UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 3
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 21, 1998
ELLIGENT CONSULTING GROUP, INC.
[Exact Name of Registrant as specified in its Charter]
Nevada
[State or Other Jurisdiction of Incorporation]
33-14576-D 87-0453842
[Commission File No.] [IRS Employer Identification No.]
152 West 57th Street, 40th Floor, New York, New York 10019 [Address
of principal executive offices; ZIP Code]
Registrant's Telephone No., including Area Code: (212) 765-2915
Not Applicable
(Former name or Former Address, if changed since last report)
<PAGE>
This current Report amends and restates the current Report on form 8-K
filed by Elligent Consulting Group, Inc. on September 21, 1998, to provide
additional information with respect to its acquisition of Conversion Services
International, Inc., and its business, management, strategic plan and other
items.
ITEMS 1 AND 2. CHANGE IN CONTROL OF REGISTRANT/ACQUISITION OR
DISPOSITION OF ASSETS
Acquisition On July 23, 1998, Elligent Consulting Group, Inc., a Nevada
corporation (the "Company" which may also be referred to as "we,"
"us," or "our") entered into a non- binding letter of intent to
merge with Patra Capital Ltd., a Delaware corporation ("Patra
Capital"). In order to complete this merger we formed a special
purpose acquisition subsidiary, Patra Acquisition, Inc., a
Delaware corporation. Effective July 31, 1998, Patra Acquisition,
Inc. and Patra Capital merged under an agreement and plan of
merger and Patra Capital was the surviving entity. As a result of
this transaction, Patra Capital became our wholly owned subsidiary
and we changed our name from Arena Group, Inc. to Elligent
Consulting Group, Inc.
On September 3, 1998, subsequent to the filing of a plan of merger
and articles with the Secretary of State, the merger with Patra
Capital became effective and we issued 12,950,000 shares of our
Common Stock to the former shareholders of Patra Capital. After
this merger the former shareholders of Patra Capital owned 89% of
our issued and outstanding shares.
On September 21, 1998, effective August 1, 1998, for accounting
purposes, we purchased Conversion Services International, Inc.
("CSI") through our wholly owned subsidiary, Patra Capital.
ITEM 5. OTHER INFORMATION
BUSINESS
Current
Operations We are a holding company with one operating subsidiary, CSI.
References in this Report to the Company, "we," "us," or "our"
also refer to CSI, unless otherwise noted. CSI has been engaged
for nearly nine years in the provision of information technology
consulting services, including project management, applications
implementation, data warehousing, consulting, Internet and
information technology staffing services. CSI recently expanded
its operations to accommodate additional consultants/employees and
new in-house training facilities.
Our goal is to build an enterprise technology consulting services
firm that offers one-stop shopping for large companies seeking
specialized technology consulting services.
Our principal executive office is located at 152 West 57th Street,
40th Floor, New York, New York 10019, and our telephone number is
(212) 765-2915.
The Information
Technology
Market The globalization of competition and the fast pace of
technological change have increasingly driven companies to seek
high technology solutions to improve their productivity and
competitive position. Frequently, these technology solutions are
in the information technology field. Many companies view
information technology as a critical component in their overall
business strategy. Increasingly, information technology affects an
entire enterprise, rather than being relegated the status of
isolated back office function. In fact, this phenomenon has led to
designation of information technology used on an enterprise-wide
as enterprise service offerings, otherwise known as Enterprise
Resource Planning ("ERP").
2
<PAGE>
We believe that the migration of technology to desktops throughout
companies has created a wide range of business opportunities. Data
that was once collected nightly or weekly using custom developed
software and used to analyze events retrospectively can now be
gathered using enterprise-wide packaged software applications
capable of linking manufacturing, sales, distribution and finance
functions enabling a company to manage an entire enterprise in
real time.
This ERP is being deployed in geographically dispersed,
complicated technology environments. The multitude of different
protocols, operating systems, devices and architectures makes
deployment of technology solutions a difficult challenge.
Companies must continually keep pace with new developments that
often render existing equipment and internal skills obsolete. At
the same time, external economic factors have forced organizations
to focus on their core competencies and trim workforces.
Accordingly, these organizations often lack the information
technology skills necessary to design and implement comprehensive
information technology solutions.
The shortage of skilled information technology professionals and
the complexity of information technology solutions have pushed
company management to increasingly rely on outside specialists to
implement information technology strategies and, as a result, we
believe that the demand for consulting services will continue to
grow rapidly. According to industry sources, the worldwide market
for information technology consulting and system integration
services was estimated at $53.7 billion in 1996 and is projected
to grow to $96.3 billion by 2001, a 12.4% annual growth rate. In
addition, the domestic information technology consulting and
integration services market is projected to grow from $26.0
billion in 1996 to $48.3 billion by 2001, a 13.2% growth rate.
Companies that require information technology consultants to help
them implement information technology solutions choose between
tactical, or point-solution, solution providers and larger
organizations that offer strategic, or ERP services. The point
solution providers typically focus on limited functionality
requirements, such as application development and staff
augmentation. As a result, they usually do not address broader
strategic business and information technology goals that are
critical to the customer and the success of the information
technology solutions implemented. The larger, more diverse
information technology consulting firms propose more comprehensive
solutions than the point-solution providers, but do so only after
extensive studies of a particular client's business problems, but
often fail to deliver the right solutions on time and on budget.
We believe that these circumstances create the market opportunity
for us. In our view, companies today require strategic service
providers that provide one stop shopping for their clients. Our
plan, therefore, is to be able to have a comprehensive
understanding of the relevant business issues, the ability to
design and implement integrated solutions that can help them meet
their strategic business goals as they evolve and the skills and
tools necessary to deliver solutions in a timely and
cost-effective manner.
Strategy We plan to become an enterprise service provider and grow through
strategic acquisitions and internal growth. As an enterprise
service provider we will offer solutions to all levels and areas
of a client rather than simply offering single solutions to a sole
level or area of a client's business. This will distinguish and
differentiate us from the point-solution approach of other
information technology service companies by becoming a leader in
the emerging market for companies that can provide enterprise
service offerings. We believe that market dynamics are demanding
the emergence of companies that can provide enterprise service
offerings, in the same way that companies demanded the creation of
enterprise software companies such as SAP, PeopleSoft, BAAN and
others to replace single solution software companies.
With CSI we have completed our first strategic acquisition. We
intend to continue to pursue other strategic acquisitions that
will provide us with additional well-trained,
3
<PAGE>
high-quality professionals, new service offerings, additional
industry expertise, a broader client base and an expanded
geographic presence.
- - Services
Value
Pyramid Our strategic acquisition program is based upon the "Services
Value Pyramid," a business model that combines a number of
companies offering different yet complementary skills, service
offerings, practice areas and consulting expertise. The
complementary companies we initially acquire would become
"platform" or "building block" companies to support further growth
and consolidation to cover the key set of service offerings
required by customers. The following four major areas of expertise
in the technology consulting services arena comprise our Services
Value Pyramid:
Pyramid Level I Management Consulting, Business Function
Reengineering and Domain Consulting
Pyramid Level II Mission Critical Application Rollouts, Package
Implementation, Platform Migration, E-Commerce
and Outsourcing.
Pyramid Level III Project Management and
Implementation, Data Warehousing and Database
Management, Internet, Intranet, Networking,
Systems Integration and Infrastructure.
Pyramid Level IV Information Technology Staffing/Staff
Outsourcing and Permanent Placement.
These four areas of expertise range from the high growth, high
margin businesses of management consulting and business function
reengineering at the top to the lower growth, but high revenue and
cash flow, businesses of information technology staffing/staff
outsourcing and permanent placement at the bottom. The center of
the Services Value Pyramid encompasses the businesses of package
implementation, database management, data warehousing
inter/intranet and networking. These businesses are between the
top and bottom pyramid businesses in their degree of expertise and
profit margins. We believe that there are a number of businesses
we can acquire in each of these four areas or segments. We refer
to the initial companies we acquire in each of the four segments
as "platform companies." CSI is our first platform company.
- - Acquisition
Candidate
Characteristics
Our acquisition candidates must have:
o above average internal growth of revenues and earnings,
o above average cash flow, and
o a large customer base composed of national and multi-national
companies.
- - Sources of
Growth We believe that our growth will come from three major sources:
o Acquisition - As we acquire platform companies, we expect that
each company will grow partly by acquisition within its area
of expertise and in geographic diversity.
o Internal Growth - We will also seek additional growth through
the internal growth within each individual company. Our
platform companies will seek this internal growth through the
cross marketing of each other's clients.
o Expansion of Value - Through our acquisition strategy and
internal growth we will be able to provide additional services
and geographic depth to our customers, thus
4
<PAGE>
creating the ability to aggressively price our services and
increase our inherent profitability.
- - Clients We focus our marketing efforts on larger companies with
substantial needs for supplemental programmer staffing, ERP
software implementation and systems integration services and other
computer-related professional services. Such clients afford us the
opportunity to develop long-term relationships based on high
quality and consistent services that CSI has provided for almost
nine years and that we will continue to provide.
Management believes that larger clients have started to limit the
number of information technology vendors they use. In order to
achieve the reduction in the number of vendors used, companies
often review and screen both existing and potential vendors and
generate select lists of approved vendors. We believe that the
factors considered for placement of a company on a vendor list
include geographic and technical breadth of operations, quality
assurance programs, reliability and cost effectiveness.
- - Contracts We normally offer professional services through agreements that
specify that services are rendered on a best-efforts basis, that
we make no express or implied warranties and that the client must
continue to pay all charges incurred prior to the termination of
the agreement. Because services are typically rendered on an
as-required basis, we do not consider our backlog of unfinished
assignments significant in understanding our business.
The typical client contract term is six months to two years and
there can be no assurance that a client will renew its contract
when it terminates. In fact, following expiration of an original
contract term with any given client, it is often the case that we
begin operating on an as-needed basis not under any contract of
specific duration. Our contracts are generally cancelable by the
client at any time and clients may unilaterally reduce or increase
their use of our services under such contracts without penalty.
The termination or significant reduction of our business
relationship with any of our significant clients could have an
adverse effect on our operating results.
We generally price our services to clients on a time and materials
basis and maintain price ranges that reflect the technical skills
and experience levels of the consultants on each project.
- -Employee and
Consultant
Recruitment Our future success will depend in part on our ability to hire
adequately trained personnel who address the increasingly
sophisticated needs of our clients. Our on-going employee and
consultant needs arise from:
o increasing demand for our services,
o consultant turnover, and
o the clients' requests for programmers trained in the newest
software technologies.
Few of our employees, and more of our consultants, are bound by
non-compete agreements. Competition for personnel in the
information technology services industry is significant and we may
have difficulty in attracting and retaining an optimal level of
qualified personnel in the future. In particular, competition for
the limited number of qualified project managers and professionals
with certain specialized skills, such as working knowledge of
certain sophisticated software, is intense. Because of this,
recruitment of employees and consultants is a critical element in
our success. We devote significant resources to meeting our
personnel requirements.
5
<PAGE>
We also offer a number of programs designed to retain our trained
personnel, including:
o Competitive salaries
o Stock option plan
o Training of employees and consultants in new skill sets
o 401(k) plan
o medical benefits
We also plan to acquire staffing companies which would allow us to
increase our own recruitment efforts and to provide recruiting
services for our clients.
- -Competition The information technology services industry is extremely
competitive. A number of companies compete with us in select
markets with substantially similar services. In most of the
markets in which we compete, we believe that there are
participants that have significantly greater financial, technical
and marketing resources than we do. However, we believe that no
single competitor dominates any of the relevant markets.
There are a few very large competitors with annual revenues over
$500 million, however, according to the Updata Group, an
independent consulting firm, over 3,000 software service firms
with yearly revenues over $1 million compete for market share.
Most of these firms participate in just one geographic area and
none offer the full range of services that we plan to through our
Services Value Pyramid. Our competition, therefore, varies
significantly from a geographic area to geographic area.
In order to remain on our clients' vendor lists and develop new
client relationships, we must satisfy their requirements at
competitive rates. Although we continually attempt to lower our
costs, there are other software service organizations and
temporary placement agencies that may offer the same or similar
services as we offer at the same or lower costs. Additionally,
certain of our clients require that their vendors reduce rates
after services have commenced. There can be no assurance that we
will be able to compete effectively on pricing or other
requirements and, as a result, we may lose clients or be unable to
maintain historic gross margin levels or to operate profitably.
We have developed a direct, high-level sales organization that
encourages the pursuit, establishment and maintenance of close
relationships with senior management of possible client companies.
With our planned growth of service offerings we believe that we
will have a significant advantage in cross-selling additional
services and solutions to our client base. However, there can be
no assurances that our growth of service offerings will provide
any such advantages.
In addition, we intend to target new clients by (i) continuing to
leverage and expand our direct sales efforts, (ii) increasing the
hiring of consultants with existing client relationships and (iii)
pursuing referrals from existing clients and third-party
organizations including hardware partners, software partners and
industry research organizations.
Employees CSI currently has approximately 180 employees and consultants.
Possible Future
Acquisitions
On September 15, 1998, we signed a letter of intent subject to
which we would acquire our second operating subsidiary. This
Company's principal expertise lies in package implementations of
PeopleSoft and SAP applications. The acquisition is subject to
completion of due diligence, a definitive agreement and financing.
The Company has a revenue run rate of approximately $17 million.
Our History In 1987, our predecessor, Coronado Ventures, Inc. was incorporated
in Nevada. As Coronado Ventures, we filed a registration statement
on Form S-18 with the SEC pursuant to which we sold 1,000,000
units consisting of one share of Common Stock
6
<PAGE>
and three Common Stock purchase warrants, raising $50,000 in gross
proceeds. None of the warrants were exercised prior to expiration.
Shortly after the completion of the above offering, we acquired
100% of the issued and outstanding common stock of Tahoeview
Cablevision, Inc., a cable television company, for which we issued
shares of our Common Stock. At the time of this transaction we
changed our name to Westar Group, Inc. Tahoeview Cablevision
operated as a subsidiary of Westar Group.
In 1991, we acquired the assets of several other cable television
systems located in eastern Montana through a newly formed
subsidiary, Westar Group North. We issued shares of our Common
Stock and paid cash for the purchase of these assets. The cash
portion of the purchase price was part of a revolving credit
facility obtained from a financial institution. Upon expiration of
the revolving credit facility in 1993, and the inability of
Tahoeview Cablevision and Westar Group North to either renew the
facility or pay off the balance owed, the financial institution
filed a suit in U.S. District Court naming our subsidiaries
Tahoeview Cablevision and Westar Group North as defendants. The
district court appointed a permanent receiver to oversee our
subsidiaries during the pendency of their bankruptcy. Westar Group
was not directly involved in this action. On July 31, 1997, the
district court ordered the receivership closed and that Tahoeview
Cablevision and Westar Group North be dissolved. This left Westar
Group, the holding company, as the only surviving entity.
In July 1997, we changed our name from Westar Group to Arena
Group, Inc. and began a search to locate suitable businesses with
which to reorganize. On July 23, 1998, we entered into a
non-binding letter of intent to merge with Patra Capital. In order
to complete this merger we formed a special purpose acquisition
subsidiary, Patra Acquisition, Inc., a Delaware corporation.
Effective July 31, 1998, Patra Acquisition and Patra Capital
merged under an agreement and plan of merger and Patra Capital was
the surviving entity. As a result of this transaction, Patra
Capital became our wholly owned subsidiary and we changed our name
to Elligent Consulting Group, Inc.
Cautionary Factors that May Affect Future Results
Employee and
Consultant
Recruitment Our future success will depend in part on our ability to hire
adequately trained personnel who address the increasingly
sophisticated needs of our clients. Our on-going employee and
consultant needs arise from:
o increasing demand for our services,
o consultant turnover, and
o the clients' requests for programmers trained in the newest
software technologies.
Few of our employees, and more of our consultants, are bound by
non-compete agreements. Competition for personnel in the
information technology services industry is significant and we may
have difficulty in attracting and retaining an optimal level of
qualified personnel in the future. In particular, competition for
the limited number of qualified project managers and professionals
with certain specialized skills, such as working knowledge of
certain sophisticated software, is intense. Because of this,
recruitment of employees and consultants is a critical element in
our success. We devote significant resources to meeting our
personnel requirements.
Contracts We normally offer professional services through agreements
providing that our services are rendered on a best-efforts basis,
that we make no express or implied warranties and that the client
must continue to pay all charges incurred prior to the termination
of the agreement. Because services are typically rendered on an
as-required basis, we do not
7
<PAGE>
consider our backlog of unfinished assignments significant in
understanding our business.
The typical client contract term is 6 months to 2 years and there
can be no assurance that a client will renew its contract when it
terminates. In fact, following expiration of an original contract
term with any given client, it is often the case that we begin
operating on an as-needed basis not under any contract of specific
duration. Our contracts are generally cancelable by the client at
any time and clients may unilaterally reduce or increase their use
of our services under such contracts without penalty. The
termination or significant reduction of our business relationship
with any of our significant clients could have an adverse effect
on our operating results.
We generally price our services to clients on a time and materials
basis and maintain price ranges that reflect the technical skills
and experience levels of the consultants on each project.
Acquisition
Strategy The future is expansion through the acquisition of companies that
have complementary businesses, that can utilize or enhance our
existing capabilities and resources or that expand our existing
range of services in the information technology consulting
marketplace.
As a result, we continually evaluate potential acquisition
opportunities, some of which may be large in size or scope when
compared to our size. Acquisitions involve a number of special
risks, including the time associated with identifying and
evaluating possible acquisitions, the diversion of management's
attention to the integration of the operations and personnel of
the acquired companies, the incorporation of acquired services
into our services, possible adverse short-term effects on our
operating results, the realization of acquired intangible assets
and the loss of key employees of the acquired companies.
To accomplish future acquisitions we may issue equity securities
and other forms of consideration that could cause dilution to
investors purchasing our Common Stock. There can be no assurance
that we will be able to identify additional suitable acquisition
candidates, consummate or finance any such acquisitions, or
integrate any such acquisitions successfully into our operations.
Management of
Growth We are currently experiencing a period of rapid growth resulting
from recent acquisitions and the internal expansion of our
operations, both of which have placed significant demands on our
resources. Our success in managing this growth will require us to
continue to improve our operational, financial and management
information systems, and to motivate and effectively manage our
employees and consultants. We are relying primarily upon the
experience and expertise of our executive officers and the
management of CSI to provide a base of knowledge in the
information technology consulting field. Further, we have
retained, and are relying on, certain key employees in each of the
businesses we acquired in 1998. We plan to add to our areas of
expertise within this field through the acquisition of additional
platform companies and their management teams.
We cannot assure you that we will successfully assimilate new
acquisitions into our existing business operations. We can also
give you no assurance that we will be successful in expanding the
businesses of any of our new acquisitions, that new customers can
be attracted as anticipated, or that there will be a continued, if
any, demand for the services of our new acquisitions' technology,
products or expertise in new and competitive markets.
If our management is unable to manage growth effectively, to
maintain the quality of our products and services, and to retain
key personnel our business, financial condition and results of
operations could be materially adversely affected.
8
<PAGE>
Competition We operate in a highly competitive and rapidly changing industry
and compete with a variety of companies for positions on the
vendor lists of particular clients. Most of these competing
companies, many of which are significantly larger and have greater
financial, technical and marketing resources, provide the same
services, and some offer a wider variety of services, than those
we offer. There can be no assurance that we will be able to
compete successfully with these companies.
Many large accounting and management consulting firms offer
services that overlap with a significant portion of our services,
and we compete with the internal information technology staffs of
our clients and potential clients. Also, computer hardware and
software companies are increasingly becoming involved in systems
integration projects. Recently, temporary placement agencies have
begun expanding their businesses to provide computer-related
services. There can be no assurance that we will be able to
continue to compete successfully with our existing competitors or
will be able to compete successfully with new competitors.
Additionally, over the past several years there has been an influx
of foreign nationals who provide skilled computer programming
services at lower pay scales than domestic programmers. Some of
these foreign nationals are being hired as consultants directly by
our clients and potential clients, as well as by certain of our
competitors. Moreover, in an attempt to decrease costs, some of
our clients and potential clients are awarding business to
competitors with operations in "low cost" foreign countries,
including Ireland, India and the former Soviet Union. An increase
in the use of skilled foreign national labor at lower rates or
foreign software service firms by our competitors or clients could
have a material adverse effect on our results of operations.
Dependence Upon
Major Customers
and Large
Contracts Our five largest clients, when combined, account for 41% of our
total revenues and 56% of accounts receivable. Our largest client
accounts for 26% of our total revenues and 36% of our accounts
receivable. Any decision by these major customers to cease or
reduce their use of our services may have an adverse effect on our
business. Further, any delay in payment or non-payment of fees
owed by our large clients may delay the implementation of our
growth strategy and will have an adverse effect on our results of
operations.
Dependence on
Key Management
Personnel The success of our growth and business strategies will be highly
dependent upon the efforts of our key management personnel and
management personnel of acquired companies, particularly our
executive officers. The loss of the services of any one of our
executive officers could have an adverse effect on our business
and on the implementation and success of our growth strategy.
However, we have applied for key man insurance with respect to
Andreas Typaldos, Edwin Brondo and Scott Newman in the amounts of
$500,000 each. We will evaluate the necessity of carrying such
insurance on selected individuals at acquired companies on an
ongoing basis. The amount of insurance, however, may not be
sufficient to offset our losses if the services of any of our
executive officers were unavailable. It is not possible to
estimate the amount of any such loss.
Insurance
We have applied for directors and officers, errors and omissions
and employment practices insurance. We are seeking directors and
officers insurance in order to assist us in attracting and
retaining qualified individuals to serve on our board and to
become our officers. We require errors and omission insurance to
help protect us from liabilities arising from claims that our work
on a particular project resulted in losses to a client. We plan to
obtain employment practices insurance to protect us against
damages resulting from claims by employees under various state and
federal employment laws. A finding by a court with jurisdiction
9
<PAGE>
over such a suit that we were responsible for damages as claimed
by a client or an employee may have a material adverse effect on
our operating results. We can offer no assurance that we will be
able to obtain any or all of the insurance we seek or obtain it on
terms and at a cost acceptable to us.
Potential
Fluctuations in
Operating
Results Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are
outside our control. Factors that may affect our quarterly revenue
or operating results generally include:
o costs relating to the expansion of the company's business,
o the extent and timing of business acquisitions,
o the incurrence of merger costs,
o the timing of assignments from customers,
o the seasonal nature of our business due to variations
in holidays and vacation schedules,
o the introduction of new services by us or our competitors,
o price competition or price changes, and
o general economic conditions and economic conditions specific
to the information technology, consulting or information
technology staffing industries.
Quarterly sales and operating results can be difficult to forecast
even in the short term. Due to all of the foregoing factors, it is
possible that our revenues or operating results in one or more
future quarters will fail to meet or exceed the expectations of
securities analysts or investors. In such event, the trading price
of our common stock would likely be materially adversely affected.
Price Volatiliy The market price of our common stock could be subject to
significant fluctuations in response to variations in quarterly
operating results, our prospects, changes in earnings estimates by
securities analysts and by economic, financial and other factors
and market conditions that can effect the capital markets
generally, the industry segment of which we are a part, including
the level of, and fluctuations in, the trading prices of stocks
generally and by other events that are difficult to predict and
beyond our control. In addition, the securities markets have
experienced significant price and volume fluctuations from time to
time in recent years that have often been unrelated or
disproportionate to the operating performance of particular
companies. Such broad fluctuations may adversely affect the market
price of our common stock in the future.
Control by
Current
Stockholders At December 1, 1998, our directors and executive officers owned
beneficially 11,257,618 shares of Common Stock, representing
approximately 77% of the outstanding Common Stock. As a result,
our directors and executive officers are able to exercise
significant influence on the election of our board of directors
and thereby direct our policies.
10
<PAGE>
FINANCIAL INFORMATION
Summary Financial Information
The following table contains certain selected financial data of the
Company and is qualified by the more detailed financial statements and the notes
thereto provided in this report. The actual financial data for the year ended
July 31, 1998 has been derived from the Company's financial statements, which
statements have been audited by Hansen, Barnett and Maxwell and are included
elsewhere in this Report.
Statement of Operations Data
<TABLE>
Fiscal Year Ended July 31, 1998 Three Months Ended
Actual Pro Forma October 31, 1998 October 31, 1997
<S> <C> <C> <C> <C>
Gross Revenue $ 3,226 $17,729,659 $ 1,934,366 $ 0
Net Income (Loss) (54,555) (510,640) (244,576) (6,848)
Net Income (Loss) to Common
Shareholder (54,555) (510,640) (244,576) (6,848)
Net Income (Loss) per share to
Common Shareholder (0.06) (0.04) (0.02) (0.01)
Balance Sheet Data
</TABLE>
<TABLE>
July 31, 1998
Actual Pro Forma October 31, 1998 October 31, 1997
<S> <C> <C> <C> <C>
Current Assets $ 333,696 $3,717,796 $ 4,682,741 $ 7,857
Total Assets 333,696 15,624,062 17,122,704 7,857
Current Liabilities 792 8,791,936 14,365,299 1,045
Long-Term Debt 0 4,055,162 182,190 0
Total Liabilities 792 4,055,162 17,122,704 7,857
Shareholders' Equity 332,904 2,776,964 2,575,215 6,812
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
As part of a Reorganization, we changed our name to Elligent Consulting
Group, Inc. on July 31, 1998. On September 3, 1998, with an effective date of
August 1, 1998, for accounting purposes, we issued 12,950,000 shares of its
restricted common stock to the then current shareholders of Patra Capital in
exchange for all of the issued and outstanding common stock of Patra Capital. At
that time, the management of Patra Capital became our management. The merger was
accounted for as a Recapitalization.
On September 21, 1998, effective August 1, 1998, for accounting purposes,
we, through our wholly owned subsidiary, Patra Capital, purchased Conversion
Services International, Inc. The operations of CSI are included in our results
of operations commencing on August 1, 1998. In connection with the acquisition
of CSI, CSI's shareholders signed three-year employment agreements with us.
The purchase price was $12,298,885 consisting of 1,100,000 shares of our
common stock (valued at $2,640,000), cash payments of $1,500,000 delivered at
the closing and notes payable of $8,500,000, with an original discounted value
of $8,158,885. Interest at 8% is payable on the November 24th and January 21st
payments. The final two payments bear no interest. The payments are due as
follows:
$1,000,000 November 24, 1998
$1,500,000 January 21, 1999
(payable in cash or stock at the option of the Company)
$3,750,000 May 1, 1999
$2,250,000 August 1, 1999
We expect to continue an acquisition program to acquire other technology
consulting companies constituting a set of key consulting practice areas to
serve as a platform ("platform") for further roll-up and consolidation through
acquisition of similar companies in the future. Through these platform
companies, we plan to offer our clients an enterprise-type offering of services.
These services will include management consulting, business function
reengineering, mission critical application rollouts and package implementation,
database and datawarehousing consulting, networking and interim and permanent
staffing or support.
We will then continue our development through continued internal growth
from the acquired platform companies and additional rollout acquisitions within
each of our service offering areas. Through this expansion and growth strategy,
we plan to develop into a leading global technology services company.
We plan to enter a business segment that has significant competition from
other much larger companies. We expect to offer our services to large national
and multi-national companies. We own no copyrights or patents.
Our corporate headquarters are located in New York City, New York. CSI
maintains its offices in East Hanover, New Jersey.
We plan to continue an expansion strategy through (i) the acquisition of
a select number of technology consulting companies with complementary areas of
expertise and (ii) internal growth from the acquired operating subsidiaries.
While there is significant risk as a result of potential external problems, lack
of available capital, changing economic and market conditions, and significant
competition from much larger companies, through this expansion strategy, we plan
to develop into a leading global consolidator of technology services companies.
Key to the acquisition strategy is the retention of the acquired company's
management and staff.
12
<PAGE>
For the three month period ended October 31, 1998, we had revenue of $5.8
million reflecting an increase of 46% from the comparable year earlier period
and a net loss of $244,576. The major components of this loss are as follows:
Cash flow from operations of CSI $ 332,703
-------------
Depreciation, amortization and interest 432,632
Income tax benefit (62,000)
Management and holding company expenses 206,647
Subtotal acquisition related and other expenses 577,279
Net Loss $ (244,576)
=============
The management and holding company expenses represent costs related to new
acquisitions in progress, and efforts to locate equity and debt financing
required to achieve our growth goals. The remaining analysis of quarterly
results focuses on the operations of CSI, our sole operating subsidiary. The
unaudited information for this interim period is not necessarily indicative of
the results for the entire year, nor should it be used to project our operations
for future dates or periods.
The financial statements presented herein represent the first financial
statements of Elligent Consulting Group, Inc. since its reorganization in July
1998 and its acquisition of CSI. The CSI acquisition was accounted for as of
August 1, 1998, on the purchase method of accounting and therefore the financial
statements only reflect CSI's income and operations for the three month period.
In order to provide investors with appropriate historical data, Management's
discussion will include comparative data reflecting the results of operations
for CSI during the year preceding its acquisition by us.
CSI has been in the business of providing information technology
consulting services for approximately nine years. CSI provides high-end project
management, applications implementation, data warehousing, consulting, Internet
and information technology ("IT") staffing services. CSI has recently expanded
its operation to accommodate additional consultant/employees and new in-house
training facilities. CSI currently has approximately 180 employees and
consultants, and expects that number to increase as its business grows. CSI's
revenues have doubled over the past two years, and the current revenue run rate
is $25 million.
For the three months ended October 31, 1998, we had revenues of $5.8
million from our operating subsidiary CSI reflecting a 46% increase from the
revenues of CSI during the corresponding period in 1997 prior to its acquisition
by us. The cost of revenues was $3.9 million resulting in a gross margin from
operations of $1.9 million or 33%.
The unaudited results of operations for CSI for the three months ended
October 31, 1998, and 1997, are as follows:
Unaudited [In Thousands]
Three months Ended Three months Ended
October 31, 1998 October 31, 1997
Revenue $ 5,813 $ 3,983
Cost of revenue 3,879 2,640
------------ ------------
Gross margin 1,934 1,343
Operating Expenses 1,601 1,162
------------ ------------
Cash Flow from operations $ 333 $ 181
============ ============
13
<PAGE>
CSI continues to show significant growth in revenues in 1998, versus the
comparable period a year ago. Operating expenses are running higher than
projected for the next twelve month period due to continued growth in staff and
related training costs prior to placing new staff on a billable status.
We expect to reduce operating expenses as a percent of gross margin in
1999.
Liquidity and Financial Position
As of October 31, 1998, we had a working capital deficit of $9.7 million.
Its working capital deficit reflects (i) $2.0 million due to Summit Bank related
to the revolving line of credit collateralized by our accounts receivable and
other loans, (ii) accounts payable and accrued expenses of $2.3 million, (iii)
notes payable to stockholders of $8.3 million related to the acquisition of CSI,
and (iv) amounts due to related parties of $1.5 million, relative to the
acquisition of CSI and the funding of costs related to future acquisitions in
progress. These latter amounts are principally due to our principal stockholder.
The principal sources of funds, other than from the revolving line of
credit, are (i) the personal assets of our principal stockholder and related
entities owned or controlled by our principal stockholder, (ii) the sale of
securities and (iii) additional financing sources. We are presently engaged in
negotiations with respect to additional financing sources and the private
placement of shares of our Common Stock. We are negotiating with two financial
institutions for a new $30 million asset-based line of credit to replace the
Summit Bank revolving line of credit. We plan to make a private placement of up
to approximately $10 million of our Common Stock to accredited investors during
the first quarter of 1999. However, no assurance can be given that we will be
successful in obtaining such financing, and the failure to obtain necessary
financing could have a material adverse effect on the full implementation of our
business year. At the present time, our management believes that our current
sources of funding are adequate to support our internal growth and that of CSI.
The current sources are not adequate to support our acquisition plans.
Inflation
Inflation has not had a material effect upon the Company's results of
operations to date. In the event the rate of inflation should accelerate in the
future, it is expected that costs in connection with the provision by the
Company of its services and products will increase, and, to the extent such
increased costs are not offset by increased revenues, the operations of the
Company may be adversely affected.
Year 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs do not consider the impact of the upcoming change
in the century. If not corrected, many computer applications could fail or
create erroneous results by the Year 2000. Internally, the Company has assessed
its Year 2000 computer issues. The Company estimates that it will not have to
spend a material amount to make its major computer systems and non-critical
programs Year 2000 compliant.
Forward Looking Information
This Registration Statement contains certain forward-looking statements
and information. The cautionary statements made herein should be read as being
applicable to all related forward-looking statements wherever they appear.
Forward-looking statements, by their very nature, include risks and
uncertainties. Accordingly, our actual results could differ materially from
those discussed herein. A wide variety of factors could cause or contribute to
such differences and could adversely impact revenues, profitability, cash flows
and capital needs. Such factors, many of which are beyond our control, include
the following: our success in obtaining new contracts; the volume and type of
work orders that are received under such contracts; levels of, and ability to,
collect accounts receivable; availability of trained personnel and utilization
of our capacity to complete work; competition and competitive pressures on
pricing; availability, cost and terms of debt or equity financing; and economic
conditions in the United States and in the regions served.
Quantitative and Qualitative Disclosures about Market Risk
The Company is not exposed to material risk based on interest rate
fluctuation, exchange rate fluctuation, or commodity price fluctuation.
14
<PAGE>
PROPERTIES
We maintain our principal executive office in 4,000 square feet of leased
space at 152 West 57th Street, 40th Floor, New York, New York 10019. CSI
maintains its office in approximately 13,000 square feet of leased space at 100
Eagle Rock Avenue, East Hanover, New Jersey.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have not had any disagreements with our accountants on matters relating
to accounting and financial disclosures.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 1, 1998, with
respect to the number of shares of Common Stock of the Company beneficially
owned by individual directors, by all directors and officers of the Company as a
group, and by persons known to own more than 5% of the Company's Common Stock.
The Company has no other class of voting stock outstanding.
Name of Beneficial Owner Percent of Common Stock
and Address Number of Shares Owned
Patra Holdings, LLC (1)
152 W. 57th Street, 40th Floor
New York, New York 10019 10,000,000 68.76
Andreas Typaldos (1)
152 W. 57th Street, 40th Floor
New York, New York 10019 10,350,000 71.16
Scott Newman
152 W. 57th Street, 40th Floor
New York, New York 10019 733,333 5.04
Edwin T. Brondo
152 W. 57th Street, 40th Floor
New York, New York 10019 -- --
Michel Berty
152 W. 57th Street, 40th Floor
New York, New York 10019 -- --
Lloyd T. Rochford
152 W. 57th Street, 40th Floor
New York, New York 10019 174,285 1.20
Directors and Officers as a Group 11,257,618 77.40
- --------
(1) Mr. Typaldos controls Patra Holdings, LLC and therefore beneficial
ownership of shares held by Patra Holdings are attributed to Mr. Typaldos
for the purposes of this table.
15
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to directors and
executive officers of the Company with the year in which each director's term
expires in parentheses.
Andreas Typaldos
(age 52) Chairman of the Board and President. Mr. Typaldos was founder,
President and CEO of Computron Software, Inc., an international
public software and consulting company until 1996. He is also
founder, Chairman, and major shareholder of Enikia, LLC, an
advanced home networking and communications company. Mr. Typaldos
was nominated to serve as chairman of the board of the Registrant
effective August 1, 1998.
Edwin T. Brondo
(age 51) Director, Chief Financial Officer, Secretary and Treasurer. Mr.
Brondo was Vice President of First Albany Companies, Inc. and
Senior Vice President, Chief Administrative Officer of First
Albany Corporation from May 1993 until December 1997. Mr. Brondo
currently serves as a director of Computron Software, Inc. a
company listed on the American Stock Exchange. During the last
five years Mr. Brondo was a senior consultant at Comtex
Information System, Inc. and a senior financial executive at
Bankers Trust Company. He has also held senior positions at
Goldman Sachs & Co., Morgan Stanley & Co. and G.A. Saxton.
Scott Newman
(age 39) Director and Vice President. Mr. Newman is co-founder and
president of Conversion Services International, Inc. and has
served in that capacity since its founding in 1989.
Lloyd T. Rochford
(age 52) Director. In February of 1989, Mr. Rochford founded Magnum Hunter
Resources, Inc. and served as a director and as its Chief
Executive Officer through the end of 1995. Commencing in January
of 1996 through June of 1997, Mr. Rochford serviced as Magnum's
Chairman of the Board of Directors. Magnum is engaged in the
exploration for and the production of oil and gas and is a company
listed on the American Stock Exchange. Since his resignation from
Magnum, Mr. Rochford has pursued his own personal business
interests until being elected a director of the Registrant in July
of 1997. Mr. Rochford served as chairman of the board of the
Registrant until August 1, 1998.
Michel Berty
(age 59) Director. Mr. Berty is currently a member of the board of
directors of Mastech, a large public consulting services company.
He is also the Chairperson of Zmax, a Year 2000 NASDAQ company, a
member of the board of directors of LEVEL 8, a public banking
software and services company, and is a former CEO of Cap Gemini
America, a $300 million consulting services company, and member of
the executive committee of Cap Gemini Sogeti, a $2 billion
consulting services company. Mr. Berty has been a member of our
board of directors since August 27, 1998.
16
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company
to the chief executive officer and the most highly compensated executive
officers and key employees whose total remuneration exceeded $100,000 for
services rendered in all capacities to the Company during the last three
completed fiscal years.
Annual Compensation Long Term Compensation
Awards Payouts
Name Other
and Annual Restricted All Other
Principal Fiscal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARS Payouts sation
- ------------------------------------------------------------------------------
Andreas Typaldos
President 1998 -0- (1)
1997 -0-
1996 -0-
Edwin T. Brondo
Chief Financial
Officer, Secretary
and Treasurer 1998 -0- (1)
1997 -0-
1996 -0-
Scott Newman
Vice President 1998 -0- (1)
1997 -0-
1996 -0-
Lloyd T. Rochford
Chief Executive
Officer 1998 $12,000
1997 -0-
1996 -0-
- --------------------
(1) Messrs. Typaldos, Brondo and Newman did not receive any compensation from
us during fiscal 1998. Each of these individuals has entered into a
three-year employment agreement commencing in fiscal 1999 at an annual
base salary of $250,000.
Stock Option Plan
Summary of the 1998
Stock Option Plan The Board adopted the 1998 Stock Option Plan (the "Plan")
in August 1998. For the purposes of this summary, unless
otherwise stated, "Plan" will refer to the 1998 Stock
Option Plan. There are 1,500,000 shares of Common Stock
reserved for issuance under the Plan. We intend to submit
the Plan to our shareholders for approval at our next
annual meeting of shareholders. At December 1, 1998, we had
outstanding options to purchase 100,000 shares at $5.00
vesting over for a three-year period. The options expire
ten years from the date of issuance. These options will
become effective upon approval of the Plan by our
shareholders.
The Plan authorized us to grant to our employees and
directors (i) incentive stock options to purchase shares of
Common Stock and (ii) non-qualified stock options to
purchase shares of Common Stock.
17
<PAGE>
Objectives The objectives of the Plan are to provide incentives to our
key employees, directors, officers and consultants to
encourage them to devote their abilities and industry to the
success of our business enterprise. We intend to achieve
this purpose by extending an additional long-term incentive
for high levels of performance and unusual effort.
Oversight A Committee of the Board administers the Plan by making
determinations regarding the persons to whom options should
be granted and the amount, terms, conditions and
restrictions of the awards. It also has the authority to
interpret the provisions of the Plan and to establish and
amend rules for its administration subject to the Plan's
limitations. This Committee is comprised of non-employee
directors as required by Rule 16b-3 of the Securities and
Exchange Act of 1934, as amended.
Statutory Conditions
on Stock Options
- - exercise price Incentive stock options granted under the Plan must have an
exercise price at least equal to 100% of the fair market
value of our Common Stock as of the date of grant. Incentive
stock options granted to any person who owns, immediately
after the grant, stock possessing more than 10% of the
combined voting power of all classes of our stock, or of any
parent or subsidiary corporation, must have an exercise
price at least equal to 110% of the fair market value of our
Common Stock on the date of grant. Non-statutory stock
options may have exercise prices as determined by the
Committee or the Board.
- - dollar limit The aggregate fair market value, determined as of the time
an incentive stock option is granted, of our Common Stock
with respect to which incentive stock options are
exercisable by an employee for the first time during any
calendar year, cannot exceed $100,000. However, there is no
aggregate dollar limitation on the amount of non-statutory
stock options which may be exercisable for the first time
during any calendar year.
- - expiration date Any option granted under the Plan will expire at the time
fixed by the Committee, which cannot be more than ten years
after the date it is granted or, in the case of any person
who owns more than 10% of the combined voting power of all
classes of our stock or of any subsidiary corporation, not
more than five years after the date of grant.
- - exercisability The Committee may also specify when all or part of an option
becomes exercisable, but in the absence of such
specification, the option will become exercisable in four
equal annual installments, the first of which becomes
exercisable on the first anniversary of the date of grant of
the option. However, the Compensation Committee may
accelerate the exercisability of any option or any part
thereof at its discretion.
- - assignability Options granted under the Plan are not assignable. Incentive
Stock Options may be exercised only while the optionee is
employed by us or within twelve months after termination by
reason of death, within twelve months after the date of
disability, or within three months after termination for any
other reason.
Payment Upon
Exercise of Options Payment of the exercise price for any option may be in cash,
by withheld shares which, upon exercise, have a fair market
value at the time the option is exercised equal to the
option price (plus applicable withholding tax) or in the
form of shares of our Common Stock.
Tax Consequences
of Options An employee or director will not recognize income on the
awarding of incentive stock options and nonstatutory options
under the Plan.
18
<PAGE>
An optionee will recognize ordinary income as the result of
the exercise of a nonstatutory stock option in the amount of
the excess of the fair market value of the stock on the day
of exercise over the option exercise price.
An employee will not recognize income on the exercise of an
incentive stock option, unless the option exercise price is
paid with stock acquired on the exercise of an incentive
stock option and the following holding period for such stock
has not been satisfied. The employee will recognize
long-term capital gain or loss on a sale of the shares
acquired on exercise, provided the shares acquired are not
sold or otherwise disposed of before the earlier of: (i) two
years from the date of award of the option or (ii) one year
from the date of exercise. If the shares are not held for
the required period of time, the employee will recognize
ordinary income to the extent the fair market value of the
stock at the time the option is exercised exceeds the option
price, but limited to the gain recognized on sale. The
balance of any such gain will be a short-term capital gain.
Exercise of an option with previously owned stock is not a
taxable disposition of such stock.
An employee generally must include in alternative minimum
taxable income the amount by which the price he paid for an
incentive stock option is exceeded by the option's fair
market value at the time his rights to the stock are freely
transferable or are not subject to a substantial risk of
forfeiture.
The Company and its subsidiaries will be entitled to
deductions for federal income tax purposes as a result of
the exercise of a nonstatutory option and the disqualifying
sale or disposition of incentive stock options in the year
and the amount that the employee recognizes ordinary income
as a result of such disqualifying disposition.
Director Compensation
Directors currently receive no cash compensation for their services in
that capacity. Reasonable out of pocket expenses may be reimbursed to directors
in connection with attendance at meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
LEGAL PROCEEDINGS
The registrant is not a participant in any legal proceedings at the
current time.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock was not actively traded until we completed our merger
with CSI and became listed in Standard & Poors Corporations Manual on September
23, 1998.
Fiscal Year Ended July 31, 1999 Low High
- ------------------------------- --- ----
First Quarter (commencing September 23, 1998) $4.875 $10.25
Second Quarter 9.00 10.75
Number of Shareholders
The number of beneficial holders of our Common Stock as of the close of
business on December 1, 1998, was approximately 225.
19
<PAGE>
Dividend Policy
Holders of Common Stock are entitled to receive such dividends as may be
declared by our Board of Directors. We have not declared nor paid cash dividends
on our Common Stock and we do not anticipate that we will pay such dividends in
the foreseeable future. Rather, we intend to apply any earnings to the expansion
and development of its business. Any payment of future dividends on the Common
Stock and the amount thereof will be determined by our Board of Directors and
will depend, among other factors, upon our earnings, financial condition and
cash requirements, and any other factors our Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
In July 1997, we sold 214,285 shares of our Common Stock to two
individuals at a cash price of $0.07 per share under the private offering
exemption of Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"). Lloyd T. Rochford, who at the time of the placement was a
director and an officer, purchased 174,285 shares for $12,200, and Robert Morley
purchased 40,000 shares for $2,800.
In January 1998, we sold 200,000 shares of our Common Stock to KM
Financial, Inc., a Phoenix based consulting firm, at a price of $0.07 per share
under the private offering exemption of Section 4(2) of the Securities Act, for
a total price of $14,000.
In June 1998, we sold an additional 400,000 shares of our Common Stock to
Robert Morley at a price of $0.90 per share under the private offering exemption
of Section 4(2) of the Securities Act for $359,799, representing the purchase
price for less certain incidental costs of $201.
In connection with our merger with Patra Capital we issued 12,950,000
shares of our Common Stock, including 1,100,000 shares in connection with the
acquisition of CSI.
DESCRIPTION OF SECURITIES
We are authorized to issue 50,000,000 shares of Common Stock, $.001 par
value per share, of which 14,544,225 are outstanding as of the date of this
Report.
Holders of the Common Stock are entitled to one vote for each share owned
for all matters to be voted on by the shareholders. Holders of the Common Stock
are entitled to receive dividends as may be declared from time to time by our
Board of Directors, and in the event of any liquidation, dissolution, or winding
up of the affairs of the Corporation, are entitled to receive a pro rata share
of any assets of the corporation legally available for distribution. There are
no redemption or sinking fund provisions applicable to the Common Stock. The
rights of the holders of the Common Stock are subject to any rights that may be
fixed for the holders of preferred stock, if and when any preferred stock is
issued. The Common Stock currently outstanding is validly issued, fully paid and
nonassessable.
20
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) FINANCIAL STATEMENTS.
The financial statements begin on Page F-1.
(b) EXHIBITS.
Exhibit
Notes Number Description
2.1 Agreement and Plan of Merger dated as of August 26,
1998, by and among Elligent Consulting Group, Inc.,
Patra Acquisition, Inc., Patra Capital Limited and
the Shareholders of Patra Capital Limited
2.2 Plan and Agreement of Merger dated as of August 1,
1998, by and among Patra Capital Limited, Patra
Holdings LLC, Conversion Services International,
Inc., Scott Newman and Glenn Peipert.
(1) 3(i).1 Initial Articles of Incorporation
(2) 3(i).2 Articles of Incorporation, as Amended on January 5,
1990
(3) 3(i).3 Articles of Incorporation, as Amended on August 5,
1997
(4) 3(i).4 Articles of Incorporation, as Amended on July 25,
1998
(1) 3(ii).1 Initial Bylaws
(3) 3(ii).2 Initial Bylaws, as amended on July 2, 1991
(4) 3(ii).3 Initial Bylaws, as amended on April 1, 1998
10.1 1998 Stock Option Plan
21.1 Subsidiaries
(1) Filed with a Registration Statement on Form S-18 (File Number 33-23314).
(2) Filed with a Form 10-QSB for the quarter ended December 31, 1989.
(3) Filed with a Form 10-KSB for the year ended June 30, 1991.
(4) Filed with a Form 10-KSB for the year ended June 30, 1998.
SIGNATURES
Pursuant to the requirements 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.
ELLIGENT CONSULTING GROUP, INC.,
a Nevada corporation
By /s/ Edwin T. Brondo
----------------------
Edwin T. Brondo
Chief Financial Officer
Dated: January 8, 1999
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Elligent Consulting Group, Inc.:
Pro Forma Combined Financial Statements [Unaudited]:
Introductory Note............................................ P-1
Pro Forma Combined Balance Sheet as of July 31, 1998 [Unaudited]P-2 - P-3
Pro Forma Combined Statement of Operations for the
twelve months ended July 31, 1998 [Unaudited].............. P-4
Notes to Pro Forma Combined Financial Statements [Unaudited]. P-5
Historical Financial Statements - July 31, 1998:
Report of Independent Auditors............................... F-1
Balance Sheet as of July 31, 1998............................ F-2
Statements of Operations for the year ended July 31, 1998,
for the period from July 31, 1996 [date of inception]
through July 31, 1997 and cumulative from July 31, 1996
[date of inception] through July 31, 1998.................. F-3
Statement of Stockholders' Equity............................ F-4
Statements of Cash Flows for the year ended July 31, 1998,
for the period from July 31, 1996 [date of inception]
through July 31, 1997 and cumulative from July 31, 1996
[date of inception] through July 31, 1998.................. F-5
Notes to Financial Statements................................ F-6 - F-8
Historical Financial Statements - October 31, 1998:
Balance Sheets as of October 31, 1998........................ F-9
Statements of Operations for the three months ended
October 31, 1998 and 1997.................................. F-10
Statement of Stockholders' Equity............................ F-11
Statements of Cash Flows for the three months ended
October 31, 1998 and 1997................................... F-12 - F-13
Notes to Financial Statements................................ F-14 - F-18
Conversion Services International, Inc. and Affiliate:
Balance Sheets as of June 30, 1998 [Unaudited] and
December 31, 1997 and 1996 ................................ F-20
Statements of Operations for the six months ended June 30,
1998 and 1997 [Unaudited] and for the years ended
December 31, 1997, 1996 and 1995........................... F-21
Statement of Stockholders' Equity............................ F-22
Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 [Unaudited] and for the years ended
December 31, 1997, 1996 and 1995........................... F-23 - F-24
Notes to Financial Statements................................ F-25 - F-31
Patra Capital Ltd.:
Report of Independent Auditors............................... F-32
Balance Sheet as of July 31, 1998............................ F-33
Statements of Operations for the seven months ended
July 31, 1998.............................................. F-34
Statement of Stockholders' Equity............................ F-35
Statements of Cash Flows for the seven months ended
July 31, 1998.............................................. F-36
Notes to Financial Statements................................ F-37 - F-40
. . . . . . . .
22
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
PRO FORMA COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
The following pro forma combined balance sheet as of July 31, 1998 and combined
statement of operations for the year then ended give effect to the acquisition
by Patra Capital Limited ["Patra"] of the outstanding stock of Conversion
Services International, Inc. ["CSI"] effective September 21, 1998 and the effect
of Elligent Consulting Group, Inc. ["Elligent"] acquiring all of the outstanding
stock of Patra effective September 3, 1998. For accounting purposes, July 31,
1998 is the effective date for both transactions.
The pro forma information gives effect to the Patra/CSI transaction under the
purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements.
The Elligent/Patra transaction is reflected as a recapitalization. Patra is
deemed to be the acquiror [for accounting purposes] as Patra received the larger
portion of voting rights in the combined entity.
The pro forma balance sheet gives effect to the transactions as if they occurred
on the balance sheet date. The pro forma statement of operations for the year
ended July 31, 1998 gives effect to these transactions as if they had occurred
at the beginning of the period presented. The historical statement of operations
of the Company will reflect the effects of these transactions from the date of
acquisition forward.
The pro forma combined statements have been prepared by Elligent's management
based upon the historical financial statements of Elligent, Patra and CSI. These
pro forma statements may not be indicative of the results that actually would
have occurred if the combination had been in effect on the date indicated or
which may be obtained in the future.
The most recent fiscal year end of the CSI differs from Elligent's most recent
fiscal year end by more than 93 days. CSI's statement of operations has been
updated to adjust for this difference. The adjustment is listed in Note [A] of
the pro forma financial information.
P-1
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEETS AS OF JULY 31, 1998.
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Elligent Patra Capital CSI
July 31, July 31, June 30, Pro Forma Pro Forma
1 9 9 8 1 9 9 8 1 9 9 8 Adjustments Combined
Assets:
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash $ 333,696 $ 1,000 $ 7,780 $(1,500,000)[1] $ 342,476
1,500,000 [4]
Accounts Receivable - Net -- -- 2,777,068 -- 2,777,068
Due From Stockholders -- -- 571,981 -- 571,981
Due From Employees -- -- 25,356 -- 25,356
Other Current Assets -- -- 915 -- 915
--------- --------- ---------- ---------- -----------
Total Current Assets 333,696 1,000 3,383,100 -- 3,717,796
Property and Equipment -
Net -- 38,772 344,542 -- 383,314
Goodwill - Net -- -- -- 11,448,370 [1] 11,448,370
Other Assets -- 59,689 14,893 -- 74,582
--------- --------- ---------- ---------- -----------
Total Assets $ 333,696 $ 99,461 $3,742,535 $11,448,370 $15,624,062
========= ========= ========== =========== ===========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
P-2
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEETS AS OF JULY 31, 1998.
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Elligent Patra Capital CSI
July 31, July 31, June 30, Pro Forma Pro Forma
1 9 9 8 1 9 9 8 1 9 9 8 Adjustments Combined
Liabilities and
Stockholders' Equity:
Current Liabilities:
<S> <C> <C> <C> <C> <C>
Cash Overdraft $ -- $ -- $ 67,252 $ -- $ 67,252
Accounts Payable 792 58,000 1,272,003 -- 1,330,795
Accrued Expenses -- -- 177,333 -- 177,333
Deferred State Taxes -- -- 51,104 -- 51,104
Notes and Leases Payable -
Current -- -- 1,212,160 -- 1,212,160
Notes Payable Stockholders -
Current -- -- -- 5,953,292 [1] 5,953,292
--------- --------- ---------- ---------- ---------
Total Current Liabilities 792 58,000 2,779,852 5,953,292 8,791,936
------ --------- ---------- ---------- ---------
Long-Term Liabilities:
Notes and Leases Payable -- -- 112,168 -- 112,168
Notes Payable
Stockholders -- -- -- 2,205,593 [1] 3,705,593
1,500,000 [4]
Due to Stockholder -- 237,401 -- 237,401
--------- --------- ---------- ---------- ---------
Total Long-Term
liabilities -- 237,401 112,168 3,705,593 4,055,162
--------- --------- ---------- ---------- ---------
Commitments and
Contingencies -- -- -- -- --
--------- --------- ---------- ---------- ---------
Stockholders' Equity:
Common Stock 1,594 200 1,100 (1,100)[1] 14,544
12,950 [2]
(200)[2]
Additional Paid-in Capital386,955 -- 2,640,000 [1] 2,958,560
(68,395)[2]
Retained Earnings (Deficit)(55,645) (196,140) 850,415 (850,415)[1] (196,140)
55,645 [2]
Stock Subscription
Receivable -- -- (1,000) 1,000 [1] --
--------- --------- ---------- ---------- -----------
Total Stockholders'
Equity 332,904 (195,940) 850,515 1,789,485 2,776,964
--------- --------- ---------- ---------- -----------
Total Liabilities and
Stockholders' Equity$ 333,696 $ 99,461 $3,742,535 $11,448,370 $15,624,062
========= ========= ========== =========== ===========
See Notes to Pro Forma Combined Financial Statements.
</TABLE>
P-3
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED JULY 31,
1998.
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Elligent Patra Capital CSI
Twelve Seven Twelve
months ended months ended months ended
July 31, July 31, December 31, Pro Forma Pro Forma
1 9 9 8 1 9 9 8 1 9 9 7 Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $13,246,763 $4,482,896 [A] $17,729,659
Cost of Revenue -- -- 8,142,709 3,250,550 [A] 11,393,259
--------- --------- ---------- ---------- -----------
Gross Profit -- -- 5,104,054 1,232,346 6,336,400
General and
Administrative
Expenses 57,781 196,140 5,190,326 1,074,068 [A] 5,678,795
(839,520) [3]
Amortization of
Goodwill 572,419 [5] 572,419
--------- --------- ---------- ---------- -----------
Operating Loss (57,781) (196,140) (86,272) 425,379 85,186
--------- --------- ---------- ---------- -----------
Other Revenue and
[Expenses]:
Interest Income -
Stockholder Loans -- -- 54,014 1,614 [A] 55,628
Interest Income 3,226 -- -- -- 3,226
Interest Expense -- -- (87,069) (48,323) [A] (640,680)
(505,288) [7]
Total Other Income
[Expenses] 3,226 -- (33,055) (551,997) (581,826)
--------- --------- ---------- ---------- -----------
[Loss] Income Before
Income Taxes
[Benefit] (54,555) (196,140) (119,327) (126,618) (496,640)
Income Taxes -- -- (7,631) 11,316 [A] 14,000
(3,685) [6]
14,000 [8]
--------- --------- ---------- ---------- -----------
Net [Loss] Income $ (54,555) $(196,140) $ (111,696) $ (148,249) $ (510,640)
========= ========= ========== ========== ===========
Net [Loss] Per Share $ (.05) $ (.04)
========= ===========
Weighted Average Number
of Shares Outstanding1,064,005 14,014,005
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
P-4
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
NOTES PRO FORMA COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
[A] Adjustment to include Conversion Services International, Inc. ["CSI"]
revenue and expenses for the period January 1, 1998 through June 30, 1998
and to eliminate CSI revenue and expenses for the period January 1, 1997
through June 30, 1997.
[1] Adjustment to reflect the merger of Patra Capital, Ltd. ["Patra"] and
Conversions Services International, Inc. ["CSI"]. The transaction is
accounted for as a purchase. Total consideration of $12,298,885 consists of
cash of $1,500,000 and notes of $8,500,000 discounted at 8% to $8,158,885
and 1.1 million shares of Elligent Consulting Group, Inc. ["Elligent"]
common stock in connection with the CSI Acquisition with an approximate
fair value of $2.64 million. The adjustment results in goodwill of
$11,448,370.
Up to approximately 354,000 additional shares of Elligent may be issued in
connection with the transaction based on the security price of Elligent
shares up to 90 days after the closing.
[2] Adjustment to reflect the merger of Elligent and Patra Acquisition, Inc. as
a recapitalization reflected at historical cost. In the merger, all of the
outstanding Patra Acquisition stock was exchanged for 12,950,000 shares of
newly issued Elligent stock of which 1.1 million shares were issued in the
Patra and CSI merger [See Note 1]. Pursuant to the merger, there are
14,544,225 common shares outstanding.
[3] To eliminate officers salaries on CSI in excess of $500,000 pursuant to
employment contracts.
[4] To reflect the loan of the funds from the majority shareholder of Elligent
to pay the $1.5 million cash portion of the purchase price.
[5] To reflect amortization of goodwill over 20 years on the straight-line
method.
[6] To eliminate CSI income taxes.
[7] To reflect interest expense on notes payable in connection with the
acquisition related debt.
[8] To reflect pro forma income taxes.
. . . . . . . . .
P-5
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Elligent Consulting Group, Inc.
We have audited the balance sheet of Elligent Consulting Group, Inc., (a
development stage company) as of July 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the year ended July 31,
1998, for the period from July 31, 1996 (date of inception) through July 31,
1997 and cumulative from July 31, 1996 through July 31, 1998. These financial
statements are the responsibility of management. Our responsibility is to
express and opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Elligent Consulting Group, Inc.
as of July 31, 1998, and the results of its operations and its cash flows for
the year ended July 31, 1998, for the period from July 31, 1996 (date of
inception) through July 31, 1997 and cumulative from July 31, 1996 through July
31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses and has had negative cash
flows from operating activities during the periods ended July 31, 1998 and 1997
which raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding this matter are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
August 4, 1998
F-1
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
BALANCE SHEET
JULY 31, 1998
ASSETS
Current Assets
Cash in bank $ 333,696
----------
Total Assets $ 333,696
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 792
----------
Total Current Liabilities 792
Stockholders' Equity
Common stock-$0.001 par value; 50,000,000
shares authorized; 1,594,225 shares issued
and outstanding 1,594
Capital in excess of par value 386,955
Deficit accumulated during the development stage (55,645)
----------
Total Stockholders' Equity 332,904
Total Liabilities and Stockholders' Equity $ 333,696
==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
For the Period From
From July 31, July 31, 1996
1996 (Date of (Date of
For the Year Inception) Inception)
Ended July 31, Through Through
1998 July 31, 1997 July 31, 1998
---------- -------------- -------------
Interest income $ 3,226 $ -- $ 3,226
----------- ---------- --------
General and administrative 57,781 1,090 58,871
----------- ----------- --------
Net Loss $ (54,555) $ (1,090) $(55,645)
=========== =========== ========
Basic and Diluted Loss
Per Share $ (0.06) $ (0.01) $ (0.06)
=========== =========== ========
Weighted Average Number
of Shares Outstanding 1,064,005 891,779 926,574
=========== =========== ========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
Deficit
Accumulated
Capital in During the
Common Stock Excess of Total
Development Stockholders'
Shares Amount Par Value Stage Equity
Balance - July 31, 1996
<S> <C> <C> <C> <C> <C>
(Date of Inception) 779,940 $ 780 $ (1,030) $ -- $ (250)
Stock issued for cash;
July 1997 - $0.07 per share 214,285 214 14,786 -- 15,000
Net loss -- -- -- (1,090) (1,090)
-------- ------- -------- --------- ---------
Balance - July 31, 1997 994,225 994 13,756 (1,090) 13,660
Stock issued for services;
January 1998 - $0.07 per
share 200,000 200 13,800 -- 14,000
Stock issued for cash;
June 1998 - $0.90 per share 400,000 400 359,399 -- 359,799
Net loss -- -- -- (54,555) (54,555)
-------- ------- -------- --------- ---------
Balance - July 31, 1998 1,594,225 $ 1,594 $ 386,955 $ (55,645) $ 332,904
========= ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
Cumulative
For the Period From
From July 31, July 31, 1996
1996 (Date of (Date of
For the Year Inception) Inception)
Ended July 31, Through Through
1998 July 31, 1997 July 31, 1998
---------- -------------- -------------
Cash Flows From Operating Activities
<S> <C> <C> <C>
Net loss $ (54,555) $ (1,090) $(55,645)
Stock issued for services 14,000 -- 14,000
Increase (decrease) in accounts payable 114 428 542
----------- ----------- --------
Cash Used in Operating Activities (40,441) (662) (41,103)
----------- ----------- --------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 359,799 15,000 374,799
----------- ----------- --------
Cash Provided by Financing
Activities 359,799 15,000 374,799
----------- ----------- --------
Net Increase in Cash 319,358 14,338 333,696
Cash at Beginning of Period 14,338 -- --
----------- ----------- --------
Cash at End of Period $ 333,696 $ 14,338 $333,696
=========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-ACCOUNTING POLICIES AND OTHER DISCLOSURES
Organization and Corporate History -- Elligent Consulting Group, Inc., (the
"Company") was incorporated in February of 1987 under the laws of the state
of Nevada as Coronado Ventures, Inc. During the period commencing in 1990
through 1992, the Company acquired Tahoeview Cablevision, Inc. ("Tahoe")
and Weststar Group North ("North") and changed its name to Weststar Group,
Inc. Subsequently, Tahoe and North became subject to a bankruptcy
proceeding, which, on July 31, 1996, was concluded by an Order and Judgment
from the Court regarding the Final Distribution of Proceeds of Sale of
Assets by the Receiver. The Company was not named as a defendant in the
bankruptcy and was not involved in any manner, except that it was the sole
shareholder of Tahoe and North. On July 22, 1997, the name of the Company
was changed to Arena Group, Inc., and on July 25, 1998, its name was
changed to Elligent Consulting Group, Inc.
The conclusion of the aforementioned proceedings resulted in the Company
emerging without any business operations and being deemed to be a new
entity for financial statement reporting purposes. As such, the Company is
considered to be a development stage company. Pursuant to the order and
Judgment of the Court, Tahoe and North were ordered dissolved and
therefore, only the operations of the Company since July 31, 1996 (the
"Date of Inception") are included in the accompanying financial statements.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and equity at the date of the financial statements and the
amounts of expenses reported during the periods presented. Actual results
could differ from those estimates.
Business Condition -- The Company has incurred losses and has had negative
cash flows from operating activities during the periods ended July 31, 1998
and 1997 which raise substantial doubt about its ability to continue as a
going concern. Management plans to reorganize the Company with another
enterprise as discussed further in Note 4.
Financial Instruments -- The Company has established a policy to consider
all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
Income Taxes -- The Company has incurred no income tax liability for the
year ended July 31, 1998 and through July 31, 1997. The Company recognizes
a deferred tax asset or liability from temporary differences between the
basis of assets and liabilities reported for financial statement purposes
and federal income tax purposes, and for the effect of net operating loss
carry forwards.
F-6
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Basic and Diluted Loss per Common Share -- During the year ended July 31,
1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. Under SFAS 128, loss per common share
is computed by dividing net loss available to common stockholders by the
weighted-average number of common shares outstanding during the period.
Diluted loss per share reflects the potential dilution which could occur if
all contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock. In the Company's present
position, diluted loss per share is the same as basic loss per share. The
effect of the new standard on prior years was immaterial; accordingly,
prior periods have not been restated.
New Accounting Standards -- The Financial Accounting Standard Board issued
SFAS No. 129, Disclosures of Information About Capital Structure, SFAS No.
130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information in 1997. These
statements, which were effective for fiscal years beginning after December
15, 1997, had no impact on the accompanying financial statements. The
Company adopted SFAS No. 128, Earnings Per Share, during the year ended
July 31, 1998. In accordance with SFAS No. 128, both basic loss per share
and diluted loss per share have been presented in the accompanying
financial statements.
NOTE 2-COMMON STOCK
During the year ended July 31, 1997, the Company issued 214,285 shares of
its common stock to two affiliated individuals at a cash price of $0.07 per
share. Cash of $15,000 was received for the stock.
During the year ended July 31, 1998, the Company issued 400,000 shares of
its common stock for cash to an affiliated individual. The shares were
issued for cash at $0.90 per share, less certain incidental costs of $201.
Net proceeds from the issuance were $359,799.
On January 15, 1998, the Company agreed to issue 200,000 shares of common
stock to an individual for services at $0.07 per share, which was the fair
value of the stock on that date.
F-7
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
(FORMERLY ARENA GROUP, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 3-INCOME TAXES
The major components of the net deferred tax asset as of July 31, 1998 and
1997 were as follows:
1998
Operating loss carryforwards $ 18,335
Valuation allowance (18,335)
----------
Net Deferred Tax Asset $ --
==========
During the year ended December 31, 1998, the valuation allowance increased
by $17,964.
The Company had operating loss carry forwards at July 31, 1998 of $53,926,
which expire in the years 2012 through 2013, if unused. Under federal tax
law, certain potential changes in ownership of the Company may operate to
restrict future utilization of these carry forwards.
The components of the provision for income taxes were immaterial for all
periods presented. The following is a reconciliation of the income tax at
the federal statutory tax rate of 34% with the provision for income taxes
for the years ended July 31, 1998 and 1997:
1998 1997
---- ----
Income tax benefit at statutory rate $ (18,279) $ (371)
Change in deferred tax asset valuation allowance 17,964 371
Nondeductible expenses 315 --
--------- ---------
Provision for Income Taxes $ -- $ --
========= =========
NOTE 4-POTENTIAL ACQUISITION [UNAUDITED]
During 1998, the Company entered into a non-binding letter-of-intent with
Patra Capital, Ltd., a Delaware corporation (" Patra") whereby a
newly-formed, wholly-owned subsidiary of the Company intends to merge with
and into Patra and the Company proposes to issue 12,950,000 shares of its
restricted common stock to the current shareholders of Patra in exchange
for all of the issued and outstanding common stock of Patra. At that time,
management of Patra would become the management of the Company. The merger
will likely be accounted for as a reorganization of Patra and the
acquisition of the Company by Patra.
Prior to the merger, Patra must complete a merger agreement with Conversion
Services International, Inc. (CSI) wherein Patra plans to purchase all of
the issued and outstanding shares of stock of CSI, as follows: $1,500,000
payable at closing; $1,000,000 payable within 45 days of the closing,
$1,500,000 in cash or stock at the option of the Registrant on January 21,
1999, $3,750,000 on May 1, 1999, $2,250,000 on August 1, 1999.
Additionally, Patra is to issue 1,100,000 shares of the Company's common
stock to the current shareholders of CSI.
F-8
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
- ------------------------------------------------------------------------------
BALANCE SHEET AS OF OCTOBER 31, 1998
[UNAUDITED]
- ------------------------------------------------------------------------------
Assets:
Current Assets:
Cash in Bank $ 47,944
Trade Accounts Receivable - Net of Allowance
for Doubtful Accounts of $56,689 4,013,966
Due from Related Parties 620,831
-----------
Total Current Assets 4,682,741
Property and Equipment - Net of Accumulated Depreciation
of $596,847 342,384
Goodwill - Net of Amortization of $151,173 11,942,653
Other Assets 154,926
-----------
Total Assets $17,122,704
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Cash Overdraft $ 82,055
Bank Loans 2,007,292
Accounts Payable 1,839,340
Accrued Expenses and Other Liabilities 381,926
Notes Payable - Related Parties 8,268,890
Deferred Taxes Payable 207,000
Leases Payable - Current 50,173
Due to Related Parties 1,528,623
-----------
Total Current Liabilities 14,365,299
-----------
Long-Term Liabilities:
Bank Loans - Long-Term 75,000
Leases Payable - Long-Term 107,190
-----------
Total Long-Term Liabilities 182,190
-----------
Commitment and Contingencies --
Stockholders' Equity:
Common Stock - $0.001 Par Value; 50,000,000 Shares Authorized
14,544,225 Shares Issued and Outstanding 14,544
Capital in Excess of Par Value 3,014,005
Accumulated Deficit (453,334)
-----------
Total Stockholders' Equity 2,575,215
-----------
Total Liabilities and Stockholders' Equity $17,122,704
===========
See Accompanying Notes to Consolidated Financial Statements.
F-9
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
[UNAUDITED]
- ------------------------------------------------------------------------------
Three months ended
October 31,
1 9 9 8 1 9 9 7
------- -------
Income:
Revenue $5,813,106 $ --
Cost of Service 3,878,740 --
---------- -----------
Gross Profit 1,934,366 --
---------- -----------
Cost and Expenses:
General and Administrative 1,808,311 6,848
Depreciation 56,974 --
Amortization of Goodwill 151,173 --
---------- -----------
Total Cost and Expenses 2,016,458 6,848
---------- -----------
Operating Loss (82,092) (6,848)
Other Expense:
Interest (224,484) --
---------- -----------
Loss Before Income Taxes (306,576) (6,848)
Income Tax Benefit (62,000) --
---------- -----------
Net Loss $ (244,576) $ (6,848)
========== ===========
Basic and Diluted Loss Per Share $ (0.02) $ (0.01)
========== ===========
Weighted Average Number of Shares Outstanding 14,544,225 994,225
========== ===========
See Accompanying Notes to Consolidated Financial Statements.
F-10
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Deficit
Accumulated
Capital in During the Total
Common Stock Excess of Accumulated Stockholders'
Shares Amount Par Value Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance - July 31, 1998 1,594,225 $ 1,594 $ 386,955 $ (55,645) $ 332,904
Common Stock Issued in
Merger [11] 12,950,000 12,950 2,627,050 -- 2,640,000
Accumulated Deficit of
Merged Company -- -- -- (153,113) (153,113)
Net Loss for the Three Months
Ended October 31, 1998 -- -- -- (244,576) (244,576)
--------- -------- --------- --------- ----------
Balance - October 31, 1998 14,544,225 $ 14,544 $3,014,005 $(453,334) $2,575,215
========== ======== ========== ========= ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-11
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Three months ended
October 31,
1 9 9 8 1 9 9 7
------- -------
Operating Activities:
Net Loss $ (244,576) $ (6,848)
---------- -----------
Adjustments to reconcile Net Loss to
Cash Provided by Operating Activities:
Depreciation and Amortization 208,147 --
Deferred Income Taxes (113,104) --
Imputed Interest 110,005 --
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,027,573) --
Other Assets (48,567) --
Due from Related Parties (25,234) --
Increase [Decrease] in:
Accounts Payable 259,563 367
Accrued Expenses 88,364 --
Due to Related Parties (201,265) --
---------- -----------
Total Adjustments (749,664) 367
---------- -----------
Net Cash - Operating Activities (994,240) (6,481)
---------- -----------
Investing Activities:
Payments for Property and Equipment (29,442) --
Cost of Acquisition (41,104) --
---------- -----------
Net Cash - Investing Activities (70,546) --
---------- -----------
Financing Activities:
Decrease in Cash Overdraft (17,106) --
Proceeds from Bank Loans 815,000 --
Payments on Bank Loans (14,583) --
Payments on Capital Leases (4,277) --
---------- -----------
Net Cash - Financing Activities 779,034 --
---------- -----------
Net Decrease in Cash (285,752) (6,481)
Cash -Beginning of Years 333,696 14,338
---------- -----------
Cash - End of Years $ 47,944 $ 7,857
========== ===========
See Accompanying Notes to Consolidated Financial Statements.
F-12
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
[UNAUDITED]
- ------------------------------------------------------------------------------
Years ended
October 31,
1 9 9 8 1 9 9 7
------- -------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 114,479 $ --
Income Taxes $ -- $ --
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During the three months ended October 31, 1998, the Company acquired all of
the outstanding common stock of Patra Capital in exchange for 12,950,000 shares
of its common stock.
During the three months ended October 31, 1998, Patra Capital acquired all of
the outstanding common stock of CSI in exchange for 1,100,000 shares of Elligent
common stock, notes payable of $8,500,000, with a discounted value of
$8,158,885, and $1,500,000, which was paid by a stockholder of the Company and
related companies owned or controlled by a principal stockholder of the
Company.
During the three months ended October 31, 1998, and 1997, the Company entered
into capital leases for $113,154, and $-0-, respectively.
See Accompanying Notes to Consolidated Financial Statements.
F-13
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1-ORGANIZATION AND CORPORATE HISTORY
Elligent Consulting Group, Inc., (the "Company") was incorporated in February of
1987 under the laws of the state of Nevada as Coronado Ventures, Inc. During the
period commencing in 1990 through 1992, the Company acquired Tahoeview
Cablevision, Inc. ("Tahoe") and Weststar Group North ("North") and changed its
name to Weststar Group, Inc. Subsequently, Tahoe and North became subject to a
bankruptcy proceeding, which, on July 31, 1996, was concluded by an Order and
Judgment from the Court regarding the Final Distribution of Proceeds of Sale of
Assets by the Receiver. The Company was not named as a defendant in the
bankruptcy and was not involved in any manner, except that it was the sole
shareholder of Tahoe and North. The conclusion of the aforementioned proceedings
resulted in the Company emerging without any business operations and being
deemed to be a new entity for financial statement reporting purposes. Pursuant
to the order and Judgment of the Court, Tahoe and North were ordered dissolved
and therefore, only the operations of the Company since July 31, 1996 (the "Date
of Inception"), are included in the accompanying financial statements.
In July of 1997, the Company changed its name to Arena Group, Inc. and two
shareholders of the Registrant, Lloyd T. Rochford and Denny W. Nestripke, were
elected as directors, with the express purpose of locating a business venture
with which the Registrant could enter into a Reorganization. On July 23, 1998,
the Registrant, through its wholly owned subsidiary Patra Acquisition, Inc., a
Delaware corporation ("Patra Acquisition"), entered into a Non-Binding Letter of
Intent (the "Letter of Intent") with Patra Capital Ltd., a Delaware corporation
("Patra Capital"). The Letter of Intent provided for the execution of a
definitive merger agreement (the "Merger Agreement"). Pursuant to the Merger
Agreement, Patra Capital merged with Patra Acquisition and Patra Capital, the
surviving corporation of the merger, became a wholly owned subsidiary of the
Registrant (the "Reorganization"). As part of the Reorganization, the Registrant
changed its name to Elligent Consulting Group, Inc. on July 31, 1998.
On September 21, 1998, effective August 1, 1998, for accounting purposes, the
Company through its wholly owned subsidiary, Patra Capital, purchased Conversion
Services International, Inc. ("CSI"). The operations of CSI are included in the
Company's results of operations commencing on August 1, 1998. In connection with
the acquisition of CSI, CSI's shareholders signed employment agreements with the
Company for three years.
NOTE 2-BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited interim consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary make the interim financial statements not
misleading The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for quarterly reports on
Form 10-QSB and do not include all of the information and note disclosures
required by generally accepted accounting principles.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and notes for the fiscal year ended July 31, 1998,
included in the Elligent Consulting Group, Inc. Form 10-KSB.
The Company was deemed to be a new entity for financial statement reporting
purposes on July 31, 1996 [See Note 1] and was in the development stage through
July 31, 1998. The three months ended October 31, 1998 is the first period
during which it is considered an operating company.
F-14
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
NOTE 3-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
DISCLOSURES
Principles of Consolidation -- The accompanying unaudited consolidated financial
statements include the accounts of Elligent Consulting Group, Inc., and its
wholly owned subsidiary, Conversion Services International, Inc. ("CSI"). All
significant intercompany balances and transactions have been eliminated in the
consolidation.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization and includes equipment held under
capital lease agreements. Depreciation and amortization, which includes
amortization of leased equipment, are computed using the straight-line method
over the estimated useful lives of the respective assets. Estimated useful lives
range from 3 to 5 years as follows:
Furniture and fixtures 5 years
Computers and technological equipment 3 years
Revenue recognition -- The Company records revenue as services are provided to
its customers by its personnel (employees and consultants).
Income Taxes -- Income taxes are provided based upon the provisions of Statement
of Financial Accounting Standards ["SFAS"] No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk -- The Company extends credit to customers which
results in accounts receivable arising from its normal business activities. It
routinely assesses the financial strength of its customers and based upon
factors surrounding their credit risk believes that its accounts receivable
credit risk exposure is limited. Such estimate of the financial strength of such
customers may be subject to change in the near future. The Company's largest 5
clients, when combined, account for 41% of total revenues and 56% of accounts
receivable. The Company's largest client accounts for 26% of the total revenues
and 36% of accounts receivable.
Basic and Diluted Loss per Common Share -- During the year ended July 31, 1998,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. Under SFAS 128, loss per common share is computed by
dividing net loss available to common stockholders by the weighted-average
number of common shares outstanding during the period. Diluted loss per share
reflects the potential dilution which could occur if all contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock. In the Company's present position, diluted loss per
share is the same as basic loss per share. The effect of the new standard on
prior years was immaterial; accordingly, prior periods have not been restated.
F-15
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
NOTE 4-INTERIM RESULTS
The results of operations for the three months ended October 31, 1998, are not
necessarily indicative of the results to be expected for the year ending July
31, 1999.
NOTE 5-DUE FROM RELATED PARTIES
Due from related parties includes amounts due from the shareholders of CSI and
an entity wholly owned by a major stockholder. Repayment terms have not been
established. These amounts will be received during 1999.
NOTE 6-BANK LOANS
Bank loans include the outstanding amount of a revolving line of credit through
Summit Bank ("Summit"), in New Jersey, that is used to finance the Company's
accounts receivable. The line of credit is limited to the lesser of $1,850,000
or 80% of eligible receivables under 90 days aged. Interest is payable on the
outstanding balance under this line of credit at the rate of 1.50% above
Summit's prime rate. At December 8, 1998, Summit's prime rate was 7.75%. There
was a balance of $1,850,000 outstanding under this line of credit as of October
31, 1998. The line is collateralized by accounts receivable and equipment and is
due on January 1, 1999.
Additional debt consists of installment loans at interest rates ranging from 10%
to !0.50% due through April 2001.
NOTE 7-NOTES PAYABLE--Related Parties
Notes payable--related parties represent amounts due to the Stockholders of CSI
as a result of its acquisition by Patra Capital. Total notes payable as of
October 31, 1998, are $8,500,000, with a discounted value of $8,268,890. The
payments are due as follows:
$1,000,000 November 24, 1998
$1,500,000 January 21, 1999 (payable in cash or stock at
the option of the Company)
$3,750,000 May 1, 1999
$2,250,000 August 1, 1999
Interest at 8% is payable on the November 24th and January 21st payments. The
final two payments bear no interest. The principal value of the last two
installments has been discounted at the rate of 8%.
NOTE 8-DUE TO RELATED PARTIES
Amounts due to related parties consist of $1.1 million due to a principal
stockholder of the Company and $400,000 due to related entities owned or
controlled by a principal stockholder of the Company. These amounts are not
subject to any pre-specified repayment schedule and are not interest bearing
liabilities.
NOTE 9-COMMON STOCK
Pursuant to a reorganization and acquisition of Patra Capital and Conversion
Services International, Inc. ("CSI"), effective as of August 1, 1998, the
Company issued 12,950,000 additional common shares. There are now 14,544,225
shares issued and outstanding and 50,000,000 shares authorized.
F-16
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
NOTE 10-INCOME TAXES
The major components of the net deferred liability as of October 31, 1998, are
as follows:
Deferred Tax Assets:
Net Operating Loss Carryforward $ 124,800
Cash Basis Tax Accounting Asset 112,200
----------
Total 237,000
Cash Basis Tax Accounting Liability 444,000
Net Deferred Tax Liability $ 207,000
-------------------------- ==========
The Company had operating loss carry forwards at July 31, 1998, of $53,926,
which expire in the years 2012 through 2013, if unused. Under federal tax law,
certain potential changes in ownership of the Company may operate to restrict
future utilization of these carry forwards.
NOTE 11-REORGANIZATION AND ACQUISITIONS
On July 23, 1998, the Registrant, through its wholly owned subsidiary Patra
Acquisition, Inc., a Delaware corporation ("Patra Acquisition"), entered into a
Non-Binding Letter of Intent (the "Letter of Intent") with Patra Capital Ltd., a
Delaware corporation ("Patra Capital"). The Letter of Intent provided for the
execution of a definitive merger agreement (the "Merger Agreement"). Pursuant to
the Merger Agreement, Patra Capital merged with Patra Acquisition and Patra
Capital, the surviving corporation of the merger, became a wholly owned
subsidiary of the Registrant (the "Reorganization"). As part of the
Reorganization, the Registrant changed its name to Elligent Consulting Group,
Inc. on July 31, 1998. On September 3, 1998, with an effective date of August 1,
1998, for accounting purposes, the Registrant issued 12,950,000 shares of its
restricted common stock to the then current shareholders of Patra Capital in
exchange for all of the issued and outstanding common stock of Patra Capital. At
that time, the management of Patra Capital became the management of the Company.
The merger was accounted for as a Recapitalization of the Company.
On September 21, 1998, effective August 1, 1998, for accounting purposes, the
Company through its wholly owned subsidiary, Patra Capital, purchased Conversion
Services International, Inc. ("CSI"). The operations of CSI are included in the
Company's results of operations commencing on August 1, 1998. In connection with
the acquisition of CSI, CSI's shareholders signed employment agreements with the
Company for three years.
The purchase price was $12,298,885 consisting of 1,100,000 shares of the
Company's common stock (valued at $2,640,000), cash payments of $1,500,000
delivered at the closing and notes payable of $8,500,000, with a discounted
value of $8,158,885. Interest at 8% is payable on the November 24th and January
21st payments. The final two payments bear no interest. The payments are due as
follows:
$1,000,000 November 24, 1998
$1,500,000 January 21, 1999 (payable in cash or stock at
the option of the Company)
$3,750,000 May 1, 1999
$2,250,000 August 1, 1999
Goodwill of $12,093,826 will be amortized over 20 years under the straight line
method.
F-17
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
NOTE 11-REORGANIZATION AND ACQUISITIONS [CONTINUED]
CSI has been in the business of providing information technology consulting
services for approximately nine years. CSI provides high-end project management,
applications implementation, data warehousing, consulting, Internet and
information technology ("IT") staffing services. CSI has recently expanded its
operation to accommodate additional consultant/employees and new in-house
training facilities. CSI currently has approximately 180 employees and
consultants, and expects that number to increase as its business grows.
NOTE 12-NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standard Board ["FASB"] has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and how it is designated, for example, gain or losses related to changes in the
fair value of a derivative not designated as a hedging instrument is recognized
in earnings in the period of the change, while certain types of hedges may be
initially reported as a component of other comprehensive income [outside
earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter, on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
NOTE 13--COMMITMENTS AND CONTINGENCIES
Letter of Credit - The Company is committed under an outstanding letter of
credit with a bank to secure the security deposit on the new office space, in
the amount of $291,657, which expires November 1999. The agreement will
automatically extend for additional one year periods with a final expiration
date of November 2003.
NOTE 14-SUBSEQUENT EVENT
In November 1998, the Company issued stock options to acquire 92,000 shares of
common stock to employees of CSI.
. . . . . . . . .
F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Elligent Consulting Group, Inc.
New York, New York
We have audited the accompanying combined balance sheets of
Conversion Services International, Inc. and its affiliate as of December 31,
1997 and 1996, and the related combined statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Conversion Services International, Inc. and its affiliate as of December 31,
1997 and 1996, and the combined results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
June 9, 1998, except as
to Note 11 for which the date is
September 21, 1998 and except as to
Note 6 for which the date is October 5, 1998
F-19
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
June 30, December 31,
-------- ------------
1 9 9 8 1 9 9 7 1 9 9 6
------- ------- -------
[Unaudited]
Assets:
Current Assets:
<S> <C> <C> <C>
Cash $ 7,780 $ 2,626 $ 7,141
Accounts Receivable, Less Allowance
for Doubtful Accounts of $33,200 and $-0-
at December 31, 1997and 1996,
Respectively 2,777,068 2,293,698 1,329,075
Due from Stockholders 321,981 378,021 485,835
Due from Employees 25,356 29,106 8,550
Other Current Assets 915 915 2,750
----------- ---------- -----------
Total Current Assets 3,133,100 2,704,366 1,833,351
----------- ---------- -----------
Property and Equipment - Net 344,542 276,449 271,764
----------- ---------- -----------
Other Assets:
Due from Stockholders 250,000 250,000 --
Other 14,893 14,893 14,141
----------- ---------- -----------
Total Other Assets 264,893 264,893 14,141
----------- ---------- -----------
Total Assets $ 3,742,535 $3,245,708 $ 2,119,256
=========== ========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Cash Overdraft $ 67,252 $ 98,357 $ 4,170
Accounts Payable 1,272,003 1,077,144 384,876
Accrued Expenses 177,333 149,992 48,008
Deferred State Taxes 51,104 36,904 54,565
Notes and Leases Payable - Current 1,212,160 1,003,402 558,269
----------- ---------- -----------
Total Current Liabilities 2,779,852 2,365,799 1,049,888
----------- ---------- -----------
Notes and Leases Payable 112,168 143,214 205,977
----------- ---------- -----------
Commitments and Contingencies -- -- --
----------- ---------- -----------
Stockholders' Equity:
Common Stock of CSI - No Par Value,
3,000 Shares Authorized; 1,000 Shares
Issued and Outstanding 100 100 100
Common Stock of Doorways, Inc. - No
Par Value, 3,000 Shares Authorized;
1,000 Shares Issued and Outstanding 1,000 1,000 1,000
Retained Earnings 850,415 736,595 863,291
Stock Subscription - Doorways, Inc. (1,000) (1,000) (1,000)
----------- ---------- -----------
Total Stockholders' Equity 850,515 736,695 863,391
----------- ---------- -----------
Total Liabilities and Stockholders' Equity $ 3,742,535 $3,245,708 $ 2,119,256
=========== ========== ===========
See Notes to Combined Financial Statements.
</TABLE>
F-20
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
Six months ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
[Unaudited][Unaudited]
<S> <C> <C> <C> <C> <C>
Revenue $9,860,282 $5,377,386 $13,246,763 $9,305,906 $ 6,341,573
Cost of Revenue 6,311,693 3,061,143 8,142,709 4,776,864 3,908,404
---------- --------- ---------- ---------- -----------
Gross Profit 3,548,589 2,316,243 5,104,054 4,529,042 2,433,169
Operating Expenses 3,343,578 2,419,510 5,190,326 4,115,967 2,279,562
---------- --------- ---------- ---------- -----------
Operating Income [Loss] 205,011 (103,267) (86,272) 413,075 153,607
-------- --------- ---------- ---------- -----------
Other Revenue and
[Expenses]:
Interest Income -
Stockholder Loans 28,917 27,303 54,014 25,812 27,292
Interest Expense (79,755) (31,432) (87,069) (33,730) (39,279)
Other -- -- -- (15,888) --
---------- --------- ---------- ---------- -----------
Total Other [Expenses] (50,838) (4,129) (33,055) (23,806) (11,987)
---------- --------- ---------- ---------- -----------
Income [Loss] Before
State Income Taxes
[Benefit] 154,173 (107,396) (119,327) 389,269 141,620
State Income Taxes
[Benefit] 18,798 (7,518) (7,631) 33,040 9,722
---------- --------- ---------- ---------- -----------
Net Income [Loss] $ 135,375 $ (99,878) $ (111,696) $ 356,229 $ 131,898
========== ========= ========== ========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-21
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Doorways,
CSI Doorways, Inc. Inc. Total
Common Stock Common Stock Retained Stock Stockholders'
Shares Amount Shares Amount Earnings Subscription Equity
Balance - December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1,000 $ 100 1,000 $ 1,000 $454,694 $ (1,000) $454,794
Distributions -- -- -- -- (53,000) -- (53,000)
Net Income for the year
ended December 31,
1995 -- -- -- -- 131,898 -- 131,898
------ ------- ------ ------- -------- -------- --------
Balance - December 31,
1995 1,000 100 1,000 1,000 533,592 (1,000) 533,692
Distributions -- -- -- -- (26,530) -- (26,530)
Net Income for the year
ended December 31,
1996 -- -- -- -- 356,229 -- 356,229
------ ------- ------ ------- -------- -------- --------
Balance - December 31,
1996 1,000 100 1,000 1,000 863,291 (1,000) 863,391
Distributions -- -- -- -- (15,000) -- (15,000)
Net [Loss] for the year
ended December 31,
1997 -- -- -- -- (111,696) -- (111,696)
------ ------- ------ ------- -------- -------- --------
Balance - December 31,
1997 1,000 100 1,000 1,000 736,595 (1,000) 736,695
Distributions -- -- -- -- (21,555) -- (21,555)
Net Income for the six
months ended June 30,
1998 -- -- -- -- 135,375 -- 135,375
------ ------- ------ ------- -------- -------- --------
Balance - June 30, 1998
[Unaudited] 1,000 $ 100 1,000 $ 1,000 $850,415 $ (1,000) $850,515
====== ======= ====== ======= ======== ======== ========
</TABLE>
See Notes to Combined Financial Statements.
F-22
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
Six months ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
[Unaudited][Unaudited]
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net Income [Loss] $ 135,375 $ 35,122 $ (111,696)$ 356,229 $ 131,898
Adjustments to Reconcile Net
Income [Loss] to Net Cash
[Used for] Provided by
Operating Activities:
Depreciation and Amortization 85,255 69,210 135,424 86,142 39,169
Loss on Disposal of Assets -- -- -- 840 --
Loss on Investment -- -- -- 15,048 --
Provision for Bad Debts -- 7,200 33,232 5,250 21,530
Officers Salaries 100,000 -- -- -- --
----------- ---------- ----------- ----------- ----------
Net Income Adjusted for
Noncash Items 320,630 111,532 56,960 463,509 192,597
Changes in Operating Assets
and Liabilities:
[Increase] Decrease in:
Accounts Receivable (483,370) (196,616) (997,855) (463,295) (282,486)
Other Current Assets -- (6,600) 1,835 (2,750) --
Due from Employees 3,750 (10,000) (20,556) 28,086 (12,750)
Other Assets -- 274 (752) (3,029) (1,651)
[Increase] Decrease in:
Accounts Payable 194,859 160,104 692,268 (12,631) 193,258
Accrued Expenses 27,341 (25,992) 101,984 21,306 26,576
Deferred Taxes 14,200 6,027 (17,661) 28,278 3,761
----------- ---------- ----------- ----------- ----------
Net Cash - Operating
Activities - Forward 77,410 38,729 (183,777) 59,474 119,305
----------- ---------- ----------- ----------- ----------
Investing Activities:
Loans to Stockholders (43,960) (177,762) (157,186) (116,837) (359,111)
Purchase of Property and
Equipment (153,348) (70,313) (132,819) (231,108) (40,717)
Proceeds on Sale of
Equipment -- -- -- 965 --
Payment for Investment -- -- -- (18,750) --
Distribution from Investment -- -- -- 3,530 --
---------- ---------- ----------- ----------- ----------
Net Cash - Investing
Activities - Forward $ (197,308)$ (248,075)$ (290,005)$ (362,200) $ (399,828)
</TABLE>
See Notes to Combined Financial Statements.
F-23
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
Six months ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
[Unaudited][Unaudited]
Net Cash - Operating
<S> <C> <C> <C> <C> <C>
Activities - Forwarded $ 77,410 $ 38,729 $ (183,777)$ 59,474 $ 119,305
----------- ---------- ----------- ----------- ----------
Net Cash - Investing
Activities - Forwarded (197,308) (248,075) (290,005) (362,200) (399,828)
----------- ---------- ----------- ----------- ----------
Financing Activities:
Cash Overdraft (31,105) 92,477 94,187 4,170 --
Proceeds on Borrowings on
Notes Payable 810,000 150,000 445,000 355,000 375,000
Principal Payments on Notes
and Leases Payable (632,288) (29,588) (69,920) (35,989) (29,718)
Distributions to Stockholders (21,555) -- -- (26,530) (53,000)
----------- ---------- ----------- ----------- ----------
Net Cash - Financing
Activities 125,052 212,889 469,267 296,651 292,282
----------- ---------- ----------- ----------- ----------
Net Increase [Decrease]
in Cash 5,154 3,543 (4,515) (6,075) 11,759
Cash - Beginning of Periods 2,626 7,141 7,141 13,216 1,457
----------- ---------- ----------- ----------- ----------
Cash - End of Periods $ 7,780 $ 10,684 $ 2,626 $ 7,141 $ 13,216
=========== ========== =========== =========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 79,755 $ 31,432 $ 87,069 $ 33,730 $ 39,279
Income Taxes $ -- $ -- $ 8,713 $ 8,638 $ 1,684
Supplemental Schedule of Noncash Investing and Financing Activities:
The Company entered into capital leases for $7,290, $41,107 and $-0- during
1997, 1996 and 1995, respectively.
During 1997, $15,000 of distributions were credited to amounts due from
stockholders.
</TABLE>
See Notes to Combined Financial Statements.
F-24
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
[A] Organization and Business - Conversion Services International, Inc. ["CSI"]
was incorporated on February 1, 1990. CSI and Doorways, Inc. [together the
"Company"] are principally engaged in the information technology services
industry. The Company provides consulting, professional services, systems
integration and software development, on credit, to its customers principally
located in New Jersey and New York.
The accompanying combined financial statements include the accounts of CSI and
Doorways, Inc. which is owned by a principal shareholder of CSI. All
intercompany transactions and balances have been eliminated.
[B] Revenue Recognition - Revenue from consulting and professional services are
recognized at the time the services are provided. Revenue from systems
integration and software development are recognized based on the terms of the
contracts. Revenue under maintenance contracts is recognized ratably over the
life of the contract.
[C] Property and Equipment and Depreciation and Amortization - Property and
equipment are stated at cost, less accumulated depreciation and amortization,
and includes equipment held under capital lease agreements. Depreciation, which
includes amortization of leased equipment, is computed principally by the double
declining balance method and is based on the estimated useful lives of the
various assets ranging from three to seven years. When assets are sold or
retired, the cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in operations.
[D] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
[E] Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and accounts
receivable arising from its normal business activities. The Company routinely
assesses the financial strength of its customers, based upon factors surrounding
their credit risk, establishes an allowance for uncollectible accounts, and as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowances is limited. The Company places its cash with a high credit
quality financial institution. The amount on deposit in any one institution that
exceeds federally insured limits is subject to credit risk. The Company had $-0-
and $97,626 as of December 31, 1997 and 1996, respectively, with a financial
institution subject to credit risk beyond the insured amount. The Company has
not experienced any losses in such accounts. The Company does not require
collateral or other security to support financial instruments subject to credit
risk.
Customers accounting for 10% or more of revenue in 1997, 1996 and 1995 are as
follows:
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Customer A $3,481,075 $ -- $ --
Customer B $ -- $ 1,449,452 $ --
Customer C $ -- $ 1,112,968 $ --
Customer D $ -- $ 912,136 $ 784,478
Customer E $ -- $ -- $ 988,088
The above customers comprised 24% and 26% of accounts receivable at December 31,
1997 and 1996, respectively. Additionally, 1 and 2 customers, who are not
considered significant customers based on the volume of revenue, represent 10%
and 27% of accounts receivable at December 31, 1997 and 1996, respectively.
F-25
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
[F] Advertising - The Company expenses advertising costs as incurred.
Advertising costs amounted to approximately $88,000, $68,000 and $22,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
[G] Income Taxes - The Company, with consent of its stockholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of federal
corporation income taxes, the stockholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements. The Company has also elected under state law to be an S
corporation. However, the Company is subject to some state corporation income
taxes.
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards ["SFAS"] No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
[H] Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
Company has no cash equivalents at December 31, 1997 and 1996.
[2] Property and Equipment and Depreciation and Amortization
Property and equipment and accumulated depreciation and amortization as of
December 31, 1997 and 1996 are as follows:
1 9 9 7 1 9 9 6
------- -------
Computers and Equipment $ 513,767 $ 380,948
Furniture and Fixtures 30,161 30,161
Property Held Under Capital Lease 48,447 41,157
---------- ----------
Totals 592,375 452,266
Less: Accumulated Depreciation and Amortization 315,926 180,502
Property and Equipment - Net $ 276,449 $ 271,764
---------------------------- ========== ==========
Depreciation expense was $135,424, $86,142 and $39,169 for 1997, 1996 and 1995,
respectively.
For property held under capital leases, amortization expense, which is included
in depreciation expense, for the years ended December 31, 1997, 1996 and 1995
was $14,628, $8,231 and $1,415, respectively, and accumulated amortization was
$22,859 and $8,231 at December 31, 1997 and 1996, respectively.
[3] Related Party Transactions - Due From Stockholders
The amounts due from stockholders of $628,021 and $485,835 at December 31, 1997
and 1996, respectively, consists of loans receivable from stockholders of the
Company. The loans are due on demand and include interest at prime plus 1.5%. At
December 31, 1997 and 1996, the prime rate was 8.50% and 8.25%, respectively.
Interest income on stockholders loans amounted to $54,014, $25,812 and $27,292
for 1997, 1996 and 1995, respectively.
F-26
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[4] Due From Employees
The amounts due from employees of $29,106 and $8,550 at December 31, 1997 and
1996, respectively, consist of loans and advances which are non-interest bearing
and have no stated terms of repayment.
[5] Employee Benefit Plan
The Company adopted a pension plan pursuant to Section 401 [K] of the Internal
Revenue Code, that covers substantially all employees. Eligible employees may
contribute on a tax deferred basis a percentage of compensation up to the
maximum allowable amount. Employee contributions vest immediately. The Plan does
not require a matching contribution by the Company. The Company's contributions
to the Plan [which were charged to operations] were $17,690, $25,000, and
$40,000 in 1997, 1996 and 1995, respectively. The Company's contributions vest
in 20% increments annually, beginning with 2 years of service, until fully
vested after six years of service.
[6] Long-Term Debt and Capital Leases
Long-term debt at December 31, 1997 and 1996 consisted of the following:
1 9 9 7 1 9 9 6
Revolving line of credit $ 925,000 $ 480,000
Note payable to a bank in monthly installments of
$4,167, including interest at the bank's prime rate
plus 2%, due March 2001. The note is collateralized
by equipment. 162,500 200,000
Note payable to a bank in monthly installments of $1,042
including interest at the bank's prime rate plus 2.5%,
due March 1999. The note is collateralized by
equipment. 15,625 28,125
Note payable to a bank in monthly installments of $520
including interest at the bank's prime rate plus 2.5%,
due March 1998. The note is collateralized by
equipment. 1,600 7,840
Note payable to a bank in monthly installments of $4,167
including interest at the bank's prime rate plus 2.5%,
due September 1997. The note is collateralized by
equipment. -- 9,375
Obligations under capital leases, collateralized by
equipment originally costing $48,447, payable in various
monthly installments including interest at various
rates from 14.75% to 20.93% through 2000. 41,891 38,906
----------- -----------
Totals 1,146,616 764,246
Less: Current Portion 1,003,402 558,269
----------- -----------
Totals $ 143,214 $ 205,977
------ =========== ===========
The revolving line of credit due April 30, 1998 bears interest at the bank's
prime rate plus 1.5% payable monthly. The Company may borrow the lesser of 80%
of eligible accounts receivable less than 90 days or $1,500,000. At December 31,
1997, the Company had approximately $532,000 in available credit under this
line. Based on the terms of the agreement, the line is collateralized by
accounts receivable and equipment. At December 31, 1997, the line of credit was
in default pursuant to certain debt covenants. The line is classified as a
current liability. On October 5, 1998, the bank waived the defaulted covenants
and extended the revolving line of credit until January 1, 1999.
F-27
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[6] Long-Term Debt and Capital Leases [Continued]
The prime rate at December 31, 1997 and 1996 was 8.50% and 8.25%, respectively.
At December 31, 1997 and 1996, the weighted average interest rate on short-term
borrowings was 10.50% and 10.25%, respectively.
The following schedule shows the future maturities of long-term debt exclusive
of capital leases:
Years ended
December 31,
1998 $ 989,100
1999 53,125
2000 50,000
2001 12,500
-----------
Total $ 1,104,725
----- ===========
The Company leases property under capital leases. The following schedule shows
the minimum lease payments under capital lease as of December 31, 1997:
Years ended
December 31,
1998 $ 19,852
1999 17,975
2000 13,781
-----------
Total 51,608
Less: Amount Representing Interest 9,717
Total 41,891
Less: Current Portion 14,302
Long-Term Portion $ 27,589
----------------- ===========
[7] Commitments and Contingencies
Leases - The Company leases office space under an operating lease, as amended,
which expires in June of 1999. In February 1998, the Company moved its offices
to a new location. Additional rent expense in the amount of $94,294 has been
accrued for 1997, which represents the remainder of the lease payments due under
the old lease through June of 1999. The liability is included in accrued
expenses.
The Company had leased additional office space pursuant to a one year lease
which expired in May 1997.
In November 1997, the Company entered into a commitment to lease new office
space commencing February 1998 and expiring January 2003. The lease contains
provisions for the lease of additional office space for a five year term
commencing upon the completion of renovations to the initial space. The lease
contains an option to renew both spaces for a term of five years. In addition to
minimum rentals, the Company is liable for contingent rentals based on its
proportionate share of real estate taxes and operating expenses, as defined.
The Company was committed under an operating lease for an automobile which
expired May 1997.
F-28
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
[7] Commitments and Contingencies [Continued]
Leases [Continued] - Minimum annual rentals under the leases are as follows:
Year Ended
December 31,
1998 $ 194,778
1999 290,267
2000 256,750
2001 256,750
2002 256,750
Thereafter 122,749
-----------
Total $ 1,378,044
----- ===========
Total rent expense, including automobile rental, was $93,248, $92,723 and
$71,886 for the years ended December 31, 1997, 1996 and 1995, respectively.
Letter of Credit - The Company is committed under an outstanding letter of
credit with a bank to secure the security deposit on the new office space, in
the amount of $167,344, which expires November 1998. The agreement will
automatically extend for additional one year periods with a final expiration
date of November 2003.
[8] Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments are as follows:
1 9 9 7 1 9 9 6
------- -------
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes Payable - Long-Term $ (115,625) $ (115,625) $ (179,715) $ (179,715)
In assessing the fair value of these financial instruments, the Company has used
a variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash, due from related parties, and debt maturing within one year, it was
estimated that the carrying amount approximated fair value for the majority of
these instruments because of their short maturities. The fair value of the notes
payable long-term is based on current rates at which the Company could borrow
funds with similar remaining maturities.
[9] State Income Taxes [Benefit]
The state income tax provision [benefit] consists of the following:
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Current $ (1,157)$ 6,080 $ 7,062
Deferred (6,474) 26,960 2,660
---------- ----------- -----------
Income Tax Provision [Benefit] $ (7,631)$ 33,040 $ 9,722
------------------------------ ========== =========== ===========
F-29
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------
[9] State Income Taxes [Benefit][Continued]
Deferred tax liabilities was made up of the following at December 31, 1997 and
1996:
1 9 9 7 1 9 9 6
------- -------
Deferred Tax Asset:
Cash Basis Adjustments $ 41,555 $ 25,443
----------- -----------
Deferred Tax Liabilities:
Cash Basis Adjustments 77,672 78,117
Excess Book over Tax Basis of Property and Equipment 787 1,891
Totals 78,459 80,008
----------- -----------
Net Deferred Tax Liability $ 36,904 $ 54,565
-------------------------- =========== ===========
[10] New Authoritative Pronouncements
The Financial Accounting Standard Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. SFAS No. 130
is not expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. SFAS No. 131 is not expected to have a material impact on the
Company.
In February 1998, the FASB issued SFAS No. 132, "Employees Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and how it its designated, for example, gain or losses related to
changes in the fair value of a derivative not designated as a hedging instrument
is recognized in earnings in the period of the change, while certain types of
hedges may be initially reported as a component of other comprehensive income
[outside earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
F-30
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #7
- ------------------------------------------------------------------------------
[11] Subsequent Event
The Company entered into a plan and agreement of merger with Patra Capital Ltd.
["Patra"] as of August 1, 1998, whereby all of the Company's common stock will
be sold to Patra in exchange for cash, notes receivable and restricted common
stock of Elligent Consulting Group, Inc. [a publicly-held company], the parent
company of Patra. Upon the closing on September 21, 1998, the Company merged
into Patra.
[12] Unaudited Interim Statements
The interim financial statements include all adjustments which in the opinion of
management are necessary in order to make the financial statements not
misleading.
. . . . . . . . .
F-31
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Patra Capital Ltd.
New York, New York
We have audited the accompanying balance sheet of Patra Capital Ltd.
as of July 31, 1998, and the related statements of operations, stockholders'
deficit, and cash flows for the seven months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Patra Capital Ltd.
as of July 31, 1998, and the results of its operations and its cash flows for
the seven months then ended in conformity with generally accepted accounting
principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
November 25, 1998
F-32
<PAGE>
PATRA CAPITAL LTD.
- ------------------------------------------------------------------------------
BALANCE SHEET AS OF JULY 31, 1998.
- ------------------------------------------------------------------------------
Assets:
Current Assets:
Deferred Income Taxes $ 102,000
Due from Related Party 13,198
-----------
Total Current Assets 115,198
Equipment - Net 30,475
-----------
Other Assets:
Deferred Costs 159,447
Security Deposit 59,689
Total Other Assets 219,136
Total Assets $ 364,809
===========
Liabilities and Stockholders' Deficit:
Current Liabilities:
Accounts Payable $ 165,034
Accrued Consulting Fees - Related Parties 98,000
Accrued Consulting Fees 25,000
Due to Related Party 229,186
-----------
Total Current Liabilities 517,220
Long-Term Liability:
Due to Stockholder 702
Total Liabilities 517,922
Commitments and Contingencies --
Stockholders' Deficit:
Common Stock, $1.00 Par Value, 1,000 Shares
Authorized, Issued and Outstanding 1,000
Accumulated Deficit (153,113)
Stock Subscription (1,000)
Total Stockholders' Deficit (153,113)
Total Liabilities and Stockholders' Deficit $ 364,809
===========
See Notes to Financial Statements.
F-33
<PAGE>
PATRA CAPITAL LTD.
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE SEVEN MONTHS ENDED JULY 31, 1998.
- ------------------------------------------------------------------------------
Revenue $ --
Operating Expenses - Allocated by Related Parties 255,113
-----------
Operating Loss (255,113)
Loss Before Income Taxes (255,113)
Income Taxes [Benefit] (102,000)
Net Loss $ (153,113)
===========
See Notes to Financial Statements.
F-34
<PAGE>
PATRA CAPITAL LTD.
- ------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' DEFICIT
- ------------------------------------------------------------------------------
<TABLE>
Total
Common Stock Accumulated Stock Stockholders'
Shares Amount Deficit Subscription Deficit
Common Stock Issued
<S> <C> <C> <C> <C> <C>
January 1998 1,000 $ 1,000 $ -- $ (1,000)$ --
Net Loss for the Seven
Months Ended July 31, 1998 -- -- (153,113) -- (153,113)
-------- ---------- ----------- ------------ ----------
Balance - July 31, 1998 1,000 $ 1,000 $ (153,113)$ (1,000)$ (153,113)
======== ========== =========== ============ ==========
</TABLE>
See Notes to Financial Statements.
F-35
<PAGE>
PATRA CAPITAL LTD.
- ------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE SEVEN MONTHS ENDED JULY 31, 1998.
- ------------------------------------------------------------------------------
Operating Activities:
Net Loss $ (153,113)
-----------
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 5,219
Deferred Income Taxes (102,000)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Due from Related Party (13,198)
Increase [Decrease] in:
Accounts Payable 28,034
Accrued Consulting Fees - Related Parties 98,000
Accrued Consulting Fees 25,000
Due to Related Party 111,356
Due to Stockholders 702
-----------
Total Adjustments (153,113)
Net Cash - Operating Activities --
-----------
Net Increase in Cash --
Cash - Beginning of Period --
-----------
Cash - End of Period $ --
===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ --
Income Taxes $ --
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In January 1998, the Company issued 1,000 shares of common stock at par value
and recorded a stock subscription receivable.
During the seven months ended July 31, 1998, the Company acquired furniture
and fixtures for $35,694 and recognized deposits on operating leases of $59,689.
The Company recorded a corresponding intercompany payable for a total of $95,383
for these payments made by an affiliated company on the Company's behalf.
The Company recorded deferred costs of $159,447 for accounting and legal fees,
of which $137,000 is recorded as accounts payable and $22,447 as due to related
party.
See Notes to Financial Statements.
F-36
<PAGE>
PATRA CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Organization and Business
Patra Capital Ltd. ["Patra" or the "Company"] was incorporated on December 17,
1997, and is principally engaged in investing in companies involved in the
information technology services industry [See Note 9].
[2] Summary of Significant Accounting Policies
[A] Equipment and Depreciation - Equipment is stated at cost, less accumulated
depreciation. Depreciation is computed principally by the straight-line method
and is based on the estimated useful lives of the various assets ranging from
three to five years. When assets are sold or retired, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations.
[B] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
[C] Income Taxes - Income taxes are provided based upon the provisions of
Statement of Financial Accounting Standards ["SFAS"] No. 109, "Accounting for
Income Taxes," which requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
[D] Economic Dependence - Patra does not maintain a bank account and has no cash
or investments in marketable securities. As of July 31, 1998, Patra has relied
on related parties to pay all of its obligations.
[3] Equipment and Depreciation
Equipment and accumulated depreciation as of July 31, 1998, are as follows:
Equipment $ 13,558
Furniture and Fixtures 22,136
----------
Total 35,694
Less: Accumulated Depreciation 5,219
Equipment - Net $ 30,475
--------------- ==========
Depreciation expense for the seven months ended July 31, 1998, was $5,219.
[4] Deferred Costs
Deferred costs consist of legal and accounting fees incurred in relation to the
acquisition of Conversion Services International, Inc. ["CSI"] [See Note 9].
[5] Related Party Transactions
The amount due from related party of $13,198 at July 31, 1998, consists of the
monthly allocation of operating expenses between the Company and a related
company whose stockholders are the same as those of Patra. The amounts have no
stated terms of repayment and are non-interest bearing.
Accrued consulting fees - related party of $98,000 at July 31, 1998, were
incurred in the start-up of Patra and are due to a stockholder and his wife.
F-37
<PAGE>
PATRA CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[5] Related Party Transactions [Continued]
For the seven months ended July 31, 1998, Patra was allocated $5,431 of rent
expense for other office space from a related company, one of the stockholders
of which is a stockholder of the Company.
The amount due to related party of $229,186 at July 31, 1998, consists of
operating expenses allocated to the Company by a related company, whose owner is
a stockholder of Patra. The loan has no stated terms of repayment and are
non-interest bearing.
The amount due to stockholder of $702 at July 31, 1998, consists of operating
expenses paid on behalf of Patra. The loan has no stated terms of repayment and
is non-interest bearing.
All of the Company's operating expenses were allocated by related companies.
[6] Commitments and Contingencies
The Company occupies office space, which is leased by a related company, of
which one of the stockholders is a stockholder of the Company, under an
operating lease which expires in April of 2002. Approximately 73% of the cost of
the lease is allocated to the Company. The Company's rent expense for the seven
months ended July 31, 1998, amounted to $19,695.
Total minimum annual rentals under the lease are as follows:
Year Ended
July 31,
1999 $ 119,379
2000 119,379
2001 119,379
2002 89,534
----------
Total $ 447,671
----- ==========
[7] Income Taxes
Deferred taxes and the income tax benefit consist of the following:
Deferred Taxes:
Federal $ 79,000
State 23,000
-----------
Income Tax Benefit $ 102,000
------------------ ===========
The tax effect of significant items comprising the Company's deferred tax asset
at July 31, 1998, are as follows:
Net Operating Loss Carryforward $ 62,800
Deductibility of Accrued Expenses 39,200
-----------
Deferred Tax Asset $ 102,000
------------------ ===========
The Company's has recorded a deferred tax asset of $102,000 at July 31, 1998.
The realization of the deferred tax asset is dependent on the Company generating
sufficient taxable income in future years. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced.
F-38
<PAGE>
PATRA CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[7] Income Taxes [Continued]
The net operating loss carryforward of approximately $157,000 expires in 2013.
A reconciliation of income tax at the statutory rate to the Company's effective
rate is as follows:
Computed at the Statutory Rate 34%
State Income Tax - Net of Federal Tax Benefit 6%
Income Tax Expense - Effective Rate 40%
----------------------------------- ===========
[8] New Authoritative Pronouncements
The Financial Accounting Standard Board ["FASB"] has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and how it its designated, for example, gain or losses related to changes in the
fair value of a derivative not designated as a hedging instrument is recognized
in earnings in the period of the change, while certain types of hedges may be
initially reported as a component of other comprehensive income [outside
earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
[9] Subsequent Events
Patra entered into an agreement and plan of merger with Patra Acquisition, Inc.
and Elligent Consulting Group, Inc. ["Elligent"] as of August 26, 1998, whereby
all of Patra's common stock was exchanged for 12,950,000 shares of common stock
in Elligent. Upon the closing on September 3, 1998, Patra Acquisition, Inc., a
wholly-owned subsidiary of Elligent, merged into Patra.
Patra entered into a plan and agreement of merger with Conversion Services
International, Inc. ["CSI"] as of August 1, 1998, whereby all of the CSI's
common stock was sold to Patra in exchange for cash, notes payable and
restricted common stock of Elligent Consulting Group, Inc. [a publicly-held
company], the parent company of Patra. Upon the closing on September 21, 1998,
CSI merged into Patra and Patra changed its name to Conversion Services
International, Inc.
F-39
<PAGE>
PATRA CAPITAL LTD.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[10] Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
For accounts payable, accrued expenses, and amounts due from/to related party,
it was assumed that the carrying amount approximated fair value because of the
short maturities of these instruments. The fair value of due to stockholder is
estimated based on rates at which the Company could borrow funds with similar
remaining maturities which approximates its carrying value.
. . . . . . . . .
F-40
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
By and Among
ELLIGENT CONSULTING GROUP, INC.,
PATRA ACQUISITION, INC.,
PATRA CAPITAL LIMITED
and
THE SHAREHOLDERS OF PATRA
Dated
August 26, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "AGREEMENT") is made as of August
1, 1998, by and among Elligent Consulting Group, Inc., a Nevada corporation (the
"COMPANY"), Patra Acquisition, Inc., a Delaware corporation ("ACQUISITION
SUBSIDIARY"), a wholly-owned subsidiary of the Company, Patra Capital Limited, a
Delaware corporation ("PATRA"), and the shareholders of Patra (the "PATRA
SHAREHOLDERS") as listed on Exhibit 2.4. By this reference Exhibit 2.4 and all
other exhibits are made a part of this Agreement.
WITNESSETH:
In consideration of the mutual covenants and agreements hereinafter set
forth, the receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1 MERGER. At the Effective Time (as hereinafter defined), upon the terms
and subject to the conditions of this Agreement and the Plan of Merger (as
hereinafter defined), the Acquisition Subsidiary shall merge with and into Patra
(the "Merger") in accordance with the Delaware General Corporation Law (the
"Delaware Act"). At the Effective Time, the separate existence of Acquisition
Subsidiary shall cease, and Patra, as the surviving corporation in the Merger
(the "Surviving Corporation"), shall become a subsidiary of the Company. The
Company shall execute a plan of merger (the "Plan of Merger") and articles of
merger ("Articles of Merger") in order to comply in all respects with the
requirements of the Delaware Act and with the provisions of this Agreement.
1.2 EFFECTIVE TIME. The Merger shall become effective at the time of the
filing of the Plan of Merger and Articles of Merger with the Secretary of State
of Delaware in accordance with the applicable provisions of the Delaware Act or
at such later time as may be specified in the Articles of Merger. The Plan of
Merger and Articles of Merger shall be filed as soon as practicable after all of
the conditions set forth in this Agreement have been satisfied or waived by the
party or parties entitled to the benefit of the same. Patra and the Company
shall mutually determine the time of such filing and the place where the closing
of the Merger (the "CLOSING") shall occur. The time when the Merger shall become
effective is herein referred to as the "EFFECTIVE TIME," and the date on which
the Effective Time occurs is herein referred to as the "CLOSING DATE."
1.3 MERGER CONSIDERATION. Subject to the provisions of this Agreement, at
the Effective Time, the issued and outstanding shares of common stock of Patra
(the "PATRA STOCK") held by a Patra Shareholder shall, by virtue of the Merger
and without any action on the part of the holders thereof, be converted into the
right to receive, and there shall be paid and issued as hereinafter provided in
exchange therefor shares of the Company's Common Stock, par value $.001 (the
"COMPANY STOCK"), in an amount which is the product of the Shareholders current
percent ownership in Patra and 12,950,000. The aggregate number of shares to be
issued to the Patra Shareholders shall be known as the "MERGER CONSIDERATION."
No fractional shares shall be
<PAGE>
issued. The Merger Consideration shall be payable to the Patra Shareholders as
of the Effective Time. The aggregate number of shares of Company Stock to be
issued pursuant to this Agreement and that certain Agreement dated as of August
1, 1998 by and between Patra, Patra Holdings LLC, Conversion Services
International, Inc., Scott Newman and Glenn Peipert pursuant to which Patra
shall acquire all of the outstanding equity securities of CSI will, in no case,
exceed 12,950,000.
1.4 PATRA SHAREHOLDERS' RIGHTS UPON MERGER. Upon consummation of the
Merger, the holders of certificates which theretofore represented shares of
Patra Stock (the "CERTIFICATES") shall cease to have any rights with respect
thereto, and, subject to applicable law and this Agreement, shall only have the
right to receive the number of shares of Company Stock into which their shares
of Patra Stock have been converted pursuant to this Agreement and the Merger.
1.5 SURRENDER AND EXCHANGE OF SHARES; PAYMENT OF MERGER
CONSIDERATION. In connection with the Closing, each Shareholder shall surrender
and deliver the Certificates to the Company together with a duly completed and
executed transmittal letter, waiver and release in the form attached hereto as
EXHIBIT 1.5 ("TRANSMITTAL LETTER"). Upon the later to occur of the Effective
Time or such surrender and delivery, the holder shall receive a certificate
representing the number of whole shares of Company Stock to which such holder is
entitled pursuant to this Agreement. Until so surrendered and exchanged, each
outstanding Certificate after the Effective Time shall be deemed for all
purposes to evidence the right to receive that number of whole shares of Company
Stock into which the Patra Stock previously represented by the Certificate has
been converted pursuant to this Agreement; PROVIDED, HOWEVER, that no dividends
or other distributions, if any, in respect of the shares of the Company Stock,
declared after the Effective Time and payable to holders of record after the
Effective Time, shall be paid to the holders of any unsurrendered Certificates
until such Certificates and Transmittal Letters are surrendered and delivered as
provided herein. Holders of any unsurrendered Certificates shall not be entitled
to vote the Company Stock involved until such Certificates are exchanged
pursuant to this Agreement.
1.6 CERTIFICATE OF INCORPORATION. At and after the Effective Time, the
Certificate of Incorporation of Patra shall be the Certificate of Incorporation
of the Surviving Corporation (subject to any amendment specified in the Plan of
Merger and any subsequent amendment).
1.7 BYLAWS. At and after the Effective Time, the Bylaws of Patra shall be
the Bylaws of the Surviving Corporation (subject to any amendment specified in
the Plan of Merger and any subsequent amendment).
1.8 DIRECTORS AND OFFICERS. At and after the Effective Time, until their
successors are duly elected or appointed, the directors and the officers of the
Surviving Corporation shall be as follows:
2
<PAGE>
Directors Officers
Andreas Typaldos Andreas Typaldos - President and CEO
Scott Newman Scott Newman - Vice President of Operations
Edwin Brondo Edwin Brondo - Chief Financial Officer
The Company shall also take whatever action is necessary to duly elect and
appoint such individuals to the corresponding positions in the Company,
including but not limited to, any required expansion of the Company's Board of
Directors, appointment of such individuals as Directors until the Company's next
Annual Meeting of Shareholders and appointment of such individual to the proper
executive offices.
1.9 OTHER EFFECTS OF MERGER. The Merger shall have all further effects as
specified in the applicable provisions of the Delaware Act.
1.10 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Acquisition
Subsidiary, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Acquisition Subsidiary, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement
and the transactions contemplated hereby.
1.11 TAX-FREE REORGANIZATION. The parties intend that the Merger qualify
as a tax-free reorganization pursuant to Section 368 of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "CODE").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
PATRA AND THE PATRA SHAREHOLDERS
Patra and the Patra Shareholders represent and warrant to the Company and
the Acquisition Subsidiary as follows, which representations and warranties are
made as of the date hereof and as of the Closing Date and shall survive the
Closing for a period of two (2) years from and after the Effective Time:
2.1 ORGANIZATION. Patra is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
3
<PAGE>
2.2 AUTHORIZATION. The execution, delivery and performance by Patra of
this Agreement has been duly and validly authorized by the Board of Directors of
Patra and the Patra Shareholders, and this Agreement constitutes the valid and
binding agreement of Patra, enforceable in accordance with its terms, subject to
(i) general principles of equity, regardless of whether enforcement is sought in
a proceeding in equity or at law, and (ii) bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium, receivership or other similar
laws relating to or affecting creditors' rights generally.
2.3 NON-CONTRAVENTION. Neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
result in the breach of any term or provision of, or constitute a default under,
the Certificate of Incorporation or Bylaws of Patra.
2.4 CAPITAL STRUCTURE AND OWNERSHIP. Patra has authorized, issued and
outstanding the number of shares of stock and other securities so indicated on
EXHIBIT 2.4 attached hereto. All such outstanding securities have been duly and
validly issued, are fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any person or entity or applicable
securities laws. No shares of any other class of capital stock of Patra are
outstanding. There are no outstanding options, warrants or other rights to
acquire securities of Patra, nor are there securities outstanding which are
convertible into securities of Patra, except as set forth on said EXHIBIT 2.4.
Except pursuant to applicable corporate laws and as set forth on EXHIBIT 2.4
attached hereto, there are no restrictions including, but not limited to,
self-imposed restrictions on the retained earnings of the Company or on the
ability of the Company to declare and pay dividends.
The name and residence address of each of the Patra Shareholders and the
respective number and percentage of outstanding shares held by each Shareholder
are set forth on EXHIBIT 2.4 attached hereto. Such shares and other securities
are owned as indicated on said EXHIBIT 2.4 beneficially and of record, free and
clear of all restrictions, liens, claims, charges, security interests, options
or other title defects or encumbrances. At the Effective Time, the shares of
Patra Stock shall be free and clear of all restrictions, liens, claims, charges,
security interests, options or other title defects or encumbrances.
2.5 BUSINESS OPERATIONS. After the Merger, it is anticipated that the
Surviving Corporation will continue the historic business of Patra.
2.6 FUTURE ACTION. Patra has no current plan or intention to liquidate the
Surviving Corporation, to merge the Surviving Corporation with or into another
corporation, or to sell or otherwise dispose of the Surviving Corporation Common
Stock, except for dispositions made in the ordinary course of business.
2.7 DISCLOSURE. No representation, warranty or statement made by or on
behalf of Patra or the Patra Shareholders in this Agreement (including, but not
limited to, the Exhibits attached hereto) or in the certificates or other
materials furnished or to be furnished to the Company or its
4
<PAGE>
representatives in connection with this Agreement and the transactions
contemplated hereby or thereby, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make the statements contained herein or
therein not misleading. All information and documents provided prior to the date
of this Agreement, and all information and documents subsequently provided, to
the Company or its representatives by or on behalf of Patra or the Patra
Shareholders are or contain, or will be or will contain as to subsequently
provided information or documents, true, accurate and complete information with
respect to the subject matter thereof and are, or will be as to subsequently
provided information or documents, fully responsive to any specific request made
by or on behalf of the Company or its representatives. Patra shall promptly
notify the Company of any change or event which could adversely affect the
assets, operations, business, condition or prospects of Patra.
2.8 ACQUISITION FOR INVESTMENT. The Patra Shareholders are acquiring the
Company Stock for their own account for investment, with no present intention of
dividing their interests with others or of reselling or otherwise disposing of
all or any portion of the same except with respect to certain limited
transactions (the "LIMITED TRANSACTIONS") which transactions will not cause the
loss of the exemption pursuant Regulation D under the Securities Act of 1993, as
amended (the "SECURITIES ACT") upon which the Company is relying in the issuance
of the Company Stock; except for the Limited Transactions, the Patra
Shareholders do not have in mind any sale of the Company Stock either currently
or after the passage of a fixed or determinable period of time or upon the
occurrence or non-occurrence of any predetermined event or circumstance; the
Patra Shareholders have no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for or which is
likely to compel a disposition of the Company Stock; the Patra Shareholders are
not aware of any circumstances presently in existence which are likely in the
future to prompt a disposition of the Company Stock. The Patra Shareholders are
"accredited investors" as defined in the Securities Act; the Patra Shareholders
possess the business experience to make an informed decision to acquire the
Company Stock; and, the Patra Shareholders have the financial means to bear the
economic risk of the investment in the Company Stock.
2.9 BROKER'S OR FINDER'S FEE. No agent, broker, person or firm acting on
behalf of Patra or the Patra Shareholders is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE ACQUISITION SUBSIDIARY
5
<PAGE>
The Company and the Acquisition Subsidiary represents and warrants to
Patra and the Patra Shareholders as follows, which representations and
warranties are made as of the date hereof and as of the Closing Date and shall
survive the Closing for a period of two (2) years:
3.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada with full
power and authority to own its properties and assets and to carry on lawfully
its business as currently conducted, and is not required to be qualified to do
business as a foreign corporation in any other jurisdiction. Except for the
Acquisition Subsidiary, the Company does not have any other subsidiaries, does
not own or hold any securities of, or any interest in, any other person or
entity and is not subject to any joint venture, partnership, limited liability
company or other arrangement or contract which is or could be treated as a
partnership for federal income tax purposes.
3.2 STATUS OF ACQUISITION SUBSIDIARY. As of the Effective Time, the
Acquisition Subsidiary will be a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and will not have
any material liabilities or any material assets except the Company Stock to be
used as the Merger Consideration and shall have joined in this Agreement.
3.3 PUBLIC STATUS OF THE COMPANY. The Company is a publicly held company
and is a reporting company under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). All reports due under the Exchange Act have been filed as
of the date of this Agreement and are true, correct and complete in all material
respects.
3.4 ARTICLES OF INCORPORATION, BYLAWS AND AGREEMENTS. A true,
complete and correct copy of the Articles of Incorporation and Bylaws of the
Company and the Certificate of Incorporation and Bylaws of the Acquisition
Subsidiary together with all amendments thereto shall have been delivered to
Patra as of the Effective Date. There are no agreements by and between or among
any or all of the security holders of the Company, whether or not the Company is
a party thereto, imposing any restrictions upon the transfer of or otherwise
pertaining to the securities of the Company or the ownership thereof. Any and
all such restrictions shall be duly complied with or effectively waived as of
the Closing.
3.5 VALID SHARES. The Company Stock, when issued pursuant to this
Agreement, will have been duly and validly authorized and issued, will be fully
paid and nonassessable and will not have been issued in violation of the
preemptive rights of any person or entity. Prior to the issuance of the Company
Stock in payment of the Merger Consideration, the Company has 1,594,225 share of
Common Stock issued and outstanding.
3.6 AUTHORIZATION. The Company and the Acquisition Subsidiary have full
legal right, power and authority to enter into this Agreement and to carry out
the transactions contemplated by this Agreement. The execution, delivery and
performance by the Company and the Acquisition Subsidiary of this Agreement and
the other agreements and documents referred to herein and the actions
contemplated hereby and thereby have been duly and validly authorized by all
necessary
6
<PAGE>
corporate action, and this Agreement and such other agreements and documents
constitute valid and binding obligations of the Company and the Acquisition
Subsidiary, enforceable in accordance with their terms, subject to (i) general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law, and (ii) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
3.7 FINANCIAL STATEMENTS AND ABSENCE OF CHANGES. The balance sheets as of
July 31, 1998, and the income statements and statements of cash flows for the
fiscal years then ended and the balance sheets as of July 31, 1998, and the
income statements and statements of cash flows for July 31, 1998 of the Company
(the "FINANCIAL STATEMENTS") have been provided to Patra. Each of the Financial
Statements is true, complete and correct and fairly presents (including, but not
limited to, the inclusion of all adjustments with respect to interim periods
which are necessary to present fairly the financial condition and assets and
liabilities or the results of operations of the Company) the financial condition
and assets and liabilities or the results of operations of the Company as of the
dates and for the periods indicated. The Financial Statements were prepared in
accordance with generally accepted accounting principles consistently applied.
Except as reflected in the Exhibits attached hereto or the Financial Statements,
the Company has no debts, obligations, guaranties of obligations of others or
liabilities (contingent or otherwise) that would be required to be disclosed in
financial statements prepared in accordance with generally accepted accounting
principles. Since July 31, 1998, there have been no adverse changes to the
business, financial condition, results of operations or prospects of the Company
from that described and reflected in the Financial Statements as of that date.
Any financial statements prepared with respect to the Company subsequent to the
date hereof shall be promptly provided to Patra and shall constitute Financial
Statements for purposes hereof.
3.8 LIABILITIES. Except as and to the extent reflected or reserved against
in the Financial Statements or disclosed in the Exhibits attached hereto, and
except for any costs of this transaction (including legal and accounting fees)
and tax liabilities arising solely as a direct consequence of the taxation of
the transactions contemplated by this Agreement and for liabilities permitted by
this Agreement, the Company had no liabilities or obligations as of the dates
thereof, secured or unsecured (whether accrued, absolute, contingent or
otherwise) including, without limitation, tax liabilities due or to become due,
and the Company has not incurred, nor will it incur, any liabilities or
obligations since the date of the most recent of the Financial Statements and
the Company has no obligations or liabilities, whether direct or indirect, joint
or several, absolute or contingent, matured or unmatured, secured or unsecured,
which could be affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement or which could
affect the same.
3.9 CONTRACTS. Neither the Company nor the Acquisition Subsidiary is a
party to or bound by, and neither has any liability with respect to, any of the
following (hereinafter, any of the following are referred to collectively as the
"CONTRACTS" and individually as a "CONTRACT"):
7
<PAGE>
(a) contract for the purchase or sale of services, equipment,
inventory, materials, supplies, or any capital item or items, or supply
agreements with the government or any agency thereof;
(b) collective bargaining agreement or other agreement with any labor
union or labor organization or any employment, consulting, severance, bonus,
deferred compensation or similar agreement;
(c) agreement, indenture or other instrument relating to the
borrowing of money or guaranty of any obligation for the borrowing of money;
(d) tenancy, lease, license or similar agreement relating to
property;
(e) license, lease or other agreement to provide, acquire or use
telecommunications or other services or equipment of any kind;
(f) any insurance policies naming the Company or the Acquisition
Subsidiary as an insured or beneficiary or as a loss payee, or for which the
Company has paid all or part of the premium;
(g) any instrument or agreement relating to indebtedness by way of
lease-purchase arrangements, conditional sale, guarantee or other undertakings
on which others rely in extending credit, any joint venture agreements or any
chattel mortgages or other security arrangements;
(h) confidentiality, secrecy, standstill or noncompete agreement to
which the Company is bound or which is in its favor;
(i) any agreement or contract with, or any obligation to or from, an
Affiliate, a shareholder or any Affiliate of a shareholder. For purposes of this
Agreement, "AFFILIATE" shall mean: any person or entity (i) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity involved including, without
limitation, officers and directors, (ii) that directly or beneficially owns or
holds 5% or more of any equity interest in the person or entity involved, or
(iii) 5% or more of whose voting securities (or in the case of an entity which
is not a corporation, 5% or more of any equity interest) is owned directly or
beneficially by the person or entity involved. As used herein, the term
"CONTROL" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a person or entity,
whether through ownership of securities, by contract or otherwise; or
(j) any other plans, agreements, contracts, powers of attorney, bids
or proposals, whether written or oral.
3.10 LITIGATION AND COMPLIANCE. There are no pending or threatened claims,
investigations, lawsuits or administrative proceedings (including environmental)
by or against the Company or the Acquisition Subsidiary or involving the Company
Stock. The Company and the
8
<PAGE>
Acquisition Subsidiary are in compliance with all applicable laws and
regulations and administrative orders and their Articles (of Certificate) of
Incorporation and Bylaws. There is no order, writ, injunction or decree relating
to or affecting the business of the Company or the Acquisition Subsidiary or the
transactions contemplated by this Agreement.
3.11 NON-CONTRAVENTION. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in the breach of any term or provision of, constitute a default under, or
accelerate or augment the performance otherwise required under, any provision of
the Articles (or Certificate) of Incorporation or Bylaws of the Company or the
Acquisition Subsidiary or, as of the time of Closing, any agreement (including,
without limitation, any loan agreement or promissory note), indenture,
instrument, order, law or regulation to which the Company or the Acquisition
Subsidiary is a party or by which either is bound, or will result in the
creation of any lien or encumbrance upon any property of the Company, the
Acquisition Subsidiary or the Company Stock.
3.12 LICENSES, PERMITS AND REQUIRED CONSENTS. The Company has all required
franchises, tariffs, licenses, ordinances, certifications, approvals,
authorizations and permits necessary to the conduct of its business as currently
conducted.
3.13 INSURANCE. The Company has no policies of insurance at the present
time.
3.14 EMPLOYEES AND EMPLOYEE BENEFIT PLANS. The Company has no employees
and neither the Company nor the Acquisition Subsidiary has any employee benefit
plans or arrangement including, but not limited to, any employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and the regulations thereunder ("ERISA"), whether or not subject to
ERISA including, but not limited to, any pension, profit sharing, stock bonus,
deferred or supplemental compensation, retirement, thrift, stock purchase or
stock option plan, or any other compensation, welfare, fringe benefit or
retirement plan, program, policy, course of conduct, understanding or
arrangement of any kind whatsoever, whether formal or informal, oral or written,
which is or has been maintained for current or former employees or agents of the
Company and their beneficiaries and dependents or which is or has been
contributed to by the Company. For purposes of this Section, the Company shall
include all trades or businesses (whether or not incorporated) which are a
member of a group of which the Company is a member and which are under common
control within the meaning of Section 414 of the Code.
3.15 TAXES AND RETURNS. All federal, state, county and local, and all
foreign and other, income, franchise, excise, tariff, gross receipts, sales and
use, payroll, real and personal property and other taxes and governmental
charges, assessments and contributions for which the Company and the Acquisition
Subsidiary is or may be liable including, but not limited to, interest and
penalties ("TAXES"), required to be paid, collected or withheld with respect to
all open years have been paid or collected or withheld and remitted to the
appropriate governmental agency except for (i) any Taxes which the Company is
contesting in good faith which have been noted in the Financial Statements, (ii)
Taxes not yet payable which have been adequately provided for in the Financial
Statements, (iii)
9
<PAGE>
any Taxes which may be imposed as a sole and direct result of the transactions
contemplated by this Agreement, and (iv) Taxes set forth in EXHIBIT 3.15
attached hereto. True, complete and correct returns (including, without
limitation, information returns and other material information) have been timely
filed by the Company with the appropriate governmental agency with respect to
all Taxes and the copies thereof which have been provided to Patra are true,
accurate and complete. Such tax returns of the Company have not been audited by
the Internal Revenue Service. Neither the Company nor any group of which the
Company is now or ever was a member has filed or entered into any election,
consent or extension agreement that extends any applicable statute of
limitations or the time within which a return must be filed. Neither the Company
nor any group of which the Company is now or ever was a member is a party to any
action or proceeding pending or threatened by any governmental authority for
assessment or collection of Taxes, no unresolved claim for assessment or
collection of Taxes has been asserted, no audit or investigation by any
governmental authority is pending or threatened and no such matters are under
discussion with any governmental authority. No deficiencies for Taxes have been
claimed, proposed or assessed by any taxing or other governmental authority. The
Company has never been an "S" corporation under the Code.
3.16 CHANGES. Since July 31, 1998, there has not been:
(a) any damage, destruction, other casualty loss or other occurrence
that could, individually or in the aggregate, have an adverse effect on the
assets, business, condition or prospects of the Company;
(b) any disposition of any asset of the Company other than in the
ordinary course of business;
(c) any amendment, modification or termination of any existing, or
entering into any new, contract, agreement, lease, license, permit or franchise
that could, individually or in the aggregate, have an adverse effect on the
business, condition or prospects of the Company;
(d) any direct or indirect redemption, purchase or other acquisition
of, or any declaration, setting aside or payment of any dividend or other
distribution on or in respect of, any stock or other securities of the Company;
(e) any changes in the accounting methods or practices followed by
the Company or any change in depreciation or amortization policies or rates; or
(f) any other adverse change in the assets, business, condition or
prospects of the Company.
3.17 LABOR MATTERS. Neither the Company nor the Acquisition Subsidiary
have any obligations, contingent or otherwise, under any employment or
consulting agreement, collective bargaining agreement or other contract with a
labor union or other labor or employee group. There are no efforts presently
being made or threatened by or on behalf of any labor union with respect to
10
<PAGE>
employees of the Company or the Acquisition Subsidiary. The Company and the
Acquisition Subsidiary are in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and have not and are not engaged in any unfair labor practice;
no unfair labor practice complaint against the Company or the Acquisition
Subsidiary is pending or threatened before the National Labor Relations Board;
there is no labor strike, dispute, disturbance, slowdown or stoppage pending or
threatened against or involving the Company or the Acquisition Subsidiary; no
representation question exists respecting the employees of the Company or the
Acquisition Subsidiary; no grievance or internal or informal complaint which
might have an adverse effect upon the Company or the Acquisition Subsidiary
exists, and no arbitration proceeding arising out of or under any collective
bargaining agreement is pending and no claim therefor has been asserted; no
collective bargaining agreement is currently being negotiated by the Company or
the Acquisition Subsidiary; and neither the Company nor the Acquisition
Subsidiary has experienced any labor difficulty.
3.18 MINUTE AND STOCK BOOKS; RECORDS. The minute books of the Company and
the Acquisition Subsidiary made available to Patra contain the records of all
meetings and other corporate actions of the shareholders and directors (and
committees thereof) of the Company and the Acquisition Subsidiary and accurately
and completely reflect all such actions. The Bylaws contained in or kept with
said minute books are true, complete and correct copies of the Bylaws of the
Company and the Acquisition Subsidiary and all amendments thereto duly adopted
and in force. All other records maintained by the Company and the Acquisition
Subsidiary including, but not limited to, records pertaining to bank accounts
accurately reflect the information presented therein.
3.19 DISCLOSURE. No representation, warranty or statement made by or on
behalf of the Company and the Acquisition Subsidiary in this Agreement
(including, but not limited to, the Exhibits attached hereto) or in the
certificates or other materials furnished or to be furnished to Patra or its
representatives in connection with this Agreement and the transactions
contemplated hereby or thereby, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make the statements contained herein or
therein not misleading. All information and documents provided prior to the date
of this Agreement, and all information and documents subsequently provided, to
Patra or its representatives by or on behalf of the Company and the Acquisition
Subsidiary are or contain, or will be or will contain as to subsequently
provided information or documents, true, accurate and complete information with
respect to the subject matter thereof and are, or will be as to subsequently
provided information or documents, fully responsive to any specific request made
by or on behalf of Patra or its representatives. Prior to the Closing, full
disclosure shall have been made to Patra of all material facts with respect to
the Company and its business, assets, operations, condition and prospects and
the transactions contemplated by this Agreement which a reasonable purchaser
would deem relevant. The Company shall promptly notify Patra of any change or
event which could adversely affect the assets, operations, business, condition
or prospects of the Company.
3.20 BROKER'S OR FINDER'S FEE. No agent, broker, person or firm acting on
behalf of the Company or the Acquisition Subsidiary is, or will be, entitled to
any commission or broker's or
11
<PAGE>
finder's fees from any of the parties hereto, or from any person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein.
3.21 SHAREHOLDER APPROVAL. No approval of the shareholders of the Company
is required under Nevada law for either the execution of this Agreement or the
consummation of the transactions contemplated by this Agreement.
3.22 SHAREHOLDER LIST. Attached hereto as EXHIBIT 3.22 is a list of
shareholders of the Company as provided by the Company's stock transfer agent.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
4.1 ORDINARY COURSE. The Company and the Acquisition Subsidiary represent
and warrant that prior to the Closing, without Patra's written consent, they
shall not: amend or propose to amend their Articles (or Certificate) of
Incorporation or Bylaws;
(a) except for the issuance of Acquisition Subsidiary shares to the
Company upon organization, and the issuance of the 12,950,000 shares of the
Company Stock in exchange therefore, authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any
shares of, or any options, warrants, commitments, subscriptions or rights of any
kind to acquire or sell any shares of, the capital stock or other securities of
the Company or the Acquisition Subsidiary including, but not limited to, any
securities convertible into or exchangeable for shares of stock of any class of
the Company or the Acquisition Subsidiary;
(b) split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
or redeem, purchase or otherwise acquire or offer to acquire any shares of its
capital stock or other securities;
(c) (i) create, incur or assume any short-term debt, long-term debt
or obligations in respect of capital leases; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any person or entity; (iii)
make any capital expenditures or make any loans, advances or capital
contributions to, or investments in, any other person or entity; (iv) acquire
the stock or assets of, or merge or consolidate with, any other person or
entity; or (v) incur any liability or obligation (absolute, accrued, contingent
or otherwise);
(d) directly or indirectly through any investment banker or other
representative or otherwise, solicit, entertain or negotiate with respect to any
inquiries or proposals from any person or entity relating to: (i) the merger or
consolidation of the Company or the Acquisition Subsidiary with any person or
entity, (ii) the direct or indirect acquisition by any person or entity of any
of the
12
<PAGE>
assets of the Company or the Acquisition Subsidiary, or (iii) the acquisition of
direct or indirect beneficial ownership or control of the Company or the
Acquisition Subsidiary or any securities thereof by any person or entity;
(e) sell, transfer, mortgage, pledge or otherwise dispose of, or
encumber, any assets or properties;
(f) hire any officers, employees or agents;
(g) increase in any manner the compensation of any of its officers,
employees or agents;
(h) enter into or establish any employment, consulting, retention,
change in control, collective bargaining, bonus or other incentive compensation,
profit sharing, health or other welfare, stock option or other equity, pension,
retirement, vacation, severance, deferred compensation or other compensation or
benefit plan, policy, agreement, trust, fund or arrangement with, for or in
respect of, any shareholder, officer, director, other employee, agent,
consultant or Affiliate;
(i) make any new elections with respect to Taxes or any changes in
current elections with respect to Taxes;
(j) compromise, settle, grant any waiver or release relating to or
otherwise adjust any litigation, claim or proceeding;
(k) take any action or omit to take any action, which action or
omission would result in a breach of any of the covenants, representations and
warranties of the Company set forth in this Agreement;
(l) enter into or amend any lease of, or agreement with respect to,
real property;
(m) take any action with respect to the indemnification of any person
or entity;
(n) change any accounting practices;
(o) agree, commit or arrange to do any of the foregoing.
4.2 ACCESS PRIOR TO CLOSING. Upon reasonable notice, the Company and the
Company's officers, agents and employees shall afford Patra and its
representatives (including, without limitation, its independent public
accountants, attorneys and banks or other lenders' representatives) reasonable
access from the date hereof through the Closing to any and all of the premises,
properties, contracts, books, records, data and personnel of or relating to the
Company or its operations. The Company and the Company's officers, agents and
employees shall cooperate fully in connection with the foregoing.
13
<PAGE>
4.3 REGULATORY AND OTHER AUTHORIZATIONS. The Company and the Acquisition
Subsidiary shall obtain or make, and/or shall cooperate fully in obtaining or
making, all governmental, regulatory and third-party approvals, orders,
qualifications, waivers, consents, filings, authorizations, certifications or
other actions necessary in order to consummate the transactions contemplated
hereby. The parties hereto will not take any action that will have the effect of
delaying, impairing or impeding the receipt of any of the foregoing and will use
their respective best efforts to secure the same as promptly as possible.
4.4 FURTHER ASSURANCES. At any time and from time to time at or after the
Closing, the parties agree to cooperate with each other, to execute and deliver
such other documents, instruments of transfer or assignment, files, books and
records and do all such further acts and things as may be reasonably required to
carry out the transactions contemplated hereby.
4.5 DELIVERY. The parties shall cause the delivery of the respective
documents required to be delivered or caused to be delivered by them pursuant to
ARTICLE VI below.
4.6 INDEMNITY.
(a) The representations and warranties made by the parties in this
Agreement, in the Exhibits attached hereto and in the certificates delivered at
the Closing, and all of the covenants of the parties in this Agreement, shall
survive the execution and delivery of this Agreement and the Closing Date and
shall expire on the second anniversary of the Closing Date. Any claim for
indemnification shall be effective only if notice of such claim is given by the
party claiming indemnification or other relief to the party against whom such
indemnification or other relief is claimed on or before the second anniversary
of the Closing Date.
(b) The Company and the Acquisition Subsidiary agree to indemnify and
hold Patra and the Patra Shareholders harmless, from and after the Closing Date,
against and in respect of all matters in connection with any losses,
liabilities, costs or damages (including reasonable attorneys' fees) incurred by
Patra and the Patra Shareholders that result from any misrepresentation or
breach of the warranties by the Company or the Acquisition Subsidiary in Article
III, "Representations and Warranties of the Company and the Acquisition
Subsidiary," or any breach or nonfulfillment of any agreement or covenant on the
part of the Company contained in this Agreement, and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the foregoing
matters, including reasonable attorneys' fees.
(c) Patra and the Patra Shareholders, on a joint and several basis,
agree to indemnify and hold the Company and the Acquisition Subsidiary harmless,
from and after the Closing Date, against and in respect of all matters in
connection with any losses, liabilities or damages (including reasonable
attorneys' fees) incurred by the Company and the Acquisition Subsidiary
resulting from any misrepresentation or breach of the warranties of Patra and
the Patra Shareholders in Article II, "Representations and Warranties of Patra
and the Patra Shareholders," or any breach or nonfulfillment of any agreement or
covenant on the part of Patra and the Patra Shareholders contained in this
14
<PAGE>
Agreement and all suits, actions, proceedings, demands, judgments, costs and
expenses incident to the foregoing matters, including reasonable attorneys'
fees. No claim for indemnification may be made under this Section 4.6(b) after
the second anniversary of the Closing Date.
(d) If the Company believes that a matter has occurred that entitles
it to indemnification under Section 4.6(c), or Patra or the Patra Shareholders
believes that a matter has occurred that entitles them to indemnification under
Section 4.6(b), Patra, the Company, the Acquisition Subsidiary or the Patra
Shareholders, as the case may be (the "INDEMNIFIED PARTY"), shall give written
notice to the party or parties against whom indemnification is sought (each of
whom is referred to herein as an "INDEMNIFYING PARTY") describing such matter in
reasonable detail. The Indemnified Party shall be entitled to give such notice
prior to the establishment of the amount of its losses, liabilities, costs or
damages, and to supplement its claim from time to time thereafter by further
notices as they are established. Each Indemnifying Party shall send a written
response to such claim for indemnification within thirty (30) days after receipt
of the claim stating its acceptance or objection to the indemnification claim,
and explaining its position in respect thereto in reasonable detail. If such
Indemnifying Party does not timely so respond, it will be deemed to have
accepted the Indemnified Party's indemnification claim as specified in the
notice given by the Indemnified Party. If the Indemnifying Party gives a timely
objection notice, then the parties will negotiate in good faith to attempt to
resolve the dispute, and upon the expiration of an additional thirty (30) day
period from the date of the objection notice or such longer period as to which
the Indemnified and Indemnifying Parties may agree, any such dispute shall be
submitted to arbitration in New York City, New York to a member of the American
Arbitration Association mutually appointed by the Indemnified Party and
Indemnifying Party (or, in the event the Indemnified Party and Indemnifying
Party cannot agree on a single such member, to a panel of three members of such
Association selected in accordance with the rules of such Association), who
shall promptly arbitrate such dispute in accordance with the rules of such
Association and report to the parties upon such disputed items, and such report
shall be final, binding and conclusive on the parties. Judgment upon the award
by the arbitrator(s) may be entered in any court having jurisdiction. The
prevailing party in any such arbitration shall be entitled to recover from, and
have paid by, the other party hereto all fees and disbursements of such
arbitrator or arbitrators. For this purpose, a party shall be deemed to be the
prevailing party only if such party (A)(i) receives an award or judgment in such
arbitration and/or litigation for more than fifty percent (50%) of the disputed
amount involved in such matter, or (ii) is ordered to pay the other party less
than fifty percent (50%) of the disputed amount involved in such matter or
(B)(i) succeeds in having imposed a material equitable remedy on the other party
(such as an injunction or order compelling specific performance), or (ii)
succeeds in defeating the other party's request for such an equitable remedy.
(e) If any third person asserts a claim against an Indemnified Party
in connection with the matter involved in such claim, the Indemnified Party
shall promptly (but in no event later than ten (10) days prior to the time at
which an answer or other responsive pleading or notice with respect to the claim
is required) notify the Indemnifying Party of such claim. The Indemnifying Party
shall have the right, at its election, to take over the defense or settlement of
such claim by giving prompt notice to the Indemnified Party that it will do so,
such election to be made and notice given in any event at
15
<PAGE>
least five (5) days prior to the time at which an answer or other responsive
pleading or notice with respect thereto is required. If the Indemnifying Party
makes such election, the Indemnifying Party may conduct the defense of such
claim through counsel of its choosing (subject to the Indemnified Party's
approval, not to be unreasonably withheld), will be responsible for the expenses
of such defense, and shall be bound by the results of its defense or settlement
of the claim to the extent it produces damage or loss to the Indemnified Party.
The Indemnifying Party shall not settle such claims without prior notice to and
consultation with the Indemnified Party, and no such settlement involving any
injunction or material and adverse effect on the Indemnified Party may be agreed
to without its consent. As long as the Indemnifying Party is diligently
contesting any such claim in good faith, the Indemnified Party shall not pay or
settle any such claim. If the Indemnifying Party does not make such election, or
having made such election does not proceed diligently to defend such claim prior
to the time at which an answer or other responsive pleading or notice with
respect thereto is required, or does not continue diligently to contest such
claim, then the Indemnified Party may take over defense and proceed to handle
such claim in its exclusive discretion, and the Indemnifying Party shall be
bound by any defense or settlement that the Indemnified Party may make in good
faith with respect to such claim. The parties agree to cooperate in defending
such third party claims, and the defending party shall have access to records,
information and personnel in control of the other part which are pertinent to
the defense thereof.
(f) The parties understand that this Section 4.6 requires that all
disputed claims shall be submitted to arbitration in accordance with Section
4.6(d).
4.7 CONFIDENTIALITY.
(a) Except as contemplated by this Agreement, as required by law or
otherwise expressly consented to in writing by Patra and the Company, all
information or documents furnished hereunder by any party shall be kept strictly
confidential by the party or parties to whom furnished at all times prior to the
Closing Date, and in the event such transactions are not consummated, each shall
return to the other all documents furnished hereunder and copies thereof upon
request and shall continue to keep confidential all information furnished
hereunder and shall not thereafter use the same for its advantage.
Notwithstanding the foregoing, the Company may, at any time after the date of
this Agreement, file with the Securities and Exchange Commission (the
"COMMISSION") a Report on Form 8-K pursuant to the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), with respect to the transactions
contemplated by this Agreement. Patra shall cooperate with the Company and
provide such information and documents as may be required in connection with any
such filings.
(b) In the event the Closing is not consummated, each party hereto
will return all documents obtained from the other party and will hold in
absolute confidence any information obtained from another party except to the
extent (i) such party is required to disclose such information by law or
regulation, (ii) disclosure of such information is necessary or desirable in
connection with the pursuit or defense of a claim, (iii) such information was
known by such party prior to such disclosure or was thereafter developed or
obtained by such party independent of such
16
<PAGE>
disclosure, or (iv) such information becomes generally available to the public
or is otherwise no longer confidential. Prior to any disclosure of information
pursuant to the exception in clause (i) or (ii) of the preceding sentence, the
party intending to disclose the same shall so notify the party which provided
the same in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.
4.8 SHAREHOLDER APPROVAL. As soon as practicable, the Board of Directors
of the Company will take all steps necessary, as the sole shareholder of the
Acquisition Subsidiary to approve the Plan of Merger and provide the approval
for such other purposes as may be necessary or desirable in connection with
effectuating the transactions contemplated hereby.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO CLOSE OF THE COMPANY AND THE ACQUISITION SUBSIDIARY. The
obligations of the Company and the Acquisition Subsidiary under this Agreement
are subject to the satisfaction at or prior to the Closing of each of the
following conditions, but compliance with any or all of such conditions may be
waived, in writing, by the Company:
(a) The representations and warranties of Patra and the Patra
Shareholders contained in this Agreement shall be true and correct in all
material respects on the date hereof and on the Closing Date;
(b) Patra and the Patra Shareholders shall have performed and
complied with all of the covenants and agreements in all material respects and
satisfied in all material respects the conditions required by this Agreement to
be performed or complied with or satisfied by Patra and the Patra Shareholders
at or prior to the Closing;
(c) All required governmental and regulatory approvals, consents
and/or waiting periods shall have been obtained;
(d) No action, suit or proceeding shall have been instituted or
threatened by any person or entity including, but not limited to, any
governmental agency or body to restrain or prevent the carrying out of the
transactions contemplated by this Agreement or that seeks other material relief
with respect to any of such transactions or that could, individually or in the
aggregate, have a material adverse effect on the business or prospects of Patra.
On the Closing Date, there shall be no injunction, restraining order or decree
of any nature of any court or governmental agency or body in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement;
(e) The Plan of Merger shall have been duly approved by the Patra
Shareholders pursuant to the Delaware Act;
17
<PAGE>
(f) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of Patra; and
5.2 CONDITIONS TO CLOSE OF PATRA AND THE PATRA SHAREHOLDERS. The
obligations of Patra and the Patra Shareholders under this Agreement are subject
to the satisfaction at or prior to the Closing of each of the following
conditions, but compliance with any or all of such conditions may be waived, in
writing, by Patra and the Patra Shareholders:
(a) The representations and warranties of the Company and the
Acquisition Subsidiary contained in this Agreement shall be true and correct in
all material respects on the date hereof and on the Closing Date;
(b) The Company and the Acquisition Subsidiary shall have performed
and complied with all the covenants and agreements in all material respects and
satisfied in all material respects the conditions required by this Agreement to
be performed or complied with or satisfied by it or them at or prior to the
Closing;
(c) All required governmental, regulatory and third-party approvals
or consents shall have been obtained;
(d) The Plan of Merger shall have been duly approved by the Company
as the sole shareholder of the Acquisition Subsidiary pursuant to the Delaware
Act;
(e) No action, suit or proceeding shall have been instituted or
threatened by any person or entity including, but not limited to, any
governmental agency or body to restrain or prevent the carrying out of the
transactions contemplated by this Agreement or that seeks other material relief
with respect to any of such transactions or that could, individually or in the
aggregate, have a material adverse effect on the business or prospects of the
Company. On the Closing Date, there shall be no injunction, restraining order or
decree of any nature of any court or governmental agency or body in effect that
restrains or prohibits the consummation of the transactions contemplated by this
Agreement;
(f) There shall not have occurred any material adverse change in the
assets, business, condition or prospects of the Company; and
ARTICLE VI
THE CLOSING
6.1 DELIVERIES BY THE COMPANY AND THE ACQUISITION SUBSIDIARY. At the
Closing, Patra shall receive from the Company and/or the Acquisition Subsidiary
the following:
(a) Certificates of Company Stock representing the Merger
Consideration;
18
<PAGE>
(b) Certificate of good standing or existence in each of the states
in which the Company and the Acquisition Subsidiary is incorporated or qualified
stating that the Company is a validly existing corporation in good standing;
(c) Copies of duly adopted resolutions of the Board of Directors of
the Company and the Acquisition Subsidiary approving the execution, delivery and
performance of this Agreement and the other agreements and instruments
contemplated hereby and by the Company as the sole shareholder of the
Acquisition Subsidiary approving the Plan of Merger, certified by the Secretary
of the Acquisition Subsidiary;
(d) The resignations of any officers or directors of the Acquisition
Subsidiary; and
(e) Such other documents and instruments as Patra may reasonably
request.
6.2 DELIVERIES BY PATRA AND THE PATRA SHAREHOLDERS. At the Closing, the
Company and/or the Acquisition Subsidiary shall receive from Patra and/or the
Patra Shareholders the following:
(a) Certificate of existence from the Secretary of State of the State
of Delaware stating that Patra is a validly existing corporation in good
standing;
(b) Copies of duly adopted resolutions of the Board of Directors and
Shareholders of Patra approving the execution, delivery and performance of this
Agreement, certified by its Secretary; and
ARTICLE VII
TERMINATION
7.1 TERMINATION. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated only by the mutual written consent of
Patra and the Company.
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1 of this Agreement, this Agreement shall
thereafter become void and have no effect, and without any liability on the part
of any party or its shareholders, directors or officers in respect thereof,
except as otherwise provided in this Agreement and except that nothing herein
will relieve any party from liability for any breach of this Agreement. In
addition, all confidential information exchanged by the parties shall be
promptly returned to the proper party.
ARTICLE VIII
MISCELLANEOUS
8.1 EXPENSES. Each party hereto shall bear their or its own respective
expenses, fees and commissions (including, but not limited to, all compensation
and expenses of counsel, financial
19
<PAGE>
advisors, brokers, consultants, actuaries and accountants) incurred in
connection with the preparation, negotiation and execution of this Agreement and
consummation of the transactions contemplated hereby.
8.2 PUBLIC DISCLOSURE. No press release or other public announcement or
communication will be made or caused to be made concerning the terms and
conditions of this Agreement unless specifically approved in advance by Patra
and the Company. However, the parties acknowledge that such a press release or
public announcement is necessary under applicable law and no party shall
unreasonably withhold its approval from such a press release.
8.3 GOVERNING LAW AND CONSENT TO JURISDICTION. This Agreement shall be
deemed to be made in, and in all respects shall be interpreted, construed and
governed by and in accordance with the internal laws of, the State of Delaware
(except to the extent the Nevada Act may control with respect to matters
concerning the Company as part of the Merger), and the parties hereto consent to
the jurisdiction of the courts of or in the State of Delaware with respect to
any dispute, controversy or other matter relating to or arising out of this
Agreement or the transactions contemplated hereby after submission to
arbitration as outlined in Section 4.6(d).
8.4 NOTICES. Any notices or other communications required under this
Agreement shall be in writing, shall be deemed to have been given when delivered
in person, by telex or facsimile, when delivered to a recognized next business
day courier, or, if mailed, when deposited in the United States first class
mail, registered or certified, return receipt requested, with proper postage
prepaid, addressed as follows or to such other address as notice shall have been
given pursuant hereto:
If to the Company or the Acquisition Subsidiary:
Elligent Consulting Group, Inc.
Attn: Lloyd T. Rochford
5 Clancey Lane South
Rancho Mirage, California 92270
Facsimile: (760)346-2337
With a copy to:
Christian J. Hoffmann, III, Esq.
Streich Lang, P.A.
Renaissance One
Two North Central Avenue
Phoenix, Arizona 85004
Facsimile: (602) 420-5008
If to Patra or the Patra Shareholders:
Patra Capital Limited
Attn: Andreas Typaldos
152 West 57th Street, 40th Floor
20
<PAGE>
New York, NY 10019
Facsimile: (212) 765-2924
With a copy to:
Moses & Singer LLP
1301 Avenue of the Americas
New York, New York 10019-6076
Facsimile: (212) 554-7700
8.5 ASSIGNMENT. This Agreement may not be assigned, by operation of law or
otherwise to any other person or entity.
8.6 SECTION HEADINGS. The section headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
8.8 AMENDMENT. This Agreement may not be amended except by a writing
signed by the party to be charged.
8.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
8.10 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
8.11 SURVIVAL. Subject to the express limitations specified in this
Agreement, the covenants, agreements, indemnities, representations and
warranties of Patra, the Company, the Acquisition Subsidiary and the Patra
Shareholders made in or pursuant to this Agreement shall survive the Closing,
notwithstanding any investigation made or information obtained by or on behalf
of Patra, the Company, the Acquisition Subsidiary or the Patra Shareholders.
8.12 SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired
thereby.
8.13 THIRD PARTIES. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create
21
<PAGE>
any rights in, or be deemed to have been executed for the benefit of, any person
or entity that is not a party hereto, a successor or permitted assign of such a
party or a person or entity entitled to indemnification hereunder.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
PATRA CAPITAL LIMITED ELLIGENT CONSULTING GROUP, INC.
By: /s/ ANDREAS TYPALDOS /s/ LLOYD T. ROCHFORD
Name: Andreas Typaldos Name: Lloyd T. Rochford
Title: President Title: President
PATRA SHAREHOLDERS: PATRA ACQUISITION, INC.
/s/ ANDREAS TYPALDOS /s/ LLOYD T. ROCHFORD
For: PATRA HOLDING, LLC Lloyd T. Rochford
President
22
<PAGE>
Exhibit 1.5
FORM OF TRANSMITTAL LETTER
LETTER OF TRANSMITTAL, WAIVER AND RELEASE
For submitting certificates representing shares of stock of
Patra Capital Inc.
pursuant to the Agreement and Plan of Merger
dated as of August 26, 1998 (the "Merger Agreement")
and related Plan of Merger (the "Plan of Merger")
This Letter of Transmittal, Waiver and Release should be completed, signed
and submitted, together with your certificates representing shares of Patra
Capital, Inc. common stock, to:
Elligent Consulting Group, Inc.
Attn: Lloyd T. Rochford
IMPORTANT: YOU ARE REQUESTED TO SIGN THIS DOCUMENT IN EACH OF THE
PLACES INDICATED BELOW.
In connection with the merger (the "Merger") of Patra Acquisition, Inc., a
Delaware corporation and wholly owned subsidiary of Elligent Consulting Group,
Inc., a Nevada corporation ("Elligent"), with and into Patra Capital, Inc., a
Delaware corporation ("Patra"), and pursuant to the Merger Agreement and the
Plan of Merger, the undersigned encloses herewith and surrenders the following
certificate(s) (the "Certificates"), representing shares of Patra common stock
(the "Shares"):
NAME & ADDRESS OF PATRA CERTIFICATE(S) ENCLOSED
REGISTERED OWNER
CERTIFICATE NO. NUMBER OF SHARES
OF COMMON STOCK
AUTHORITY, OWNERSHIP AND FURTHER ASSURANCES
The undersigned hereby warrants that the undersigned has full power and
authority to submit, sell, assign and transfer the Certificates and the Shares
and that the Shares are owned by
the undersigned and are free and clear of all liens, encumbrances, security
interests, mortgages, pledges, charges, agreements, rights, options, warrants,
restrictions and claims. The undersigned will, upon request, execute any
additional documents reasonably necessary or desirable to complete the transfer
of the Shares and accomplish the matters contemplated hereby.
<PAGE>
PAYMENT OF MERGER CONSIDERATION
You hereby are authorized and instructed to prepare in the name and deliver to
the address of the undersigned set forth above, or to such other address as
requested by the undersigned in writing, shares of Common Stock of Elligent
("Elligent Shares") in accordance with the terms and conditions of the Merger
Agreement and the Plan of Merger in exchange for the Shares evidenced by the
enclosed Certificates.
RELEASE
For valuable consideration, the receipt of which hereby is acknowledged,
the undersigned hereby releases and forever discharges Patra, its affiliates,
officers, directors and their respective heirs, personal representatives,
successors and assigns, from any and all claims, damages, losses, liabilities,
demands, charges, suits, penalties, actions and causes of action, whether
accrued, absolute, contingent, known or unknown, which the undersigned may now
or hereafter have arising out of or relating to (i) the formation, financing,
management or operations of Patra, (ii) the issuance, holding or repurchase of
securities of Patra, or (iii) other than with respect to any existing right to
indemnification by Patra, the undersigned's status as a shareholder, officer,
director, and/or employee of Patra. The foregoing release shall be binding upon
the undersigned and the undersigned's heirs, personal representatives,
successors and assigns.
CERTIFICATION
By signing below, under the penalties of perjury, the undersigned certifies (1)
that the Social Security Number or Taxpayer Identification Number set forth
below is the undersigned's correct Social Security Number or Taxpayer
Identification Number, (2) that all other information provided herein is true
and accurate, and (3) that the undersigned is not subject to backup withholding
because (a) the undersigned has not been notified that the undersigned is
subject to backup withholding as a result of a failure to report all interest or
dividends, or (b) the Internal Revenue Service has notified the undersigned that
the undersigned is no longer subject to backup withholding. (The undersigned
must cross out subpart (3) of the certification if the Internal Revenue Service
has notified the undersigned that the undersigned is subject to backup
withholding due to the underreporting of dividends or interest on tax returns
and notice has not been received from the Internal Revenue Service advising that
backup withholding has terminated.) NOTE: FAILURE TO COMPLETE AND RETURN THIS
INFORMATION WILL RESULT IN BACKUP WITHHOLDING ON PAYMENTS DUE TO YOU.
IMPORTANT: THIS LETTER OF TRANSMITTAL AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REQUIRED HEREBY SHOULD BE DELIVERED TO ELLIGENT CONSULTING GROUP, INC. IN CARE
OF LLOYD T. ROCHFORD AT THE ADDRESS SET FORTH ABOVE. UNLESS AND UNTIL ANY
OUTSTANDING CERTIFICATE FORMERLY EVIDENCING THE SHARES IS SO DELIVERED, NO
ELLIGENT SHARES WILL BE DELIVERED TO THE HOLDER OF PATRA SHARES.
2
<PAGE>
The undersigned has carefully reviewed this Letter of Transmittal and
Release and understands its contents and the significance thereof and has
consulted with counsel with regard thereto. All authority herein conferred shall
survive the death or incapacity of the undersigned, and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
Dated as of _____________________, 1998.
(Signature)
Name:___________________ All Registered Owners must sign exactly
as name(s) appear on Certificate(s). If Phone
No.:______________ anyone other than the Registered Owner or
if an attorney, personal representative,
Social Security or trustee, custodian, guardian, partner,
Taxpayer I.D. No.: other fiduciary or officer of a corporation
______________________ signs the Letter of Transmittal, proper
evidence of authority to act, satisfactory to
___________, must be submitted herewith.
3
<PAGE>
EXHIBIT 2.4
PATRA CAPITAL, LIMITED SHAREHOLDERS
Patra Capital Shareholder Share Holdings
Patra Holdings, LLC 844
Andreas Typaldos 29
ANIN Development LLC 55
Elias Typaldos Family Limited Partnership 17
Elias Typaldos 30
Gennaro Vendome Family Limited Partnership 8
Gennaro Vendome 17
Total Issued and Outstanding 1000
Treasury Stock 0
Total Authorized 1000
Elligent Shares
to be issued
under
Patra Capital Shareholder Agreement
Patra Holdings, LLC 10,000,000
Andreas Typaldos 350,000
ANIN Development LLC 650,000
Elias Typaldos Family Limited Partnership 200,000
Elias Typaldos 350,000
Gennaro Vendome Family Limited Partnership 100,000
Gennaro Vendome 200,000
Total Elligent Shares to be issued to Patra 11,850,000
Capital Shareholders
Total Elligent Shares to be issued 12,950,000
EXHIBIT 3.15
TAXES
None.
EXHIBIT 3.22
SHAREHOLDER LIST OF
ELLIGENT CONSULTING GROUP, INC.
Omitted.
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER made as of August 1, 1998 (the
"Agreement") by and among PATRA CAPITAL LTD., a Delaware corporation having its
registered office at Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware ("Patra"), PATRA HOLDINGS LLC, a
Delaware limited liability company having its registered office at Corporate
Service Company, 1013 Centre Street, City of Wilmington, County of New Castle,
Delaware ("Patra Holdings"), CONVERSION SERVICES INTERNATIONAL, INC., a Delaware
corporation having its principal place of business at 100 Eagle Rock Avenue,
East Hanover, New Jersey 07936 ("CSI"), SCOTT NEWMAN, an individual residing at
51 Westmount Drive, Livingston, New Jersey 07039 ("Newman") and GLENN PEIPERT,
an individual residing at 10 Faas Court, West Orange, New Jersey 07052
("Peipert"; Newman and Peipert are hereinafter jointly referred to as
"Sellers"),
WITNESSETH:
WHEREAS, Patra Holdings, CSI, Newman and Peipert have entered into an
Agreement dated as of April 8, 1998, as amended by an Agreement dated July 21,
1998 (hereinafter jointly referred to as the "Preliminary Agreement"), pursuant
to which the parties thereto set forth, among other things, the main points
which the parties have agreed regarding the proposed amalgamation of the
business of CSI into Patra Holdings, which points are included in this
Agreement; and
1
<PAGE>
WHEREAS, Patra is a majority-owned subsidiary of Patra Holdings, and
will be at the Closing (as hereinafter defined) a wholly-owned subsidiary of
Elligent Consulting Group, Inc., a Nevada corporation ("Elligent"); and
WHEREAS, Patra Holdings has assigned its rights and duties under the
Preliminary Agreement to Patra; and
WHEREAS, Patra and Sellers have agreed that it is advisable and in
their best interests to provide that CSI be merged into Patra pursuant to the
General Corporation Law of the State of Delaware and pursuant to the provisions
of this Agreement (the "CSI-Patra Merger") and the Certificate of Merger (as
hereinafter defined); and
WHEREAS, Patra Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Elligent, intends to merge into Patra, with Patra
being the surviving corporation and a wholly-owned subsidiary of Elligent
immediately after such merger (the "Patra-Elligent Merger"); and
WHEREAS, Elligent has a class of its common stock registered under the
Securities Act of 1933 (the "Securities Act"), and will issue new unregistered
shares of its common stock, par value $.001 per share (such shares, whether
registered or not, hereinafter referred to as "Elligent Common Stock"), to Patra
Holdings in connection with the Patra-Elligent Merger; and
WHEREAS, Sellers own all of the Outstanding CSI Common Stock (as
hereinafter defined); and
2
<PAGE>
WHEREAS, the parties intend for the CSI-Patra Merger to constitute in
part a tax-free exchange under Section 368 of the Internal Revenue Code of 1986,
as amended, and in compliance with applicable state law;
NOW, THEREFORE, to effect the CSI-Patra Merger and in consideration of
the premises and the mutual agreements herein contained, the parties hereto
agree as follows:
Section 1. Merger of CSI into Patra and Exchange of CSI Stock
1.01. Constituent and Surviving Corporations. Patra and CSI will be
the constituent corporations to the CSI-Patra Merger. At the Effective Time
(which shall mean the time at which the Certificate of Merger substantially in
the form attached hereto as Exhibit 1.01, duly executed in accordance with
Section 251(c) of the General Corporation Law of the State of Delaware, shall be
filed in the office of the Secretary of State of the State of Delaware) CSI
shall be merged into Patra in accordance with the General Corporation Law of the
State of Delaware, and Patra shall be the surviving corporation of the CSI-Patra
Merger (hereinafter sometimes called the "Surviving Corporation"). The name,
identity, existence, rights, privileges, powers, franchises, properties and
assets of Patra shall continue unaffected and unimpaired by the CSI-Patra
Merger. At the Effective Time the identity and separate existence of CSI shall
cease, and all of the rights, privileges, powers, franchises, properties and
assets of CSI shall be vested in Patra.
1.02. Certificate of Incorporation. The Certificate of Incorporation
of Patra, as in effect immediately prior to the Effective Time, shall thereafter
continue in full force and effect as the Certificate of Incorporation of the
Surviving Corporation until further amended as provided therein or by law. The
By-Laws of Patra in effect at the Effective Time shall be the By-Laws of the
Surviving Corporation, until amended or repealed as provided therein or by law.
1.03. Directors. At the Effective Time, the following persons shall
become directors of the Surviving Corporation, each of whom shall hold office
until his successor has been elected and qualified, or as otherwise provided in
the By-Laws of the Surviving Corporation:
Andreas Typaldos
Scott Newman
Edwin Brondo
1.04. Conversion of Common Stock of Constituent Corporations. At the
Effective Time, each of the shares of the Outstanding CSI Common Stock shall, by
virtue of the CSI-Patra Merger and without any action on the part of the holder
thereof, be converted into the right to receive:
3
<PAGE>
(a) ONE THOUSAND FIVE HUNDRED DOLLARS ($1,500.00) per share in cash
(the "Cash"); for the avoidance of doubt, the aggregate amount of such cash
payment to be made pursuant to this clause (a) shall be ONE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($1,500,000);
(b) EIGHT THOUSAND FIVE HUNDRED DOLLARS ($8,500.00) in installment
debt of Elligent and Patra, payable, with interest, in accordance with the
terms and conditions of two (2) Secured Installment Promissory Notes (the
"Installment Promissory Notes") attached hereto as Exhibit 1.04(b)-1 and
Exhibit 1.04(b)-2 (which provide, in part, that at the election of Elligent
one installment of such principal in the amount of $1,500.00 per share of
Outstanding CSI Common Stock may be paid by the delivery of newly issued
Restricted Shares [as hereinafter defined] of Elligent Common Stock [the
"Conversion Stock"] as determined in accordance with Section 1.05 hereof);
for the avoidance of doubt, the aggregate principal amount of the
Installment Promissory Notes to be made pursuant to this clause (b) shall
be EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($8,500,000);
(c) ONE HUNDRED (100) shares of newly issued Restricted Shares of
Elligent Common Stock (the "Additional Stock"); for the avoidance of doubt,
the aggregate amount of such shares to be issued pursuant to this clause
(c) is ONE HUNDRED THOUSAND (100,000) shares; and
(d) ONE THOUSAND (1,000) shares of newly issued Restricted Shares of
Elligent Common Stock (the aggregate amount of such shares to be issued
pursuant to this clause (d) is herein referred to as the "Merger Stock");
for the avoidance of doubt, the aggregate amount of such shares to be
issued pursuant to this clause (d) is ONE MILLION (1,000,000) shares.
All of the foregoing consideration (i.e., the Cash, the Installment Promissory
Notes, the Conversion Stock, if any, and the Merger Stock) is hereinafter
sometimes referred to as the "Merger Consideration".
1.05. Elligent Common Stock.
(a) In the event that Elligent exercises its option under Sub-Section
1.04(b) to make payment in Conversion Stock the following shall apply:
(i) The value of the Conversion Stock for purposes of
determining the amount of shares thereof to be delivered to
Sellers pursuant to Sub-Section 1.04(b) shall be deemed to
be the average closing price per share, less twenty-five
percent (25%), of the publicly traded Elligent Common Stock
for the twenty (20) Business Days (as hereinafter defined)
immediately preceding the date on which payment is due
pursuant to Sub-Section 1.04(b).
(ii) Sellers shall have the right, upon twenty (20) Business Days
prior written notice to Elligent (such notice to be given
not earlier than December 15,
4
<PAGE>
1998 and not later than September 1, 1999), to require that
Elligent provide a purchaser for all (but not less than all)
of the shares of Conversion Stock delivered to Sellers
pursuant to Sub-Section 1.04(b) for an aggregate price of
ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000)
("Sellers' Notice"). Such purchase shall be effected within
the first fifteen (15) Business Days after the expiration of
the 20-day notice period set forth in Sellers' Notice.
(iii) Elligent shall have the right, upon twenty (20) Business
Days prior written notice to Sellers (such notice to be
given not earlier than February 1, 1999 and not later than
September 1, 1999), to require that Sellers sell to Elligent
all (but not less than all) of the shares of Conversion
Stock delivered to Sellers pursuant to Sub-Section 1.04(b)
for an aggregate price of ONE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($1,500,000) ("Elligent's Notice"). Such sale shall
be effected within the first fifteen (15) Business Days
after the expiration of the 20-day notice period set forth
in Elligent's Notice.
(b) "Restricted Shares" for purposes of this Agreement shall mean
shares of Elligent Common Stock, the transfer of which shall be subject to (i)
the same restrictions and holding periods as the shares of Elligent Common Stock
received by Patra Holdings in connection with the Patra-Elligent Merger, and
(ii) the representations of Sellers set forth in Sub-Section 3.01(bb).
(c) "Business Day" for purposes of this Agreement shall mean any day
except Saturday, Sunday or a statutory holiday in the State of New York or the
State of New Jersey.
1.06. The Adjustment Shares. If during the ninety (90) days
immediately following the consummation of the CSI-Patra Merger, the average
daily closing price (as reported by Bloomberg) of the publicly-traded shares of
Elligent Common Stock for the ten (10) Business Days with the ten (10) highest
closing prices during such period (the "Highest Average Price") is less than ten
dollars ($10) per share, then Sellers shall receive within five (5) Business
Days of the end of such 90-day period an amount of additional shares of Elligent
Common Stock (the "Adjustment Shares") such that Sellers shall have received an
amount of Merger Stock and Adjustment Shares having an aggregate value equal to
TEN MILLION DOLLARS ($10,000,000) calculated at such Highest Average Price;
notwithstanding the foregoing, the aggregate amount of Merger Stock, Additional
Stock and Adjustment Shares to be received by Sellers shall not exceed ten
percent (10%) of the aggregate amount of the shares of Elligent Common Stock
issued and outstanding at the Closing Date. Nothing in this Sub-Section 1.06
shall require Sellers to reduce their aggregate 1,100,000 shares of Elligent
Common Stock and shares of Conversion Stock, if any, which they are receiving as
part of the Merger Consideration.
5
<PAGE>
Section 2. Closing and Further Assurances
2.01. Closing Date; Time; Location. The "Closing Date" as such term is
used herein shall mean the date on which the consummation of the CSI-Patra
Merger shall occur (such consummation herein referred to as the "Closing"),
which date shall be September 10, 1998 or at such other date as the parties
hereto shall agree upon. The parties shall cause the Effective Time to occur
contemporaneously with the Closing. The Closing shall take place at 10:00 a.m.
(New York Time) on the Closing Date, at the offices of Stairs Dillenbeck Finley
& Merle, 330 Madison Avenue, Suite 2900, New York, New York.
2.02. Further Assurances. If at any time and from time to time after
the Closing Date, the Surviving Corporation or Patra Holdings shall consider or
be advised that any other instruments of sale, transfer, conveyance, assignment
or confirmation are necessary or desirable (i) to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of CSI or (ii) otherwise
to carry out the purposes of this Agreement, CSI and its officers and directors
shall be deemed to have granted to the Surviving Corporation an irrevocable
power of attorney to execute and deliver all such instruments and to do all acts
necessary or desirable to vest, perfect or confirm title to and possession of
such rights, properties or assets in the Surviving Corporation and otherwise to
carry out the purposes of this Agreement, and the officers and directors of the
Surviving Corporation and Patra Holdings are hereby authorized in the name of
CSI or otherwise to take any and all such action. At any time and from time to
time after the Closing Date, at the request of Sellers and without further
consideration, the Surviving Corporation and Patra Holdings will execute and
deliver, and Patra Holdings shall cause Elligent to execute and deliver, such
other instruments evidencing the Sellers' security interests under the Pledge
Agreement (as hereinafter defined), and such other instruments of sale,
transfer, conveyance, assignment and confirmation and take, or cause to be
taken, such other action as Sellers may reasonably deem necessary or desirable
in order to transfer, convey and assign more effectively to the Sellers, and to
confirm Seller's title to, the Merger Consideration.
Section 3. Representations and Warranties of Sellers and CSI
3.01. Representations and Warranties of Sellers. Sellers, and each of
them, and CSI jointly and severally represent and warrant to and agree with
Patra and Patra Holdings that:
(a) Corporate Existence. On the Closing Date, CSI will be a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, will have all requisite corporate power and
authority to conduct its business and will be entitled to carry on its
business as now being conducted and to own, lease and operate the
properties used in connection therewith as and in the places where the
business is now conducted and the properties are owned, leased or operated.
Prior to the Closing, the Certificate of Restoration and Revival of the
Certificate of Incorporation attached hereto as Exhibit 3.01(a)-1 shall
have been filed with the Secretary of State of the State of Delaware. CSI
is qualified, licensed or domesticated as a foreign corporation in the
States of New York and New Jersey, and there is no other jurisdiction in
which either the business of CSI as presently operated or property owned or
leased by CSI makes any such qualification or authorization necessary,
except states or jurisdictions where a failure to qualify can subsequently
be
6
<PAGE>
remedied without penalty, loss of right to enforce a claim or other loss or
liability to CSI or Patra. Prior to the Closing, the Application for
Authority of CSI attached hereto as Exhibit 3.01(a)-2 shall have been filed
with the Secretary of State of the State of New York. The copies of the
Certificate of Incorporation and By-Laws of CSI attached hereto as Exhibit
3.01(a)-3 and Exhibit 3.01(a)-4 are true, correct and complete copies
thereof as now in full force and effect.
(b) Subsidiaries. Except for Doorways, Inc., a New York corporation
("Doorways"), CSI does not own or control, directly or indirectly, any
record or beneficial interest in any corporation, association or other
business enterprise. CSI is not a participant in any joint venture,
partnership or similar arrangement. The copies of the Certificate of
Incorporation and By-Laws of Doorways attached hereto as Exhibit 3.01(b)-1
and Exhibit 3.01(b)-2 are true, correct and complete copies thereof as now
in full force and effect.
(c) Capitalization and Voting Rights.
(i) The total authorized capital stock of CSI consists of 3,000
shares of Common Stock, without par value ("CSI Common
Stock"), of which 1,000 shares are, and on the Closing Date
will be, duly and validly authorized and issued, fully paid
and nonassessable, and free of restrictions on transfer
other than restrictions on transfer under federal and state
securities laws ("Outstanding CSI Common Stock"). CSI has
not authorized any capital stock or other securities other
than the CSI Common Stock. CSI has not issued any capital
stock or other securities other than the Outstanding CSI
Common Stock. There are no outstanding subscriptions,
options, warrants, calls, agreements or other rights
(including conversion or pre-emptive rights) to subscribe
for, purchase or otherwise acquire from either of Sellers or
CSI any shares of the Outstanding CSI Common Stock or other
securities of CSI.
(ii) CSI is not a party or subject to any agreement or
understanding, and, to the best of the knowledge of either
of Sellers, there is no agreement or understanding between
any persons and/or entities which affects or relates to
voting by a shareholder or director of CSI in such capacity.
(d) Ownership of Outstanding CSI Common Stock. Sellers own all of the
Outstanding CSI Common Stock, free and clear of any and all liens, pledges,
hypothecations, rights (including conversion or pre-emptive rights),
options, warrants, puts, calls, transfer restrictions and other charges and
encumbrances other than as set forth or provided for in this Agreement.
(e) No Conflict. Except as set forth on Schedule 3.01(e), neither the
execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement, nor the fulfillment of or
compliance with the terms, conditions or provisions thereof (i) will
conflict with or result in a breach of any relevant statute, law,
ordinance, rule or regulation applicable to either of Sellers or CSI, or
the terms, conditions or provisions of the Certificate of Incorporation or
By-Laws of CSI or any mortgage, indenture, lease, agreement, or other
instrument, or any permit, concession, grant, franchise, license, judgment,
order, or decree to which either of Sellers or CSI is
7
<PAGE>
a party or by which any of them is or may be bound, or (ii) will
constitute, with the giving of notice or the passage of time or both, a
default by either of Sellers or CSI under any of the foregoing, or (iii)
will accelerate the maturity of or otherwise modify any obligation of
either of Sellers or CSI under any of the foregoing.
(f) Authorization. All corporate action on the part of CSI, its
officers, directors and stockholders, and all action on the part of
Sellers, necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of CSI and Sellers under this
Agreement, and consummation of the CSI-Patra Merger as contemplated in this
Agreement have been taken or will be taken prior to the Closing Date, and
this Agreement constitutes a valid and legally binding obligation of CSI
and each of Sellers, enforceable in accordance with its terms.
(g) Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or any other person is
required in connection with the execution and delivery of this Agreement by
either of Sellers or by CSI, or the consummation of the transactions
contemplated by this Agreement other than as contemplated by this
Agreement.
(h) Permits. CSI has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect
the business, properties, prospects, or financial condition of CSI. CSI is
not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
(i) Compliance with Laws. Except as set forth on Schedule 3.01(i), CSI
has complied in all material respects with all applicable federal, state
and local laws, regulations and ordinances affecting its business,
including, but not limited to, such laws, regulations and ordinances
regarding air or water pollution, other environmental protection,
occupational safety and health or equal employment opportunity.
(j) Financial Statements. Attached hereto as Exhibit 3.01(j)-1 are
true, correct and complete copies of the Balance Sheets of CSI as at
December 31, 1995, 1996 and 1997, together with the Statements of Earnings
and Retained Earnings and the Statements of Cash Flows and Notes thereto
for each such 12 month period then ended (hereinafter collectively the
"Financial Statements"), all compiled by Mintz Rosenfeld & Company LLC,
certified public accountants. Attached hereto as Exhibit 3.01(j)-2 are
true, correct and complete copies of the Balance Sheets of CSI and Doorways
as at June 30, 1998, together with the statements of Profit and Loss for
the six month period then ended (hereinafter collectively the "Interim
Financials"). The Financial Statements and the Interim Financials (i) are
in accordance with the books and records of CSI and Doorways (which books
and records are true, correct and complete in all material respects and
accurately reflect the transactions of the business of CSI and Doorways),
(ii) are true, correct and complete in all material respects and present
fairly the financial condition and results of operations of CSI and
Doorways as at the dates and for the periods indicated, and (iii) except
for the Interim Financials, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby and with each other, except that (y)
8
<PAGE>
unaudited financial statements may not contain all footnotes required by
generally accepted accounting principles and (z) the Interim Financials are
subject to normal year-end adjustments. CSI and Doorways each maintains,
and will continue to maintain through the Closing Date, a standard system
of accounting established and administered in accordance with generally
accepted accounting principles. The Financial Statements and Interim
Financials shall be subject to Exhibit 3.01(j)-3 and Schedule 3.01(j)-4
attached hereto.
(k) Absence of Liabilities. CSI and Doorways each does not have any
material liabilities, obligations or commitments of any nature, whether
accrued, absolute, contingent or otherwise, except as (i) reflected or
provided for in the Financial Statements and the Interim Financials,
including the Notes thereto, (ii) incurred since the date thereof in the
ordinary course of business or (iii) set forth on Schedule 3.01(k). Neither
CSI nor Doorways is a guarantor or indemnitor of any indebtedness of any
person, firm or corporation.
(l) Returns and Complaints. Except as set forth on Schedule 3.01(l),
CSI has received no customer complaints concerning its products or
services, nor has it had its products returned, or had to reperform or
otherwise correct its services, that taken together would constitute a
material adverse effect on CSI's business or prospects.
(m) Lawsuits. Except as set forth on Schedule 3.01(m), there is (i) no
action, suit, arbitration, governmental investigation, or other legal or
administrative proceeding pending or, to the knowledge of Sellers, or
either of them, threatened against CSI or against CSI's business or against
Sellers, or either of them, in any court or before any governmental agency
or arbitration tribunal and (ii) no action, suit or arbitration,
governmental investigation, or other legal or administrative proceeding
pending or, to the knowledge of Sellers, or either of them, threatened
against persons other than CSI which, in the case of either (i) or (ii), if
successful, might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs, or prospects of
CSI, financial or otherwise, or any change in the current equity ownership
of CSI, or which might create or impose a material lien or encumbrance on
any of CSI's assets or properties, or which might give rise to a material
liability of CSI or either of Sellers or might create or impose a material
lien or encumbrance on any of the assets or properties of either of
Sellers. Except as set forth on Schedule 3.01(m), neither CSI nor either of
Sellers is aware of any basis for any of the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened, or any basis therefor known to CSI or either of
Sellers, involving the validity of this Agreement, or the right of CSI or
either of Sellers to enter into this Agreement, or to consummate the
transactions contemplated by this Agreement, or that relate to the prior
employment of any of CSI's employees, their use in connection with CSI's
business of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with
their former employers. Neither of Sellers nor CSI is in default with
respect to any order, writ, injunction or decree of any court, governmental
agency or arbitration tribunal. There is no action, suit, proceeding or
investigation by or on behalf of CSI currently pending or that CSI intends
to initiate before any governmental agency or arbitration tribunal.
Sellers, or either of them, have no knowledge of any pending legislation,
governmental regulation or technological development which would materially
and adversely affect the assets, properties or business of CSI. There are
no material actions, suits, proceedings or investigations pending or, to
the knowledge of
9
<PAGE>
Sellers, or either of them, threatened against, nor are there any material
unpaid citations, fines or penalties heretofore asserted against, CSI or
either of Sellers under any federal, state or local law, ordinance or
regulation relating to air or water pollution or other environmental
protection matters, or relating to equal employment opportunity or
occupational health or safety.
(n) Taxes.
(i) CSI and Doorways have each duly and timely filed with the
appropriate government agencies all federal, state and local
tax returns and reports, the filing of which was required by
the conduct of their respective businesses (the "Tax
Returns"), and all such returns and reports properly
reflected the taxes due for the periods covered thereby.
True, correct and complete copies of the Tax Returns for the
three most recent fiscal periods are attached hereto as
Exhibit 3.01(n)(i)-1 and Exhibit 3.01(n)(i)-2. All income,
profits, franchise, sales, employment, property or other
taxes and all assessments, interest, penalties or
deficiencies, fees and other governmental charges or
impositions accrued during the periods covered by the Tax
Returns, or due to or claimed to be due by any taxing
authority with respect to the periods covered by the Tax
Returns, upon CSI and Doorways or upon or measured by their
respective purchases, sales, payments to employees and
others or other business activity, or by their respective
properties, assets, capital stock, surplus or income
(hereinafter the "Taxes" or a "Tax"), have been properly
accrued or paid, and neither CSI nor Doorways has received
any notice of deficiency or assessment or proposed
deficiency or assessment by the Internal Revenue Service or
any other taxing authority in connection with any Tax
Return. No federal or state income tax returns of either CSI
or Doorways have been audited or otherwise examined and
reported on by the relevant taxing authorities. Neither CSI
nor Doorways has consented to the extension of or waived,
and has not been asked to consent to the extension of or to
waive, any law or regulation fixing any period of time for
assessment of any Tax.
(ii) The Balance Sheets contained in the Financial Statements
accurately reflect (A) the amount of Taxes unpaid as of such
date with respect to the operations of CSI and Doorways, as
the case may be, for the respective fiscal years then ended,
(B) all taxes payable and/or all tax credits arising from
the taxable income of CSI or Doorways and (C) the amount of
Taxes and interest and penalties relevant thereto in respect
of periods subsequent to the respective dates of such
Balance Sheets for the periods then ended. The Tax Returns
for the fiscal years of CSI and Doorways ended December 31,
1995, 1996, and 1997 properly reflect the taxable income of
CSI and Doorways for the periods covered.
(iii) Proper and accurate amounts have been or will be withheld
by CSI and Doorways from employees for all periods ending on
or prior to the Closing
10
<PAGE>
Date in full and complete compliance with the tax
withholding provisions of all applicable federal, state and
local laws dealing with such matters.
(iv) Proper and accurate federal, state and local tax returns
have been or will be filed by CSI and Doorways as for all
periods ending on or prior to the Closing Date for which
returns were due with respect to employee income tax
withholding and social security and unemployment taxes, and
the amounts shown or to be shown on such returns to be due
and payable have been, or will be on or prior to the Closing
Date, paid in full.
(v) Proper and accurate state and local tax returns have been or
will be filed by CSI and Doorways for all periods ending on
or prior to the Closing Date for which returns were due with
respect to sales and use taxes, and the amounts shown or to
be shown on such returns to be due and payable have been, or
will be on or prior to the Closing Date, paid in full.
(vi) The foregoing representations in this Sub-Section 3.01(n)
are subject to the matters set forth on Schedule 3.01(n).
(o) Receivables. The trade accounts receivable of CSI, whether shown
on the Balance Sheets as part of the Financial Statements and the Interim
Financials or thereafter acquired, are valid, collectible to the knowledge
of Sellers and CSI (but without either the Sellers or CSI having carried
out an investigation of any account debtor's ability to pay such trade
accounts receivable), genuine and subsisting, arose out of bona fide sales
and deliveries of goods or the performance of services, and are subject to
no defenses, set-offs, or counterclaims, except to the extent reflected as
an allowance for doubtful accounts which allowance is reasonable and
appropriate on the basis of CSI's prior experience. Except for the security
interests granted by CSI to Summit Bank, such trade accounts receivable are
not subject to any lien or encumbrance.
(p) Absence of Changes. Since June 30, 1998, CSI has not:
(i) undergone any material adverse change in its condition
(financial or other), properties, assets, liabilities,
business or operations other than changes in the
ordinary course of business;
(ii) except as set forth on Schedule 3.01(p)(ii), declared,
set aside, made or paid any dividend or other
distribution in respect of its capital stock, or
purchased or redeemed, directly or indirectly, any
shares of its capital stock or made any payment of any
kind to or for the benefit of any stockholder or any
affiliate of any stockholder;
(iii) issued or sold or solicited the sale of any shares of
its capital stock of any class or any options, warrants,
conversion or other rights to purchase any such shares
or any securities convertible into or exchangeable for
such shares;
11
<PAGE>
(iv) incurred any material indebtedness for borrowed money
(except temporary short term borrowings in the ordinary
course of business) or issued or sold any material
amount of debt securities;
(v) mortgaged, pledged or subjected to any material lien,
lease, security interest, charge or encumbrance any of
its properties or assets, tangible or intangible, except
(A) liens for current taxes not due and payable or being
contested in good faith by appropriate proceedings, (B)
liens imposed by law and incurred in the ordinary course
of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen and the like, and
(C) encumbrances, easements and security interests which
do not materially detract from the value or interfere
with the use of the properties affected thereby;
(vi) acquired or disposed of any assets or properties of
material value except in the ordinary course of
business;
(vii) except as set forth on Schedule 3.01(p)(vii), forgiven
or canceled any debts or claims, or waived any rights in
excess of $10,000;
(viii) entered into any material transaction except in the
ordinary course of business;
(ix) granted to any officer or salaried employee or any class
of other employees any material increase in compensation
in any form (other than ordinary merit increases or
increases called for by existing agreements) or any
severance or termination pay (other than in minor
amounts), or entered into any written employment
agreement with any person;
(x) adopted or amended in any respect any collective
bargaining agreement, or adopted or amended any bonus,
profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, insurance or other
similar plan, agreement, trust, fund or arrangement for
the benefit of employees (whether or not legally
binding);
(xi) participated in any plan of merger, consolidation,
reclassification, recapitalization or other
reorganization or any contribution to capital;
(xii) sold, assigned or transferred any interest in any
trademarks, service marks, trade names or copyrights;
(xiii) made or permitted any amendment to its Certificate of
Incorporation or By-Laws;
(xiv) made or permitted any amendment to or termination of any
material contract, agreement or license to which it is a
party otherwise than in the ordinary course of business;
(xv) suffered any damage, destruction or loss (whether or not
covered by insurance) which materially and adversely
affects the condition (financial or other), properties,
assets, business or operations of CSI;
(xvi) suffered any strike or other labor trouble or become
aware that any strike or other labor trouble is
threatened which might materially disrupt the operation
of CSI's business;
12
<PAGE>
(xvii) suffered the loss of any director or officer of CSI;
(xviii) suffered a loss of customers that materially and
adversely affects CSI; or
(xix) incurred any material liability or obligation (whether
absolute, accrued or contingent) other than in the
ordinary course of business.
(q) Employees and Key Consultants. Attached hereto as Schedule
3.01(q)-1 is a complete and accurate list showing all persons employed by,
and all consultants engaged by, CSI and Doorways during calendar year 1997
whose annual compensation or fees exceeded $30,000 for such period. Such
list shows (i) the name, position and/or company, and location of such
persons, (ii) the current annual rate of compensation (including bonuses)
or fees payable to such persons, and (iii) the corporate credit cards
issued to such persons. Attached hereto as Exhibit 3.01(q)-2 are true,
correct and complete copies (or descriptions in the case of an oral
agreement) of all employment agreements and consulting agreements presently
in effect with respect to persons employed by, and consultants engaged by,
CSI and Doorways whose compensation or fees for calendar year 1998 are
expected to exceed $100,000.
(r) Absence of Certain Commercial Practices. Neither Sellers nor, to
the knowledge of Sellers, any officer, employee or agent of CSI or any
person acting on behalf of any of the foregoing, has since January 1, 1995,
directly or indirectly, given or agreed to give any gift or similar benefit
to any customer, supplier, governmental employee or other person who is or
may be in a position to help or hinder the business of CSI or assist CSI in
connection with any actual or proposed transaction, which, if not given in
the past, might have had a material adverse effect on the business of CSI,
or which, if not continued in the future, might materially and adversely
affect the business of CSI or which might subject CSI to any material
liability, or penalty in any private or governmental litigation or
proceeding.
(s) Officers and Directors. Attached hereto as Schedule 3.01(s)-1 is a
complete and accurate list of the officers and directors of CSI. Attached
hereto as Schedule 3.01(s)-2 is a complete and accurate list of the
officers and directors of Doorways.
(t) Bank Accounts, etc. Schedule 3.01(t)-1 attached hereto contains a
complete and accurate list showing (i) the name and address of each bank in
which CSI has an account, line of credit or other borrowing facility, or
safe deposit box and the name of each person authorized to draw thereon or
have the access thereto, and (ii) the name and address of each person
holding a
13
<PAGE>
power of attorney on behalf of CSI. Schedule 3.01(t)-2 attached hereto
contains a complete and accurate list showing (i) the name and address of
each bank in which Doorways has an account, line of credit or other
borrowing facility, or safe deposit box and the name of each person
authorized to draw thereon or have the access thereto, and (ii) the name
and address of each person holding a power of attorney on behalf of
Doorways.
(u) Contracts. Attached hereto as Schedule 3.01(u) is a true, correct
and complete list as of the date hereof of all material agreements,
contracts and commitments of the following types, written or oral, to which
either CSI or Doorways is a party or by which any of its properties
(whether owned or leased) is bound as of the date hereof: (i) mortgages,
indentures, security agreements and other agreements and instruments
relating to the borrowing of money in an amount greater than $30,000; (ii)
employment and consulting agreements which are not cancelable by CSI or
Doorways without penalty on 30 or fewer days' notice; (iii) collective
bargaining agreements; (iv) bonus, profit sharing, compensation,
stockholders, stock transfer, stock option, stock purchase, pension,
retirement, deferred compensation, insurance or other similar plans,
agreements, trusts, funds or arrangements for the benefit of employees
(whether or not legally binding); (v) sales agency, manufacturers
representative or distributorship agreements which are not cancelable by
CSI or Doorways without penalty on 30 or fewer days' notice; (vi)
agreements, orders or commitments for the purchase by CSI or Doorways of
services, raw materials, supplies or finished goods in excess of $30,000
for any one agreement, order or commitment (it being warranted that the
commitment for all such agreements, orders and commitments does not exceed
$100,000 in the aggregate); (vii) agreements, orders or commitments for the
sale by CSI or Doorways of its products or services in excess of $30,000
for any one agreement; (viii) licenses of patent, trademark and other
industrial property rights; (ix) agreements or commitments for capital
expenditures in excess of $30,000 for any single project (it being
warranted that the commitment for all such agreements or commitments does
not exceed $100,000 in the aggregate for all projects); (x) brokerage or
finder's agreements which are not cancelable without penalty on 30 or fewer
days' notice; (xi) agreements or instruments relating to the extension of
credit not in the ordinary course of business which are not cancelable
without penalty on 30 or fewer days' notice; and (xii) other agreements
contracts and commitments which in any case involve payments or receipts of
more than $30,000. Such agreements, contracts and commitments are in full
force and effect and, to the knowledge of Sellers, and each of them, with
regard to third parties, all parties to such agreements, contracts and
commitments have in all material respects performed all obligations
required to be performed by them to date and are not in default in any
material respect.
(v) Absence of Breach. There has not been a breach or any default in
any material obligation to be performed by CSI under any material contract,
agreement or other instrument to which CSI is a party, and CSI has not
waived any substantial right under any such contract, agreement or
instrument.
(w) Related-Party Transactions. No shareholder, employee, officer, or
director of CSI or member of his or her immediate family is indebted to
CSI, nor is CSI indebted (or committed to make loans or extend or guarantee
credit) to any of them, nor has any such person guaranteed any obligation
of CSI except as indicated on Schedule 3.01(w) attached hereto. To the best
of the knowledge of either of Sellers, none of such persons has any direct
or indirect ownership interest in
14
<PAGE>
any firm or corporation with which CSI is affiliated or with which CSI has
a business relationship, or any firm or corporation that competes with CSI,
except that shareholders, employees, officers, or directors of CSI and
members of their immediate families may own stock in publicly traded
companies that may compete with CSI. No member of the immediate family of
any shareholder, officer or director of CSI is directly or indirectly
interested in any material contract with CSI.
(x) Insurance. Schedule 3.01(x) attached hereto contains a complete
and accurate list and description for CSI of all its insurance policies and
bonding arrangements. All such policies and arrangements are in full force
and effect, and all premiums due thereon have been paid. Except as set
forth in Schedule 3.01(x), each of such insurance policies is owned solely
by CSI. All insurable properties of CSI are insured for its benefit under
valid and enforceable policies in reasonably sufficient amounts issued by
insurers of recognized responsibility.
(y) Intellectual Property. Schedule 3.01(y) attached hereto contains a
true, correct and complete list of all trademarks, service marks, trade
names, patents and copyrights owned by or licensed to CSI or Doorways. CSI
and Doorways own or have the right to use, free and clear of any payment or
encumbrance, all trademarks (whether registered or unregistered), service
marks, trade names, patents, copyrights, trade secrets, information,
proprietary rights, processes, designs, formulas, customer lists and other
industrial and intellectual property rights necessary for their respective
businesses as now conducted, without any conflict with or infringement of
the rights of others, except as otherwise shown on Schedule 3.01(y).
Neither of Sellers has knowledge of any claim or demand of any person
pertaining to, or any proceedings which have been instituted or are pending
or threatened which challenge, the right of CSI or Doorways in respect of
any such trademark, service mark, trade name, patent, copyright, trade
secrets, information, proprietary rights, processes, designs, formulas,
customer lists and other industrial and intellectual property rights. There
are no outstanding options, licenses, or agreements of any kind relating to
the foregoing, nor is CSI or Doorways bound by or a party to any options,
licenses or agreements of any kind with respect to the trademarks (whether
registered or unregistered), service marks, trade names, patents,
copyrights, trade secrets, information, proprietary rights, processes,
designs, formulas, customer lists and other industrial and intellectual
property rights of any other person or entity other than as indicated on
Schedule 3.01(y). Neither CSI nor Doorways has received any communications
(written or oral) alleging that CSI or Doorways has violated any of the
trademarks (whether registered or unregistered), service marks, trade
names, patents, copyrights, trade secrets, information, proprietary rights,
processes, designs, formulas, customer lists and other industrial and
intellectual property rights of any other person or entity. Neither CSI nor
Doorways is aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement or subject to any judgement, decree or other of any court or
administrative agency that would interfere with the use of his or her best
efforts to promote the interests of CSI or Doorways. Neither the execution
and delivery of this Agreement, the consummation of the transactions
contemplated by this Agreement, nor the fulfillment of or compliance with
the terms, conditions or provisions thereof nor the carrying on of CSI's
business by the employees of CSI, nor the carrying on of Doorways's
business by the employees of Doorways, will, to the best of the knowledge
of either of Sellers, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
Neither of Sellers believes it is
15
<PAGE>
or will be necessary to utilize any inventions of any of CSI's or
Doorways's employees (or people either of them currently intends to hire)
made prior to their employment by CSI or Doorways, as the case may be.
(z) Books and Records. The books and records of CSI fairly reflect the
transactions to which CSI is or was a party or by which its properties are
or were bound, and such books and records are and have been properly kept
and maintained in accordance with generally accepted accounting principles
consistently applied. All of the minutes and other corporate records of CSI
requested by Patra to have been exhibited will have been exhibited by the
tenth Business Day prior to the Closing Date. The minute books, stock
records and other corporate records of CSI are and, at the time they are
exhibited to Patra pursuant to this Sub-Section 3.01(z), will be complete,
accurate and current.
(aa) Disclosure. No representation or warranty by Sellers, or either
of them, hereunder and no list, certificate, document, books, record,
Exhibit or Schedule furnished or to be furnished pursuant hereto or in
connection with the transactions contemplated by this Agreement contains or
will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained therein
not misleading.
(bb) Acquisition for Investment. Sellers are receiving the Elligent
Common Stock (referred to in this Clause (bb) as the "Investment Stock"),
for their own account for investment, with no present intention of dividing
their interests with others or of reselling or otherwise disposing of all
or any portion of the Investment Stock. Sellers do not have in mind any
sale of the Investment Stock either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or
non-occurrence of any predetermined event or circumstance. Sellers have no
present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for or which is likely to compel a
disposition of the Investment Stock other than as expressly provided in
this Agreement. Sellers are not aware of any circumstances presently in
existence which are likely in the future to prompt a disposition of the
Investment Stock. Sellers are "accredited investors" as defined in
Regulation D under the Securities Act. Sellers possess the business
experience to make an informed decision to acquire the Investment Stock,
and Sellers have the financial means to bear the economic risk of the
investment in the Investment Stock.
3.02.Continuation of Representations and Warranties of Sellers and
CSI. All of the representations and warranties of Sellers and CSI contained
herein shall be true in all respects on and as of the Closing Date and,
notwithstanding any investigation at any time made by or on behalf of Patra, all
such representations and warranties shall survive the Closing Date and remain in
full force and effect (regardless of what investigations or verifications may be
made by Patra or any of its agents or representatives) until the first
anniversary of the Closing Date; provided, however, that the representation and
warranty set forth in Sub-Section 3.01(n) shall survive for so long as any Tax
Return remains open and until the sixtieth day following the expiration of the
statute of limitations (including extensions thereof) provided by Section 6501
of the Internal Revenue Code of 1986, as amended, or the tax liability of CSI is
subject to adjustment by governmental authorities (federal, state or local) for
any tax period of CSI through the Closing Date, whichever is longer.
Section 4. Representations and Warranties of Patra and Patra Holdings
16
<PAGE>
4.01.Representations and Warranties of Patra. Patra hereby represents,
warrants to and agrees with Sellers and CSI that:
(a) Corporate Existence. Patra is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to conduct
its business as now being conducted. Until the date hereof, Patra has not
engaged in any business other than that associated with its corporate
organization and the transactions contemplated by this Agreement and has no
liabilities of any kind or nature nor any liens or encumbrances against it.
The copies of the Certificate of Incorporation and By-Laws of Patra
attached hereto as Exhibit 4.01(a)-1 and Exhibit 4.01(a)-2 are true,
correct and complete copies thereof as now in full force and effect.
(b) Authority. Patra has all requisite power and authority to enter
into, execute and deliver this Agreement and has taken all necessary
corporate action to authorize the execution and delivery of this Agreement
and to consummate the transactions contemplated by this Agreement in
accordance with the provisions hereof. This Agreement constitutes the valid
and binding obligation of Patra enforceable in accordance with its terms.
(c) No Conflict. Neither the execution and the delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor
the fulfillment of or compliance with the terms, conditions or provisions
hereof (i) will conflict with or result in a breach of any relevant
statute, law, ordinance, rule or regulation applicable to Patra, or the
terms, conditions or provisions of the Certificate of Incorporation or the
By-Laws of Patra or any mortgage, indenture, lease, agreement, or other
instrument, or any permit, concession, grant, franchise, license, judgment,
order, or decree to which Patra is a party or by which it is or may be
bound, or (ii) will constitute, with the giving of notice or the passage of
time or both, a default under any of the foregoing, or (iii) will
accelerate the maturity of or otherwise modify any obligation of Patra
under any of the foregoing.
(d) Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with any governmental authority or any
other person is required in connection with the execution and delivery of
this Agreement by Patra or the consummation of the transactions
contemplated hereby other than as contemplated by this Agreement.
(e) Restrictions on Elligent Common Stock. As of the Closing Date
Patra Holdings will have not entered into any agreement pursuant to which
Patra Holdings will have agreed to any restrictions or holding periods
applicable to Patra Holdings with respect to the Elligent Common Stock.
(f) Amount of Elligent Shares to be Issued to Patra Holdings. As a
result of the Patra-Elligent Merger, Patra Holdings shall receive shares of
Elligent Common Stock which shall constitute all of the Elligent Common
Stock to be received by Andreas Typaldos or Patra Holdings, or any
affiliate of Patra Holdings, in connection with the Patra-Elligent Merger.
17
<PAGE>
4.02. Continuation of Representations and Warranties of Patra. All of
the representations and warranties by Patra contained herein shall terminate
upon the payment of the last installment of the Installment Promissory Note and
shall be of no further force or effect whatsoever.
4.03. Representations and Warranties of Patra Holdings. Patra Holdings
hereby represents, warrants to and agrees with Sellers and CSI that:
(a) Corporate Existence. Patra Holdings is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to conduct its
business as now being conducted. The copy of the Certificate of Formation
attached hereto as Exhibit 4.03(a) is a true, correct and complete copy
thereof as now in full force and effect.
(b) Authority. Patra Holdings has all requisite power and authority to
enter into, execute and deliver this Agreement and has taken all necessary
action to authorize the execution and delivery of this Agreement and to
consummate the transactions contemplated by this Agreement in accordance
with the provisions hereof. This Agreement constitutes the valid and
binding obligation of Patra Holdings enforceable in accordance with its
terms.
(c) No Conflict. Neither the execution and the delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor
the fulfillment of or compliance with the terms, conditions or provisions
hereof (i) will conflict with or result in a breach of any relevant
statute, law, ordinance, rule or regulation applicable to Patra Holdings,
or the terms, conditions or provisions of the Certificate of Formation of
Patra Holdings or any mortgage, indenture, lease, agreement, or other
instrument, or any permit, concession, grant, franchise, license, judgment,
order, or decree to which Patra Holdings is a party or by which it is or
may be bound, or (ii) will constitute, with the giving of notice or the
passage of time or both, a default under any of the foregoing, or (iii)
will accelerate the maturity of or otherwise modify any obligation of Patra
Holdings under any of the foregoing.
(d) Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with any governmental authority or any
other person is required in connection with the execution and delivery of
this Agreement by Patra Holdings or the consummation of the transactions
contemplated hereby other than as contemplated by this Agreement.
4.04. Continuation of Representations and Warranties of Patra
Holdings. All of the representations and warranties by Patra Holdings contained
herein shall terminate upon the payment of the last installment of the
Installment Promissory Note and shall be of no further force or effect
whatsoever.
Section 5. Covenants of Sellers and CSI
5.01. Covenants of Sellers and CSI. Sellers, and each of them, and CSI
hereby covenant and agree with Patra and Patra Holdings that:
18
<PAGE>
(a) Continuance of Business. From the date hereof and through the
Closing Date, Sellers will cause CSI:
(i) to carry on the business of CSI in, and only in, the usual,
regular and ordinary course in substantially the same
manner as heretofore, and, to the extent consistent with
such business, they will exercise their best efforts to
preserve intact CSI's present business organization, to
keep available the services of CSI's present officers and
employees, and use their best efforts to preserve CSI's
relationships with customers, suppliers and others having
business dealings with CSI to the end that its goodwill and
going business shall be conducted on substantially the same
basis at the Closing Date as at the date hereof and
heretofore;
(ii) to maintain all its material structures, equipment and
other tangible personal property in good repair, order and
condition, except for depletion, depreciation, ordinary
wear and tear and casualty losses;
(iii) to keep in full force and effect insurance comparable in
amount and scope of coverage to insurance now carried by
it;
(iv) to perform in all material respects all of its obligations
under agreements, contracts and instruments relating to or
affecting its properties, assets and business;
(v) to maintain its books of account and records in the usual,
regular and ordinary manner;
(vi) to comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to it and to
the conduct of its business;
(vii) not to amend its Certificate of Incorporation or By-Laws or
any other documents of charter, franchise or organization,
except for amendments which may be necessary in order to
carry on the business of CSI or to consummate the
transaction contemplated by this Agreement, provided that
the documents, certificates and authorizing resolutions for
such amendments are submitted to Patra and Patra Holdings
within two (2) days after the approval thereof by the Board
of Directors of CSI;
(viii) not to enter into or assume outside of the ordinary course
of its business any agreement, contract or commitment
except with the prior written consent of Patra and Patra
Holdings;
(ix) not to merge or consolidate with, or agree to merge or
consolidate with, or to purchase substantially all of the
assets of, or otherwise to acquire any
19
<PAGE>
business or any corporation, partnership, association or
other business organization or division thereof;
(x) not to take or permit to be taken any action which is
represented and warranted in clauses (ii) through (xiv) and
(xix) of Sub-Section 3.01(p) not to have been taken since
June 30, 1998; and
(xi) promptly to advise Patra and Patra Holdings in writing of
any material and adverse change in the financial condition,
operations or business of CSI.
(b) Access To Information. From and after the date hereof Sellers
will cause CSI to give to Patra, Patra Holdings and their respective
representatives, accountants and agents full access during normal
business hours to the properties, books, records, contracts and
commitments relating to CSI, including full access to the officers and
employees of CSI and, if requested, full opportunity to conduct a
physical inventory of CSI and an audit of its operations and financial
statements, and will furnish all such information and documents relating
to CSI as Patra or Patra Holdings may reasonably request and permit
Patra, Patra Holdings and their respective representatives, accountants
and agents to make copies and abstracts thereof. If the contemplated
transactions do not close, Patra and Patra Holdings will deliver to CSI
all originals and copies of documents, work papers and other material
obtained from CSI relating to CSI and the contemplated transactions,
whether obtained before or after the date hereof, and will promptly
destroy all documents based on material obtained from CSI. Patra and
Patra Holdings will use their best efforts to have all such material kept
confidential. Furthermore, Patra and Patra Holdings will hold all
proprietary information obtained with respect to CSI and its products,
processes and operations in confidence and will not use such information
or disclose the same to others except as permitted by CSI.
(c) Consents. Sellers will obtain or cause CSI to obtain the
consent or approval of each person or authority whose consent or approval
may be required in order to permit Sellers, CSI, Patra and Patra Holdings
to consummate the transactions contemplated hereby.
(d) Supplements. From time to time prior to the Closing Date,
Sellers shall deliver or cause CSI to deliver to Patra and Patra Holdings
supplemental information with respect to any matters or events arising or
discovered subsequent to the date hereof which, if existing or known on
the date hereof, would have rendered any statement, representation or
warranty made herein on the part of Sellers or any information contained
in the Schedules and Exhibits to this Agreement then materially
inaccurate or incomplete.
Section 6. Covenants of Patra and Patra Holdings
6.01. Covenants of Patra. Patra hereby covenants and agrees with
Sellers that Patra shall use its continuing best efforts to have Sellers removed
as guarantors of the loans made to CSI listed on Schedule 6.01 attached hereto.
6.02. Covenants of Patra Holdings. Patra Holdings hereby covenants and
agrees with Sellers that:
20
<PAGE>
(a) Stock Option Program for Key Employees. From the consummation
of the CSI-Patra Merger and for so long as Sellers retain beneficial
ownership of not less than fifty percent (50%) of the Elligent Common
Stock received by Sellers pursuant to Section 1, Patra Holdings shall
vote all shares of Elligent Common Stock which Patra Holdings
beneficially owns from time to time to cause Elligent to include key
employees of CSI in any stock option program of Elligent to the same
extent and under the same terms and conditions as employees of similar
rank and responsibility of Elligent.
(b) Execution of Registration Rights Agreement. Patra Holdings
shall vote all shares of Elligent Common Stock which Patra Holdings
beneficially owns from time to time to cause Elligent promptly following
consummation of the CSI-Patra Merger to execute the Registration Rights
Agreements substantially in the forms annexed hereto as Exhibit 6.02(b)-1
and 6.02(b)-2.
(c) Removal of Sellers as Guarantors. Patra Holdings shall cause
Elligent promptly following consummation of the CSI-Patra Merger to use
its continuing best efforts to have Sellers removed as guarantors of the
loans made to CSI listed on Schedule 6.01 attached hereto.
(d) Transfer of Elligent Common Stock Beneficially Owned by Patra
Holdings. For so long as Patra Holdings has any obligations under clauses
(a), (b) or (c) of this Sub-Section 6.02, Patra Holdings shall not
transfer any of its shares of Elligent Common Stock unless the transferee
agrees to assume the obligations of Patra Holdings under such clauses.
Section 7. Conditions to Closing
7.01. Conditions to Closing by the Parties. The obligations of
Sellers, Patra and Patra Holdings to consummate the transactions contemplated
hereby are, at the option of either Sellers or Patra and Patra Holdings, subject
to the fulfillment of the conditions that on or before the Closing Date:
(a) Lawsuits. There shall not be pending or threatened any action,
proceeding or investigation for any injunction, writ, preliminary
restraining order or any order of any nature issued by any court or
governmental agency of competent jurisdiction directing that the
transactions contemplated by this Agreement or any of them not be
consummated; nor shall any such injunction, writ, preliminary restraining
order or such other order have been issued and be in effect.
(b) Patra-Elligent Merger. The Patra-Elligent Merger shall have
been consummated.
(c) CSI-Patra Merger. The parties shall have executed the
Certificate of Merger.
7.02. Conditions to Closing by Patra and Patra Holdings. The
obligations of Patra and Patra Holdings to consummate the transactions
contemplated hereby are, at the option of Patra and Patra Holdings, subject to
the fulfillment of each of the conditions that on or before the Closing Date:
21
<PAGE>
(a) Certain Legal Matters. All actions, proceedings, instruments
and documents required to carry out this Agreement, or incidental
thereto, and all other related legal matters, shall be reasonably
satisfactory to counsel for Patra and Patra Holdings, and such counsel
shall have received all documents, instruments or copies thereof,
certified if requested.
(b) Compliance. Sellers, and each of them, and CSI shall have
performed and complied with all agreements, covenants and conditions
required by this Agreement to have been performed or complied with prior
to or at the Closing Date and Patra and Patra Holdings shall receive a
certificate signed by Sellers and CSI to such effect.
(c) Consents. Sellers, and each of them, and CSI shall have
obtained all approvals or consents of other persons required to
consummate the transactions contemplated hereby, including but not
limited to any consents required from banks to continue in place a line
of credit or other borrowing facility notwithstanding a change in control
of CSI.
(d) Accuracy of Representations and Warranties. The
representations and warranties made by Sellers and CSI contained in this
Agreement or in any financial statement, Schedule or Exhibit hereto or
document delivered to Patra and Patra Holdings in connection herewith
shall be true and correct in all material respects on and as of the
Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing
Date, and Sellers and CSI shall have delivered to Patra and Patra
Holdings a certificate to such effect.
(e) Absence of Errors. Patra or Patra Holdings shall not have
discovered any material error, misstatement or omission in the
representations and warranties made hereunder by Sellers.
(f) Absence of Change. Since the date hereof, there shall not have
occurred any material adverse change in the financial condition, assets,
liabilities or business of CSI.
(g) Opinion of Counsel. Patra and Patra Holdings shall have
received a favorable opinion, addressed to it and dated the Closing Date,
of Messrs. Ellenoff Grossman & Schole LLP, counsel for Sellers and CSI,
satisfactory in substance and form to Patra, Patra Holdings and their
counsel, to the effect that:
(i) CSI is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware, has all requisite corporate power
and authority to conduct its business and to own and
hold the properties used in connection therewith.
(ii) The total authorized capital stock of CSI consists
of 3,000 shares of Common Stock, without par value,
of which 1,000 shares are validly issued and
outstanding, fully paid and non-assessable.
(iii) The Outstanding CSI Common Stock is owned of record
and beneficially by Sellers, is fully paid and
nonassessable and, to the knowledge of such counsel,
is free and clear of any and all liens, pledges,
hypothecations,
22
<PAGE>
options, puts, calls, transfer restrictions or other
charges and encumbrances other than as set forth or
provided for in this Agreement. CSI has obtained all
of the necessary shareholder and director approval
in order that upon the filing of the Certificate of
Merger, assuming that Patra shall have complied with
all applicable law necessary to effect the CSI-Patra
Merger, the CSI-Patra Merger shall have been duly
consummated in accordance with the General
Corporation Law of the State of Delaware with the
effect provided therein, and the CSI Common Stock
shall have been canceled and converted as provided
in Section 1.04 of this Agreement.
(iv) To the knowledge of such counsel, Sellers have all
requisite power and authority to enter into, execute
and deliver this Agreement and to consummate the
transactions contemplated by this Agreement in
accordance with the provisions hereof. This
Agreement constitutes the valid and binding
obligation of Sellers and CSI, enforceable in
accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or
other laws or equitable principles affecting
creditors' rights generally.
(v) To the knowledge of such counsel, no consent,
approval, order or authorization of, or
registration, declaration or filing with, any
governmental authority or any other person is
required in connection with the execution and
delivery of this Agreement by Sellers or CSI or the
consummation of the transactions contemplated hereby
by Sellers or CSI.
(vi) Neither the execution and the delivery of this
Agreement, the consummation of the transactions
contemplated hereby, nor the fulfillment of or
compliance with the terms, conditions or provisions
hereof (a) will conflict with or result in a breach
of any relevant statute, law, ordinance, rule or
regulation applicable to either (to the knowledge of
such counsel) Sellers or CSI, or the terms,
conditions or provisions of the Certificate of
Incorporation or the By-Laws of CSI or any mortgage,
indenture, lease, agreement, or other instrument, or
any permit, concession, grant, franchise, license,
judgment, order or decree to which either (to the
knowledge of such counsel) Sellers or CSI is a party
or by which any of them is or may be bound, or (b)
will constitute, with the giving of notice or the
passage of time or both, a default by (to the
knowledge of such counsel) Sellers or CSI under any
of the foregoing, or (c) will accelerate the
maturity of or otherwise modify any obligation of
either (to the knowledge of such counsel) Sellers or
CSI under any of the foregoing.
(h) Absence of Loss. Prior to the Closing Date, CSI shall not have
sustained a loss on account of fire, flood, accident or other casualty
which materially and adversely affects the business or properties and
assets of CSI regardless of whether or not such loss shall have been
insured. No insured casualty loss shall be deemed material for purposes
hereof unless it causes or may reasonably be expected to cause a
materially adverse interruption of the operations of CSI.
23
<PAGE>
(i) Employment. On or prior to the Closing Date Sellers shall have
executed Employment Agreements and Non-Competition Agreements,
substantially in the forms annexed hereto as Exhibits 7.02(i)-1 and
7.02(i)-2.
(j) Resignations. Prior to the Closing Date, Patra and Patra
Holdings shall have received the resignations of all officers and
directors of CSI other than those officers and directors identified on
Schedule 7.02(j) attached hereto.
(k) Ownership of Doorways. Prior to the Closing Date, Sellers
shall have effected the transfer of all of the issued and outstanding
capital stock of Doorways to CSI such that at the Closing Date Doorways
will be a wholly-owned subsidiary of CSI.
7.03. Conditions to Closing by Sellers. The obligations of Sellers to
consummate the transactions contemplated hereby are, at the option of Sellers,
subject to the fulfillment of each of the conditions that on or before the
Closing Date:
(a) Certain Legal Matters. All actions, proceedings, instruments
and documents required to carry out this Agreement, or incidental
thereto, and all other related legal matters, shall be reasonably
satisfactory to counsel for Sellers and such counsel shall have received
all documents, instruments or copies thereof, certified if requested, as
may be reasonably requested.
(b) Compliance. Patra and Patra Holdings shall have performed and
complied with all agreements, covenants and conditions required in this
Agreement to have been performed or complied with prior to or at the
Closing Date, and Sellers shall receive a certificate signed by duly
authorized officers of Patra and Patra Holdings to such effect.
(c) Accuracy of Representations and Warranties. The
representations and warranties made by Patra and Patra Holdings shall be
correct, on and as of the Closing Date, with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date, and Patra and Patra Holdings shall have delivered to
Sellers certificates, signed by a duly authorized officer of Patra and
Patra Holdings, to such effect.
(d) Absence of Errors. Sellers shall not have discovered any
material error, misstatement or omission in the representations and
warranties made hereunder by Patra and Patra Holdings.
(e) Consents. Sellers shall have obtained all approvals or
consents of other persons required to consummate the transactions
contemplated hereby.
(f) Employment. Patra and Sellers shall have executed Employment
Agreements and Non-Competition Agreements substantially in the forms
annexed hereto as Exhibit 7.02(i)-1 and Exhibit 7.02(i)-2.
24
<PAGE>
(g) Election of Newman as a Director of Elligent. From the
consummation of the Patra-Elligent Merger and for so long as Sellers
retain beneficial ownership of not less than fifty percent (50%) of the
Elligent Common Stock received by Sellers pursuant to Section 1, Patra
Holdings shall vote all shares of Elligent Common Stock which Patra
Holdings beneficially owns from time to time to elect Newman a member of
the Board of Directors of Elligent; provided, however, that Newman may be
removed as a director for cause, in accordance with the General
Corporation Law of the State of Delaware or if his employment with Patra
shall terminate for Cause (as defined in the Employment Agreement
attached hereto as Exhibit 7.02(i)-1). Notwithstanding the foregoing, in
the event that Newman is removed as a director because, and only because,
his employment with Patra has been terminated for Cause, Newman shall be
entitled to attend the meetings of the Board of Directors of Elligent as
a non-voting observer, and to receive notice of such meetings in
accordance with the By-Laws of Elligent until such time as the
Installment Promissory Notes have been fully paid; provided, however,
that Newman shall not be entitled to attend any such meeting (i) if
counsel to Elligent advise Elligent, such advice to be reasonable in
substance, prior to the meeting that Newman's attendance as an observer
at such meeting might subject Elligent or its directors to liability for
any reason, or (ii) if Newman has been terminated for Cause pursuant to
Clause (iii) of Section 7 of such Employment Agreement.
(h) Opinion of Counsel to Patra and Patra Holdings. Sellers shall
have received a favorable opinion, addressed to it and dated the Closing
Date, of Messrs. Stairs Dillenbeck Finley & Merle, counsel for Patra and
Patra Holdings, satisfactory in substance and form to Sellers and their
counsel, to the effect that:
(i) Patra is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware, has all requisite corporate power
and authority to conduct its business and to own and
hold the properties used in connection therewith.
(ii) The total authorized capital stock of Patra consists
of 1,000 shares of common stock, par value $1.00
each, of which all such shares are validly issued
and outstanding, fully paid and non-assessable.
(iii) Patra and Patra Holdings have all requisite
corporate power and authority to enter into, execute
and deliver this Agreement and to consummate the
transactions contemplated by this Agreement in
accordance with the provisions hereof. This
Agreement constitutes the valid and binding
obligations of Patra and Patra Holdings, enforceable
in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or
other laws or equitable principles affecting
creditors' rights generally.
(iv) To the knowledge of such counsel, no consent,
approval, order or authorization of, or
registration, declaration or filing with, any
governmental authority or any other person is
required in connection with the execution and
25
<PAGE>
delivery of this Agreement by Patra and Patra
Holdings or the consummation of the transactions
contemplated hereby by Patra and Patra Holdings.
(v) Neither the execution and the delivery of this
Agreement, the consummation of the transactions
contemplated hereby, nor the fulfillment of or
compliance with the terms, conditions or provisions
hereof (a) will conflict with or result in a breach
of any relevant statute, law, ordinance, rule or
regulation applicable to Patra or Patra Holdings, or
the terms, conditions or provisions of the
Certificate of Incorporation or the By-Laws of Patra
or the Certificate of Formation of Patra Holdings or
any mortgage, indenture, lease, agreement, or other
instrument, or any permit, concession, grant,
franchise, license, judgment, order or decree to
which Patra or Patra Holdings is a party or by which
it may be bound, or (b) will constitute, with the
giving of notice or the passage of time or both, a
default by Patra or Patra Holdings under any of the
foregoing, or (c) will accelerate the maturity of or
otherwise modify any obligation of Patra or Patra
Holdings under any of the foregoing.
(i) Opinion of Counsel to Elligent. Sellers shall have received a
favorable opinion, addressed to it and dated the Closing Date, of counsel
to Elligent with respect to the matters set forth in Schedule 7.03(i).
Such opinion shall be satisfactory in substance and form to Sellers and
their counsel.
(j) Pledge Agreement. Pledge Agreement substantially in the form
annexed hereto as Exhibit 7.03(j) shall have been executed by the parties
thereto (herein referred to as the "Pledge Agreement").
(k) Perfection of Security Interests. The security interests of
Sellers under the Pledge Agreement shall be perfected in accordance with
the Uniform Commercial Code of each applicable jurisdiction (state and
county).
Section 8. Indemnification; Dispute Resolution and Arbitration.
8.01. Indemnification by Sellers and CSI. Sellers, and each of them,
and CSI shall jointly and severally indemnify and hold Patra and Patra Holdings
and each of its affiliates, officers, directors, stockholders, members and
managers ("Patra's Indemnified Parties") harmless against and in respect of any
and all damages, losses, costs and expenses (including reasonable attorneys'
fees and expenses) ("Damages") resulting from any breach of any representation
or warranty or nonfulfillment of any agreement, covenant or obligation on the
part of Sellers or CSI contained or provided for in this Agreement or in any
instrument, certificate, Exhibit, Schedule or opinion furnished or to be
furnished pursuant hereto or in connection with any of the transactions
contemplated hereby; provided, however, that Sellers shall not have any
liability for indemnity hereunder unless and until the aggregate amount of
claims for Damages by Patra's Indemnified Parties exceeds $100,000.00 (the
"Sellers' Threshold") and, in such event, Sellers shall be obligated to pay the
full amount of such Damages inclusive of Sellers' Threshold, but Sellers shall
not have any liability for indemnity hereunder in excess of the Merger
Consideration actually paid. Sellers, and each of them, and CSI agree to notify
Patra and Patra Holdings promptly in writing of any matter which reasonably
might give rise to a claim of indemnification hereunder. Sellers,
26
<PAGE>
and each of them, hereby waive any right they may have for contribution from
CSI or the Surviving Corporation to the satisfaction of any claim for
indemnification under this Agreement.
8.02. Indemnification by Patra and Patra Holdings. Patra and Patra
Holdings, and each of them, shall indemnify and hold Sellers and each of
them, and CSI and its affiliates, officers and directors (the "Sellers'
Indemnified Parties") harmless against and in respect of any and all Damages
resulting from any breach of any representation or warranty or nonfulfillment
of any agreement, covenant or obligation on the part of Patra or Patra
Holdings contained or provided for in this Agreement or in any instrument,
certificate, Exhibit, Schedule or opinion furnished or to be furnished
pursuant hereto or in connection with any of the transactions contemplated
hereby; provided, however, that Patra and Patra Holdings shall not have any
liability for indemnity hereunder unless and until the aggregate amount of
claims for Damages by Sellers' Indemnified Parties exceeds $100,000.00
("Patra's Threshold") and, in such event, Patra and Patra Holdings shall be
obligated to pay the full amount of such Damages inclusive of Patra's
Threshold, but Patra and Patra Holdings shall not have any liability for
indemnity hereunder in excess of the Merger Consideration. Sellers agree to
notify Patra and Patra Holdings promptly in writing of any matter which
reasonably might give rise to a claim of indemnification hereunder.
8.03. Setoff and Non-Payment of Installment Promissory Note.
Elligent shall have the right to set off claims for Damages sustained by
Patra's Indemnified Parties hereunder against any obligation to pay principal
and/or interest under the Installment Promissory Notes; provided, however,
that prior to making any such setoff Elligent and/or Patra's Indemnified
Parties shall submit such claim for Damages in accordance with the provisions
of Sub-Section 8.04 hereof; further provided, that any such setoff shall not
exceed the amount of such claim. Any such claim shall be asserted by Elligent
and/or Patra's Indemnified Parties within a reasonable time of their becoming
aware of such claim.
8.04. Dispute Resolution and Arbitration.
(a) Arbitration. In the event of any dispute, controversy, claim or
difference that should arise between the parties out of or relating to or in
connection with this Agreement or any breach thereof, or any claim for
Damages, the parties shall endeavor to settle such conflicts amicably between
themselves. Should they fail to do so within a reasonable period of time not
to exceed ten (10) Business Days, the matter shall be settled by arbitration
in New York, New York.
(b) Notice and Response. Any party desiring to have recourse
pursuant to this provision (the "Claimant") shall serve a written notice (the
"Notice") on the other party (the "Respondent") setting forth the details of
its complaint or claim and the name and address of the Claimant's appointed
arbitrator as hereinafter set forth. The Respondent shall serve a written
statement of response on the Claimant (the "Response") within five (5)
Business Days from the receipt of the Notice which shall also provide the
name and address of the Respondent's appointed arbitrator.
27
<PAGE>
(c) Appointment of Panel. Within five (5) Business Days from the
delivery of the Response, the designated arbitrators shall select a third
arbitrator who shall act as the Chairman of the panel. The third arbitrator
must be a practicing attorney, admitted to practice in the State of New York
who has experience of and familiarity with contracts and securities law.
(d) Procedures. The arbitrators shall decide all matters of
procedure including the amount, if any, of discovery to be conducted. The
parties shall cooperate with the arbitrators' requests for information and
other assistance to enable them to render an award within twenty (20)
Business Days from the date of the receipt of the Notice by Respondent. At
the request of the arbitration panel the time for rendering an award may be
extended for an additional ten (10) Business Days.
(e) Award. The award of the arbitrators will fix the costs of the
arbitration, including reasonable attorneys' fees of the Claimant and
Respondent which costs shall be borne by the losing party. Any award shall be
final and binding upon the parties and shall be enforceable by any court of
competent jurisdiction. The parties hereby waive any right they may have
under applicable law to appeal the award.
8.05. Liquidated Damages for Non-Payment of Installment Promissory
Note. In the event that Elligent or Patra fails to make any payment of
principal and/or accrued interest due on either Installment Promissory Note
beyond any grace period for payment thereof, Sellers may jointly (but not
singly) elect, in their sole and absolute discretion, pursuant to the Pledge
Agreement to obtain transfer of all issued and outstanding capital stock of
the Surviving Corporation to them in the same proportions as their interests
in CSI on the date hereof (the "Sellers' Election"); provided, however, that
Sellers shall be required to return to Elligent (i) the amount of all cash
payments received by them pursuant to Section 1 hereof (including payments of
principal and interest on the Installment Promissory Notes) less the amount
of foregone salaries of Newman and Peipert (the "Foregone Salaries") which is
equal to the product of (x) $500,000 and (y) a fraction the numerator of
which is the number of days elapsed from the date of the Closing to the date
on which Sellers notify Elligent of the Sellers' Election (the "Patra-CSI
Merger Period") and the denominator of which is three-hundred sixty-five
(365) minus any salary or bonus or other remuneration in excess of the
salaries paid to Newman and Peipert under the Employment Agreements attached
hereto as Exhibit 7.02(i)-1 and Exhibit 7.02(i)-2, provided that CSI's net
earnings during the Patra-CSI Merger Period are in excess of the Foregone
Salaries, and (ii) all shares of Elligent Common Stock issued to Sellers
pursuant to Section 1 hereof. The exercise of the election by Sellers
pursuant to this Sub-Section 8.05 shall represent liquidated damages for all
claims Sellers may have against Patra, Patra Holdings, Elligent or any of
Patra's Indemnified Parties, shall be in lieu of any claim for Damages
against Patra, Patra Holdings, Elligent or any of Patra's Indemnified
Parties, and shall be in full and complete liquidation of any and all rights
of Sellers under this Agreement, the Installment Promissory Notes or any
other agreement contemplated by this Agreement. As a condition to the
transfer of shares and repayment of the Merger Consideration, (i) the parties
will exchange general releases, (ii) Sellers shall enter into an Indemnity
Agreement, satisfactory in form and substance to counsel for Elligent and
Patra Holdings, pursuant to which Sellers shall indemnify Elligent and Patra
Holdings, and their respective officers, directors, shareholders and
affiliates against any and all damages, losses, costs and expenses (including
reasonable attorneys' fees and expenses) resulting
28
<PAGE>
from or attributable to the Surviving Corporation up to the end of the
Patra-CSI Merger Period, (iii) Elligent shall enter into an Indemnity Agreement,
satisfactory in form and substance to counsel for Sellers, pursuant to which
Elligent shall indemnify Sellers and the Surviving Corporation, and the
Surviving Corporation's officers, directors, shareholders and affiliates against
any and all damages, losses, costs and expenses (including reasonable attorneys'
fees and expenses) resulting from or attributable to any stockholder's
derivative suit instituted by a present or former shareholder of Elligent or by
any other third party, asserting a claim against Sellers for having exercised
their rights under this Sub-Section 8.05, (iv) Elligent shall cause the
Surviving Corporation to cancel the Employment Agreements attached hereto as
Exhibit 7.02(i)-1 and Exhibit 7.02(i)-2, (v) Elligent shall cause the Surviving
Corporation to cancel all agreements by and between Elligent and its affiliates
and the Surviving Corporation, (vi) Sellers shall release, or cause others to
release, Elligent, Patra Holdings and their respective officers, directors,
shareholders and affiliates and any third party guarantor acting at the request
of Elligent or Patra Holdings from all guarantees and other obligations entered
into by such persons for the benefit of the Surviving Corporation, (vii) all
officers and directors of the Surviving Corporation (except Sellers) shall
resign, and (viii) the net amount of all cash transfers between the Surviving
Corporation and Elligent made during the Patra-CSI Merger Period shall be paid
(A) by Sellers to Elligent (in the case of a balance in favor of Sellers) plus
an amount equal to 15% of the net profit of the Surviving Corporation
attributable to the Patra-CSI Merger Period or (B) by Elligent to Sellers (in
the case of a balance in favor of Elligent), less an amount equal to 15% of the
net profit of the Surviving Corporation attributable to the Patra-CSI Merger
Period.
Section 9. Confidentiality and Non-Disclosure
9.01. Confidentiality. Except as contemplated by this Agreement, as
required by law or otherwise expressly consented to in writing by Sellers, Patra
and Patra Holdings, all information or documents furnished hereunder by any
party shall be kept strictly confidential by the party or parties to whom
furnished at all times prior to the Closing Date, and in the event the
transactions contemplated by this Agreement are not consummated, each shall
return to the other all documents furnished hereunder and copies thereof upon
request and shall continue to keep confidential all information furnished
hereunder and shall not thereafter use the same for its advantage.
9.02. Return of Documentation. In the event the Closing is not
consummated, each party hereto will return all documents obtained from the other
party and will hold in absolute confidence any information obtained from such
other party except to the extent (i) such party is required to disclose such
information by law or regulation, (ii) disclosure of such information is
necessary or desirable in connection with the pursuit or defense of a claim,
(iii) such information was known by such party prior to such disclosure or was
thereafter developed or obtained by such party independent of such disclosure,
or (iv) such information becomes generally available to the public or is
otherwise no longer confidential. Prior to any disclosure of information
pursuant to the exception in clauses (i) and (ii) of the preceding sentence, the
party intending to disclose the same shall so notify the party which provided
the same in order that such party may seek a protective order or other
appropriate remedy should it choose to do so.
Section 10. Miscellaneous
29
<PAGE>
10.01. Expenses. Except as set forth on Schedule 10.01, Patra and
Sellers shall each pay their own expenses incident to this Agreement and the
transactions contemplated hereby, including all fees of its counsel or
accountants, whether or not such transactions shall be consummated; provided,
however, that Patra shall reimburse Sellers for one-half of their reasonable
legal fees (not heretofore paid by Sellers or CSI) in connection with the
preparation, execution and closing of this Agreement.
10.02. No Finders. Each party to this Agreement will indemnify and
hold harmless the other parties against and in respect of any claims for
brokerage or other commissions relative to this Agreement or the transactions
contemplated hereby, based in any way on agreements, arrangements, or
understandings claimed to have been made by such party with any third party.
Sellers and CSI each represents and warrants that it has not dealt with and does
not know of any person, firm or corporation asserting a brokerage, finder's or
similar claim in connection with the making or negotiation of this Agreement or
the transactions contemplated hereby. Patra and Patra Holdings each represents
and warrants that it has not dealt with and does not know of any person, firm or
corporation asserting a brokerage, finder's or similar claim in connection with
the making or negotiation of this Agreement or the transactions contemplated
hereby other than as may have been set forth in writing delivered by it to CSI.
Patra shall be responsible for satisfying any such claim.
10.03. Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement, at any time prior to the Closing Date, may be
terminated: (a) by the mutual written consent of Sellers, CSI, Patra and Patra
Holdings; (b) by Patra and Patra Holdings if any of the conditions set forth in
Sub-Sections 7.01 or 7.02 shall not have been fulfilled or waived by the Closing
Date; (c) by Patra and Patra Holdings if any default under or breach of any
agreement or condition of Sellers or CSI shall have occurred and shall not have
been cured or waived by the Closing Date; (d) by Sellers and CSI if any or the
conditions set forth in Sub-Sections 7.01 or 7.03 shall not have been fulfilled
by the Closing Date; or (e) by Sellers and CSI if any default under or breach of
any agreement or condition of Patra or Patra Holdings shall have occurred and
shall not have been cured or waived by the Closing Date. Any termination shall
be without liability on the part of any party other than a termination under
clause (c) or (e) of this Sub-Section 10.03.
10.04. Defense of Indemnified Claims.
(a) In the event that any claim shall be asserted by any third party
against Patra, Patra Holdings, Elligent, any of Patra's Indemnified Parties, or
CSI which could involve the operation of the indemnity provision of this
Agreement, Sellers shall be notified of such claim forthwith and shall be given
a reasonable opportunity to defend or participate in the original defense
against such claim at their own expense; provided that Sellers proceed in good
faith, expeditiously and diligently. In connection therewith, the party which
may seek indemnity shall cooperate fully to make available to Sellers all
pertinent information under its control relating thereto. There shall be no
obligation to indemnify pursuant to Sub-Section 8.01 with respect to any such
claim for which indemnity is sought thereunder while a defense against said
claim is being made by litigation or arbitration until the resolution of said
claim by a final judgment, decision or settlement.
30
<PAGE>
(b) In the event that any claim shall be asserted by any third party
against Sellers or any of Sellers' Indemnified Parties which could involve the
operation of the indemnity provision of this Agreement, Patra and Patra Holdings
shall be notified of such claim forthwith and shall be given a reasonable
opportunity to defend or participate in the original defense against such claim
at their own expense; provided that they proceed in good faith, expeditiously
and diligently. In connection therewith, the party which may seek indemnity
shall cooperate fully to make available to Patra and Patra Holdings all
pertinent information under its control relating thereto. There shall be no
obligation to indemnify pursuant to Sub-Section 8.02 with respect to any such
claim for which indemnity is sought thereunder while a defense against said
claim is being made by litigation or arbitration until the resolution of said
claim by a final judgment, decision or settlement.
10.05. Records. Sellers and Patra each agree that after the Closing
Date Sellers will transfer to Patra any and all books or records relating to CSI
or its properties or business.
10.06. Assignments. This Agreement and the rights and obligations of
the parties hereto shall not be assigned by any party to any third party, except
with the written consent of the others; provided, however, that Patra and Patra
Holdings may assign and/or delegate their respective rights and obligations
hereunder to any other person, partnership or corporation controlling,
controlled by or under common control with Patra or Patra Holdings, as the case
may be, if such assignee shall assume and agree to be bound by the obligations
of Patra and Patra Holdings hereunder; provided further, that no such assignment
will relieve Patra or Patra Holdings of any of its obligations hereunder.
Nothing in this Agreement, unless otherwise expressly provided, is intended to
confer upon any person, other than parties hereto and their successors and
assigns, any rights or remedies under or by reason of this Agreement.
10.07. Notices. Any notice, demand, request or other communication
which by any provision of this Agreement is required or permitted to be given to
or served on any party hereto shall be given in writing (setting forth in
reasonable detail the purpose of such notice, demand, request or communication
and identifying the provision of this Agreement pursuant to which such notice,
demand, request or communication is given), and shall be deemed to be effective
for all purposes when (i) delivered personally, (ii) sent by facsimile
transmission, or (iii) sent by registered or certified mail, return receipt
requested, postage prepaid, to the address set forth below for such party:
(a) If to Patra: Patra Capital Ltd.
152 West 57th Street
40th Floor
New York, NY 10019
Telefax No.: (212) 765-2924
Attn.: Andreas Typaldos
31
<PAGE>
with a copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(b) If to Patra Holdings: Patra Holdings, LLC
152 West 57th Street
40th Floor
New York, NY 10019
Telefax No.: (212) 765-2924
Attn.: Andreas Typaldos
with a copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(c) If to CSI: Conversion Services International, Inc.
100 Eagle Rock Avenue
East Hanover, New Jersey 07936
Telefax No.: (973) 581-7150
Attn.: Scott Newman
(d) If to Sellers: Mr. Scott Newman
51 Westmount Drive
Livingston, New Jersey 07039
Telefax No.: (973) 535-5646
Mr. Glenn Peipert
10 Faas Court
West Orange, New Jersey 07052
Telefax No.: (973) 669-8802
with a copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
or to such other addresses as may be from time to time furnished in writing by
any party hereto in accordance with this Sub-Section 10.07. Any such notice
shall be deemed to be delivered, given, and received (x) as of the date so
delivered, if delivered personally, (y) as of the date on which the
32
<PAGE>
same was deposited in a regularly maintained receptacle for the deposit of
United States mail, addressed and sent as aforesaid, or (z) if transmitted by
facsimile at the opening of business in the office of the addressee on the
business day next following the transmission thereof. In this Sub-Section 10.07,
"business day" means any day except Saturday, Sunday or a statutory holiday in
the State of New York or the State of New Jersey.
10.08. Entire Agreement, etc. This instrument contains the entire
agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all prior oral or written agreements and
understandings, including the Preliminary Agreement. No amendment or
modification of this Agreement will be effective unless reduced to writing and
signed by all the parties hereto. The Schedules and Exhibits attached hereto
shall constitute part of this Agreement. This Agreement shall be construed in
accordance with the laws of the State of New York applicable to agreements to be
performed wholly within said State. This Agreement may be executed in two or
more counterparts by the several parties hereto, but all of which will together
constitute one and the same instrument. In the event any provision of this
Agreement shall be deemed to be invalid or void under any applicable law, the
remaining provisions hereof shall not be affected thereby and shall continue in
full force and effect.
10.09. Successors in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the respective successors and permitted
assigns of the parties hereto.
10.10. Captions. The captions in this Agreement are used for
convenience only and are not intended in any way to affect the interpretation or
construction of this Agreement.
10.11. Substitution of Elligent. In the event that the Patra-Elligent
Merger is not consummated within ninety (90) days of the date of the execution
of this Agreement, Patra and Patra Holdings shall have an additional thirty (30)
days in which to substitute another public company for Elligent under the terms
and conditions of this Agreement.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each duly executed this
Agreement as of the date and year first above written.
PATRA CAPITAL LTD.
By: /S/ANDREAS TYPALDOS /S/ SCOTT NEWMAN
------------------------------ -----------------------------
Andreas Typaldos SCOTT NEWMAN, individually
President
/S/ GLENN PEIPERT
-----------------------------
GLENN PEIPERT, individually
PATRA HOLDINGS, LLC
By: /S/ ANDREAS TYPALDOS
------------------------------
Andreas Typaldos
Manager
CONVERSION SERVICES INTERNATIONAL, INC.
By: /S/ SCOTT NEWMAN /S/ GLENN PEIPERT
------------------------------ -----------------------------
Scott Newman Glenn Peipert
President Senior Vice President
34
<PAGE>
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this 19th day of September, 1998 before me, a Notary Public, in and
for the above county, personally appeared Andreas Typaldos, President of Patra
Capital Ltd., known to me personally to be such, and duly acknowledged the above
instrument to be the act and deed of said corporation and that he signed his
name thereto in his capacity as President by order of the Board of Directors of
said corporation.
/S/ STANLEY T. STAIRS
-----------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this 19th day of September, 1998 before me, a Notary Public, in and
for the above county, personally appeared Andreas Typaldos, Manager of Patra
Holdings LLC, known to me personally to be such, and duly acknowledged the above
instrument to be the act and deed of said limited liability company and that he
signed his name thereto in his capacity as Manager by order of the sole Manager
of said limited liability company.
/S/ STANLEY T. STAIRS
-----------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this 19th day of September, 1998 before me, a Notary Public, in and
for the above county, personally appeared Messrs. Scott Newman and Glenn
Peipert, respectively President and Executive Vice President of Conversion
Services International, Inc., known to me personally to be such, and duly
acknowledged the above instrument to be the act and deed of said corporation and
that they signed their names thereto in their capacity as President and
Executive Vice President by order of the Board of Directors of said corporation.
/S/ STANLEY T. STAIRS
-----------------------------
NOTARY PUBLIC
35
<PAGE>
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this 19th day of September, 1998 before me, a Notary Public, in and
for the above county, personally appeared Scott Newman and acknowledged that he
is the individual who executed the foregoing instrument and that such execution
was his voluntary act and deed.
/S/ STANLEY T. STAIRS
-----------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this 19th day of September, 1998 before me, a Notary Public, in and
for the above county, personally appeared Glenn Peipert and acknowledged that he
is the individual who executed the foregoing instrument and that such execution
was his voluntary act and deed.
/S/ STANLEY T. STAIRS
-----------------------------
NOTARY PUBLIC
36
<PAGE>
Index to Exhibits and Schedules
<TABLE>
<S> <C> <C> <C>
1. EXHIBIT 1.01 - Form of Certificate of Merger
2. EXHIBIT 1.04(b)-1 - Form of Secured Installment Promissory Note
(Mr.Scott Newman)
3. EXHIBIT 1.04(b)-2 - Form of Secured Installment Promissory Note
(Mr. Glenn Peipert)
4. EXHIBIT 3.01(a)-1 - Certificate of Restoration and Revival of
Certificate
of Incorporation of CSI
5. EXHIBIT 3.01(a)-2 - Application for Authority of CSI (New York)
6. EXHIBIT 3.01(a)-3 - Certificate of Incorporation of CSI
7. EXHIBIT 3.01(a)-4 - By-Laws of CSI
8. EXHIBIT 3.01(b)-1 - Certificate of Incorporation of Doorways
9. EXHIBIT 3.01(b)-2 - By-Laws of Doorways
10. EXHIBIT 3.01(e) - Conflicts (Contracts)
11. EXHIBIT 3.01(i) - Compliance with Laws
12. EXHIBIT 3.01(j)-1 - CSI Financial Statements as at December 31,
1995, 1996 and 1997
13. EXHIBIT 3.01(j)-2 - CSI and Doorways Interim Financials as at
June 30, 1998
14. EXHIBIT 3.01(j)-3 - Moore Stephens Adjustments
15. EXHIBIT 3.01(j)-4 - Excluded Assets (Lawstreet.com)
16. EXHIBIT 3.01(k) - Other Liabilities
17. EXHIBIT 3.01(l) - Returns and Complaints
18. EXHIBIT 3.01(m) - Litigation
19. EXHIBIT 3.01(n) - CSI Tax Matters
20. EXHIBIT 3.01(n)(i)-1 - CSI Tax Returns for 1995, 1996 and 1997
21. EXHIBIT 3.01(n)(i)-2 - Doorways Tax Returns for 1995, 1996 and 1997
22. EXHIBIT 3.01(p)(ii) - CSI Dividends, Distributions
23. EXHIBIT 3.01(p)(vii) - Forgiven or Cancelled Debt
24. EXHIBIT 3.01(q)-1 - Key Employees and Consultants
25. EXHIBIT 3.01(q)-2 - Employee and Consultant Contracts - CSI and
Doorways (Compensation in excess of
$100,000 p.a.)
26. EXHIBIT 3.01(s)-1 - CSI Officers and Directors
27. EXHIBIT 3.01(s)-2 - Doorways Officers and Directors
28. EXHIBIT 3.01(t)-1 - CSI Bank Accounts
29 EXHIBIT 3.01(t)-2 - Doorway Bank Accounts
30. EXHIBIT 3.01(u) - Contracts (CSI and Doorways)
31. EXHIBIT 3.01(w) - Related Party Transactions
32. EXHIBIT 3.01(x) - Insurance
33. EXHIBIT 3.01(y) - CSI Trademark/Intellectual Property
34. EXHIBIT 4.01(a)-1 - Patra Capital Ltd. Certificate of Incorporation
35. EXHIBIT 4.01(a)-2 - Patral Capital Ltd. By-Laws
36. EXHIBIT 4.03(a) - Patra Holdings LLC Certificate of Formation
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C>
37. EXHIBIT 6.01 - Loan Guarantees
38. EXHIBIT 6.02(b)-1 - Form of Registration Rights Agreement
(Mr. Scott Newman)
39. EXHIBIT 6.02(b)-2 - Form of Registration Rights Agreement
(Mr. Glenn Peipert)
40. EXHIBIT 7.02(i)-1 - Form of Employment Agreement (Mr. Scott Newman)
41. EXHIBIT 7.02(i)-2 - Form of Employment Agreement (Mr. Glenn Peipert)
42. SCHEDULE 7.02(j) - Officers Retained
43. SCHEDULE 7.03(i) - Form of Opinion of Elligent's Counsel
44. SCHEDULE 7.03(j) - Form of Pledge Agreement
45. SCHEDULE 10.01 - Expenses
</TABLE>
38
<PAGE>
EXHIBIT 1.01
CERTIFICATE OF MERGER
OF
CONVERSION SERVICES INTERNATIONAL, INC.
INTO
PATRA CAPITAL LTD.
The undersigned corporation organized and existing under and by virtue of the
General Corporation Law of Delaware, DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- - ---- ----------------------
<S> <C>
Conversion Services International, Inc. Delaware
Patra Capital Ltd. Delaware
</TABLE>
SECOND: That a Plan and Agreement of Merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
251 of the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Patra Capital Ltd.
39
<PAGE>
FOURTH: That the Certificate of Incorporation of Patra Capital Ltd., a
Delaware corporation which will survive the merger, shall be the Certificate of
Incorporation of the surviving corporation.
FIFTH: That the executed Plan and Agreement of Merger is on file at
the principal place of business of the surviving corporation, the address of
which is 100 Eagle Rock Avenue, East Hanover, NJ 07936.
SIXTH: That a copy of the Plan and Agreement of Merger will be
furnished by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
Executed this 17th day of September, 1998.
PATRA CAPITAL LTD.
By:
-------------------------------
Name: Stanley T. Stairs
Title: Secretary
40
<PAGE>
SECRETARY'S CERTIFICATE
The undersigned, Glenn Peipert, Secretary of CONVERSION SERVICES INTERNATIONAL,
INC., a corporation organized and existing under the laws of the State of
Delaware ("CSI") and one of the merging corporations mentioned in the Plan and
Agreement of Merger to which this Certificate is attached ("Merger Agreement"),
certifies that the Merger Agreement has been approved and adopted by written
consent of the holders of all the outstanding stock of CSI in accordance with
Section 228 of the General Corporation Law of the State of Delaware on August
26, 1998.
WITNESS my hand on this 17th day of September, 1998.
----------------------------------
GLENN PEIPERT, Secretary
41
<PAGE>
SECRETARY'S CERTIFICATE
The undersigned, Stanley T. Stairs, Secretary of PATRA CAPITAL LTD., a
corporation organized and existing under the laws of the State of Delaware
("Patra") and one of the merging corporations mentioned in the Plan and
Agreement of Merger to which this Certificate is attached ("Merger Agreement"),
certifies that the Merger Agreement has been approved and adopted by written
consent of the holders of all the outstanding stock of Patra in accordance with
Section 228 of the General Corporation Law of the State of Delaware on August
26, 1998.
WITNESS my hand on this 17th day of September, 1998.
----------------------------------
STANLEY T. STAIRS, Secretary
42
<PAGE>
EXHIBIT 1.04(b)-1
SECURED INSTALLMENT PROMISSORY NOTE
US$5,666,667 [**DATE**]
FOR VALUE RECEIVED, ELLIGENT CONSULTING GROUP, INC., a Nevada
corporation having its registered office at ___________________________________
(hereinafter referred to as "Elligent") and PATRA CAPITAL LTD., a Delaware
corporation having its registered office at Corporation Trust Center, 1209
Orange Street, City of Wilmington, County of New Castle, Delaware (hereinafter
referred to as "Patra"; Elligent and Patra are hereinafter jointly referred to
as "Makers") hereby jointly and severally promise to pay to SCOTT NEWMAN, an
individual residing at 51 Westmount Drive, Livingston, New Jersey 07039
(hereinafter referred to as "Newman") or to his assignee, the principal sum of
FIVE MILLION SIX HUNDRED AND SIXTY-SIX THOUSAND SIX HUNDRED AND SIXTY-SEVEN
DOLLARS (US$5,666,667) in installments as set forth on Schedule "A" attached
hereto and made a part hereof, together with interest at the rate of eight
percent (8%) per annum, payable monthly in arrears, on the unpaid principal
balance of each of the Interest Bearing Installments (as defined on Schedule
"A") from time to time outstanding from the date hereof until the respective
Interest Bearing Installment is fully paid.
This Note is the Secured Installment Promissory Note referred to in
and issued under that certain Pledge Agreement dated as of August 1, 1998
between Newman, Elligent and Glenn Peipert (the "Pledge Agreement"), and this
Note and the holder hereof are entitled to all of the benefits provided for in
the Pledge Agreement or referred to therein. This Note is the Secured
Installment Promissory Note attached as Exhibit 1.04(b)-1 to the Plan and
Agreement of Merger made as of August 1, 1998 by and among Patra, Patra Holdings
LLC, Conversion Services International, Inc., Newman and Glenn Peipert (the
"Merger Agreement").
This Note is subject to a right of setoff pursuant to Section 8.03 of
the Merger Agreement. Newman has the right to accelerate this Note as provided
in Section 8 of the Pledge Agreement. An event of default for purposes of this
Note shall be the same as an Event of Default under Section 8 of the Pledge
Agreement.
Makers, and each of them, hereby waive protest, presentment for
payment, demand for payment, notice of nonpayment, notice of dishonor, protest
of dishonor, and consent to and waive notice of any extension, renewal or
modification of this Note or any installment of principal or interest granted by
Newman.
1
<PAGE>
No delay or omission on the part of Newman in exercising any remedy,
right or option hereunder shall operate as a waiver of such remedy, right or
option. In any event, a waiver on any one occasion shall not be construed as a
waiver or bar to any such remedy, right or option on a future occasion.
All payments under this Note shall be payable in lawful money of the
United States of America which shall be legal tender for public and private
debts at the time of payment.
This Note shall be governed by and construed in accordance with the
internal laws of the State of New York.
ELLIGENT CONSULTING GROUP, INC.
By: _________________________________
Name:
Title:
PATRA CAPITAL LTD.
By: _________________________________
Name:
Title:
2
<PAGE>
SCHEDULE "A"
<TABLE>
<CAPTION>
Interest Bearing
Principal Amount Payment Date Installment
- - ---------------- ------------ ----------------
<S> <C> <C>
$666,667.00 45 Business Days (as defined in the Yes
Merger Agreement) after the Closing
Date (as defined in the Merger
Agreement)
$1,000,000.00* January 21, 1999 Yes
$2,500,000.00 May 1, 1999 No
$1,500,000.00 August 1, 1999 No
</TABLE>
- - ----------------------
* The payment of $1,000,000.00 due on January 21, 1999 may, at the option of
Maker, be made by the delivery of Conversion Stock (as defined in the
Merger Agreement) to Newman in accordance with Sub-Section 1.04(b) and
Sub-Section 1.05(a) of the Merger Agreement.
Elligent: _______
Patra: _______
Newman: _______
3
<PAGE>
EXHIBIT 1.04(b)-2
SECURED INSTALLMENT PROMISSORY NOTE
US$2,833,333.00 [*DATE**]
FOR VALUE RECEIVED, ELLIGENT CONSULTING GROUP, INC., a Nevada
corporation having its registered office at ____________________________________
(hereinafter referred to as "Elligent") and PATRA CAPITAL LTD., a Delaware
corporation having its registered office at Corporation Trust Center, 1209
Orange Street, City of Wilmington, County of New Castle, Delaware (hereinafter
referred to as "Patra"; Elligent and Patra are hereinafter jointly referred to
as "Makers") hereby jointly and severally promise to pay to GLENN PEIPERT, an
individual residing at 10 Faas Court, West Orange, New Jersey 07052 (hereinafter
referred to as "Peipert") or to his assignee, the principal sum of TWO MILLION
EIGHT HUNDRED AND THIRTY-THREE THOUSAND THREE HUNDRED AND THIRTY-THREE DOLLARS
(US$2,833,333) in installments as set forth on Schedule "A" attached hereto and
made a part hereof, together with interest at the rate of eight percent (8%) per
annum, payable monthly in arrears, on the unpaid principal balance of each of
the Interest Bearing Installments (as defined on Schedule "A") from time to time
outstanding from the date hereof until the respective Interest Bearing
Installment is fully paid.
This Note is the Secured Installment Promissory Note referred to in
and issued under that certain Pledge Agreement dated as of August 1, 1998
between Peipert, Elligent and Scott Newman (the "Pledge Agreement"), and this
Note and the holder hereof are entitled to all of the benefits provided for in
the Pledge Agreement or referred to therein. This Note is the Secured
Installment Promissory Note attached as Exhibit 1.04(b)-2 to the Plan and
Agreement of Merger made as of August 1, 1998 by and among Patra, Patra Holdings
LLC, Conversion Services International, Inc., Peipert and Scott Newman (the
"Merger Agreement").
This Note is subject to a right of setoff pursuant to Section 8.03 of
the Merger Agreement. Peipert has the right to accelerate this Note as provided
in Section 8 of the Pledge Agreement. An event of default for purposes of this
Note shall be the same as an Event of Default under Section 8 of the Pledge
Agreement.
Makers, and each of them, hereby waive protest, presentment for
payment, demand for payment, notice of nonpayment, notice of dishonor, protest
of dishonor, and consent to and waive notice of any extension, renewal or
modification of this Note or any installment of principal or interest granted by
Peipert.
No delay or omission on the part of Peipert in exercising any remedy,
right or option hereunder shall operate as a waiver of such remedy, right or
option. In any event, a waiver on any
1
<PAGE>
one occasion shall not be construed as a waiver or bar to any such remedy, right
or option on a future occasion.
All payments under this Note shall be payable in lawful money of the
United States of America which shall be legal tender for public and private
debts at the time of payment.
This Note shall be governed by and construed in accordance with the
internal laws of the State of New York.
ELLIGENT CONSULTING GROUP, INC.
By: _________________________________
Name:
Title:
PATRA CAPITAL LTD.
By: _________________________________
Name:
Title:
2
<PAGE>
SCHEDULE "A"
<TABLE>
<CAPTION>
Interest Bearing
Principal Amount Payment Date Installment
- - ---------------- ------------ ----------------
<S> <C> <C>
$333,333.34 45 Business Days (as defined in the Yes
Merger Agreement) after the Closing
Date (as defined in the Merger
Agreement)
$500,000.00* January 21, 1999 Yes
$1,250,000.00 May 1, 1999 No
$749,999.66 August 1, 1999 No
</TABLE>
- - ----------------------
* The payment of $1,000,000.00 due on January 21, 1999 may, at the option of
Maker, be made by the delivery of Conversion Stock (as defined in the
Merger Agreement) to Peipert in accordance with Sub-Section 1.04(b) and
Sub-Section 1.05(a) of the Merger Agreement.
Elligent: _______
Patra: _______
Peipert: _______
3
<PAGE>
EXHIBIT 3.01(a)-1
Certificate of Restoration and Revival Certificate of Incorporation of CSI
[OMITTED]
<PAGE>
EXHIBIT 3.01(a)-2
Application for Authority of CSI (New York)
[OMITTED]
<PAGE>
EXHIBIT 3.01(a)-3
Certificate of Incorporation of CSI
[OMITTED]
<PAGE>
EXHIBIT 3.01(a)-4
By-Laws of CSI
[OMITTED]
<PAGE>
EXHIBIT 3.01(b)-1
Certificate of Incorporation of Doorways
[OMITTED]
<PAGE>
EXHIBIT 3.01(b)-2
By-Laws of Doorways
[OMITTED]
<PAGE>
SCHEDULE 3.01(e)
Conflicts (Contracts)
The following agreements require consents:
1. Real property lease - 100 Eagle Rock Avenue, East Hanover, NJ
Term - 5 years
Dated - November 6, 1997
2. Real property lease - 1st floor, 615 West Mt. Pleasant Avenue,
Livingston, NJ
Term - ends September 30, 1998
3. Summit Bank Master Advance Note and Security Credit Agreement - dated
November 28, 1997 in the amount of $1,500,000.00.
<PAGE>
SCHEDULE 3.01(i)
Compliance with Laws
1. An issue has been raised by the State of New Jersey, Department of Labor
regarding CSI's classification of certain employees as independent
contractors as opposed to employees.
2. See also Schedule 3.01(l) and (m).
<PAGE>
EXHIBIT 3.01 (j)-1
CSI Financial Statements as at
December 31, 1995, 1996 and 1997
[OMITTED]
<PAGE>
EXHIBIT 3.01 (j)-2
CSI and Doorways Interim Financials as at June 30, 1998
[OMITTED]
<PAGE>
EXHIBIT 3.01 (j)-3
Moore Stephens Adjustment
[OMITTED]
<PAGE>
SCHEDULE 3.01(j)-4
Excluded Assets
1. Lawstreet.com
<PAGE>
SCHEDULE 3.01(k)
Other Liabilities
1. See Schedules 3.01(l) and (m).
<PAGE>
SCHEDULE 3.01(l)
Returns and Complaints
1. In the ordinary course of business, CSI receives letters and telephone
calls complaining about services provided.
2. See also Schedules 3.01(k) and (m).
The foregoing disclosures, taken together, will not constitute a material
adverse effect on CSI's business or prospects.
<PAGE>
SCHEDULE 3.01 (m)
LITIGATION- Actual and threatened
1. Congedo v. Conversion Services, Inc., Superior Court of New Jersey,
Bergen County, Docket No. BER-L-2308-96. This is a contract dispute in
which Plaintiff claims approximately $15,000 in damages. Trial call is
currently scheduled for September 22, 1998.
2. State of New Jersey, Department of Labor - inquiry regarding CSI's
classification of certain employees as independent contractors as opposed
to employees.
3. The Matlen Silver Group - litigation alleging amounts due resulting from
hiring of George Kearsley - regarding nonsolicitation (June 1993). This
matter has been marked settled by the court and settlement papers are to
be exchanged. This was a non-cash settlement.
4. Consultant Services Institute - attorney correspondence exchanged
regarding CSI assumed name (November 1993). No action was filed.
5. CSI v. GTN Technologies - failure to pay for services rendered by CSI.
CSI's counsel has drafted a complaint for non-payment of services
rendered which has not yet been filed.
6. Attorney correspondence alleging breach of an employment agreement by CSI
regarding Julie Drews Bilotta (no litigation filed and no longer employed
at CSI).
7. Bob Bonoff - Independent consultant alleging amounts due (no action
filed).
8. CSI v. Malloy Group - failure to pay for services rendered by CSI. CSI's
counsel has drafted a complaint for non-payment of services rendered
which has not yet been filed.
9. CSI attorney letter threatening litigation regarding Guido Pacia's
obligation not to compete. CSI has decided not to pursue litigation.
<PAGE>
SCHEDULE 3.01(n)
CSI Tax Matters
[OMITTED]
<PAGE>
SCHEDULE 3.01(n)(i)-1
CSI Tax Returns for 1995, 1996 and 1997
[OMITTED]
<PAGE>
SCHEDULE 3.01(n)(i)-2
Doorways, Inc. Tax Returns
(1195, 1996 and 1997)
[OMITTED]
<PAGE>
SCHEDULE 3.01(p)(ii)
CSI Dividends, Distributions
1. See Schedule 3.01(p)(vii).
<PAGE>
SCHEDULE 3.01(p)(vii)
FORGIVEN or CANCELLED DEBT
1. Loans from CSI to shareholders have been reduced by one hundred thousand
($100,000.00) dollars (post June 30, 1998).
<PAGE>
SCHEDULE 3.01(q)-1
Key Employees and Consultants
[OMITTED]
<PAGE>
SCHEDULE 3.01(q)-2
Employee and Consultant Contracts
CSI and Doorways
(Compensation in excess of $100,000 p.a.)
[OMITTED]
<PAGE>
SCHEDULE 3.01 (s)-1
CSI Officers and Directors
Directors - Scott Newman and Glenn Peipert
Officers - President - Scott Newman
Senior Vice President - Glenn Peipert
Secretary - Glenn Peipert
<PAGE>
SCHEDULE 3.01(s)-2
Doorways Officers and Directors
Director - Scott Newman
Officers - President - Scott Newman
Secretary - Scott Newman
<PAGE>
SCHEDULE 3.01(t)-1
CSI Bank Accounts
[OMITTED]
<PAGE>
SCHEDULE 3.01(t)-2
Doorways Bank Accounts
[OMITTED]
<PAGE>
SCHEDULE 3.01(u)
Contracts
This Schedule should be read in its entirety - there are many contracts which
fit into more than one category.
3.01(u)(i)
Summit Bank Master Advance Note and Security Credit Agreement - dated November
28, 1997 in the amount of $1,500,000.00 (including CSI correspondence).
November 1997 Standby Letter of Credit in the amount of $167,344.00
3.01(u)(ii)
CSI Employee Agreements
CSI Contract Employee Agreements
CSI Independent Contractor Agreements
Professional Services Agreement (sample)
3.01(u)(iii)
none
3.01(u)(iv)
401K Profit Sharing Plan Documents (Red Bank Pension Services, Inc.)
CSI Long term disability plan booklet - UNUM Life Ins. Co.
CSI Group Insurance Book - Paul Revere Life Ins. Co.
Aetna Retirement Services Package
American National Fire Insurance Company - Commercial Property, Commercial
General Liability, Commercial Crime, Commercial Inland Marine, Commercial
Boiler and Machinery, Commercial Auto, and Commercial Umbrella
American National Fire Insurance Company - Workers Compensation, Employers
Liability
American Alliance Insurance Company - Umbrella Policy
CSI Shareholders Agreement
Jaguar Credit Corp. - automobile lease
State Farm Indemnity Co. - Auto Insurance - Scott Newman
First Trenton Indemnity Co. - Auto Insurance - Glenn Piepert
<PAGE>
3.01(u)(v)
none
3.01 (u)(vi)
none
3.01(u)(vii)
Jaguar Cars; Doorways, Inc. Software Development and License Agreement with CSI;
Marsh & McLennan Group Associates; Lifespan; Morgan Stanley; Sterling Testing
Systems; ACS- East; ADP; Arco; Arnold & S. Bleichroeder; Cendant; Corporate
Express; Crum & Foster Insurance; Cytec Industries, Inc.; Ernst & Young; Goldman
Sachs & Co.; GTN Technologies, LLC; ISP Management Co., Inc.; Barnes & Noble;
Bell Atlantic; H) Edwards; Lenox, Inc. Lifespan Info. Services; Lucent Tech.;
Merrill Lynch; Morgan Stanley; Merck & Co.; Metlife; Navieras NPR Inc.; Party
City; Pfizer; Prudential; Securities Industry Automation Corp.; Smith Barney;
Sony Electronics, Inc.; Soros Fund Management; Tiffany Computer Systems, Inc.;
Summit Bancorp.; Volvo; NYLCare Health Care Plans of New Jersey, Inc.
3.01(u)(viii)
- - -See 3.01 (y)
3.01(u)(ix)
none
3.01(u)(x)
none
3.01(u)(xi)
none
3.01(u)(xii)
none
Additional Contracts
Real Property Lease - 100 Eagle Rock Avenue, East Hanover, NJ
Real Property Lease (and amendments) - 1st floor, 615 West Mt. Pleasant Avenue,
Livingston, New Jersey
Equipment Leases - Bankvest Capital Corp
<PAGE>
Lease Agreement with IKON for copier, dated March 30, 1998.
Matlen Silver Group, Inc. Agreement
Imperial Capital Equipment Contract
nView Equipment Contract
Ikon Equipment Leases
Matthijssen, Inc. Office Equipment Maintenance Agreement
Presentation Products Equipment Lease
GE Capital Equipment Lease Agreement Sample Confidentiality Agreement
<PAGE>
SCHEDULE 3.01(w)
Related Party Transactions
1. Doorways, Inc. will be contributed prior to closing.
<PAGE>
Schedule 3.01(x)
Insurance
1. American Alliance Insurance Co. - General Corporate Policy.
2. American national Fire Insurance Co. - Workers Compensation and Employers
Liability Insurance.
3. American National Fire Insurance Co. - Commercial Property, Commercial
General Liability, Commercial Crime, Commercial Inland Marine, Commercial
Boiler and Machinery, Commercial Auto, and Commercial Umbrella.
4. State Farm Indemnity Co. - Auto Insurance - Scott Newman.
5. First Trenton Indemnity Co. - Auto Insurance - Glenn Peipert.
<PAGE>
Schedule 3.01(y)
CSI Trademark/Intellectual Property
Doorways, Inc. and Conversion Services International, Inc. are the corporate
names. CSI -Tracker or Tracker is a customer service, help desk software
product. Wang 2 IBM is a software conversion tool used to convert Wang files to
AS 100 files - it is no longer used. CSI/400 is a COBOL conversion software
product and it is no longer in existence. Doorways is a dynamic menu manager
software product that is no longer in existence. The only formal copyright filed
was for Wang 2 IBM.
<PAGE>
Exhibit 4.01(a)-1
Patra Capital Ltd.
Certificate of Incorporation
[OMITTED]
<PAGE>
Exhibit 4.01(a)-2
Patra Capital Ltd. By-Laws
[OMITTED]
<PAGE>
Exhibit 4.03(a)
Patra Holdings LLC
Certificate of Formation
[OMITTED]
<PAGE>
Schedule 6.01
Loan Guarantees
Scott Newman and Glenn Peipert are to be removed as guarantors from
the Summit Bank Line of Credit dated September 13, 1993, as extended on August
31.
<PAGE>
EXHIBIT 6.02(b)-1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ____ day of ______________, 1998 (the "Effective Date"), by and between
ELLIGENT CONSULTING GROUP, INC., a Nevada corporation (the "Company"), and SCOTT
NEWMAN, an individual residing at 51 Westmount Drive, Livingston, New Jersey
07039 (the "Shareholder"),
WITNESSETH:
WHEREAS, Patra Capital Ltd. ("Patra"), Patra Holdings LLC, Conversion
Services International, Inc., Glenn Peipert, and the Shareholder have entered
into a Plan and Agreement of Merger dated as of August 1, 1998 ("Merger
Agreement") pursuant to which Shareholder has received newly issued unregistered
shares of the Company's common stock (the "Company Shares"); and
WHEREAS, the Company is willing to grant certain registration rights to the
Shareholder with respect to the Company Shares; and
WHEREAS, the Company wishes to execute this Agreement and to grant to the
Shareholder the rights contained herein;
NOW THEREFORE, the parties hereto agree as follows:
Section l. Registration Rights.
1.01. Definitions. As used in this Agreement:
<PAGE>
(a) The terms "Register", "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
and the subsequent declaration or ordering of the effectiveness of such
registration statement.
(b) The term "Registrable Securities" means:
(i) the Company Shares issued to the Shareholder pursuant to the
Merger Agreement; and
(ii) any other shares of common stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in
replacement of, the Company Shares designated in Section
1.01(b)(i), excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his or
her rights and duties under this Agreement are not assigned;
provided, however, that the Company's common stock or other
securities shall only be treated as Registrable Securities
if and so long as they have not been (A) sold to or through
a broker or dealer or underwriter in a public distribution
or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section
4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale.
(c) The term "Holder" means any holder of outstanding Registrable
Securities who, subject to the limitations set forth in Section 1.09, acquired
such Registrable Securities in a transaction or series of transactions not
involving any registered public offering.
(d) The term "Business Day" means any day except Saturday, Sunday or a
statutory holiday in the State of New York or the State of Nevada.
1.02. Piggyback Registration.
(a) During the period beginning ______ (__) months following the Effective
Date and ending twenty-four (24) months following the Effective Date (the
"Piggyback Period"), the Company will notify the Holders in writing at least
thirty (30) days prior to filing its first registration statement under the
Securities Act during the Piggyback Period for purposes of effecting a public
offering of the Company's common stock whether or not for its own account
(excluding any registration statement on Form S-8 or Form S-4 or any successor
forms) and will afford the Holder(s) an opportunity to include in such
registration statement all or any part of the Registrable Securities not
previously sold by the Holder(s), subject to underwriter's cutbacks, if any,
pursuant to Section 1.02(b) below. If a Holder desires to include in any such
registration statement all or any part of such Registrable Securities, such
Holder will, within twenty (20) days after receipt of the foregoing notice from
the Company, so notify the Company in writing. The Holder's notice will
<PAGE>
inform the Company of the number of shares the Holder wishes to include in such
registration statement. Notwithstanding anything in this Section 1.02 to the
contrary, if at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to all Holders and
thereupon shall be relieved of its obligations to register any Registrable
Securities in connection with such abandoned registration without prejudice to
the rights of Holders under this Section 1.02.
(b) If a registration statement for which the Company gives notice under
this Section 1.02 is for an underwritten offering, the Company will so advise
the Holders. In such event, a Holder's right to include Registrable Securities
in a registration pursuant to this Section 1.02 will be conditioned upon such
Holder's participation in such underwriting and the inclusion of the Registrable
Securities in the underwriting to the extent provided herein. In order to
participate in the underwriting, a Holder must enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting and satisfy all the terms, conditions and obligations contained
therein. Notwithstanding any other provision of this Agreement, if the managing
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, then the managing underwriter may
exclude shares (including any or all of the Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting will be allocated first, to the shares
to be sold by the Company and any shares proposed to be sold thereunder by a
Holder on a pro rata basis based upon the number of shares proposed to be sold
by the Company and a Holder, respectively, and, second, to any shares proposed
to be sold thereunder by any holders of registration rights granted by the
Company (other than to a Holder) on a pro rata basis based upon the number of
shares of each such Holder entitled to such registration. If a Holder
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the managing underwriter,
delivered at least ten (10) Business Days prior to the effective date of the
registration statement. Any shares excluded or withdrawn from such underwriting
will be excluded and withdrawn from the registration and such Holder shall no
longer have any rights to include its Registrable Securities in such
registration.
(c) Notwithstanding anything in this Section 1.02 to the contrary, a Holder
shall not have the right to include its Registrable Securities in any
distribution or registration of securities by the Company which is a result of a
merger, consolidation, acquisition, exchange offer, recapitalization,
reorganization, dividend reinvestment plan, stock option plan or other employee
benefit plan or any similar transaction having the same effect.
(d) All expenses incurred in connection with a registration effected
pursuant to this Section 1.02, including (without limitation) all registration,
filing, qualification, printer and accounting fees shall be borne by the
Company. The Company shall not be required to pay any underwriters' or brokers'
fees, discounts or commissions relating to the Registrable Securities, or the
fees or expenses of separate counsel to the selling Holders, unless the
Company's counsel is unable or unwilling to represent the selling Holders.
<PAGE>
1.03. Obligations of the Company. When required under Section 1.02 to
effect the registration of any Registrable Securities, the Company shall, as
soon as reasonably practicable:
(a) Prepare and file with the Securities and Exchange Commission ("SEC") a
registration statement on any appropriate form under the Securities Act with
respect to such Registrable Securities and use its reasonable efforts to cause
such registration statement to become effective, and keep such registration
statement effective for the period in which shares are sold by the Company
thereunder.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of Registrable Securities
pursuant to the terms and subject to the conditions of this Agreement.
(c) Furnish to the Holders such numbers of copies of a prospectus in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Notify each Holder of Registrable Securities covered by a registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, whereupon each
Holder shall cease utilizing such prospectus and the Company agrees, as soon
thereafter as reasonably practicable, to supplement the prospectus so as to meet
the requirements of the Securities Act, and to notify the Holders of such
action.
(e) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(f) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Agreement, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
<PAGE>
1.05 Obligation of the Holders.
(a) Each Holder agrees that, upon receipt of a notice from the Company of
any suspension or stop-order relating to a registration statement covering the
Registrable Securities, such Holder will forthwith forego or delay the
disposition of any Registrable Securities covered by such registration statement
or prospectus until such Holder's receipt of the copies of the supplemented or
amended prospectus, or until it is advised in writing by the Company that the
use of the applicable prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in such
prospectus, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of any prospectus covering such Registrable
Securities.
(b) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 1 with respect to the Registrable
Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder's Registrable Securities pursuant to the
Securities Act.
1.06. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder against any losses, claims, damages, or liabilities (joint
or several) to which any of the foregoing persons may become subject, under the
Securities Act, the Securities Exchange Act of 1934, as amended (the"1934 Act"),
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Securities Act, the 1934 Act or any state securities law; and the Company will
pay, as incurred, any reasonable legal or other expenses incurred by any person
intended to be indemnified pursuant to this Section 1.06(a), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
1.06(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs (i) in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by a Holder or (ii) as a
result of any use or delivery by a Holder of a prospectus other than the most
current prospectus made available to such Holder by the Company.
<PAGE>
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act or the 1934 Act, any other Holder
selling securities in such registration statement, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs (i) in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration or (ii) as a
result of any use or delivery by such Holder of a prospectus other than the most
current prospectus made available to such Holder by the Company; and each such
Holder will pay, as incurred, any reasonable legal or other expenses incurred by
any person intended to be indemnified pursuant to this Section 1.06(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.06(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld. The liability of a selling Holder under this paragraph (b) and under
paragraph (d) below shall be limited to an amount equal to the net proceeds to
such selling Holder from the sale of such Holder's Registrable Securities
hereunder.
(c) Promptly after receipt by an indemnified party under this Section 1.06
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.06, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel of the indemnifying party's choosing.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.06, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.06.
(d) If the indemnification provided in this Section 1.06 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
<PAGE>
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) The obligations of the Company and Holders under this Section 1.06
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.07. Reports under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the 1934 Act;
(c) upon the request of any Holder, furnish to such Holder, so long as the
Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration.
1.08. Certain Additional Agreements of the Holder(s).
(a) Prior to and so long as the Registration Statement shall remain
effective, each Holder shall:
(i) not engage in any stabilization activity in connection with the
Company's common stock;
(ii) not bid for or purchase any of the Company's common stock or any
rights to acquire any of the Company's common stock, or attempt
to induce any person to purchase any of the Company's common
stock other than as permitted under the 1934 Act; or
(iii) effect all sales of Registrable Securities in broker's
transactions through broker-dealers acting as agents, in
transactions directly with market makers or in privately
negotiated transactions where no broker or other third party
(other than the purchaser) is involved.
<PAGE>
(b) Without limiting any other provision of this Agreement, no Holder shall
engage in any short-sales of the Company's common stock prior to the
effectiveness of the registration statement pursuant to which the Holder is
offered the opportunity to sell its Registrable Securities hereunder, except to
the extent that any such short-sale is fully covered by freely tradable shares
of the Company's common stock.
1.09. Assignment of Registration Rights. The registration rights granted
pursuant to this Section 1 are not assignable other than in connection with a
transfer of such Registrable Securities to any spouse, son or daughter of the
Shareholder, or to trustees of a trust the beneficiaries of which include the
Shareholder and any spouse, son or daughter of the Shareholder, provided that
all such transferees agree in writing to appoint a single representative as
their attorney-in-fact for the purpose of receiving any notices and exercising
their rights under this Section 1, and provided, further, that such assignment
shall be effective only if immediately following such transfer the further
disposition of such Registrable Securities by the transferee is restricted under
the Securities Act. Any attempted assignment of registration rights in
contravention of this Section 1.09 shall be null and void. The Shareholder
shall, within a reasonable time after such transfer, furnish the Company with
written notice of the name and address of such transferee and the securities
with respect to which such registration rights are being assigned.
1.10. Termination of Registration Rights. Subject to Section 1.06 the
registration rights granted under this Section 1 shall terminate upon the
earlier of (i) two (2) years following the Effective Date, (ii) all of the
Holder's Registrable Securities have been registered pursuant to this Agreement,
or (iii) with respect to any Holder, at such time as such Holder may sell all of
such Holder's Registrable Securities in any single three (3) month period
pursuant to Rule 144 (or such successor rule as may be adopted).
Section 2. Miscellaneous.
2.01. Assignment. Subject to the provisions of Section 1.09 hereof, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
2.02. Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective permitted successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
2.03. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York, without regard to the conflict of laws
provisions thereof.
2.04. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
2.05. Notices. Any notice, demand, request or other communication which by
any provision of this Agreement is required or permitted to be given to or
served on any party hereto shall be given in writing (setting forth in
reasonable detail the purpose of such notice, demand, request or communication
and identifying the provision of this Agreement pursuant to which such notice,
demand, request or communication is given), and shall be deemed to be effective
for all purposes when (i) delivered personally, (ii) sent by facsimile
transmission, or (iii) sent by registered or certified mail, return receipt
requested, postage prepaid, to the address set forth below for such party:
(a) If to Company: Elligent Consulting Group, Inc.
152 West 57th Street, 40th Floor
New York, NY 10019
Telefax: (212) 765-2924
Attn.: Mr. Andreas Typaldos
with copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(b) If to Shareholder: Mr. Scott Newman
51 Westmount Drive
Livingston, New Jersey 07039
Telefax No.:
with copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
or to such other addresses as may be from time to time furnished in writing by
any party hereto in accordance with this Subsection 2.05. Any such notice shall
be deemed to be delivered, given, and received (x) as of the date so delivered,
if delivered personally, (y) as of the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as aforesaid, or (z) if transmitted by facsimile at the opening of
business in the office of the addressee on the business day next following the
transmission thereof. In this paragraph, "business day" means any day except
Saturday, Sunday or a statutory holiday in the State of New York or the State of
New Jersey.
2.06. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety,
<PAGE>
to the extent necessary, shall be severed from this Agreement, and the balance
of this Agreement shall be enforceable in accordance with its terms.
2.07. Amendment and Waiver. Any provision of this Agreement may be amended
with the written consent of the Company and the Holders of at least a majority
of the outstanding Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. Each Holder
acknowledges that by the operation of this Section 2.07, the Holders of a
majority of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Agreement.
2.08. Rights of Holders. Each Holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such Holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such Holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
2.09. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing.
2.10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
ELLIGENT CONSULTING GROUP, INC.
By:
------------------------------------ ------------------------------
Name: SCOTT NEWMAN
Title:
<PAGE>
EXHIBIT 6.02(b)-2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ____ day of ______________, 1998 (the "Effective Date"), by and between
ELLIGENT CONSULTING GROUP, INC., a Nevada corporation (the "Company"), and GLENN
PEIPERT, an individual residing at 10 Faas Court, West Orange, New Jersey 07052
(the "Shareholder"),
WITNESSETH:
WHEREAS, Patra Capital Ltd. ("Patra"), Patra Holdings LLC, Conversion
Services International, Inc., Scott Newman, and the Shareholder have entered
into a Plan and Agreement of Merger dated as of August 1, 1998 ("Merger
Agreement") pursuant to which Shareholder has received newly issued unregistered
shares of the Company's common stock (the "Company Shares"); and
WHEREAS, the Company is willing to grant certain registration rights to the
Shareholder with respect to the Company Shares; and
WHEREAS, the Company wishes to execute this Agreement and to grant to the
Shareholder the rights contained herein;
NOW THEREFORE, the parties hereto agree as follows:
Section l. Registration Rights.
1.01. Definitions. As used in this Agreement:
<PAGE>
(a) The terms "Register", "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
and the subsequent declaration or ordering of the effectiveness of such
registration statement.
(b) The term "Registrable Securities" means:
(i) the Company Shares issued to the Shareholder pursuant to the
Merger Agreement; and
(ii) any other shares of common stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right
or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in
replacement of, the Company Shares designated in Section
1.01(b)(i), excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his or her
rights and duties under this Agreement are not assigned;
provided, however, that the Company's common stock or other
securities shall only be treated as Registrable Securities if
and so long as they have not been (A) sold to or through a
broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so
that all transfer restrictions, and restrictive legends with
respect thereto, if any, are removed upon the consummation of
such sale.
(c) The term "Holder" means any holder of outstanding Registrable
Securities who, subject to the limitations set forth in Section 1.09, acquired
such Registrable Securities in a transaction or series of transactions not
involving any registered public offering.
(d) The term "Business Day" means any day except Saturday, Sunday or a
statutory holiday in the State of New York or the State of Nevada.
1.02. Piggyback Registration.
(a) During the period beginning _____(__) months following the Effective
Date and ending twenty-four (24) months following the Effective Date (the
"Piggyback Period"), the Company will notify the Holders in writing at least
thirty (30) days prior to filing its first registration statement under the
Securities Act during the Piggyback Period for purposes of effecting a public
offering of the Company's common stock whether or not for its own account
(excluding any registration statement on Form S-8 or Form S-4 or any successor
forms) and will afford the Holder(s) an opportunity to include in such
registration statement all or any part of the Registrable Securities not
previously sold by the Holder(s), subject to underwriter's cutbacks, if any,
pursuant to Section 1.02(b) below. If a Holder desires to include in any such
registration statement all or any part of such Registrable Securities, such
Holder will, within twenty (20) days after receipt of the
<PAGE>
foregoing notice from the Company, so notify the Company in writing. The
Holder's notice will inform the Company of the number of shares the Holder
wishes to include in such registration statement. Notwithstanding anything in
this Section 1.02 to the contrary, if at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to all Holders and
thereupon shall be relieved of its obligations to register any Registrable
Securities in connection with such abandoned registration without prejudice to
the rights of Holders under this Section 1.02.
(b) If a registration statement for which the Company gives notice under
this Section 1.02 is for an underwritten offering, the Company will so advise
the Holders. In such event, a Holder's right to include Registrable Securities
in a registration pursuant to this Section 1.02 will be conditioned upon such
Holder's participation in such underwriting and the inclusion of the Registrable
Securities in the underwriting to the extent provided herein. In order to
participate in the underwriting, a Holder must enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting and satisfy all the terms, conditions and obligations contained
therein. Notwithstanding any other provision of this Agreement, if the managing
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, then the managing underwriter may
exclude shares (including any or all of the Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting will be allocated first, to the shares
to be sold by the Company and any shares proposed to be sold thereunder by a
Holder on a pro rata basis based upon the number of shares proposed to be sold
by the Company and a Holder, respectively, and, second, to any shares proposed
to be sold thereunder by any holders of registration rights granted by the
Company (other than to a Holder) on a pro rata basis based upon the number of
shares of each such Holder entitled to such registration. If a Holder
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the managing underwriter,
delivered at least ten (10) Business Days prior to the effective date of the
registration statement. Any shares excluded or withdrawn from such underwriting
will be excluded and withdrawn from the registration and such Holder shall no
longer have any rights to include its Registrable Securities in such
registration.
(c) Notwithstanding anything in this Section 1.02 to the contrary, a Holder
shall not have the right to include its Registrable Securities in any
distribution or registration of securities by the Company which is a result of a
merger, consolidation, acquisition, exchange offer, recapitalization,
reorganization, dividend reinvestment plan, stock option plan or other employee
benefit plan or any similar transaction having the same effect.
(d) All expenses incurred in connection with a registration effected
pursuant to this Section 1.02, including (without limitation) all registration,
filing, qualification, printer and accounting fees shall be borne by the
Company. The Company shall not be required to pay any underwriters' or brokers'
fees, discounts or commissions relating to the Registrable Securities, or the
fees or expenses of separate counsel to the selling Holders, unless the
Company's counsel is unable or unwilling to represent the selling Holders.
<PAGE>
1.03. Obligations of the Company. When required under Section 1.02 to
effect the registration of any Registrable Securities, the Company shall, as
soon as reasonably practicable:
(a) Prepare and file with the Securities and Exchange Commission ("SEC") a
registration statement on any appropriate form under the Securities Act with
respect to such Registrable Securities and use its reasonable efforts to cause
such registration statement to become effective, and keep such registration
statement effective for the period in which shares are sold by the Company
thereunder.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of Registrable Securities
pursuant to the terms and subject to the conditions of this Agreement.
(c) Furnish to the Holders such numbers of copies of a prospectus in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Notify each Holder of Registrable Securities covered by a registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, whereupon each
Holder shall cease utilizing such prospectus and the Company agrees, as soon
thereafter as reasonably practicable, to supplement the prospectus so as to meet
the requirements of the Securities Act, and to notify the Holders of such
action.
(e) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(f) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Agreement, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
<PAGE>
public accountants in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
1.05 Obligation of the Holders.
(a) Each Holder agrees that, upon receipt of a notice from the Company of
any suspension or stop-order relating to a registration statement covering the
Registrable Securities, such Holder will forthwith forego or delay the
disposition of any Registrable Securities covered by such registration statement
or prospectus until such Holder's receipt of the copies of the supplemented or
amended prospectus, or until it is advised in writing by the Company that the
use of the applicable prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in such
prospectus, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of any prospectus covering such Registrable
Securities.
(b) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 1 with respect to the Registrable
Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder's Registrable Securities pursuant to the
Securities Act.
1.06. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder against any losses, claims, damages, or liabilities (joint
or several) to which any of the foregoing persons may become subject, under the
Securities Act, the Securities Exchange Act of 1934, as amended (the"1934 Act"),
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Securities Act, the 1934 Act or any state securities law; and the Company will
pay, as incurred, any reasonable legal or other expenses incurred by any person
intended to be indemnified pursuant to this Section 1.06(a), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
1.06(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs (i) in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by a Holder or (ii) as a
result of any use or delivery by a Holder
<PAGE>
of a prospectus other than the most current prospectus made available to such
Holder by the Company.
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act or the 1934 Act, any other Holder
selling securities in such registration statement, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs (i) in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration or (ii) as a
result of any use or delivery by such Holder of a prospectus other than the most
current prospectus made available to such Holder by the Company; and each such
Holder will pay, as incurred, any reasonable legal or other expenses incurred by
any person intended to be indemnified pursuant to this Section 1.06(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.06(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld. The liability of a selling Holder under this paragraph (b) and under
paragraph (d) below shall be limited to an amount equal to the net proceeds to
such selling Holder from the sale of such Holder's Registrable Securities
hereunder.
(c) Promptly after receipt by an indemnified party under this Section 1.06
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.06, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel of the indemnifying party's choosing.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.06, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.06.
(d) If the indemnification provided in this Section 1.06 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other
<PAGE>
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the Company and Holders under this Section 1.06
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.07. Reports under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the 1934 Act;
(c) upon the request of any Holder, furnish to such Holder, so long as the
Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration.
1.08. Certain Additional Agreements of the Holder(s).
(a) Prior to and so long as the Registration Statement shall remain
effective, each Holder shall:
(i) not engage in any stabilization activity in connection with the
Company's common stock;
(ii) not bid for or purchase any of the Company's common stock or any
rights to acquire any of the Company's common stock, or attempt
to induce any person to purchase any of the Company's common
stock other than as permitted under the 1934 Act; or
(iii) effect all sales of Registrable Securities in broker's
transactions through broker-dealers acting as agents, in
transactions directly with market makers
<PAGE>
or in privately negotiated transactions where no broker or other
third party (other than the purchaser) is involved.
(b) Without limiting any other provision of this Agreement, no Holder shall
engage in any short-sales of the Company's common stock prior to the
effectiveness of the registration statement pursuant to which the Holder is
offered the opportunity to sell its Registrable Securities hereunder, except to
the extent that any such short-sale is fully covered by freely tradable shares
of the Company's common stock.
1.09. Assignment of Registration Rights. The registration rights granted
pursuant to this Section 1 are not assignable other than in connection with a
transfer of such Registrable Securities to any spouse, son or daughter of the
Shareholder, or to trustees of a trust the beneficiaries of which include the
Shareholder and any spouse, son or daughter of the Shareholder, provided that
all such transferees agree in writing to appoint a single representative as
their attorney-in-fact for the purpose of receiving any notices and exercising
their rights under this Section 1, and provided, further, that such assignment
shall be effective only if immediately following such transfer the further
disposition of such Registrable Securities by the transferee is restricted under
the Securities Act. Any attempted assignment of registration rights in
contravention of this Section 1.09 shall be null and void. The Shareholder
shall, within a reasonable time after such transfer, furnish the Company with
written notice of the name and address of such transferee and the securities
with respect to which such registration rights are being assigned.
1.10. Termination of Registration Rights. Subject to Section 1.06 the
registration rights granted under this Section 1 shall terminate upon the
earlier of (i) two (2) years following the Effective Date, (ii) all of the
Holder's Registrable Securities have been registered pursuant to this Agreement,
or (iii) with respect to any Holder, at such time as such Holder may sell all of
such Holder's Registrable Securities in any single three (3) month period
pursuant to Rule 144 (or such successor rule as may be adopted).
Section 2. Miscellaneous.
2.01. Assignment. Subject to the provisions of Section 1.09 hereof, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
2.02. Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective permitted successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
2.03. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York, without regard to the conflict of laws
provisions thereof.
<PAGE>
2.04. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.05. Notices. Any notice, demand, request or other communication which by
any provision of this Agreement is required or permitted to be given to or
served on any party hereto shall be given in writing (setting forth in
reasonable detail the purpose of such notice, demand, request or communication
and identifying the provision of this Agreement pursuant to which such notice,
demand, request or communication is given), and shall be deemed to be effective
for all purposes when (i) delivered personally, (ii) sent by facsimile
transmission, or (iii) sent by registered or certified mail, return receipt
requested, postage prepaid, to the address set forth below for such party:
(a) If to Company: Elligent Consulting Group, Inc.
152 West 57th Street, 40th Floor
New York, NY 10019
Telefax: (212) 765-2924
Attn.: Mr. Andreas Typaldos
with copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(b) If to Shareholder: Mr. Glenn Peipert
10 Faas Court
West Orange, New Jersey 07052
Telefax No.: (973) 669-8802
with copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
or to such other addresses as may be from time to time furnished in writing by
any party hereto in accordance with this Subsection 2.05. Any such notice shall
be deemed to be delivered, given, and received (x) as of the date so delivered,
if delivered personally, (y) as of the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as aforesaid, or (z) if transmitted by facsimile at the opening of
business in the office of the addressee on the business day next following the
transmission thereof. In this
<PAGE>
paragraph, "business day" means any day except Saturday, Sunday or a statutory
holiday in the State of New York or the State of New Jersey.
2.06. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
2.07. Amendment and Waiver. Any provision of this Agreement may be amended
with the written consent of the Company and the Holders of at least a majority
of the outstanding Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. Each Holder
acknowledges that by the operation of this Section 2.07, the Holders of a
majority of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Agreement.
2.08. Rights of Holders. Each Holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such Holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such Holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
2.09. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing.
2.10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
ELLIGENT CONSULTING GROUP, INC.
By:
----------------------------------- ------------------------
Name: GLENN PEIPERT
Title:
<PAGE>
EXHIBIT 7.02(i)-1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made as of the ___day of August
1998, by and between PATRA CAPITAL LTD., a Delaware corporation having its
registered office at Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware (the "Corporation") and SCOTT NEWMAN,
an individual residing at 51 Westmount Drive, Livingston, New Jersey 07039 ("Mr.
Newman"),
W I T N E S S E T H:
WHEREAS, the Corporation desires to engage Mr. Newman as its President; and,
WHEREAS, Mr. Newman desires to serve in such capacity;
NOW THEREFORE, the parties hereto agree as hereinafter set forth:
Section 1. Employment. The Corporation hereby employs and appoints Mr. Newman,
and Mr. Newman hereby accepts such employment and appointment with the
Corporation, as President of the Corporation, effective as of the Effective Date
(as hereinafter defined).
Section 2. Term of this Agreement. The term of this Agreement shall begin as of
August 1, 1998 (the "Effective Date") and shall terminate three (3) years from
the Effective Date, unless earlier terminated as provided in Section 7 hereof
(the "Term"). The Term will automatically be renewed for succeeding twelve (12)
month periods, unless, not less that sixty (60) days prior to the end of the
initial Term or any renewal Term, one of the parties gives the other party
written notice that it elects not to renew this Agreement whereupon this
Agreement will terminate at the end of the initial Term or renewal Term during
which the notice is given.
Section 3. Duties. Mr. Newman shall be the President of the Corporation and
shall comply with such reasonable instructions as the Corporation's Board of
Directors and/or the President of the Corporation's parent company may issue to
him from time to time during the Term. Mr. Newman shall diligently and
conscientiously devote his full and exclusive time and attention and best
efforts
<PAGE>
to the performance of his duties hereunder. Mr. Newman shall have those
powers and perform those duties generally associated with his position as well
as those responsibilities as the Board of Directors may reasonably request of
him from time to time, which responsibilities shall be consistent with those of
a senior executive officer. His duties shall include the following:
(i) general management of the Corporation; and
(ii) serving on the Management Committee of the Corporation's parent
company.
Mr. Newman shall be directly responsible to the President of the Corporation's
parent company. Mr. Newman shall, from time to time, hold such other senior
offices and/or directorships in the Corporation to which he may, with his
permission, be elected or appointed by the shareholders or Board of Directors of
the Corporation.
Section 4. Salary. The Corporation agrees to pay Mr. Newman a salary (the
"Salary") of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) per year during
the Term of this Agreement. The Salary shall be compensation for all positions
held by Mr. Newman at the Corporation or at any affiliate of the Corporation.
The Salary will be reviewed annually by the Board of Directors of the
Corporation, taking into consideration the performance of Mr. Newman and the
compensation arrangements accorded to executives of similar skill and stature of
the Corporation's parent company. The Salary shall be paid monthly, or at such
other intervals as the parties may agree.
Section 5. Expenses. Mr. Newman shall be entitled to reimbursement by the
Corporation, upon submission to the Corporation in accordance with its operating
procedures of appropriate vouchers or other receipts, for business expenses
(including travel and entertainment and other out-of-pocket expenses) reasonably
incurred by him in the performance of his duties hereunder.
Section 6. Benefits.
6.01. General. Mr. Newman shall be entitled to participate, and receive
benefits from, any pension, profit sharing, insurance, medical, vacation, stock
purchase, stock option, and other employee benefit plan of the Corporation which
may be in effect at any time during the Term and which shall be generally
available to senior executives of the Corporation or of the Corporation's parent
company, or which may be granted to him by the Board of Directors of the
Corporation. Such benefits shall include the benefits which Mr. Newman was
receiving as of July 31, 1998 from Conversion Services International, Inc.
6.02. Medical Insurance. Mr. Newman shall be entitled to participate in the
medical insurance policy presently in effect for employees of the Corporation in
accordance with its terms. The inability of Mr. Newman and his immediate family
to qualify for participation in the Corporation's present medical insurance
policy shall not be deemed a breach of this Agreement.
Section 7. Termination for Cause. The Corporation may terminate Mr.
Newman's employment hereunder for "Cause" (as hereinafter defined) at any time
by giving notice in writing to Mr. Newman. Such notice shall be effective upon
the giving thereof. Upon termination for
<PAGE>
Cause, payment of all compensation to Mr. Newman shall cease. For purposes of
this Agreement "Cause" shall mean (i) the continued failure by Mr. Newman
substantially to perform his duties under this Agreement (other than any such
failure resulting from Mr. Newman's incapacity due to physical or mental illness
as provided in Section 8 of this Agreement) after a written demand for
substantial performance is given to Mr. Newman at the direction of the Board of
Directors of the Corporation which specifically identifies the manner in which
it is believed that Mr. Newman has not substantially performed his duties
hereunder, and giving Mr. Newman fifteen (15) days in which to correct such
failure to perform, (ii) the willful engaging by Mr. Newman in misconduct
materially or demonstrably injurious to the Corporation or any subsidiary or
affiliate of the Corporation, or (iii) breach of fiduciary duty, fraud,
misappropriation, embezzlement, arrest for a felony, habitual drunkenness, or
use of any illegal substances by Mr. Newman.
Section 8. Death or Disability.
8.01. Death. Upon the death of Mr. Newman during the Term, this Agreement
shall terminate on such date of death and the Salary payable to Mr. Newman shall
cease to be paid thereafter.
8.02. Disability. If during the Term Mr. Newman fails because of illness or
other physical or mental incapacity to perform the services required to be
performed by him hereunder for the consecutive period of more than sixty (60)
days, or for shorter periods aggregating more than ninety (90) days in any
consecutive twelve-month period, then the Board of Directors of the Corporation,
in its discretion, may at any time thereafter terminate this Agreement by giving
not less than ten (10) days written notice thereof to Mr. Newman during which
period Mr. Newman shall have the right to present to the Board of Directors
evidence that he is able properly to perform his duties under this Agreement. In
the event that the Board of Directors in its discretion, exercised in good
faith, nevertheless continues to believe that Mr. Newman is unable so to
perform, this Agreement shall terminate upon the date set forth in such notice.
No such notice may be given if prior to the date thereof, Mr. Newman's illness
or physical or mental incapacity shall have terminated and he shall be
physically and mentally able to perform the services required hereunder and
shall have taken up and be performing such duties.
8.03. Rights Not Affected. The termination of this Agreement by reason of
death or disability pursuant to this Section 8 shall not affect the right of Mr.
Newman or his estate, as the case may be, to receive any payments hereunder to
which Mr. Newman would be otherwise entitled.
Section 9. Non-Competition; Confidentiality; Non-Solicitation.
9.01. Non-Competition. Mr. Newman agrees that (i) during his employment by
the Corporation, and for a period of twelve (12) months thereafter, neither he
nor any firm or corporation in which he may be interested as a partner, trustee,
director, officer, employee, shareholder, option holder, lender of money or a
guarantor, shall at any time during such period be engaged directly or
indirectly in any "business competitive to that of the Corporation" (as
hereinafter defined); provided, however, that the foregoing agreement of
non-competition shall not be deemed breached by ownership by Mr. Newman (as a
result of open market purchase) of one percent (1%) or less of any
<PAGE>
class of capital stock of a corporation which is regularly traded on a national
securities exchange or with the NASDAQ System. The term "business competitive to
that of the Corporation" as used herein shall mean a business involved in the
technology consulting business.
9.02. Confidentiality. Mr. Newman acknowledges and agrees that his duties
under this Agreement will involve the use and creation of customer lists,
prospect lists, know-how, future plans, and other trade secrets of the
Corporation and of the Corporation's parent company and affiliates which are
valuable, proprietary, confidential and not in the public domain (the
"Proprietary Information"). Accordingly, Mr. Newman agrees that during the
period of his employment by the Corporation, and for three (3) years following
the cessation of such employment, except as may be required by applicable law or
legal process, Mr. Newman shall not, without the prior written consent of the
Board of Directors of the Corporation or a person authorized thereby, disclose,
divulge, permit access to or communicate, directly or indirectly, any
Proprietary Information to any person, other than an employee of the Corporation
or one of its affiliates or a person to whom disclosure is reasonably necessary
or appropriate in connection with the performance by Mr. Newman of his duties as
an executive of the Corporation.
9.03. Non-Solicitation. Mr. Newman agrees that during his employment by the
Corporation, and for a period of twelve (12) months thereafter, he will not,
directly or indirectly, induce or attempt to induce any employee of the
Corporation, or of any of its affiliates, to terminate his or her employment
therewith.
9.04. Severability. The parties intend that the covenants contained in
Sub-Sections 9.01, 9.02 and 9.03 hereof shall be deemed to be a series of
separate covenants, one for each county of each state where the party which is
intended to be protected by such covenant does business. If in any judicial
proceeding a court shall refuse to enforce all of the separate covenants deemed
included in such action, then such unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such proceeding.
9.05. Injunctive Relief. Mr. Newman acknowledges and agrees that by reason
of the irreparable harm that would be sustained by the Corporation or its
affiliates in the event of a breach by Mr. Newman of the covenants contained in
this Section 9, for which there would be no adequate remedy at law, the
Corporation and such affiliates shall be entitled to enforcement of the
covenants contained in this Section 9 by injunction or decree of specific
performance by a court of competent jurisdiction, in addition to any other
rights or remedies that the Corporation may have under this Agreement or
otherwise, without the necessity of providing a bond or other undertaking in
connection therewith.
9.06. Breach of Agreement. In the event that there is a final
non-appealable judgment by a court of competent jurisdiction that the
Corporation or Elligent Consulting Group, Inc. ("Elligent") is in default under
either of the two Installment Promissory Notes (as defined in the Plan and
Agreement of Merger dated as of August 1, 1998 among Mr. Newman, Glenn Peipert,
Conversion Services International, Inc., the Corporation and Patra Holdings
LLC), then thereafter the provisions of Sub-Sections 9.01, 9.02 and 9.03 hereof
shall be of no further force and effect except that (i) Sub-
<PAGE>
Section 9.02 shall continue to apply with respect to the confidentiality of the
Proprietary Information of the Corporation's parent company and affiliates and
(ii) Sub-Section 9.03 shall continue to apply with respect to the
non-solicitation of the employees of the Corporation's parent company and
affiliates, and Mr. Newman shall enter into an agreement with Elligent,
reasonably satisfactory to counsel for Elligent, incorporating such provisions.
Section 10. Notices. Any notice, demand, request or other communication which by
any provision of this Agreement is required or permitted to be given to or
served on any party hereto shall be given in writing (setting forth in
reasonable detail the purpose of such notice, demand, request or communication
and identifying the provision of this Agreement pursuant to which such notice,
demand, request or communication is given), and shall be deemed to be effective
for all purposes when (i) delivered personally, (ii) sent by facsimile
transmission, or (iii) sent by registered or certified mail, return receipt
requested, postage prepaid, to the address set forth below for such party:
(a) If to Corporation: Patra Capital Ltd.
c/o Patra Holdings LLC
152 West 57th Street
40th Floor
New York, New York 10019
Telefax No.: (212) 765-2924
Attn.: Mr. Andreas Typaldos
with copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(b) If to Newman: Scott Newman
51 Westmount Drive
Livingston, New Jersey 07039
Telefax No.: _____________
with copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
<PAGE>
or to such other addresses as may be from time to time furnished in writing by
any party hereto in accordance with this Section 10. Any such notice shall be
deemed to be delivered, given, and received (x) as of the date so delivered, if
delivered personally, (y) as of the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as aforesaid, or (z) if transmitted by facsimile at the opening of
business in the office of the addressee on the business day next following the
transmission thereof. In this paragraph, "business day" means any day except
Saturday, Sunday or a statutory holiday in the State of New York or the State of
New Jersey.
Section 11. Assignability. This Agreement shall not be assignable by either
party hereto without the prior written consent of the other party hereto.
Section 12. Waiver of Breach. Waiver by either party to this Agreement of a
breach of any condition or covenant of this Agreement by the other party to this
Agreement shall not be construed as a waiver of any subsequent breach.
Section 13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, beneficiaries, legal representatives, and permitted
assigns of Mr. Newman and the successors and permitted assigns of the
Corporation.
Section 14. Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
Section 15. Governing Law. This Agreement and the validity, construction and
enforcement of, and the remedies under, this Agreement shall be governed in
accordance with the internal laws of the State of New York.
Section 16. No Third Party Beneficiaries. No party other than Mr. Newman and the
Corporation shall have any rights hereunder, may rely hereon or shall be
construed in any way to be a third party beneficiary hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PATRA CAPITAL LTD.
By:
---------------------------------- ----------------------
Authorized Representative SCOTT NEWMAN
<PAGE>
EXHIBIT 7.02(i)-2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made as of the __ day of August
1998, by and between PATRA CAPITAL LTD., a Delaware corporation having its
registered office at Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware (the "Corporation") and GLENN
PEIPERT, an individual residing at 10 Faas Court, West Orange, New Jersey 07052
("Mr. Peipert"),
W I T N E S S E T H:
WHEREAS, the Corporation desires to engage Mr. Peipert as its Senior
Vice President; and,
WHEREAS, Mr. Peipert desires to serve in such
capacity;
NOW THEREFORE, the parties hereto agree as hereinafter set forth:
Section 1. Employment. The Corporation hereby employs and appoints Mr. Peipert,
and Mr. Peipert hereby accepts such employment and appointment with the
Corporation, as Senior Vice President of the Corporation, effective as of the
Effective Date (as hereinafter defined).
Section 2. Term of this Agreement. The term of this Agreement shall begin as of
August 1, 1998 (the "Effective Date") and shall terminate three (3) years from
the Effective Date, unless earlier terminated as provided in Section 7 hereof
(the "Term"). The Term will automatically be renewed for succeeding twelve (12)
month periods, unless, not less that sixty (60) days prior to the end of the
initial Term or any renewal Term, one of the parties gives the other party
written notice that it elects not to renew this Agreement whereupon this
Agreement will terminate at the end of the initial Term or renewal Term during
which the notice is given.
Section 3. Duties. Mr. Peipert shall be the Senior Vice President of the
Corporation and shall comply with such reasonable instructions as the
Corporation's Board of Directors and/or the President of the Corporation's
parent company may issue to him from time to time during the Term. Mr. Peipert
shall diligently and conscientiously devote his full and exclusive time and
attention and
<PAGE>
best efforts to the performance of his duties hereunder. Mr. Peipert shall have
those powers and perform those duties generally associated with his position as
well as those responsibilities as the President of the Corporation may
reasonably request of him from time to time, which responsibilities shall be
consistent with those of a senior executive officer. His duties shall include
serving on the Management Committee of the Corporation's parent company.
Mr. Peipert shall be directly responsible to the Corporation's President. Mr.
Peipert shall, from time to time, hold such other senior offices and/or
directorships in the Corporation to which he may, with his permission, be
elected or appointed by the shareholders or Board of Directors of the
Corporation.
Section 4. Salary. The Corporation agrees to pay Mr. Peipert a salary (the
"Salary") of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) per year during
the Term of this Agreement. The Salary shall be compensation for all positions
held by Mr. Peipert at the Corporation or at any affiliate of the Corporation.
The Salary will be reviewed annually by the Board of Directors of the
Corporation, taking into consideration the performance of Mr. Peipert and the
compensation arrangements accorded to executives of similar skill and stature of
the Corporation's parent company. The Salary shall be paid monthly, or at such
other intervals as the parties may agree.
Section 5. Expenses. Mr. Peipert shall be entitled to reimbursement by the
Corporation, upon submission to the Corporation in accordance with its operating
procedures of appropriate vouchers or other receipts, for business expenses
(including travel and entertainment and other out-of-pocket expenses) reasonably
incurred by him in the performance of his duties hereunder.
Section 6. Benefits.
6.01. General. Mr. Peipert shall be entitled to participate, and receive
benefits from, any pension, profit sharing, insurance, medical, vacation, stock
purchase, stock option, and other employee benefit plan of the Corporation which
may be in effect at any time during the Term and which shall be generally
available to senior executives of the Corporation or of the Corporation's parent
company, or which may be granted to him by the Board of Directors of the
Corporation. Such benefits shall include the benefits which Mr. Peipert was
receiving as of July 31, 1998 from Conversion Services International, Inc.
6.02. Medical Insurance. Mr. Peipert shall be entitled to participate in
the medical insurance policy presently in effect for employees of the
Corporation in accordance with its terms. The inability of Mr. Peipert and his
immediate family to qualify for participation in the Corporation's present
medical insurance policy shall not be deemed a breach of this Agreement.
Section 7. Termination for Cause. The Corporation may terminate Mr. Peipert's
employment hereunder for "Cause" (as hereinafter defined) at any time by giving
notice in writing to Mr. Peipert. Such notice shall be effective upon the giving
thereof. Upon termination for Cause, payment of all compensation to Mr. Peipert
shall cease. For purposes of this Agreement "Cause" shall mean (i) the continued
failure by Mr. Peipert substantially to perform his duties under this Agreement
(other than any such failure resulting from Mr. Peipert's incapacity due to
physical or mental illness as provided
<PAGE>
in Section 8 of this Agreement) after a written demand for substantial
performance is given to Mr. Peipert at the direction of the Board of Directors
of the Corporation which specifically identifies the manner in which it is
believed that Mr. Peipert has not substantially performed his duties hereunder,
and giving Mr. Peipert fifteen (15) days in which to correct such failure to
perform, (ii) the willful engaging by Mr. Peipert in misconduct materially or
demonstrably injurious to the Corporation or any subsidiary or affiliate of the
Corporation, or (iii) breach of fiduciary duty, fraud, misappropriation,
embezzlement, arrest for a felony, habitual drunkenness, or use of any illegal
substances by Mr. Peipert.
Section 8. Death or Disability.
8.01. Death. Upon the death of Mr. Peipert during the Term, this Agreement
shall terminate on such date of death and the Salary payable to Mr. Peipert
shall cease to be paid thereafter.
8.02. Disability. If during the Term Mr. Peipert fails because of illness
or other physical or mental incapacity to perform the services required to be
performed by him hereunder for the consecutive period of more than sixty (60)
days, or for shorter periods aggregating more than ninety (90) days in any
consecutive twelve-month period, then the Board of Directors of the Corporation,
in its discretion, may at any time thereafter terminate this Agreement by giving
not less than ten (10) days written notice thereof to Mr. Peipert during which
period Mr. Peipert shall have the right to present to the Board of Directors
evidence that he is able properly to perform his duties under this Agreement. In
the event that the Board of Directors in its discretion, exercised in good
faith, nevertheless continues to believe that Mr. Peipert is unable so to
perform, this Agreement shall terminate upon the date set forth in such notice.
No such notice may be given if prior to the date thereof, Mr. Peipert's illness
or physical or mental incapacity shall have terminated and he shall be
physically and mentally able to perform the services required hereunder and
shall have taken up and be performing such duties.
8.03. Rights Not Affected. The termination of this Agreement by reason of
death or disability pursuant to this Section 8 shall not affect the right of Mr.
Peipert or his estate, as the case may be, to receive any payments hereunder to
which Mr. Peipert would be otherwise entitled.
Section 9. Non-Competition; Confidentiality; Non-Solicitation.
9.01. Non-Competition. Mr. Peipert agrees that (i) during his employment by
the Corporation, and for a period of twelve (12) months thereafter, neither he
nor any firm or corporation in which he may be interested as a partner, trustee,
director, officer, employee, shareholder, option holder, lender of money or a
guarantor, shall at any time during such period be engaged directly or
indirectly in any "business competitive to that of the Corporation" (as
hereinafter defined); provided, however, that the foregoing agreement of
non-competition shall not be deemed breached by ownership by Mr. Peipert (as a
result of open market purchase) of one percent (1%) or less of any class of
capital stock of a corporation which is regularly traded on a national
securities exchange or with the NASDAQ System. The term "business competitive to
that of the Corporation" as used herein shall mean a business involved in the
technology consulting business.
<PAGE>
9.02. Confidentiality. Mr. Peipert acknowledges and agrees that his duties
under this Agreement will involve the use and creation of customer lists,
prospect lists, know-how, future plans, and other trade secrets of the
Corporation and of the Corporation's parent company and affiliates which are
valuable, proprietary, confidential and not in the public domain (the
"Proprietary Information"). Accordingly, Mr. Peipert agrees that during the
period of his employment by the Corporation, and for three (3) years following
the cessation of such employment, except as may be required by applicable law or
legal process, Mr. Peipert shall not, without the prior written consent of the
Board of Directors of the Corporation or a person authorized thereby, disclose,
divulge, permit access to or communicate, directly or indirectly, any
Proprietary Information to any person, other than an employee of the Corporation
or one of its affiliates or a person to whom disclosure is reasonably necessary
or appropriate in connection with the performance by Mr. Peipert of his duties
as an executive of the Corporation.
9.03. Non-Solicitation. Mr. Peipert agrees that during his employment by
the Corporation, and for a period of twelve (12) months thereafter, he will not,
directly or indirectly, induce or attempt to induce any employee of the
Corporation, or of any of its affiliates, to terminate his or her employment
therewith.
9.04. Severability. The parties intend that the covenants contained in
Sub-Sections 9.01, 9.02 and 9.03 hereof shall be deemed to be a series of
separate covenants, one for each county of each state where the party which is
intended to be protected by such covenant does business. If in any judicial
proceeding a court shall refuse to enforce all of the separate covenants deemed
included in such action, then such unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such proceeding.
9.05. Injunctive Relief. Mr. Peipert acknowledges and agrees that by reason
of the irreparable harm that would be sustained by the Corporation or its
affiliates in the event of a breach by Mr. Peipert of the covenants contained in
this Section 9, for which there would be no adequate remedy at law, the
Corporation and such affiliates shall be entitled to enforcement of the
covenants contained in this Section 9 by injunction or decree of specific
performance by a court of competent jurisdiction, in addition to any other
rights or remedies that the Corporation may have under this Agreement or
otherwise, without the necessity of providing a bond or other undertaking in
connection therewith.
9.06. Breach of Agreement. In the event that there is a final
non-appealable judgment by a court of competent jurisdiction that the
Corporation or Elligent Consulting Group, Inc. ("Elligent") is in default under
either of the two Installment Promissory Notes (as defined in the Plan and
Agreement of Merger dated as of August 1, 1998 among Mr. Peipert, Scott Newman,
Conversion Services International, Inc., the Corporation and Patra Holdings
LLC), then thereafter the provisions of Sub-Sections 9.01, 9.02 and 9.03 hereof
shall be of no further force and effect except that (i) Sub-Section 9.02 shall
continue to apply with respect to the confidentiality of the Proprietary
Information of the Corporation's parent company and affiliates and (ii)
Sub-Section 9.03 shall continue to apply with respect to the non-solicitation of
the employees of the Corporation's parent company and
<PAGE>
affiliates, and Mr. Peipert shall enter into an agreement with Elligent,
reasonably satisfactory to counsel for Elligent, incorporating such provisions.
Section 10. Notices. Any notice, demand, request or other communication which by
any provision of this Agreement is required or permitted to be given to or
served on any party hereto shall be given in writing (setting forth in
reasonable detail the purpose of such notice, demand, request or communication
and identifying the provision of this Agreement pursuant to which such notice,
demand, request or communication is given), and shall be deemed to be effective
for all purposes when (i) delivered personally, (ii) sent by facsimile
transmission, or (iii) sent by registered or certified mail, return receipt
requested, postage prepaid, to the address set forth below for such party:
(a) If to Corporation: Patra Capital Ltd.
c/o Patra Holdings LLC
152 West 57th Street
40th Floor
New York, New York 10019
Telefax No.: (212) 765-2924
Attn.: Mr. Andreas Typaldos
with copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(b) If to Peipert: Glenn Peipert
10 Faas Court
West Orange, New Jersey 07052
Telefax No.: (973) 669-8802
with copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
or to such other addresses as may be from time to time furnished in writing by
any party hereto in accordance with this Section 10. Any such notice shall be
deemed to be delivered, given, and received (x) as of the date so delivered, if
delivered personally, (y) as of the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as aforesaid, or (z) if transmitted by facsimile at the opening of
business in the office of the addressee on the business day next following the
transmission thereof. In this paragraph, "business
<PAGE>
day" means any day except Saturday, Sunday or a statutory holiday in the State
of New York or the State of New Jersey.
Section 11. Assignability. This Agreement shall not be assignable by either
party hereto without the prior written consent of the other party hereto.
Section 12. Waiver of Breach. Waiver by either party to this Agreement of a
breach of any condition or covenant of this Agreement by the other party to this
Agreement shall not be construed as a waiver of any subsequent breach.
Section 13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, beneficiaries, legal representatives, and permitted
assigns of Mr. Peipert and the successors and permitted assigns of the
Corporation.
Section 14. Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
Section 15. Governing Law. This Agreement and the validity, construction and
enforcement of, and the remedies under, this Agreement shall be governed in
accordance with the internal laws of the State of New York.
Section 16. No Third Party Beneficiaries. No party other than Mr. Peipert and
the Corporation shall have any rights hereunder, may rely hereon or shall be
construed in any way to be a third party beneficiary hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PATRA CAPITAL LTD.
By:
--------------------------------- --------------------------
Authorized Representative GLENN PEIPERT
<PAGE>
Schedule 7.02(j)
Officers Retained
Scott Newman - President and Director
Glenn Peipert - Senior Vice President
<PAGE>
SCHEDULE 7.03(i)
FORM OF OPINION OF ELLIGENT'S COUNSEL
[OMITTED]
<PAGE>
EXHIBIT 7.03(j)
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") made as of _____________, 1998 by and
among ELLIGENT CONSULTING GROUP, INC., a Nevada corporation having an office at
__________________________________ (the "Pledgor"), SCOTT NEWMAN, an individual
residing at 51 Westmount Drive, Livingston, New Jersey 07039 ("Newman"), and
GLENN PEIPERT, an individual residing at 10 Faas Court, West Orange, New Jersey
07052 ( "Peipert"; Newman and Peipert are hereinafter jointly referred as the
"Pledgees" and individually as a "Pledgee"),
WITNESSETH:
WHEREAS, Patra Capital Ltd. ("Patra"), Patra Holdings LLC ("Patra
Holdings"), Conversion Services International, Inc. ("CSI"), and Pledgees have
entered into a Plan and Agreement of Merger dated as of August 1, 1998 (the
"Merger Agreement") pursuant to which each Pledgee is entitled to receive a
Secured Installment Promissory Note of Pledgor and Patra;
WHEREAS, pursuant to the Merger Agreement Pledgor shall pledge certain
stock with the Pledgees as security for the repayment of the Newman Indebtedness
(as hereinafter defined) and the Peipert Indebtedness (as hereinafter defined),
and in connection therewith to enter into this Agreement;
<PAGE>
NOW THEREFORE, for valuable consideration, including but not limited to,
the extension, renewal or advance of funds to Pledgor by Pledgees, receipt of
which is hereby acknowledged, the parties hereto agree as hereinafter set forth:
Section 1. Definitions.
(a) "Pledged Stock" shall mean the shares described in Schedule 1 hereto,
together with all certificates, options, rights, or other distributions issued
as an addition to, in substitution or in exchange for, or on account of, any
such shares, and all proceeds of all of the foregoing, now or hereafter owned or
acquired by the Pledgor.
(b) "Newman Indebtedness" shall mean all principal, interest and other
amounts owed by Pledgor and Patra to Newman pursuant to that certain Secured
Installment Promissory Note dated September 19, 1998, a copy of which is
attached hereto as Exhibit "A" (the "Newman Note"), as well as all amounts owed
by Pledgor to Newman pursuant to this Agreement.
(c) "Peipert Indebtedness" shall mean all principal, interest and other
amounts owed by Pledgor and Patra to Peipert pursuant to that certain Secured
Installment Promissory Note dated September 19, 1998, a copy of which is
attached hereto as Exhibit "B" (the "Peipert Note"), as well as all amounts owed
by Pledgor to Peipert pursuant to this Agreement.
(d) "Indebtedness" shall mean the Newman Indebtedness and the Peipert
Indebtedness.
Section 2. Pledge.
(a) As security for the prompt satisfaction of the Indebtedness, the
Pledgor hereby pledges to the Pledgees the Pledged Stock and grants the Pledgees
a first priority lien thereon and security interest therein.
(b) Upon the occurrence of an Event of Default (as hereinafter defined) the
Pledgees may, without demand of performance or other demand, advertisement, or
notice of any kind to or upon the Pledgor or any other person (all of which are
hereby expressly waived by the Pledgor) forthwith realize upon the Pledged Stock
or any part thereof, and may forthwith (i) retain the Pledged Stock for their
own account or (ii) sell or otherwise dispose of and deliver the Pledged Stock
or any part thereof or interest therein, or agree to do so, in one or more
parcels at public or private sale or sales, at such prices and on such terms as
they may deem best, for cash or on credit, or for future delivery without
assumption of any credit risk, with the right to the Pledgees or any purchaser
to purchase upon any such sale the whole or any part of the Pledged Stock free
of any right or equity of redemption in the Pledgor, which right or equity is
hereby expressly waived and released.
<PAGE>
(c) As a condition to the Pledgees' taking any action pursuant to clause
(b) of this Section 2 or Section 8 hereof, the parties to the Merger Agreement
shall have first fully complied with Sub-Section 8.05 of the Merger Agreement.
Section 3. Representations of Pledgor.
The Pledgor represents and warrants that:
(a) It has, and has fully exercised, all requisite corporate power and
authority to enter into this Agreement, to pledge the Pledged Stock for the
purposes described in Section 2 (a), and to carry out the transactions
contemplated by this Agreement;
(b) It is the legal and beneficial owner of all of the Pledged Stock which
evidences all of the issued and outstanding capital stock of Patra;
(c) All of the shares of the Pledged Stock are owned by the Pledgor free
and clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance, or
security interest in such shares or the proceeds thereof except such as are
granted hereunder;
(d) The execution and delivery of this Agreement, and the performance of
its terms, will not violate or constitute a default under any agreement,
indenture, or other instrument, license, judgment, decree, order, law, statute,
ordinance, or other governmental rule or regulation applicable to the Pledgor or
any of its property; and
(e) Upon delivery of the Pledged Stock to the Pledgees or their agent, this
Agreement shall create a valid first priority lien upon, and perfected security
interest in, the Pledged Stock and the proceeds thereof, subject to no prior
security interest, lien, charge, encumbrance, or agreement purporting to grant
to any third party a security interest in the property or assets of the Pledgor
which would include the Pledged Stock.
Section 4. Covenants of Pledgor.
(a) The Pledgor hereby covenants that, until all of the Indebtedness has
been paid in full, it will not:
(i) sell, convey, or otherwise dispose of any of the Pledged Stock
or any interest therein or create, incur, or permit to exist any
pledge, mortgage, hypothecation, lien, charge, encumbrance, or
security interest in, or with respect to, any of the Pledged
Stock or the proceeds thereof except such as are granted hereby;
or
(ii) consent to, or approve of, the issuance of any additional shares
of any class of capital stock by Patra; or any securities
convertible voluntarily by the holder thereof or automatically
upon the occurrence or nonoccurrence of any event or condition
into, or exchangeable for, any such shares; or any
<PAGE>
warrants, options, rights, or other commitments entitling any
person to purchase or otherwise acquire any such shares; or
(iii) create, incur, assume or suffer to exist any liens or
encumbrances on any of the assets of Patra, or permit Patra to
do so, except for (A) liens with respect to any financing of
Patra or Pledgor obtained from a bank, insurance company or
institutional investor the proceeds of which are intended to
facilitate the execution of Pledgor's business plan, and (B)
other liens and encumbrances (other than such liens and
encumbrances as exist as of the date of this Agreement) which
individually or in the aggregate would not materially impair
Patra's ability to conduct its business substantially as
currently conducted; or
(iv) sell, lease, transfer or otherwise dispose of any of the
properties, assets (whether tangible or intangible) or rights of
Patra, or permit Patra to do so, except in the ordinary course
of business without the express written consent of Pledgees; or
(v) recapitalize, reorganize, consolidate, acquire the assets of
another business or merge Patra with any other entity without
the express written consent of Pledgees which consent will not
be unreasonably withheld; or
(vi) guarantee, endorse or otherwise in any way become directly or
contingently liable for or in connection with the obligations of
any person or entity other than Patra without the express
written consent of Pledgees; or
(vii) consent to, or approve of, any amendment to the Certificate of
Incorporation or By-Laws of Patra if such amendment would result
in a breach or violation of any of Pledgor's agreements or
covenants under this Agreement.
(b) The Pledgor warrants and will, at its own expense, defend the Pledgees'
right, title, special property, and security interest in and to the Pledged
Stock against the claims of any person.
Section 5. Delivery of Notices.
The Pledgor shall promptly deliver to the Pledgees all written notices and
will promptly give the Pledgees written notice of any other notices received by
Pledgor with respect to the Pledged Stock.
Section 6. Further Action.
The Pledgor shall at any time, and from time to time, upon the written request
of Pledgees, execute and deliver such further documents and do such further acts
and things as the Pledgees may reasonably request to effect the purposes of this
Agreement, including, without limitation, delivering to the Pledgees upon the
occurrence of an Event of Default irrevocable proxies with respect to the
Pledged Stock in form satisfactory to the Pledgees. Until receipt thereof, this
Agreement shall
<PAGE>
constitute the Pledgor's proxy to the Pledgees or their nominee to vote all
shares of the Pledged Stock then registered in the Pledgor's name at any and all
such times as Pledgees have the right to vote such shares pursuant to this
Agreement subsequent to the occurrence of an Event of Default. Such power of
attorney granted hereby is coupled with an interest and is irrevocable.
Section 7. Termination of Pledge.
Upon the satisfaction in full of all of the Indebtedness and the satisfaction of
all additional costs and expenses of the Pledgees as provided herein, this
Agreement shall terminate, and the Pledgees shall deliver to the Pledgor, at the
Pledgor's expense, such of the Pledged Stock as shall not have been sold or
otherwise disposed of pursuant to this Agreement.
Section 8. Default.
Upon the occurrence of any of the following events ("Events of Default"):
(a) Pledgor shall fail to pay (i) all or any part of the principal of the
Newman Indebtedness or the Peipert Indebtedness when due in accordance with the
terms thereof, or (ii) any interest on the Newman Indebtedness or the Peipert
Indebtedness, and in both instances such default shall continue unremedied for a
period of ten (10) Business Days; provided, however, that Pledgor shall have the
right to withhold any payment of principal or interest in accordance with
Sub-Section 8.03 of the Merger Agreement; or
(b) Pledgor shall default in the observance or performance of any other
provision contained in this Agreement or in the Newman Note or the Peipert Note,
and such default shall continue unremedied for a period of thirty (30) Business
Days after Pledgor has received a written notice of such default from the
appropriate Pledgee; or
(c) If the Pledgor files or consents to the filing of any petition in
bankruptcy or for other relief under any bankruptcy law or law for the relief of
debtors, or is adjudicated insolvent, which adjudication is not shown or
dismissed within thirty (30) Business Days after the date thereof, or makes an
assignment to its creditors, or a receiver or a similar person is appointed with
respect to the Pledgor's assets, which appointment is not stayed within thirty
(30) Business Days after the date thereof;
then, and in any such event, either Pledgee by written notice to
Pledgor may declare the full amount of the Newman Indebtedness or the
Peipert Indebtedness then outstanding, with accrued interest thereon
and all other amounts owing under this Agreement, to be immediately
due and payable; provided, however, that if Patra or Pledgor is in
default with respect to the Newman Indebtedness and the Peipert
Indebtedness, then such Pledgee shall not be entitled to make such
declaration unless and until the other Pledgee has declared the Newman
Indebtedness or the Peipert Indebtedness, as the case may be, to be
due and payable.
<PAGE>
Section 9. Governing Law.
This Agreement and all transactions pursuant thereto shall be governed by and
construed in accordance with the internal laws of the State of New York.
Section 10. Notices.
Any notice, demand, request or other communication which by any provision of
this Agreement is required or permitted to be given to or served on any party
hereto shall be given in writing (setting forth in reasonable detail the purpose
of such notice, demand, request or communication and identifying the provision
of this Agreement pursuant to which such notice, demand, request or
communication is given), and shall be deemed to be effective for all purposes
when (i) delivered personally, (ii) sent by facsimile transmission, or (iii)
sent by registered or certified mail, return receipt requested, postage prepaid,
to the address set forth below for such party:
(a) If to Pledgor: Elligent Consulting Group, Inc.
152 West 57th Street, 40th Floor
New York, NY 10019
Telefax: (212) 765-2924
Attn.: Mr. Andreas Typaldos
with copy to: Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, NY 10017-5090
Telefax No.: (212) 687-3523
Attn.: Stanley T. Stairs, Esq.
(b) If to Newman: Mr. Scott Newman
51 Westmount Drive
Livingston, New Jersey 07039
Telefax No.:
with copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
(c) If to Peipert: Mr. Glenn Peipert
10 Faas Court
West Orange, New Jersey 07052
<PAGE>
Telefax No.: (973) 669-8802
with copy to: Ellenoff Grossman & Schole LLP
370 Lexington Avenue
19th Floor
New York, NY 10017
Telefax No.: (212) 370-7889
Attn.: Douglas S. Ellenoff, Esq.
or to such other addresses as may be from time to time furnished in writing by
any party hereto in accordance with this Section 10. Any such notice shall be
deemed to be delivered, given, and received (x) as of the date so delivered, if
delivered personally, (y) as of the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as aforesaid, or (z) if transmitted by facsimile at the opening of
business in the office of the addressee on the Business Day next following the
transmission thereof. In this Agreement, "Business Day" means any day except
Saturday, Sunday or a statutory holiday in the State of New York or the State of
New Jersey.
Section 11. Miscellaneous.
(a) Beyond the exercise of reasonable care to assure the safe custody of
the Pledged Stock while held hereunder, the Pledgees shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Stock upon surrendering it or tendering surrender
of it to the Pledgor.
(b) The rights and remedies provided herein and in all other agreements,
instruments, and documents relating to the Indebtedness are cumulative and are
in addition to, and not exclusive of, any rights or remedies provided by law,
including, without limitation, the rights and remedies of a secured party under
the Uniform Commercial Code.
(c) This Agreement, all Exhibits and Schedules attached hereto, and all
agreements and instruments to be delivered by the parties hereto constitute the
entire agreement among the parties hereto pertaining to the subject matter
hereof and thereof and supersede all negotiations, preliminary agreements and
all prior or contemporaneous discussions and understandings of the parties
hereto in connection with the subject matter hereof, whether oral or written,
and except as aforesaid, are intended as a complete and exclusive statement of
the terms of the agreement among the parties.
(d) Except as otherwise provided in this Agreement, every covenant, term,
and provision of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective legal representatives, successors,
transferees, heirs and permitted assigns.
(e) Neither this Agreement nor any part hereof may be amended, waived,
changed or in any way modified except in a writing executed by the parties
hereto with the same formality as this Agreement.
<PAGE>
(f) If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party hereto.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
(g) Section and other headings contained in this Agreement are for
reference purposes only and are not intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provision hereof,
and shall not affect in any way the meaning or interpretation of this Agreement.
(h) Where the context and circumstances so require, the use of the singular
form of a word shall be deemed to include the plural form thereof (and vice
versa) and the masculine gender shall be deemed to include the feminine and
neuter genders thereof (and vice versa).
(i) Every covenant, term, and provision of this Agreement shall be
construed simply according to its fair meaning and not strictly for or against
any party.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the day and year first above written.
ELLIGENT CONSULTING GROUP, INC.
By:
---------------------------------- -------------------------
Name: SCOTT NEWMAN
Title:
-------------------------
GLENN PEIPERT
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Issuer Certificate No. No. of Shares
------ --------------- -------------
<S> <C> <C>
Patra Capital Ltd. One (1) 1,000 shares
</TABLE>
Pledgor:____
Pledgee:____
<PAGE>
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this ___day of August, 1998 before me, a Notary Public, in and for the
above county, personally appeared ______________ and acknowledged that he is the
authorized representative of Elligent Consulting Group, Inc. the corporation
described in and which executed the above instrument; that he signed his name
thereto in his capacity as President by order of the Board of Directors of said
corporation; and that the corporation is organized, existing and in good
standing under the laws of the jurisdiction of its incorporation.
---------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this ___day of August, 1998 before me, a Notary Public, in and for the
above county, personally appeared Scott Newman and acknowledged that he is the
individual who executed the above and foregoing Pledge Agreement and that such
execution was his voluntary act and deed.
---------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On this ___day of August, 1998 before me, a Notary Public, in and for
the above county, personally appeared Glenn Peipert and acknowledged that he is
the individual who executed the above and foregoing Pledge Agreement and that
such execution was his voluntary act and deed.
--------------------------------
NOTARY PUBLIC
<PAGE>
Schedule 10.01
Expenses
[OMITTED]
EXHIBIT 10.1
ELLIGENT CONSULTING GROUP, INC.
1998 STOCK OPTION PLAN
<PAGE>
ELLIGENT CONSULTING GROUP, INC.
1998 STOCK OPTION PLAN
1. Purpose.
The purpose of this Plan is to strengthen ELLIGENT CONSULTING GROUP,
INC., a Nevada corporation (the "Company"), by providing an incentive to its
employees and directors and to consultants to the Company and thereby encourage
them to devote their abilities and industry to the success of the Company's
business enterprise. It is intended that this purpose be achieved by extending
to employees and directors of the Company and to consultants to the Company an
added long-term incentive for high levels of performance and unusual efforts
through the grant of options to purchase shares of the Company's common stock
under the ELLIGENT CONSULTING GROUP, INC. 1998 Stock Option Plan.
2. Definitions.
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (ii) the highest Fair Market Value of a Share during
the ninety (90) day period ending on the date of a Change in Control.
2.2 "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means: (i) willful or gross misconduct or malfeasance by
the Optionee, (ii) continued negligence by the Optionee with respect to the
performance of his or her responsibilities, provided that notification of such
negligence has been given by the Company and reasonable opportunity to correct
such negligence has been given, (iii) arrest of the Optionee for other than a
misdemeanor crime, or (iv) behavior of the Optionee which, upon applying
reasonable standards of comparison to actions of the Optionee (and recognizing
the nature of the Company's business, its image and the standards of conduct
reasonable to its industry's professionals), adversely affects the Company,
unless the breach is inadvertent and the Optionee could not have reasonably been
expected to have anticipated the adverse effect of such actions or behavior and
such actions or behavior do not result in any significant harm to the Company.
2.5 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company, by reason of a reclassification,
<PAGE>
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, public offering, private placement, change in
corporate structure or otherwise.
2.6 "Change in Control" shall be deemed to have occurred when the first
of the following events occurs: (i) when the Company acquires actual knowledge
that any person or group (as such terms are used in Sections 13(d) and 14(d)(2)
of the Exchange Act), is or becomes, after the date of the approval of this Plan
by the Shareholders of the Company, the beneficial owner (as defined under Rule
13d-3 of the Exchange Act) directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the
Company's then outstanding securities (a "Control Person"), provided, however,
that no person or group shall be considered a Control Person if the acquisition,
transaction or other circumstance giving rise to the beneficial ownership by
such person or group of outstanding securities representing more than fifty
percent (50%) of the combined voting power of the Company (and any increase in
the beneficial ownership after the occurrence of such acquisition, transaction
or other circumstance by such person or group) was approved in advance for the
purpose of this proviso to the definition of Change in Control by a vote of at
least two-thirds of the Continuing Directors (as hereinafter defined) then in
office; (ii) upon the approval by the Company's stockholders of: (A) a merger or
consolidation of the Company with or into another Corporation (other than a
merger or consolidation in which the Company is the surviving corporation and
which does not result in any capital reorganization or reclassification or other
change in the Company's then outstanding shares of common stock); (B) a sale or
disposition of all or substantially all of the Company's assets, or (C) a plan
of liquidation or dissolution of the Company, provided, however, that approval
by the Company's stockholders of any of the transactions described in this
clause shall not be considered a Change in Control if, prior to the submission
of the transaction to the Company's stockholders, the transaction was approved
for the purpose of this proviso to the definition of Change in Control by a vote
of at least two-thirds of the Continuing Directors then in office; or (iii) if,
at any time, two-thirds of the members of the Board are not Continuing
Directors. For purposes of this Subsection, "Continuing Directors" shall mean
the members of the Board immediately after approval by the stockholders of the
Company of this Plan, and any individual who becomes a member of the Board
thereafter if his or her election or nomination for election as a director was
approved by a vote of at least two-thirds of the Continuing Directors then in
office.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Committee" means a committee consisting of at least two (2)
Disinterested Directors appointed by the Board to administer the Plan and to
perform the functions set forth herein.
2.9 "Company" means ELLIGENT CONSULTING GROUP, INC., a Nevada
corporation.
2.10 "Consultant" means a consultant to the Company or any of its
Subsidiaries.
2.11 "Director" means a member of the Board or of the board of
directors of a Subsidiary.
2.12 "Disability" means a physical or mental infirmity which renders
the Optionee incapable of performing his or her duties with the Company and its
Subsidiaries for any consecutive or non-consecutive period of ninety (90) days
during a one year period and the Optionee remains so incapable of performing
such duties at the end of such ninety (90) day period.
2.13 "Disinterested Director" means a Director who is "disinterested"
within the meaning of Rule 16b-3 under the Exchange Act or any successor rule or
regulation.
2.14 "Eligible Employee" means any employee of the Company or a
Subsidiary who is designated by the Committee as eligible to receive Options
subject to the conditions set forth herein.
2.15 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.17 "Fair Market Value" on any date means: (A) if any of the Shares
are registered under Securities Act of 1933 or the Securities and Exchange Act
of 1934 the last sale price of the Shares on such date on the principal national
securities exchange (including in such term the NASDAQ National Market System)
on which such Shares are listed or admitted to trading, or if such Shares are
not so listed or admitted to trading, the arithmetic mean of the per Share
closing bid price and per Share closing asked price on such date as quoted on
the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or; if (B) if the
Shares are not so registered, or if so registered there have been no published
bid or asked quotations with respect to Shares on such date, the Fair Market
Value shall be the value established by the Board in good faith and in
accordance with Section 422 of the Code.
2.18 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.19 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.20 "Option" means an Option granted to an Eligible Employee,
Consultant or a Director pursuant to Section 5. An Option may be an Incentive
Stock Option if the Optionee is an Eligible Employee or a Nonqualified Stock
Option if the Optionee is a Director, Consultant or an Eligible Employee.
2.21 "Optionee" means a person to whom an Option has been granted under
the Plan.
2.22 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.23 "Plan" means the Elligent Consulting Group, Inc. 1998 Stock Option
Plan.
2.24 "Shares" means shares of the common stock, par value $.0001, of
the Company.
2.25 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
2
<PAGE>
2.26 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.27 "Ten-Percent Stockholder" means an Eligible Employee, who, at the
time an Incentive Stock Option is to be granted to him or her, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company,
or of a Parent or a Subsidiary.
3. Administration.
3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not less than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members shall be as fully effective as if
made by a majority vote at a meeting duly called and held. Each member of the
Committee shall be a Disinterested Director. No member of the Committee shall be
liable for any action, failure to act, determination or interpretation made in
good faith with respect to this Plan or any transaction hereunder, except for
liability arising from his or her own willful misfeasance, gross negligence or
reckless disregard of his or her duties. The Company hereby agrees to indemnify
each member of the Committee for all costs and expenses and, to the extent
permitted by applicable law, any liability incurred in connection with defending
against, responding to, negotiating for the settlement of or otherwise dealing
with any claim, cause of action or dispute of any kind arising in connection
with any action or failure to act in administering this Plan or in authorizing
or denying authorization to any transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to determine those Eligible
Employees, Consultants and Directors to whom Options shall be granted under the
Plan and the number of Incentive Stock Options and/or Nonqualified Stock Options
to be granted to each Eligible Employee, Director, or Consultant and to
prescribe the terms and conditions (which need not be identical) of each Option,
including the purchase price per Share subject to each Option, and make any
amendment or modification to any Agreement consistent with the terms of the
Plan; provided, however, that: (i) Incentive Stock Options shall not be granted
to a Director or Consultant unless he is also an Eligible Employee; and (ii) in
accordance with Section 422(d) of the Code the aggregate Fair Market Value of
Shares with respect to which Incentive Stock Options are exercisable for the
first time by an Eligible Employee during any calendar year shall not exceed
$100,000 (the Fair Market Value of such Shares being determined for this purpose
as of the date of grant of the Incentive Stock Options with respect to which
such Shares are issuable).
3.3 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(a) to construe and interpret the Plan, any Agreement, and the
Options granted hereunder and thereunder, and to establish, amend and revoke
rules and regulations for the administration of the Plan, including, but not
limited to, correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary
3
<PAGE>
or advisable to make the Plan fully effective, and all decisions and
determinations by the Committee in the exercise of this power shall be final,
binding and conclusive upon the Company, its Subsidiaries, any Parent, the
Optionees and all other persons having any interest therein;
(b) to determine the duration and purposes for leaves of absence
which may be granted to an Optionee on an individual basis without constituting
a termination of employment or service for purposes of the Plan;
(c) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(d) generally, to exercise such powers and to perform such acts
as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. Shares Subject to Plan.
4.1 The maximum number of Shares that may be made the subject of
Options granted under the Plan is 1,500,000 Shares (or the number and kind of
shares of stock or other securities to which such number of Shares are adjusted
upon a Change in Capitalization pursuant to Section 7) and the Company shall
reserve for the purposes of the Plan, out of its authorized but unissued Shares
or out of Shares held in the Company's treasury, or partly out of each, such
number of Shares as shall be determined by the Board.
4.2 Whenever any outstanding Option or portion thereof expires, is
cancelled or is otherwise terminated for any reason (other than upon the
surrender of the Option pursuant to Section 6.7 hereof), the Shares allocable to
the cancelled or otherwise terminated Option or portion thereof may again be the
subject of Options granted hereunder.
5. Option Grants for Eligible Employees, Consultants and Directors.
5.1 Authority of Committee. Subject to the provisions of the Plan, the
Committee shall have full and final authority to select those Eligible
Employees, Consultants and Directors who will receive Options, the terms and
conditions of which shall be set forth in an Agreement; provided, however, that
an Incentive Stock Option may be granted only to an Eligible Employee and no
Eligible Employee shall receive an Incentive Stock Option unless he is an
employee of the Company, a Parent or a Subsidiary at the time the Incentive
Stock Option is granted.
5.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement evidencing the
Option, provided that: (i) the purchase price per Share under each Option which
is intended to be an Incentive Stock Option shall be not less than 100% of the
Fair Market Value of a Share on the date the Option is granted (110% in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder), and (ii) the
purchase price per Share under each Option which is intended to be a
Nonqualified Stock Option shall be not less than the par value per share of the
Company's common stock, if any.
4
<PAGE>
5.3 Duration. Options granted hereunder shall be for such term as the
Committee shall determine, provided that no Option shall be exercisable after
the expiration of ten (10) years from the date it is granted (five (5) years in
the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The
Committee may, subsequent to the granting of any Option, extend the term thereof
but in no event shall the term as so extended exceed the maximum term provided
for in the preceding sentence.
5.4 Vesting. Subject to Section 6.7 hereof, each Option shall become
exercisable in installments (which need not be equal) and/or at such times as
may be designated by the Committee and set forth in the Agreement evidencing the
Option. Without limiting the generality of the foregoing, the Committee may
impose in addition to, or in lieu of, temporal requirements, performance or
other such criteria for vesting. To the extent not otherwise provided by the
Committee, Options shall be exercisable in four (4) equal annual installments,
the first of which shall become exercisable on the first anniversary of the date
of grant of the Option. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.
5.5 Modification or Substitution. The Committee may, in its discretion,
modify outstanding Options or accept the surrender of outstanding Options (to
the extent not exercised) and grant new Options in substitution for them.
Notwithstanding the foregoing, no modification of an Option shall adversely
alter or impair any rights or obligations under the Option without the
Optionee's consent.
6. Terms and Conditions Applicable to All Options.
6.1 Non-transferability. No Option granted hereunder shall be
transferable by the Optionee to whom granted otherwise than by will or the laws
of descent and distribution or pursuant to a court order in the form of a
qualified domestic relations order as defined by the Code or Title I of ERISA or
the rules thereunder and an Option may be exercised during the lifetime of such
Optionee only by the Optionee or his or her guardian or legal representative.
The terms of each Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
6.2 Method of Exercise. The exercise of an Option shall be made only by
a written notice delivered in person or by mail to the Secretary of the Company
at the Company's principal executive office, specifying the number of Shares to
be purchased and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The purchase price
for any Shares purchased pursuant to the exercise of an Option shall be paid in
full upon such exercise by any one or a combination of the following: (i) cash,
(ii) by delivery of a promissory note for all or such part of the purchase price
as the Committee may deem acceptable at or prior to the time of exercise, the
terms of any such promissory note (including without limitation whether or not
it will bear interest and the term thereof) to be determined by the Committee,
or (iii) transferring Shares to the Company upon such terms and conditions as
determined by the Committee, in each case as shall be approved by the Committee
in its discretion at or prior to the time of exercise. At the Optionee's request
and subject to the consent of the Committee, Shares to be acquired upon the
exercise of a portion of an Option will be applied automatically to pay the
purchase price in connection with the exercise of additional portions of the
Option then being exercised. The written notice pursuant to this Section 6.2
5
<PAGE>
may also provide instructions from the Optionee to the Company that upon receipt
of the purchase price in cash from the Optionee's broker or dealer, designated
as such on the written notice, in payment for any Shares purchased pursuant to
the exercise of an Option, the Company shall issue such Shares directly to the
designated broker or dealer. Any Shares transferred to the Company as payment of
the purchase price under an Option shall be valued at their Fair Market Value on
the day preceding the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Agreement evidencing the Option to the
Secretary of the Company who shall endorse thereon a notation of such exercise
and return such Agreement to the Optionee.
6.3 Stock Transfer Restrictions. Shares purchased upon the exercise of
an Option are subject to the restrictions set forth in Section 12.6 and may be
further subject to additional restrictions and/or to repurchase options, rights
of first refusal or other restrictions or conditions as set forth in the
Agreement or in any separate agreement between the Company and the Optionee or
in Company shareholder agreements of general applicability (to the extent any
such shareholder agreement by its terms applies to Shares acquired through the
exercise of Options).
6.4 Rights of Optionees. No Optionee shall be deemed for any purpose to
be the owner of any Shares subject to any Option unless and until: (i) the
Option shall have been exercised pursuant to the terms thereof, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company. Thereupon, the Optionee shall have full voting, dividend and
other ownership rights with respect to such Shares.
6.5 Termination of Employment. Unless otherwise provided in the
Agreement evidencing the Option, an Option (other than a Nonqualified Stock
Option granted to a Director or Consultant who was never an Eligible Employee or
granted to an Eligible Employee who continues to be a Director or Consultant
after he ceases to be an Eligible Employee) shall terminate upon an Optionee's
termination of employment with the Company and its Subsidiaries as follows:
(a) if an Optionee's employment terminates for any reason other
than death, Disability or Cause, the Optionee may at any time within three (3)
months after his or her termination of employment, exercise an Option to the
extent, and only to the extent, that the Option or portion thereof was
exercisable on the date of termination;
(b) in the event the Optionee's employment terminates as a result
of Disability, the Optionee may at any time within one (1) year after such
termination exercise such Option to the extent, and only to the extent, the
Option or portion thereof was exercisable at the date of such termination;
(c) if an Optionee's employment terminates for Cause, the Option
shall terminate immediately and no rights thereunder may be exercised; or
(d) if an Optionee dies while an employee of the Company or any
Subsidiary or within three months after termination as described in clause (a)
of this Section 6.5 or within one (1) year after termination as a result of
Disability as described in clause (b) of this Section 6.5, the Option may be
exercised at any time within one (1) year after the Optionee's death by the
person or persons to whom such rights under the Option shall pass by will or by
the laws of descent and distribution or pursuant to
6
<PAGE>
a court order in the form of a qualified domestic relations order as defined by
the Code or Title I of ERISA or the rules thereunder; provided, however, that an
Option may be exercised to the extent, and only to the extent, that the Option
or portion thereof was exercisable on the date of death or earlier termination.
Notwithstanding the foregoing in no event may any Option be exercised
by anyone after the expiration of the term of the Option.
6.6 Termination of Board Membership or Consultancy. Nonqualified Stock
Options granted to: (i) a Director or Consultant or, (ii) an Eligible Employee
who continues as a Director or Consultant after terminating service as an
Eligible Employee, shall terminate upon such Optionee's termination of
membership on the Board or of his or her consultancy as follows:
(a) if an Optionee's Board membership or of his or her
consultancy terminates for any reason other than death, Disability or Cause, the
Optionee may at any time within three (3) months after his or her termination of
membership or of his or her consultancy, exercise an Option to the extent, and
only to the extent, that the Option or portion thereof was exercisable on the
date of termination;
(b) in the event the Board membership or consultancy terminates
as a result of Disability, the Optionee may at any time within one (1) year
after such termination exercise such Option to the extent, and only to the
extent, the Option or portion thereof was exercisable at the date of such
termination;
(c) if an Optionee's Board membership or consultancy terminates
for Cause, the Option shall terminate immediately and no rights thereunder may
be exercised; or
(d) if an Optionee dies while a Board member or while holding a
consultancy within three months after termination as described in clause (a) of
this Section 6.6 or within one (1) year after termination as a result of
Disability as described in clause (b) of this Section 6.6, the Option may be
exercised at any time within one (1) year after the Optionee's death by the
person or persons to whom such rights under the Option shall pass by will or by
the laws of descent and distribution or pursuant to a court order in the form of
a qualified domestic relations order as defined by the Code or Title I of ERISA
or the rules thereunder; provided, however, that an Option may be exercised to
the extent, and only to the extent, that the Option or portion thereof was
exercisable on the date of death or earlier termination.
Notwithstanding the foregoing, in no event may any Option be exercised
by anyone after the expiration of the term of the Option.
6.7 Effect of Change in Control. Notwithstanding anything contained in
the Plan or an Agreement to the contrary, in the event of a Change in Control:
(i) all Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable, and (ii) an Optionee will be permitted to
surrender for cancellation within sixty (60) days after such Change in Control,
any Option or portion of an Option to the extent not yet exercised and the
Optionee will be entitled to receive a cash payment in an amount equal to the
excess, if any, of: (x) (A) in the case of a Nonqualified Stock Option, the
greater of: (1) the Fair Market Value, on the date preceding the date of
surrender, of the Shares
7
<PAGE>
subject to the Option or portion thereof surrendered, or (2) the Adjusted Fair
Market Value of the Shares subject to the Option or portion thereof surrendered,
or (B) in the case of an Incentive Stock Option, the Fair Market Value, on the
date preceding the date of surrender, of the Shares subject to the Option or
portion thereof surrendered, over (y) the aggregate purchase price for such
Shares under the Option or portion thereof surrendered; provided, however, that
in the case of an Option granted within six (6) months prior to the Change in
Control to any Optionee who may be subject to liability under Section 16(b) of
the Exchange Act, such Optionee shall be entitled to surrender for cancellation
his or her Option during the sixty (60) day period commencing upon the
expiration of six (6) months from the date of grant of any such Option.
7. Adjustment Upon Changes in Capitalization.
7.1 Subject to Section 8, in the event of a Change in Capitalization,
the Committee shall conclusively determine the appropriate adjustments, if any,
to the maximum number and class of Shares or other stock or securities with
respect to which Options may be granted under the Plan, the number and class of
Shares or other stock or securities which are subject to outstanding Options
granted under the Plan, and the purchase price therefor, if applicable.
7.2 Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
7.3 If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions which were applicable to the
Shares subject to the Option, as the case may be, prior to such Change in
Capitalization.
8. Effect of Certain Transactions.
Subject to Section 6.7, in the event of: (i) the liquidation or
dissolution of the Company, or (ii) a merger or consolidation of the Company (a
"Transaction"), the Plan and the Options issued hereunder shall continue in
effect in accordance with their respective terms and each Optionee shall be
entitled to receive in respect of each Share subject to any outstanding Options,
as the case may be, upon exercise of any Option, the same number and kind of
stock, securities, cash, property, or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share. In the
event that, after a Transaction, there occurs any change of a type described in
Section 2.5 hereof with respect to the shares of the surviving or resulting
corporation, then adjustments similar to, and subject to the same conditions as,
those in Section 7 hereof shall be made by the Committee.
9. Termination and Amendment of the Plan.
9.1 The Plan shall terminate on the day preceding the tenth anniversary
of the date of its adoption by the Board and no Option may be granted
thereafter. The Board may sooner terminate or amend the Plan at any time and
from time to time; provided, however, that to the extent necessary under section
16(b) of the Exchange Act and the rules and regulations promulgated thereunder
or other
8
<PAGE>
applicable law, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations at
an annual or special meeting held within twelve (12) months after the date of
adoption of such amendment.
9.2 Except as provided in Sections 7 and 8 hereof, rights and
obligations under any Option granted before any amendment or termination of the
Plan shall not be adversely altered or impaired by such amendment or
termination, except with the consent of the Optionee, nor shall any amendment or
termination deprive any Optionee of any Shares which he may have acquired
through or as a result of the Plan.
10. Non-Exclusivity of the Plan.
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
11. Limitation of Liability.
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an option other than at the
sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to Shares except as
specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the employment
of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or implied,
that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
12. Regulations and Other Approvals; Governing Law.
12.1 This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the internal laws of the State of
New York, except as may otherwise be required by applicable Nevada corporation
law.
12.2 The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
9
<PAGE>
12.3 The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the provisions
of the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan. To the extent any provision of the Plan or action by the
Plan administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Plan administrators.
12.4 The Board may make such changes as may be necessary or appropriate
to comply with the rules and regulations of any government authority, or to
obtain for Eligible Employees granted Incentive Stock Options the tax benefits
under the applicable provisions of the Code and regulations promulgated
thereunder.
12.5 Each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or shares issued, in whole
or in part, unless listing, registration, qualification consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
12.6 (a) Notwithstanding anything contained in the Plan to the
contrary, in the event that the disposition of Shares acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual receiving
Shares pursuant to the Plan, as a condition precedent to receipt of such Shares
upon exercise of an Option, to represent and warrant to the Company in writing
that the Shares acquired by such individual are acquired without a view to any
distribution thereof and will not be sold or transferred other than pursuant to
an effective registration thereof under said Act or pursuant to an exemption
applicable under said Act, or the rules and regulations promulgated thereunder.
The Certificates evidencing any of such Shares shall be appropriately amended to
reflect their status as restricted securities as aforesaid.
(b) The Company shall at its own cost and expense and when it
determines that it is reasonable to do so prepare and file as appropriate with
the Securities and Exchange Commission for the Option Shares Registration
Statements on Form S-8 and Form S-3 and use its best efforts to cause the same
to become effective.
13. Miscellaneous.
13.1 Multiple Agreements. The terms of each Option may differ from
other Options granted under the Plan at the same time or at some other time. The
Committee may also grant more than one Option to a given Eligible Employee,
Consultant or Director during the term of the Plan, either in addition to, or in
substitution for, one or more Options previously granted to the Eligible
Employee, Consultant or Director.
10
<PAGE>
13.2 Withholding of Taxes.
(a) The Company shall have the right to deduct from any salary or
other compensatory amount otherwise payable by the Company or a Subsidiary to
any Optionee, an amount equal to the federal, state and local income taxes and
other amounts as may be required by law to be withheld (the "Withholding Taxes")
with respect to any Option. If an Optionee is entitled to receive Shares upon
exercise of an Option, the Optionee shall if the Company would be entitled to a
deduction in respect of the Share issuance or as otherwise provided by law or is
otherwise subject to withholding tax requirements in connection with the Share
issuance, pay the Withholding Taxes to the Company prior to the issuance of such
Shares. In satisfaction of the Withholding Taxes to the Company, the Optionee
may make a written election (the "Tax Election"), which may be accepted or
rejected in the discretion of the Committee, to have withheld a portion of the
Shares issuable to him or her upon exercise of the Option having an aggregate
Fair Market Value, on the date preceding the date of exercise, equal to the
Withholding Taxes, provided that in respect of an Optionee who may be subject to
liability under Section 16(b) of the Exchange Act either: (i) (A) the Optionee
makes the Tax Election at least six (6) months after the date the Option was
granted, (B) the Option is exercised during the ten day period beginning on the
third business day and ending on the twelfth business day following the release
for publication of the Company's quarterly or annual statements of earnings (a
"Window Period"), and (C) the Tax Election is made during the Window Period in
which the Option is exercised or prior to such Window Period and subsequent to
the immediately preceding Window Period, or (ii) (A) the Tax Election is made at
least six months prior to the date the Option is exercised, and (B) the Tax
Election is irrevocable with respect to the expiration of six months following
an election to revoke the Tax Election. Notwithstanding the foregoing, the
Committee may, by the adoption of rules or otherwise: (i) modify the provisions
in the preceding sentence or impose such other restrictions or limitations on
Tax Elections as may be necessary to ensure that the Tax Elections will be
exempt transactions under Section 16(b) of the Exchange Act or, if appropriate,
the Company will be entitled to a deduction under the Code and/or will be in
compliance with withholding tax requirements, and (ii) permit Tax Elections to
be made at such other times and subject to such other conditions as the
Committee determines will constitute exempt transactions under Section 16(b) of
the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office, and immediately deliver to the Company the amount of Withholding Taxes
due thereon in order to permit the Company to claim a deduction and/or comply
with withholding tax requirements or as may otherwise be required by law.
13.3 Designation of Beneficiary. Each Optionee may designate a person
or persons to receive in the event of his or her death, any Option or any amount
payable pursuant thereto, to which he or she would then be entitled. Such
designation will be made upon forms supplied by and delivered to the Company and
may be revoked in writing delivered to the Company. If an Optionee fails
effectively to designate a beneficiary, then his or her estate will be deemed to
be the beneficiary.
11
<PAGE>
13.4 No Right to Continue as Employee, Consultant or Director. Neither
the granting of an Option nor its exercise shall be construed as granting to an
Optionee any right with respect to continuance of employment with the Company or
its Subsidiaries or as a Director or Consultant thereof. Except as may otherwise
be limited by a written agreement between the Company (or any of its
Subsidiaries) and the Optionee, the right of Company (or its Subsidiaries) to
terminate the Optionee's employment (or services as a Director or Consultant) at
will at any time (whether by dismissal, discharge, retirement or otherwise) is
hereby specifically reserved.
14. Effective Date.
The effective date of the Plan shall be the date of its adoption by the
Board, subject only to the approval by the affirmative votes of the holders of a
majority of the securities of the Company present, or represented, and entitled
to vote at a meeting of stockholders duly held in accordance with applicable
laws within twelve (12) months of such adoption.
12
EXHIBIT 21.1
Subsidiaries of the Registrant
The Registrant has one subsidiary, Conversion Services International, Inc.
