Section 4.1(b) hereof), evidencing the
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number of Shares indicated below such Purchaser's name on the signature
page of this Agreement, registered in the name of such Purchaser; and
(ii)legal opinions of Company Counsel and Company Local Counsel,
in the form of Exhibit A, executed by such respective counsel and
delivered to the Purchasers; and
(iii) duly executed Transfer Agent Instructions acknowledged by
the Transfer Agent.
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the purchase price for the Shares being purchased by
such Purchaser, in United States dollars and in immediately available funds,
by wire transfer to an account designated in writing by the Company for such
purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Purchasers as follows:
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than those listed in Schedule 3.1(a). Except as disclosed in Schedule
3.1(a), the Company owns, directly or indirectly, all of the capital stock or
comparable equity interests of each Subsidiary free and clear of any Lien, and
all the issued and outstanding shares of capital stock or comparable equity
interests of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and
the Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not or could not reasonably be expected to,
individually or in the aggregate, (i) materially adversely affect the
legality, validity or enforceability of any Transaction Document, (ii) have or
result in a material adverse effect on the results of operations, assets,
properties, liabilities (absolute, accrued, contingent or otherwise), business
or financial condition of the Company and the Subsidiaries, taken as a whole,
or (iii) adversely impair the Company's ability to perform fully on a timely
basis its obligations under any of the Transaction Documents (any of (i), (ii)
or (iii), a "MATERIAL ADVERSE EFFECT").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of
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the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further consent or action is required
by the Company, its Board of Directors or its stockholders. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by the
Company and is, or when delivered in accordance with the terms hereof, will
constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally and by general equitable principles.
(d) No Conflicts. Except with respect to the applicable rules of the
Nasdaq Stock Market, the execution and delivery of the Transaction Documents,
the issuance and sale of the Shares and the consummation of the transactions
contemplated hereby and thereby will not (a) conflict with or constitute a
violation of or default (with the passage of time or otherwise) or give rise
to any right of termination, material amendment, cancellation or acceleration
or loss of any material rights under (i) any material contracts to which the
Company or any Subsidiary is a party (such contracts, the "MATERIAL
CONTRACTS"), (ii) the certificate of incorporation or the bylaws or any
similar organizational document of the Company or any Subsidiary or (iii) any
law, administrative regulation ordinance, writ, injunction, decree or order of
any court or governmental agency, arbitration panel or authority binding upon
the Company or any Subsidiary or either's property, or (b) result in the
creation or imposition (or the obligation to create or impose) of any material
lien, encumbrance, claim, security interest, pledge, charge or restriction of
any kind upon any of the properties or assets of the Company or any
Subsidiary, or an acceleration of indebtedness pursuant to any obligation,
agreement or condition contained in any Material Contract. No consent,
approval, authorization or other order of, or registration, qualification or
filing with, any regulatory body, administrative agency or other governmental
body in the United States is required for the execution and delivery of the
Transaction Documents and the valid issuance and sale of the Shares to be sold
pursuant to this Agreement, except for any securities filings required to be
made under federal or state securities laws.
(e) Issuance of the Shares. The Shares are duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens
and shall not be subject to preemptive rights or similar rights of
stockholders.
(f) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(f). All outstanding shares of capital stock are duly authorized,
validly issued, fully paid and nonassessable and have been issued in
compliance with all applicable securities laws. Except as disclosed in
Schedule 3.1(f), there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
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any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock. There are no anti-dilution or
price adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) and the issue and
sale of the Shares will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchaser) and will
not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities. To the
knowledge of the Company, except as specifically disclosed in Schedule 3.1(f),
no Person or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire,
by agreement with or by obligation binding upon the Company, beneficial
ownership of in excess of 5% of the outstanding Common Stock, ignoring for
such purposes any limitation on the number of shares of Common Stock that may
be owned at any single time.
(g) SEC Reports; Financial Statements. Except for the report on Form
10-Q for the period ended June 30, 2004, the Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, since and including the
filing of the Company's report on Form 10-K for the year ended December 31,
2003 (the foregoing materials that have been filed as of or prior to the date
of this Agreement, together with any reports filed as of or prior to the date
of this Agreement on Form 8-K for the purpose of complying with Regulation FD
under the Exchange Act, are collectively referred to herein as the "SEC
REPORTS") on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension. Except as described on Schedule 3.1(g), as of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Except as described in Schedule 3.1(g), the financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Except as described in Schedule 3.1(g), such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or specifically identified in
the SEC Reports.
(h) Material Changes. Except as described in Schedule 3.1(h), since
December 31, 2003, except as specifically disclosed in the SEC Reports, (i)
there has been no event, occurrence or development that, individually or in
the aggregate, has had or that would
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reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than
(A) liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be disclosed in
filings made with the Commission, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its
capital stock, and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock
option plans.
(i) Contracts.
(i) Each of the Material Contracts has been filed as an exhibit
to the SEC Reports and other than the Material Contracts, neither the
Company nor any Subsidiary has any agreements, contracts and commitments
that are material to the Company and not made in the ordinary course of
business.
(ii) Except as described in Schedule 3.1(i), the Company does
not have any employment agreements, or any other similar agreements that
contain any severance or termination pay liabilities or obligations, that
are not filed as exhibits to the SEC Reports.
(iii) No purchase contract or commitment of the Company continues
for a period of more than twelve months and in excess of the normal,
ordinary and usual requirements of the Company's business.
(iv) Except as described in Schedule 3.1(i), the Company and
each Subsidiary is not in default under or in material violation of, nor
to the Company's knowledge, is there any valid basis for any claim of
default, under or material violation of, any Material Contract.
(v) Except as described in Schedule 3.1(i), the Company does
not have any debt obligations for borrowed money, including any guarantee
of or agreement to acquire any such debt obligation of others, or any
power of attorney outstanding or any obligation or liability (whether
absolute, accrued, contingent or otherwise) as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise with respect to the
obligation of any corporation, partnership, joint venture, association,
organization or other entity.
(vi) Except as described in Schedule 3.1(i), all agreements,
contracts and commitments required to be filed by the Company under the
Exchange Act or the Securities Act have been filed in a timely manner with
the Commission.
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(vii) Except as described in Schedule 3.1(i), the Company and
each Subsidiary is not materially restricted by agreement from carrying on
its business anywhere in the world.
(j) Absence of Litigation. Except as described in Schedule 3.1(j),
there is no action, suit, claim, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries that would individually or in
the aggregate, have a Material Adverse Effect.
(k) Compliance. Except as described in Schedule 3.1(k), neither the
Company nor any Subsidiary (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received written notice of a claim that
it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as would not,
individually or in the aggregate, have or result in a Material Adverse Effect.
(l) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens that do not materially affect the value of such
property and do not materially interfere with the use made, and proposed to be
made, of such property by the Company and the Subsidiaries. Any real property
and facilities held under lease by the Company and the Subsidiaries are held
by them under valid, subsisting and enforceable leases, free and clear of all
Liens, of which the Company and the Subsidiaries are in compliance.
(m) Certain Fees. No brokerage or finder's fees or commissions are or
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect
to the transactions contemplated by this Agreement, and the Company has not
taken any action that would cause any Purchaser to be liable for any such fees
or commissions.
(n) Private Placement. Neither the Company nor any Person acting on
the Company's behalf has sold or offered to sell or solicited any offer to buy
the Shares by means of any form of general solicitation or advertising.
Neither the Company nor any of its Affiliates nor any Person acting on the
Company's behalf has, directly or indirectly, at any time within the past six
months, made any offer or sale of any security or solicitation of any offer to
buy any security under circumstances that would (i) eliminate the availability
of the exemption from registration under Regulation D under the Securities Act
in connection with the offer and sale of the Shares as contemplated hereby or
(ii) cause the offering of the Shares pursuant to the Transaction Documents to
be integrated with prior offerings by the Company for purposes of any
applicable law, regulation or stockholder approval provisions, including,
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without limitation, under the rules and regulations of any Trading Market. The
issuance and sale of the Shares hereunder does not conflict with or violate
any rules or regulations of any Trading Market. The Company is not, and is not
an Affiliate of, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. The Company is not a United States real
property holding corporation within the meaning of the Foreign Investment in
Real Property Tax Act of 1980.
(o) Listing and Maintenance Requirements. Except as described in
Schedule 3.1(o), the Company has not, in the two years preceding the date
hereof, received notice (written or oral) from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading
Market.
(p) Registration Rights. The Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied or waived.
(q) Application of Takeover Protections. Except as described in
Schedule 3.1(p) and except for the Act, there is no control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
charter documents or the laws of its state of incorporation that is or could
become applicable to any of the Purchasers as a result of Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, as a result of the
Company's issuance of the Shares and the Purchasers' ownership of the Shares.
(r) Disclosure. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosures provided to the
Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by
or on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or, to the best of the Company's knowledge, omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2.
(s) Acknowledgment Regarding Purchasers' Purchase of Shares. The
Company acknowledges and agrees that each of the Purchasers is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges
that no Purchaser is acting as a financial advisor
10.
or fiduciary of the Company or any other Purchaser (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Purchaser's
purchase of the Shares. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement has been based solely on
the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(t) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with their
respective businesses and which the failure to so have would, or could
reasonably be expected to, have a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received written notice that, or has knowledge that, the Intellectual Property
Rights used by the Company or any Subsidiary conflicts with, or violates or
infringes upon, the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company is not aware of any claim or potential claim against the Company or
any Subsidiary regarding any of the Intellectual Property Rights. The Company
or any Subsidiary does not, in the conduct of its business, infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process that is the subject of a patent application
filed by any third party, known to the Company. The Company and each
Subsidiary has taken reasonable steps to protect the material intellectual
property of the Company. The execution, delivery and performance by the
Company of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in the loss or impairment of, or give
rise to any right of any third party to terminate or materially alter, any of
the Company's or any Subsidiary's material rights to own any of its
intellectual property or its material rights under any agreements relating to
such intellectual property, nor require the consent of any governmental
authority or third party in respect of any such intellectual property.
(u) Employee Benefit Plans; Employee Matters. The consummation of the
transactions contemplated by this Agreement will not, alone or in conjunction
with any other possible event (including termination of employment) (i)
entitle any current or former employee or other service provider of the
Company or any Subsidiary to severance benefits or any other payment,
compensation or benefit (including forgiveness of indebtedness), except as
expressly provided by this Agreement or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation or benefit due any such
employee or service provider, alone or in conjunction with any other possible
event (including termination of employment). The Company and each Subsidiary
is in compliance in all material respects with all currently applicable laws
and regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. To the
Company's knowledge, no employees of the Company or any Subsidiary are in
violation of any term of any material employment contract, patent disclosure
agreement, noncompetition agreement or any restrictive covenant to a former
employer relating to the right of any such employee to be
11.
employed by the Company or any Subsidiary because of the nature of the
business conducted or presently proposed to be conducted by the Company or any
Subsidiary or to the use of trade secrets or proprietary information of
others. No key employee of the Company or any Subsidiary has given written
notice of resignation to the Company or any Subsidiary and, to the Company's
knowledge, no key employee intends to terminate his or her employment with the
Company or any Subsidiary.
(v) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
the Company and the Subsidiaries are engaged. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(w) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits would not, individually or in the aggregate,
have or result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither
the Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(x) Environmental Laws. Except as would not have a Material Adverse
Effect, the Company and each of the Subsidiaries is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
(y) Transactions With Affiliates and Employees. Except as set forth
in SEC Reports filed at least ten days prior to the date hereof, none of the
officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee
or partner.
(z) Internal Accounting Controls. Except as described in Schedule
3.1(z), the Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded
12.
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
3.2 Representations and Warranties of the Purchaser. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The purchase by such Purchaser of the
Shares hereunder has been duly authorized by all necessary action on the part
of such Purchaser. This Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the Shares as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Shares or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of
this Agreement, at all times to sell or otherwise dispose of all or any part
of such Shares pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in compliance
with applicable federal and state securities laws. Nothing contained herein
shall be deemed a representation or warranty by such Purchaser to hold the
Shares for any period of time.
(c) Purchaser Status. At the time such Purchaser was offered the
Shares it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Shares and, at the present
time, is able to afford a complete loss of such investment.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Shares may only be disposed of pursuant to an effective
registration statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act, and in
compliance with any applicable state securities laws. In connection with any
transfer of Shares other than (i) pursuant to an effective registration
statement, (ii) to the Company or (iii) pursuant to Rule 144(k), except as
otherwise set forth herein, the Company may require the transferor to provide
to the Company an opinion of counsel selected by the transferor to the effect
that such transfer does not require
13.
registration under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register on the books of the Company
and with its Transfer Agent, without any such legal opinion, any transfer of
Shares by a Purchaser to an Affiliate of such Purchaser, provided that no
registration of such transfer is required under the Securities Act. In
addition, Purchaser shall not knowingly transfer any Shares to a competitor of
the Company.
(b) The Purchaser agree to the imprinting, so long as is required by
this Section 4.1(b), of the following legend on any certificate evidencing
Shares:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
Certificates evidencing Shares shall not be required to contain such legend or
any other legend (i) while a Registration Statement covering the resale of such
Shares is effective under the Securities Act, or (ii) following any sale of such
Shares pursuant to Rule 144, or (iii) if such Shares are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall cause
its counsel to issue the legal opinion included in the Transfer Agent
Instructions to the Transfer Agent on the Effective Date. At such time as a
legend is no longer required for certain Shares, the Company will no later than
three Trading Days following the delivery by a Purchaser to the Company or the
Transfer Agent of a legended certificate representing such Shares, deliver or
cause to be delivered to such Purchaser a certificate representing such Shares
that is free from the restrictive legends set forth above. The Company may not
make any notation on its records or give instructions to any transfer agent of
the Company that enlarge the restrictions on transfer set forth in this Section.
For so long as any Purchaser owns Shares, the Company will not effect or
publicly announce its intention to effect any exchange, recapitalization or
other transaction that effectively requires or rewards physical delivery of
certificates evidencing the Common Stock.
(c) The Company acknowledges and agrees that a Purchaser may from
time to time pledge or grant a security interest in some or all of the Shares in
connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Shares and, if required under the terms of such
agreement, loan or arrangement, such Purchaser may transfer
14.
pledged or secured Shares to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no legal opinion of
the pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such required
documentation as a pledgee or secured party of Shares may reasonably request in
connection with a pledge or transfer of the Shares, including the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.
4.2 Furnishing of Information. Beginning with the filing of the 10-K
for the year ending December 31, 2004, for as long as any Purchaser owns Shares,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. On and after the filing of the 10-K for the year ending
December 31, 2004, for as long as any Purchaser owns Shares, if the Company is
not required to file reports pursuant to such laws, it will prepare and furnish
to the Purchaser and make publicly available in accordance with paragraph (c) of
Rule 144 such information as is required for the Purchaser to sell the Shares
under Rule 144. The Company further covenants that on and after the filing of
the 10-K for the year ending December 31, 2004, it will take such further action
as any holder of Shares may reasonably request to satisfy the provisions of Rule
144 applicable to the issuer of securities relating to transactions for the sale
of securities pursuant to Rule 144.
4.3 Integration. The Company shall not, and shall use its commercially
reasonable best efforts to ensure that no Affiliate of the Company shall, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Shares in a manner that would require
the registration under the Securities Act of the sale of the Shares to the
Purchaser, or that would be integrated with the offer or sale of the Shares for
purposes of the rules and regulations of any Trading Market.
4.4 Reservation of Shares. The Company shall maintain a reserve from
its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares.
4.5 Subsequent Placements.
(a) For so long as Purchasers and/or their Affiliates hold at least
10% of the outstanding Common Stock (the "SUBSEQUENT PLACEMENT PERIOD"), the
Company will not, directly or indirectly, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition of) any of its or the Subsidiaries'
equity or equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during
its life and under any
15.
circumstances, convertible into or exchangeable or exercisable for Common Stock
or Common Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a "SUBSEQUENT PLACEMENT") unless the Company
shall have first complied with this Section 4.5(a).
(i) The Company shall deliver to each Purchaser a written notice
(the "OFFER") of any proposed or intended issuance or sale or exchange of
the securities being offered in a Subsequent Placement (the "OFFERED
SECURITIES"), which Offer shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the Persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with Purchaser on the same terms as those set forth in the
Subsequent Placement a portion of the Offered Securities based on such
Purchaser's pro rata percentage holdings of the outstanding Common Stock at
the time of the Offer (the "BASIC AMOUNT"), and with respect to each
Purchaser that elects to purchase its Basic Amount, any additional portion
of the Offered Securities attributable to the Basic Amounts of other
Purchasers as such Purchaser shall indicate it will purchase or acquire
should the other Purchasers subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT").
(ii) To accept an Offer, in whole or in part, a Purchaser must
deliver a written notice to the Company within ten (10) Trading Day(s) after
receipt of the Offer, setting forth the portion of the Purchaser's Basic
Amount that such Purchaser elects to purchase and, if such Purchaser shall
elect to purchase all of its Basic Amount, the Undersubscription Amount, if
any, that such Purchaser elects to purchase (in either case, the "NOTICE OF
ACCEPTANCE"). If the Basic Amounts subscribed for by all Purchaser are less
than the total of all of the Basic Amounts, then the Purchaser who has set
forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if
the Undersubscription Amounts subscribed for exceed the difference between
the total of all the Basic Amounts and the Basic Amounts subscribed for (the
"AVAILABLE UNDERSUBSCRIPTION AMOUNT"), the Purchaser who has subscribed for
any Undersubscription Amount shall be entitled to purchase on that portion
of the Available Undersubscription Amount as the Basic Amount of such
Purchaser bears to the total Basic Amounts of all Purchaser that have
subscribed for Undersubscription Amounts, subject to rounding by the Board
to the extent its deems reasonably necessary.
(iii) The Company shall have sixty (60) Trading Days from the
expiration of the period set forth in Section 4.5(a)(ii) above to issue,
sell or exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Purchaser (the "REFUSED
SECURITIES"), but only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not materially more
favorable to the acquiring Person or Persons or materially less favorable to
the Company than those set forth in the Offer.
16.
(iv) In the event the Company shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4.5(a)(iii) above), then Purchaser may, at its sole
option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that
shall be not less than the number or amount of the Offered Securities that
the Purchaser elected to purchase pursuant to Section 4.5(a)(ii) above
multiplied by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to Purchaser
pursuant to Section 4.5(a)(ii) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities.
In the event that any Purchaser so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company may
not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered
to the Purchaser in accordance with Section 4.5(a)(i) above.
(v) Upon the closing of the issuance, sale or exchange of all or
less than all of the Refused Securities, the Purchasers shall acquire from
the Company, and the Company shall issue to the Purchasers, the number or
amount of Offered Securities specified in the Notices of Acceptance, as
reduced pursuant to Section 4.5(a)(iv) above if the Purchasers have so
elected, upon the terms and conditions specified in the Offer. The purchase
by the Purchasers of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Purchaser of a
purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Purchaser and their respective
counsel.
(vi) Any Offered Securities not acquired by the Purchaser or
other Persons in accordance with Section 4.5(a)(iii) above may not be
issued, sold or exchanged until they are again offered to the Purchaser
under the procedures specified in this Agreement.
(b) The restrictions contained in paragraph (a) of this Section shall
not apply to Excluded Stock.
4.6 Securities Laws Disclosure; Publicity. The Company shall, on the
Closing Date, issue a press release acceptable to the Purchasers disclosing all
material terms of the transactions contemplated hereby. The Company shall, on or
before the Business Day following the Closing Date, file a Current Report on
Form 8-K with the Commission (the "8-K FILING") describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits
to such Current Report on Form 8-K this Agreement, in the form required by the
Exchange Act. Thereafter, the Company shall timely file any filings and notices
required by the Commission or applicable law with respect to the transactions
contemplated hereby and provide copies thereof to the Purchasers promptly after
filing. Except with respect to the 8-K Filing and the press release referenced
above (a copy of which will be provided to the Purchasers for their review as
early as practicable prior to its filing), the Company shall, at least two
Trading Days prior to the filing or dissemination of any disclosure required by
this paragraph, provide a copy thereof to the Purchasers for their review. The
Company and the Purchasers shall consult with each other in
17.
issuing any press releases or otherwise making public statements or filings and
other communications with the Commission or any regulatory agency or Trading
Market with respect to the transactions contemplated hereby, and neither party
shall issue any such press release or otherwise make any such public statement,
filing or other communication without the prior consent of the other, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement,
filing or other communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchaser with prior notice of such
disclosure. Subject to the foregoing, neither the Company nor any Purchaser
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Purchaser, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case
of clause (i) Purchaser shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release). Each press
release disseminated during the 12 months preceding the date of this Agreement
did not at the time of release contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading
4.7 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares hereunder for working capital purposes and, unless otherwise
approved in writing by SAIF or pursuant to the Credit Agreement, provided that
the Credit Agreement shall have been amended pursuant to an amendment thereto
approved by SAIF prior to the Closing, not for the satisfaction of any portion
of the Company's debt (other than payment of trade payables and accrued expenses
in the ordinary course of the Company's business and consistent with prior
practices), to redeem any Company equity or equity-equivalent securities or to
settle any litigation outstanding on the Closing Date.
4.8 Inspection Rights. Purchasers shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries at such
reasonable times and as often as may be reasonably requested; provided, however,
that the Company shall not be obligated under this Section 4.8 with respect to
information which the Board determines in good faith is confidential or
attorney-client privileged and should not, therefore, be disclosed.
4.9 Reports. So long as Purchasers and/or their Affiliates continue to
hold at least 10% of the outstanding Common Stock, the Company shall provide
Purchasers with all materials submitted to the Board at the same time and in the
same manner as such materials are provided to the directors.
18.
4.10 Board Representation.
(a) From and after the Closing until Purchasers and/or their
Affiliates no longer hold at least 10% of the outstanding Common Stock,
Purchasers shall have the right to designate one (1) member of the Board; from
and after the Closing until Purchasers and/or their Affiliates no longer hold
at least 15% of the outstanding Common Stock, Purchasers shall have the right
to designate a second member of the Board; from and after the Closing until
Purchasers and/or their Affiliates no longer hold at least 20% of the
outstanding Common Stock, Purchasers shall have the right to designate a third
member of the Board; from and after the Closing until Purchasers and/or their
Affiliates no longer hold at least 40% of the outstanding Common Stock,
Purchasers shall have the right to designate a fourth member of the Board; and
from and after the Closing until Purchasers and/or their Affiliates no longer
hold at least 50% of the outstanding Common Stock, Purchasers shall have the
right to designate a fifth member of the Board (collectively, the "INVESTOR
DIRECTORS"). The Company shall recommend the election of the Investor
Directors at each meeting of shareholders where the election of directors is
considered and shall use its best efforts to cause the Investor Directors to
be elected and re-elected to the Board. Purchasers shall have the right to
remove or replace any of the Investor Directors by giving notice to such
Investor Director and the Company, and the Company shall use its best efforts
to effect the removal or replacement of any such Investor Director. Unless
prohibited by applicable law, Investors shall have the right to have two
Investor Directors, as determined by Purchasers, be members of each committee
of the Board, and the Company shall use its best efforts to appoint and
maintain such Investor Directors on each committee of the Board, as requested
by Purchasers. Any Investor Director who is not a member of a committee of the
Board shall have the right to attend all meetings of such committee as a
non-voting observer.
(b) Subject to any limitations imposed by applicable law, the
Investor Directors shall be entitled to the same perquisites, including stock
options, reimbursement of expenses and other similar rights in connection with
such person's membership on the Board, as every other non-employee member of
the Board.
(c) At the Closing, unless otherwise approved by the Company and
Purchasers, the authorized number of members of the Board shall be nine (9).
From and after the Closing until Purchasers and their Affiliates no longer own
at least 15% of the outstanding Common Stock, the Board shall include the
Company's Chief Executive Officer and the remaining directors shall be
independent directors not affiliated with management.
4.11 Restrictive Covenants. For so long as Purchasers and/or their
Affiliates continue to hold at least 15% of the outstanding Common Stock,
without the prior written consent of Purchasers, the Company shall not (and
shall cause its respective Subsidiaries not to):
(a) purchase or redeem any securities of the Company other than pro
rata from all stockholders pursuant to a tender offer;
(b) sell, transfer or otherwise dispose of all or substantially all
of the Company's assets or take any action which results in the holders of the
Common Stock prior to the transaction owning less than 80% of the voting power
of the Company's capital stock after the transaction;
19.
(c) take any action that may result in the Common Stock ceasing to be
registered pursuant to Section 12 of the Exchange Act;
(d) amend the Company's articles of incorporation or bylaws;
(e) issue any equity securities senior to the Common Stock (including
as to liquidation, dividends or participation in earnings);
(f) issue any common stock or securities convertible into or
exercisable for Common Stock other than to employees, directors or other
service providers pursuant to plans approved by the Board; (g) liquidate or
dissolve the Company;
(h) declare or pay any dividends;
(i) change the authorized number of directors; or
(j) agree to do any of the foregoing.
4.12 Rights Plan Termination. The Rights Plan and all rights provided
thereunder shall be terminated by the Board as of the Closing.
4.13 Indemnity; Insurance. The Company shall provide the Investor
Directors with mandatory indemnity agreements that indemnify the Investor
Directors to the fullest extent permitted by applicable law. The Company shall
maintain directors and officers liability insurance reasonably acceptable to
Purchasers, and for purposes of this covenant, Purchasers acknowledge that the
Company's current directors and officers liability insurance is reasonably
acceptable to Purchasers.
4.14 Future Acquisitions. The Company acknowledges and agrees that the
Board has approved any and all "business combinations" (as that term is defined
in the Act) by and between the Company and any one or more of the Purchasers
and/or any one or more "affiliates" and/or "associates" thereof (in each case,
as the Act defines those terms) (a "Purchaser Business Combination"); provided
that if the future Purchaser Business Combination would otherwise have been
prohibited by the Act (a "Covered Combination"), then (1) the Company shall
first obtain an opinion from a nationally-recognized financial advisor retained
by and reporting to a committee of the Board (which committee is hereby
authorized and shall consist solely of those Board members who, at such time,
are disinterested directors) that such transaction is either fair to the
shareholders of the Company from a financial point of view or necessary for the
continued financial viability of the Company; and (2) in addition, if such
Covered Combination is a transaction for which shareholder approval is required
by law, then, such transaction must be approved by a majority of the
shareholders that are unaffiliated with the Purchasers; and provided further
that notwithstanding the foregoing, neither of the restrictions in clause (1) or
(2) of the preceding proviso shall apply to any Purchaser Business Combination
if the primary
20.
purpose of such transaction is to reincorporate the Company in
another jurisdiction and following such transaction the common stock of the
surviving corporation is beneficially owned by substantially the same persons
and in substantially the same percentages as the common stock of the Company was
beneficially owned immediately prior to the transaction.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchaser. The
obligation of Purchasers to acquire Shares at the Closing is subject to the
satisfaction or waiver by Purchasers, at or before the Closing, of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though
made on and as of such date.
(b) Performance. The Company and each other Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing.
(c) Board Approval. The Board shall have taken all necessary actions
to approve the Transaction Documents and the sale of the Shares in accordance
with applicable laws, including the Act, as applicable.
(d) Waiver of Default. The Company shall have received a written
agreement executed by PNC Bank, National Association, which includes a waiver
of any and all defaults by the Company and any Subsidiary under the Credit
Agreement, amending the Credit Agreement in a form satisfactory to Purchasers.
(e) Legal Opinions. Purchasers shall have received legal opinions
from Company Counsel and Company Local Counsel addressed to the Purchasers in
substantially the forms attached hereto as Exhibit A, and a legal opinion
under New Jersey law, in a form reasonably satisfactory to Purchasers, that
the Rights Plan has been validly terminated or expired with no Person having
rights thereunder.
(f) Rights Plan Termination. The Rights Plan and all rights provided
thereunder shall have been terminated or shall have expired, and no Person
shall have any Rights granted thereunder.
(g) Severance Agreements. Purchasers shall be reasonably satisfied
that the Company and its Subsidiaries shall not have any obligation to pay
severance to employees as a result of the Closing or the execution of this
Agreement.
(h) Board Representation. Xxxx Xxxxxxxxxx, Xxxxx Xxxx, Xxxxxxx Xxxxx
and two designees of Purchasers shall have been appointed to the Board
concurrent with the Closing.
21.
(i) Compliance Certificate. The Company shall have delivered to
Purchasers a certificate executed by the Chief Executive Officer or Chief
Financial Officer of the Company, certifying that the conditions specified in
subsections (a) and (b) of this Section 5.1 have been satisfied.
5.2 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to sell Shares at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchaser contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though
made on and as of such date; and
(b) Performance. The Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Purchaser at or prior to the Closing.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Registration.
(a) As promptly as possible, and in any event on or prior to April
15, 2005 (the "FILING DEADLINE"), the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form
S-3, in which case such registration shall be on Form S-1 or another
appropriate form in accordance herewith as the Purchaser may consent) and
shall contain (except if otherwise directed by the Purchaser) the "Plan of
Distribution" attached hereto as Exhibit B.
(b) The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the Commission as promptly as possible
after the filing thereof, but in any event prior to the Required Effectiveness
Date, and shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until such time as all Shares
can be sold under Rule 144 in any consecutive 180-day period or such earlier
date when all Registrable Securities covered by such Registration Statement
have been sold (the "EFFECTIVENESS PERIOD").
(c) The Company shall notify Purchaser in writing promptly (and in
any event within one Trading Day) after receiving notification from the
Commission that the Registration Statement has been declared effective.
(d) Upon the occurrence of any Event (as defined below) and on every
monthly anniversary thereof until the applicable Event is cured, as partial
relief for the damages suffered therefrom by each Purchaser (which remedy
shall not be exclusive of any
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other remedies available under this Agreement, at law or in equity), the
Company shall pay to each Purchaser an amount in cash, as liquidated damages
and not as a penalty, equal to 2.0% of such Purchaser's aggregate purchase
price hereunder, upon the occurrence of the Event, and 1.0% of such
Purchaser's aggregate purchase price hereunder, upon the last business day of
each successive ten-day period thereafter, until all such Events have been
cured. The payments to which a Purchaser shall be entitled pursuant to this
Section 6.1(d) are referred to herein as "EVENT PAYMENTS." Any Event Payments
payable pursuant to the terms hereof shall apply on a pro-rata basis for any
portion of a month prior to the cure of an Event. In the event the Company
fails to make Event Payments in a timely manner, such Event Payments shall
bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full.
For such purposes, each of the following shall constitute an "EVENT":
(i) the Registration Statement is not filed on or prior to the
Filing Deadline or is not declared effective on or prior to the Required
Effectiveness Date, provided that if the Registration Statement is not
timely filed or declared effective due solely to Purchaser's failure to
provide required information reasonably requested by the Company, the Event
described above shall be tolled accordingly until such failure is cured;
(ii) after the Effective Date, a Purchaser is not permitted to
sell Registrable Securities under the Registration Statement (or a
subsequent Registration Statement filed in replacement thereof) for any
reason for five or more Trading Days (whether or not consecutive), except as
permitted by Section 6.1(e) below;
(iii) after the Effective Date, unless waived in writing by
Purchasers, any Registrable Securities covered by such Registration
Statement are not listed on an Eligible Market;
(iv) after the Effective Date, unless waived in writing by
Purchasers, the Common Stock is not listed or quoted, or is suspended from
trading, on an Eligible Market for a period of three Trading Days (which
need not be consecutive Trading Days).
(e) Notwithstanding anything in this Agreement to the contrary, the
Company may, by written notice to the Purchasers, suspend sales under a
Registration Statement after the Effective Date thereof and/or require that
the Purchaser immediately cease the sale of shares of Common Stock pursuant
thereto and/or defer the filing of any subsequent Registration Statement if
(i) the Company is engaged in a material merger, acquisition or sale and the
Board determines in good faith, by appropriate resolutions, that, as a result
of such sales activity it would be materially detrimental to the Company
(other than relating solely to the price of the Common Stock), (ii) the SEC or
any other federal or state governmental authority issues any stop order
suspending the effectiveness of the Registration Statement or initiates any
proceedings for that purpose; or (iii) there is an event or circumstance that
necessitates the making of any changes in the Registration Statement or
related Prospectus, or any document incorporated or deemed to be incorporated
therein by reference, so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact
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or any omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of a related Prospectus, it will not contain any untrue statement of a
material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Upon receipt of such
notice, Purchaser shall immediately discontinue any sales of Registrable
Securities pursuant to such registration until such Purchaser has received
copies of a supplemented or amended Prospectus or until such Purchaser is
advised in writing by the Company that the then-current Prospectus may be used
and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in such Prospectus. In no
event, however, shall this right be exercised to suspend sales beyond the
period during which (in the good faith determination of the Board) the failure
to require such suspension would be materially detrimental to the Company.
Furthermore, in no event may the Company exercise its rights hereunder for a
period of more than 30 days in any twelve-month period. Immediately after the
end of any suspension period under this Section 6.1(e), the Company shall take
all necessary actions (including filing any required supplemental prospectus)
to restore the effectiveness of the applicable Registration Statement and the
ability of the Purchaser to publicly resell their Registrable Securities
pursuant to such effective Registration Statement.
(f) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities.
6.2 Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Not less than five Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or
supplement thereto (including any document that would be incorporated or
deemed to be incorporated therein by reference), the Company shall (i) furnish
to Purchasers and Purchaser Counsel copies of all such documents proposed to
be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Purchaser and
Purchaser Counsel, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of Purchaser Counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which Purchaser holding a majority of the
Registrable Securities shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the
Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related
24.
Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule
424; (iii) respond as promptly as reasonably possible to any comments received
from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the
Purchasers true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by
the Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchaser thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify each Purchaser of Registrable Securities to be sold and
Purchaser Counsel as promptly as reasonably possible, and (if requested by any
such Person) confirm such notice in writing no later than one Trading Day
thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii)
the Commission comments in writing on any Registration Statement (in which
case the Company shall deliver to Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any
other Federal or state governmental authority requests any amendment or
supplement to any Registration Statement or Prospectus or requests additional
information related thereto; (v) the Commission issues any stop order
suspending the effectiveness of any Registration Statement or initiates any
Proceedings for that purpose; (vi) the Company receives notice of any
suspension of the qualification or exemption from qualification of any
Registrable Securities for sale in any jurisdiction, or the initiation or
threat of any Proceeding for such purpose; or (vii) the financial statements
included in any Registration Statement become ineligible for inclusion therein
or any statement made in any Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference is
untrue in any material respect or any revision to a Registration Statement,
Prospectus or other document is required so that it 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, in
the light of the circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of any
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) Furnish to Purchasers and Purchaser Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(f) Promptly deliver to Purchasers and Purchaser's Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form
of prospectus)
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and each amendment or supplement thereto as such Persons may reasonably
request. The Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(g) (i) In the time and manner required by each Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the
Purchasers evidence of such listing; and (iv) maintain the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Purchaser
and each applicable Purchaser Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or blue sky
laws of such jurisdictions within the United States as any Purchaser requests
in writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing business
in any jurisdiction in which it is not otherwise subject.
(i) Cooperate with the Purchasers to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
to be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by this Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Purchaser may request,
or, if requested by a Purchaser, provide for the Registrable Securities to be
held electronically if permitted by applicable laws and regulations.
(j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration Statement
nor such Prospectus will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(k) Cooperate with any due diligence investigation undertaken by the
Purchaser in connection with the sale of Registrable Securities, including
without limitation by making available any documents and information; provided
that the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such
26.
Purchaser specifically requests in advance to receive material, nonpublic
information in writing.
(l) If holders of a majority of the Registrable Securities being
offered pursuant to a Registration Statement select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, by providing customary legal opinions, comfort letters and
indemnification and contribution obligations.
(m) Comply with all applicable rules and regulations of the
Commission.
6.3 Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and
expenses of counsel for the Company and up to $10,000 in the aggregate for fees
and expenses of Purchaser Counsel related to this Article VI, (e) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, and (f) all
listing fees to be paid by the Company to the Trading Market.
6.4 Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Purchaser, the officers, directors, partners, members, agents, brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Purchaser (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
partners, members, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
Losses, as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement,
any Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in the light of the circumstances
under which they were made) not misleading, except to the extent, but only to
the extent, that (i) such untrue statements, alleged untrue statements,
omissions or alleged omissions are based solely upon information regarding
such Purchaser furnished in writing to the Company by such Purchaser expressly
for use therein, or to the extent that such information relates to such
Purchaser or such Purchaser's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Purchaser expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment
27.
or supplement thereto or (ii) the use by such Purchaser of an outdated or
defective Prospectus (or any Prospectus after such Purchaser receives notice
of an event contemplated by Section 6.1(e)) after the Company has notified
such Purchaser in writing that the Prospectus is outdated or defective or of
an event contemplated by Section 6.1(e) and prior to the receipt by such
Purchaser of the Advice contemplated in Section 6.5. The Company shall notify
the Purchasers promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification by Purchaser. Each Purchaser shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and
the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses
(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review) arising solely out of any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or in any amendment or supplement thereto, or arising
solely out of any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in the light of the circumstances
under which they were made) not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Purchaser to the Company specifically for
inclusion in such Registration Statement or such Prospectus or to the extent
that (i) such untrue statements or omissions are based solely upon information
regarding such Purchaser furnished in writing to the Company by such Purchaser
expressly for use therein, or to the extent that such information relates to
such Purchaser or such Purchaser's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Purchaser expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement
thereto or (ii) the use by such Purchaser of an outdated or defective
Prospectus (or any Prospectus after such Purchaser receives notice of an event
contemplated by Section 6.1(e)) after the Company has notified such Purchaser
in writing that the Prospectus is outdated or defective or of an event
contemplated by Section 6.1(e) and prior to the receipt by such Purchaser of
the Advice contemplated in Section 6.5. In no event shall the liability of any
selling Purchaser hereunder be greater in amount than the dollar amount of the
net proceeds received by such Purchaser upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment of
all fees and expenses incurred in connection with defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent
28.
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced
the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (iii) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such Indemnified Party and such counsel shall be
at the expense of the Indemnifying Party). The Indemnifying Party shall not be
liable for any settlement of any such Proceeding effected without its written
consent, which consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 6.4(a)
or (b) is unavailable to an Indemnified Party (by reasons other than the
specified exclusions to indemnification), then each Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action,
statement or omission. The amount paid or payable by a party as a result of
any Losses shall be deemed to include, subject to the limitations set forth in
Section 6.4(c), any reasonable attorneys' or other reasonable fees or
29.
expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6.5 Dispositions. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Section 6.1(e)
or Sections 6.2(c)(v), (vi) or (vii), such Purchaser will discontinue
disposition of such Registrable Securities under the Registration Statement
until such Purchaser's receipt of the copies of the supplemented Prospectus
and/or amended Registration Statement contemplated by Section 6.2(j), or until
it is advised in writing (the "ADVICE") by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
6.6 No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Purchaser in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
6.7 Piggy-Back Registrations.
(a) The Company shall notify all holders of Registrable Securities
then outstanding ("HOLDERS" and each a "HOLDER") in writing at least 15 days
prior to the filing of any registration statement under the Securities Act for
purposes of a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding Special Registration Statements) and
shall afford each such Holder an opportunity to include in such registration
statement all or part of such Registrable Securities held by such Holder. Each
Holder desiring
30.
to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within 15 days after the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.
(b) If the registration statement under which the Company gives
notice under this Section 6.7 is for an underwritten public offering, the
Company shall so advise the Holders of Registrable Securities then
outstanding. In such event, the right of any such Holder to be included in a
registration pursuant to this Section 6.7 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated: first, to the Company; second, to the
Holders on a pro rata basis based on the total number of Registrable
Securities held by the Holders; and third, to any stockholders of the Company
(other than a Holder) on a pro rata basis; provided, however, that: (i) if the
Registration Statement was filed at the request of a stockholder (other than a
Holder) for the purpose of registering the resale of securities held by such
stockholder pursuant to a "demand" right then such allocation shall be: first,
to such stockholder; and second, to the Company and the Holders on a pro rata
basis; and (ii) except as set forth in clause (i), no such reduction shall
reduce the amount of securities of the selling Holders included in the
registration unless all stockholders of the Company exercising piggyback
registration rights in such registration are subject to such reduction. In no
event will shares of any other selling stockholder of the Company be included
in such registration that would reduce the number of shares that may be
included by Holders without the written consent of Holders of not less than a
majority of the Registrable Securities proposed to be sold in the offering. If
any participating Holder disapproves of the terms of any such underwriting,
such participating Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten business days prior to
the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration. For any Holder that is a partnership or corporation,
the partners, retired partners and stockholders of such Holder, or the estates
and family members of any such partners and retired partners and any trusts
for the benefit of any of the foregoing person shall be deemed to be a single
"Holder," and any pro rata reduction with respect to such "Holder" shall be
based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Holder," as defined in this
sentence.
31.
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 6.7 prior to the effectiveness
of such registration whether or not any Holder has elected to include
securities in such registration.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. At the Closing, the Company shall pay to SAIF
an aggregate of $75,000 for their legal fees and expenses incurred in connection
with the preparation and negotiation of the Transaction Documents. In lieu of
the foregoing payment, SAIF may retain such amount at the Closing or require the
Company, upon written notice provided to the Company prior to the Closing, to
pay such amount directly to Xxxxxx Godward LLP. Except as expressly set forth in
the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Shares.
7.2 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchaser such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, the Shares may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Shares.
7.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:00 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses and facsimile numbers for such notices and communications are
those set forth on the signature pages hereof, or such other address or
facsimile number as may be designated in writing hereafter, in the same manner,
by such Person.
7.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and the Purchasers holding a majority of the Shares or, in the
case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing
32.
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
7.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement (other than the rights under Sections 4.5, 4.6
and 4.8 through 4.11) to any Person to whom such Purchaser assigns or transfers
any Shares, provided such transferee agrees in writing to be bound, with respect
to the transferred Shares, by the provisions hereof that apply to the
"Purchasers." Notwithstanding anything to the contrary herein, Shares may be
assigned to any Person in connection with a bona fide margin account or other
loan or financing arrangement secured by such Shares.
7.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Indemnified Party is an intended third
party beneficiary of Section 6.4 and (in each case) may enforce the provisions
of such Section directly against the parties with obligations thereunder.
7.8 Governing Law; Venue; Waiver of Jury Trail. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
laws of the state of New York. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE BOROUGH OF MANHATTAN, IN THE STATE OF NEW YORK FOR THE ADJUDICATION OF ANY
DISPUTE BROUGHT BY THE COMPANY OR ANY PURCHASER HEREUNDER, IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS),
AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING BROUGHT BY THE COMPANY OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY
33.
WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND
PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
7.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Shares.
7.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
7.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
7.13 Replacement of Securities. If any certificate or instrument
evidencing any Shares is mutilated, lost, stolen or destroyed, the Company shall
issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Shares.
7.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
7.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or any Purchaser enforces or exercises
its rights hereunder or thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or
34.
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company by a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
7.16 Adjustments in Share Numbers and Prices. In the event of any
stock split, subdivision, dividend or distribution payable in shares of Common
Stock (or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly shares of Common Stock), combination
or other similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
[SIGNATURE PAGES FOLLOW]
35.
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
INTELLIGROUP, INC.
By: /s/ Xxxxxxxx Xxxxxxxxxxxx
--------------------------------------
Name: Xxxxxxxx Xxxxxxxxxxxx
Title: Chief Executive Officer
Address for Notice:
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.:
Attn: Legal Department
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
SB Asia Infrastructure Fund, L.P.
By: /s/ Xxxxxx X. Xxx
-------------------------------------
Name: Xxxxxx X. Xxx
Title:
Purchase Price: $9,999,999.25
Number of Shares to be acquired at
Closing: 11,764,705
Address for Notice:
SB Asia Infrastructure Fund X.X.
Xxxxxx House
P.O. Box 309
Xxxxxx Town
Grand Cayman, Cayman Islands
With a copy to: Xxxxxx Godward LLP
Five Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx and Xxxxx Xxxxx
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
VENTURE TECH ASSETS LTD.
By: /s/ Xxxxxxx Xxxxx
-------------------------------------
Name: Xxxxxxx Xxxxx
Title: Director
Purchase Price: $5,000,000.05
Number of Shares to be acquired at
Closing: 5,882,353
Address for Notice:
00/000 Xxxxxxxxx Xxx
Xxxxxx XX0X 0XX
Xxxxxx Xxxxxxx
Facsimile No.:
Telephone No.:
Attn:
With a copy to: Xxxxxx Godward LLP
Five Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx and Xxxxx Xxxxx
Exhibits:
A Opinions of Company Counsel and Local Company Counsel
B Plan of Distribution
C Transfer Agent Instructions
Schedule 3.1 (a)
Subsidiaries:
Intelligroup Asia Private, Ltd, a corporation formed pursuant to the
laws of India and 99.8% owned and a wholly-controlled subsidiary of
Intelligroup, Inc.
Empower, Inc., a Michigan corporation and a wholly-owned subsidiary of
Intelligroup, Inc.
Intelligroup Europe Limited, a corporation formed pursuant to the laws
of the United Kingdom and a wholly-owned subsidiary of Intelligroup, Inc.
CPI Resources, a corporation formed pursuant to the laws of the United
Kingdom and a wholly-owned subsidiary of Intelligroup Europe Limited.
CPI Consulting Limited, a corporation formed pursuant to the laws of the
United Kingdom and 70% owned by CPI Resources and 30% owned by
Intelligroup Europe Limited.
Intelligroup Japan, Ltd., a corporation formed pursuant to the laws of
Japan and a wholly-owned subsidiary of Intelligroup, Inc.
Intelligroup Nordic AB, a corporation formed pursuant to the laws of
Sweden and a wholly-owned subsidiary of Intelligroup, Inc.
Intelligroup Nordic A/S, a corporation formed pursuant to the laws of
Denmark and a wholly-owned subsidiary of Intelligroup, Inc.
Intelligroup de Venezuela, C.A., a corporation formed pursuant to the
laws of Venezuela and wholly-owned subsidiary of Intelligroup, Inc.
Under the terms of the Loan Agreement with PNC, PNC has a continuing
security interest in the capital stock of the Company's subsidiaries.
Schedule 3.1(f)
Intelligroup Securities: Number of Shares:
------------------------ -----------------
Authorized Common Stock 40,000,000
Authorized Preferred Stock 5,000,000
Issued and Outstanding Common Stock 17,455,382*
Outstanding Preferred Stock 0
Outstanding Options to Purchase Common Stock 3,391,301*
Shares Reserved for Grant under the Company's Equity Plan 1,349,609*
* As of 9/28/2004.
Individuals Who Own 5% or More of Common Stock: Number of Shares:
----------------------------------------------- -----------------
Xxxxx Xxxxxx 1,270,058
Xxxx Xxxxx Management, Inc.** 1,118,014
Xxxxxx & XxXxxxx Capital Management LLC** 1,110,000
**As report to the Nasdaq Market as of 6/30/2004.
Individuals Who Have the Right to Aquire 5% Number of Shares:
Or More of Common Stock:
------------------------------------------- -----------------
Xxxxxxxx Xxxxxxxxxxxx 1,350,000
Schedule 3.1(g)
[See Attached Form 8-Ks, each as filed with the Commission on September 24,
2004]
Schedule 3.1(h)
[See Attached Form 8-Ks, each as filed with the Commission on September 27,
2004]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) September 22, 2004
------------------
Intelligroup, Inc.
--------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
New Jersey 0-20943 00-0000000
-------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000
-------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(000) 000-0000
-------------------------------------------------
(Registrant's telephone number,
including area code)
------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Item 4.02 (a) Non-Reliance on Previously Issued Financial Statements
On September 22, 2004, the Company's audit committee concluded that the
Company's previously issued financial statements for the years ended December
31, 2003, 2002, and 2001, as well as all quarterly periods beginning January 1,
2001, should no longer be relied upon.
As part of the Company's review of its second quarter results, the Company
identified a number of adjustments to prior periods. Adjustments identified to
date are expected to reduce revenue by approximately $800 thousand and net
income by approximately $900 thousand (or $0.05 per diluted share) for the year
ended December 31, 2003. In addition, there are certain historical intercompany
adjustments totaling $1.2 million that were dated prior to 2001. The impact of
these historical adjustments are expected to increase the accumulated deficit
account for years ended December 31, 2003, 2002, and 2001 as well as all prior
quarterly financial periods since March 31, 2001.
There is also a remaining unreconciled difference in the Company's intercompany
accounting records of approximately $600 thousand that has yet to be fully
investigated, which may result in additional adjustments.
The Company's audit committee and management discussed these issues with its
independent auditors.
Item 9. Regulation FD Disclosure
On September 24, 2004 the Company issued a press release announcing, among other
things, the events described in Item 4.02(a). The press release is attached
hereto as Exhibit 99 and incorporated by reference into this Item 9.
The press release is not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and is not to be incorporated by
reference into any filing of the Company.
2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTELLIGROUP, INC.
By: /s/ Xxxxx Xxxxxx
----------------
Name: Xxxxx Xxxxxx
Title: Chief Financial Officer and Treasurer
Date: September 24, 2004
Exhibit 99
[INTELLIGROUP LOGO]
FOR IMMEDIATE RELEASE
CONTACT:
Xxxxxxx Xxxxxx
Director of Investor Relations
(000) 000-0000
INTELLIGROUP ANNOUNCES RESTATEMENT OF PRIOR PERIOD RESULTS AND EXECUTION OF
DEFINITIVE AGREEMENT FOR $15,000,000 MAJORITY EQUITY INVESTMENT
EDISON, N.J., September 24, 2004/PRNewswire-FirstCall/ -- Intelligroup, Inc.,
(NASDAQ: ITIGE), a global provider of strategic IT outsourcing services, today
announced that it expects to restate its previously issued financial statements
filed on Form 10-K for the years ended December 31, 2003, 2002 and 2001 and
filed on Form 10-Q for the quarterly periods beginning January 1, 2001 to date.
The expected restatement is based on preliminary results of an ongoing review
conducted by Company management. Until this review is complete, the Company will
not be able to conclude on the precise impact on prior period financial
statements. This conclusion will also be subject to audit by the Company's
external auditors.
As a result of the recent implementation of an upgraded financial system, and
the recent turnover in key positions in its finance department, the Company has
been undertaking a comprehensive review of its 2004 second quarter results. This
comprehensive review resulted in a number of accounting adjustments to prior
period financial statements. On September 22, 2004, the Audit Committee of the
Board of Directors reached a definitive conclusion that the financial statements
and the related independent audit reports for the periods noted above should no
longer be relied upon. Company management and the Audit Committee have discussed
these matters and conclusions with the external auditors, Deloitte & Touche,
LLP.
Adjustments identified to date are expected to reduce revenue by approximately
$0.8 million and net income by approximately $0.9 million (or $0.05 per share)
for the year ended December 31, 2003. In addition, there are certain historical
intercompany adjustments totaling approximately $1.2 million that affect periods
prior to 2001. The impact of these historical adjustments are expected to
increase the accumulated deficit account for the years ended December 31, 2003,
2002 and 2001, as well as all quarterly financial periods beginning January 1,
2001. There is also a remaining unreconciled difference of approximately $0.6
million in the Company's intercompany accounting records that has yet to be
fully investigated, which may result in additional adjustments. Reconciliation
of this difference and the determination of the proper accounting treatment and
period of impact of the restatement are the primary reasons for the further
delay in filing the 2004 second quarter Form 10-Q.
The ongoing review of the Company's financial statements may result in
additional adjustments and/or information. Any further adjustments may be
material. The information contained in this Press Release includes only
information known by the Company as of the date of this Press Release. The
Company does not intend to update this information until such time as the
Company files the appropriate restated financial statements.
As a result of the uncertainties surrounding the restatements, the Company is
withdrawing all previous forward-looking guidance for the 2004 second quarter
and full year, without limitation.
The Company further announced that it has entered into a definitive agreement
pursuant to which SB Asia Infrastructure Fund, L.P., an affiliate of Softbank
Corporation, and Venture Tech Solutions Pvt. Ltd. will purchase an aggregate of
17,647,058 shares of the Company's common stock in a private placement at a
purchase price of $0.85 per share for a total purchase price of $15,000,000.
Following completion of the private placement, the purchasers will own
approximately 50.3% of the Company's outstanding common stock. The agreement
will also allow the purchasers to designate a majority of the Board of Directors
of the Company.
The Company determined, after evaluating alternatives, that this transaction was
necessary because its cash position and relative cash availability under its $15
million revolving credit facility had become inadequate to fund ongoing
operations. This transaction is subject to customary closing conditions, as well
as an amendment to the cash sweep provisions of the Company's revolving credit
facility and the waiver of certain defaults under the credit facility, which are
described below. There is no assurance that these conditions will be satisfied.
The rules of the NASDAQ Stock Market require shareholder approval of certain
transactions, such as this private placement, involving the issuance of more
than 20% of a listed company's common stock. Due to its immediate cash needs,
the Company determined that delaying the transaction in order to seek
shareholder approval would jeopardize its financial viability. The transaction
will therefore violate NASDAQ listing rules and, as a result, the Company may be
delisted from the NASDAQ Stock Market.
In addition, the Company is in default under its revolving credit facility as a
result of the failure to file its Form 10-Q for the 2004 second quarter in a
timely manner, and expects it would also be in default under certain financial
covenants based on likely second quarter results. The Company is working with
its senior lender to obtain waivers for such defaults. Although the Company
believes at this time that it will obtain waivers of these defaults from the
lender under its revolving credit facility, if the Company cannot obtain such
waivers, the indebtedness outstanding under its revolving credit facility could
be accelerated.
ABOUT INTELLIGROUP
Intelligroup, Inc. is a global provider of strategic IT outsourcing services.
Intelligroup develops, implements and supports information technology solutions
for global corporations and public sector organizations. The Company's
onsite/offshore delivery model has enabled hundreds of customers to accelerate
results and significantly reduce costs. With extensive expertise in
industry-specific enterprise solutions, Intelligroup has earned a reputation for
consistently exceeding client expectations.
SAFE HARBOR STATEMENT
Certain statements contained herein, including statements regarding the
Company's ability to complete the restatement of its historical financial
results, file future periodic reports and complete the private placement, and
other statements regarding matters that are not historical facts, are
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). Such forward-looking statements include risks and
uncertainties; consequently, actual results may differ materially from those
expressed or implied thereby. Certain of such risks and uncertainties are set
forth in Intelligroup's filings with the Securities and Exchange Commission.
Intelligroup and the Intelligroup logo are registered trademarks and 'Creating
the Intelligent Enterprise', 4Sight, 4Sight Plus, ASPPlus, myADVISOR, ASPPlus
Power Upgrade Services and Uptimizer are service marks of Intelligroup in the
U.S. and other countries.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) September 27, 2004
------------------
Intelligroup, Inc.
--------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
New Jersey 0-20943 00-0000000
---------------------------- ------------------------ ---------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000
------------------------------------------------- ------------------------------
(Address of Principal Executive Offices) (Zip Code)
(000) 000-0000
-------------------------------------------------
(Registrant's telephone number, including area
code)
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Item 9.01. Regulation FD Disclosure
On September 27, 2004 the Company issued a press release to correct the party to
the private placement agreement named in its press release dated September 24,
2004. The press release is attached hereto as Exhibit 99 and incorporated by
reference into this Item 9.01. The press release is not being filed for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to
be incorporated by reference into any filing of the Company.
-2-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTELLIGROUP, INC.
By: /s/ Xxxxxxxxx Xxxxxxx
---------------------
Name: Xxxxxxxxx Xxxxxxx
Title: General Counsel and Secretary
Date: September 27, 2004
[LETTERHEAD OF INTELLIGROUP LOGO]
FOR IMMEDIATE RELEASE
CONTACT:
Xxxxxxx Xxxxxx
Director of Investor Relations
(000) 000-0000
INTELLIGROUP ANNOUNCES CORRECTION TO NAME OF INVESTOR IN PRIVATE
PLACEMENT AGREEMENT
EDISON, N.J., September 27, 2004/PRNewswire-FirstCall/ -- Intelligroup, Inc.,
(NASDAQ: ITIGE), a global provider of strategic IT outsourcing services, today
corrects the press release issued by the Company on September 24, 2004. In the
September 24, 2004 press release the Company announced that it had entered into
a definitive agreement pursuant to which SB Asia Infrastructure Fund, L.P., an
affiliate of Softbank Corporation, and Venture Tech Solutions Pvt. Ltd. have
agreed to purchase an aggregate of 17,647,058 shares of the Company's common
stock in a private placement at a purchase price of $0.85 per share for a total
purchase price of $15,000,000. Venture Tech Solutions Pvt. Ltd. was incorrectly
identified as a purchaser. Venture Tech Assets Ltd. is the entity that has
agreed to purchase shares of the Company's common stock pursuant to the
definitive agreement signed on September 24, 2004. As stated in the September
24, 2004 press release, the closing of the private placement is subject to a
number of conditions, and there can be no assurance that the private placement
will close.
ABOUT INTELLIGROUP
Intelligroup, Inc. is a global provider of strategic IT outsourcing services.
Intelligroup develops, implements and supports information technology solutions
for global corporations and public sector organizations. The Company's
onsite/offshore delivery model has enabled hundreds of customers to accelerate
results and significantly reduce costs. With extensive expertise in
industry-specific enterprise solutions, Intelligroup has earned a reputation for
consistently exceeding client expectations.
SAFE HARBOR STATEMENT
Certain statements contained herein, including statements regarding the
Company's ability to complete the restatement of its historical financial
results, file future periodic reports and complete the private placement, and
other statements regarding matters that are not historical facts, are
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). Such forward-looking statements include risks and
uncertainties; consequently, actual results may differ materially from those
expressed or implied thereby. Certain of such risks and uncertainties are set
forth in Intelligroup's filings with the Securities and Exchange Commission.
Intelligroup and the Intelligroup logo are registered trademarks and 'Creating
the Intelligent Enterprise', 4Sight, 4Sight Plus, ASPPlus, myADVISOR, ASPPlus
Power Upgrade Services and Uptimizer are service marks of Intelligroup in the
U.S. and other countries.
Schedule 3.1(i)
Severance Agreements for Intelligroup, Inc.
-------------------------------------------
Beneficiaries: Severance Amount:
-------------- ------------------
Arjun Xxxxxxx, Chief Executive Officer & Chairman $437,500
Xxxxx Xxxxxx, Chief Financial Officer & Treasurer $187,500
Xxxxxxxxx Xxxxxxx, General Counsel & Secretary $90,000
Xxxxxxx Xxxxx, Chief Operating Officer $125,000
Xxxxx Xxxx, SVP $112,500
Ranjit Xxxxxxxxxx, VP $78,750
Xxxxxxx Xxxxxxxxx, SVP $60,000
Xxxxxxx Xxxxxx, VP $32,500
Xxxx Xxxxxxx, VP $35,000
In the United States, the executives are generally eligible for severance in the
event of a termination of employment without cause. Intelligroup Inc.'s standard
severance policy for other employees terminated without cause is a minimum of
four weeks pay plus an additional one week per year of service.
Severance Agreements for Intelligroup Asia, Ltd. Pvt.
-----------------------------------------------------
Beneficiaries: Severance Amount:
-------------- ------------------
G.V.S. Sharma, Senior Director - SAP INR 4,009,644
MDS Bosco, Chief Operating Officer INR 20,952,321
K. Xxxxxxxxx Xxx, Senior Director - Sales INR 2,062,032
Xxxxx Xxxxxxxx, CFO - VP - Finance & Operations INR 13,140,408
Xxxxxx Xxxx, Senior Director - SAP INR 4,011,504
Xxxxx Xxxxxxxxxxxx Senior Director INR 3,403,440
The above severance obligations for the executive management total approximately
USD 1,057,319. The total severance obligations for Intelligroup Asia amount to
approximately USD 1,882,797. The Company has received waivers from the above
individuals whereby such individuals have agreed that they will not activate
their severance payments in the event the transaction contemplated by the
Agreement occurs.
Severance Agreements for Intelligroup Europe, Ltd.
--------------------------------------------------
Total Severance Obligations are (L)43,034, which is approximately USD 77,425.
Intelligroup Nordic A/S
-----------------------
Total Severance Obligations are dkk 5.316.137, which is approximately USD
879,000.
Severance Agreements for Intelligroup Japan. Ltd.
-------------------------------------------------
Total Severance Obligations are 36,054,002 in Japanese yen, which is
approximately USD 326,000.
Agreements under which the Company is in default:
-------------------------------------------------
Amended and Restated Revolving Credit Loan and Security Agreement between PNC
Bank, National Association (as Lender and as Agent) and Intelligroup, Inc. and
Empower, Inc. (Borrowers).
Non-competes:
-------------
Sale Agreement dated April 2, 2003 by and between Soltius PTE Ltd.,
Intelligroup, Inc. and Soltius Global Solutions PTE Ltd., Section 3.2, publicly
filed on 4/4/2003.
Schedule 3.1(j)
Pending Litigation:
-------------------
Empower, Inc. v. Xxxxxxx Xxxxx and Apriant, Inc. - Empower, Inc., a wholly-owned
Intelligroup subsidiary, brought legal action against its former managing
director, Xxxxxxx Xxxxx ("Xxxxx'), and the new corporation formed by Xxxxx for
breach and continued to breach of his fiduciary duties to Empower,
misappropriation of Empower's trade secrets in violation of the Colorado Uniform
Trade Secrets Act, and tortious interference with Empower's prospective business
relations. The complaint was filed on September 13, 2004.
Intelligroup. Inc. v. Xxxx Xxx aka ("shambudada") and Xxxx Xxx ("congirl4889") -
Intelligroup brought claims for violations of federal securities laws and
employment agreements against Xxxx Xxx and Xxxx Xxx for posting material,
non-public information and confidential business information regarding
Intelligroup on the Yahoo! Finance Message Boards. The complaint and subpoena
for Yahoo were filed on August 31, 2004.
Asgard Consulting v Intelligroup, Inc. - Intelligroup received a letter dated
December 17, 2003 from an attorney representing Asgard Consulting, Inc.
("Asgard') one of Intelligroup's subcontracting partners. This letter threatened
claims against Intelligroup seeking to recover approximately $28,900.00 in fees.
Internal investigation revealed that Intelligroup discontinued payment of
Asgard's invoices because the subcontractor provided to Intelligroup by Asgard
provided poor services in breach of Asgard's agreement with Intelligroup.
Intelligroup returned correspondence to Asgard's attorney on or about December
30, 2003 citing such breach and suggesting that each party waive its claims. On
or about May 20, 2004, Asgard served Intelligroup with a Complaint filed in the
State courts of New Jersey relating to the above matter and formalizing the
above claims. Intelligroup filed an appropriate Answer to the Complaint alleging
counterclaims for breach of contract.
Threatened Litigation:
----------------------
U.S. Marketing Corp - U.S. Marketing Corp. has engaged a lawyer to collect on
unpaid invoices for offices supplies allegedly purchased by Intelligroup.
According to U.S. Marketing Corp., Intelligroup has approximately $21,000 in
outstanding invoices dating back to August 2002. Intelligroup has disputed such
unpaid invoices amounting to approximately $12,000. Intelligroup and the counsel
for U.S. Marketing Corp are working to resolve the issue.
Indus Partners. On or about May 14, 2004, Intelligroup received correspondence
from an attorney representing Indus Partners LLC ("Indus') demanding that
Intelligroup pay Indus approximately $430,000 for a breach of an agreement
between Intelligroup and Indus. In particular, Indus claims that the sale of
Intelligroup's Asia-Pacific subsidiaries constituted a transaction for which
Indus was entitled to an investment banking fee under the agreement.
Intelligroup sold its Asia-Pac subsidiaries for $650,000 payable in
multiple installment. Intelligroup refuted Indus' claims by correspondence on or
about June 07, 2004. Indus sent a letter in reply, but to the Company's
knowledge no action has been filed related to this issue.
Xxxxxx Matter - On or about October 08, 2003, Intelligroup received a letter
from an attorney representing a current employee, Xxxxx Xxxxxx. The letter
outlined various purported claims including, among others, harassment under the
New Jersey Law Against Discrimination. The letter did not outline the amount of
the purported damages. To date, Intelligroup has not been notified of the formal
filing of any claims under the New Jersey Law Against Discrimination.
On or about March 5, 2004, Intelligroup was notified that Xx. Xxxxxx filed a
charge of racial discrimination and retaliation with the Equal Employment
Opportunity Commission ("EEOC"). On or about April 19, 2004, Intelligroup
submitted a position paper to the EEOC regarding this issue. The EEOC is
currently investigating this matter.
Schedule 3.1(k)
Agreements under which the Company is in default:
-------------------------------------------------
Amended and Restated Revolving Credit Loan and Security Agreement between PNC
Bank, National Association (as Lender and as Agent) and Intelligroup, Inc. and
Empower, Inc. (Borrowers).
Schedule 3.1(o)
List of Nasdaq Notices Received within past two years:
------------------------------------------------------
Delisting Notice for noncompliance with periodic filing requirements Marketplace
Rule 4310(c)(14) dated August 17, 2004
Notice of noncompliance with minimum bid price under Marketplace Rule 4450(e)(2)
dated November 7, 2002
Notice of noncompliance with minimum bid price under Marketplace Rule 4450(e)(2)
dated April 14, 2002
Schedule 3.1(q)
List of Anti-takeover provisions in the Company's Charter Documents:
--------------------------------------------------------------------
Shareholder Protection Rights Agreement dated November 1998
The Certificate of Incorporation authorizes 5,000,000 shares of unissued
preferred stock and authorizes the Board of Directors to set the terms and
conditions for issuance of such preferred stock.
Schedule 3.1(y)
Related Party Transaction:
--------------------------
Xxxxxxxx Xxxxxxxxxxxx, the Chairman of the Board, President, Chief
Executive Officer and a Director of the Company is an owner (the "Owner") of
real estate located at 0-0-00, Xxxxxxxxxxx Xxxx in Hyderabad, India. On October
2, 2003, Intelligroup Asia Private, Ltd., a 99.8% owned and wholly-controlled
subsidiary of the Company ("IGA") and the Owner executed a memorandum of
understanding (the "MOA") relating to a proposed lease whereby the Owner would
lease the 5th and 6th floors of the property ("Premises") to the Company for
certain of the Company's India operations. As contemplated in the MOA, on June
18, 2003, the Owner and IGA executed leases for the Premises and the amenities,
furnishings and fittings. The leases provide for a minimum lease period of three
years with a renewal option for an additional three years. Under the terms of
the lease for the amenities, IGA paid a deposit of 70,60,375 rupees
(approximately $154,6301) upon the handing over of the amenities and shall pay
monthly charges of 11,89,025 rupees (approximately $26,0402). Under the terms of
the lease for the Premises, IGA paid a deposit of 93,68,300 rupees
(approximately $205,1753) upon the handing over of the Premises and shall pay
monthly charges of 9,31,220 rupees (approximately $20,3954). Prior to entering
into this transaction, the Company's Board of Directors determined that the
terms and conditions were no less favorable to the Company than could be
obtained from unrelated third parties.
-----------------------------------
1 BASED UPON THE EXCHANGE RATE ON JUNE 18, 2003.
2 BASED UPON THE EXCHANGE RATE ON JUNE 18, 2003.
3 BASED UPON THE EXCHANGE RATE ON JUNE 18, 2003.
4 BASED UPON THE EXCHANGE RATE ON JUNE 18, 2003.
SCHEDULE 3.1(Z)
CONTROLS AND PROCEDURES
-----------------------
The Company's management, with the participation of the Company's
President and Chief Executive Officer and Chief Financial Officer, evaluates the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). In designing and
evaluating the Company's disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. The Company's disclosure
controls and procedures are designed to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known
to the Company's President and Chief Executive Officer and Chief Financial
Officer by others within those entities. However, the Company was unable to
timely record, process, summarize and report its financial results for the
second quarter in accordance with the requirements of the Exchange Act. In
particular, due to a system conversion and turnover in staff, the Company was
unable to timely file its quarterly report for the second quarter. The Company
is working to remedy these issues and improve the timeliness of its financial
reporting.
There have been changes in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
which occurred during the fiscal quarter ended June 30, 2004. These changes
include the following: (i) implementation of a significant upgrade to the
Company's financial systems; and (ii) turnover within our financial department
including the hiring of a new Chief Financial Officer and other new hires to the
financial staff. These changes may materially affect, or may be reasonably
likely to materially affect, the Company's internal control over financial
reporting in the following manner: (i) the upgraded financial system results in
a change of internal processes relating to financial reporting requiring staff
training and adjustment; (ii) the upgraded financial system has resulted in
intensive manual processes requiring additional resources of the Company; (iii)
the upgraded financial system has resulted in a slower closing process; and (iv)
the changes to the financial department staff have resulted in a loss of
historical know-how.
The combination of the new financial system and turnover in key members
of the finance department resulted in the following deficiencies in internal
controls: (i) lack of or incomplete processes, (ii) inadequate training and lack
of training for back-up resources, (iii) lack of proper documentation, (iv) lack
of appropriate exception reports, and (v) loss of historical know-how. These
deficiencies represent material weaknesses in the Company's internal control
over financial reporting. During the closing process for the second quarter, the
Company instituted mitigating controls, including manually validating the
transactional details and contract balances for most contracts, to ensure the
accuracy of its financial statements
Furthermore, the Company is assessing its existing internal controls in
preparation for providing the required certifications under Section 404 of the
Xxxxxxxx-Xxxxx Act of 2002. The Company has taken the following steps in this
regard including, but not limited to, the following: (i) the Company has
established an internal team, sponsored by the Chief Financial Officer and
including participation by other executives, which is responsible for the
assessment and testing of internal controls and the remediation, if necessary,
of identified issues with the Company's internal controls; (ii) the Company has
further retained Xxxxx Xxxxxxx LLP to assist and advise the Company in relation
to these efforts; and (iii) an internal project plan relating to these efforts
was adopted by the team and the team is currently executing against this plan.
The assessment process has commenced and the Company is initially
focusing on key business areas including billing, contract administration,
revenue recognition, timesheet entry and subcontractor retention. This
assessment has raised the following areas of concern and focus: (i)
strengthening management oversight over key accounting decisions; (ii)
increasing the Company's control over the accuracy of the financial information
being entered into the financial systems; (iii) evaluating the Company's
process, policies and procedures and, where appropriate, improving and
increasing the enforcement of the same; (iv) training the Company's new and
existing financial department resources in the upgraded financial system and
training back-up personnel in critical areas; and (v) evaluating the segregation
of duties as it relates to key financial reporting roles and improving
managerial oversight of such resources.
