<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1996
REGISTRATION NO. 333-5981
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTELLIGROUP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 7373 11-2880025
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
517 ROUTE ONE SOUTH
ISELIN, NEW JERSEY 08830
(908) 750-1600
(ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ASHOK PANDEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTELLIGROUP, INC.
517 ROUTE ONE SOUTH
ISELIN, NEW JERSEY 08830
(908) 750-1600
(NAME, ADDRESS, AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID J. SORIN, ESQ. WILLIAM N. DYE, ESQ.
BUCHANAN INGERSOLL WILLKIE FARR & GALLAGHER
COLLEGE CENTRE ONE CITICORP CENTER
500 COLLEGE ROAD EAST 153 EAST 53RD STREET
PRINCETON, NEW JERSEY 08540 NEW YORK, NEW YORK 10022
(609) 987-6800 (212) 821-8000
</TABLE>
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01
par value............. 2,587,500(2) $12.00 $31,050,000 $10,706.90(3)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 337,500 shares subject to the Underwriters' over-allotment option.
(3) The Company previously registered these shares and paid the registration fee
on June 14, 1996.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated July 17, 1996
2,250,000 Shares
LOGO
Common Stock
------------------------------
Of the 2,250,000 shares of Common Stock offered hereby, 2,000,000 shares
are being issued and sold by Intelligroup, Inc. ("Intelligroup" or the
"Company") and 250,000 shares are being sold by certain selling shareholders of
the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $8.00 and $10.00 per share. See "Underwriting" for information
relating to the determination of the initial public offering price. Upon
completion of this offering, certain of the Company's current officers,
directors and affiliated entities will together beneficially own approximately
79% of the Company's outstanding Common Stock. See "Risk Factors" and "Principal
and Selling Shareholders."
The Company's Common Stock has been approved for quotation, subject to
notice of effectiveness, on the Nasdaq National Market under the symbol "ITIG."
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $640,000, payable by the Company.
(3) The Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 337,500 additional shares at the Price to Public less the
Underwriting Discounts and Commissions to cover over-allotments, if any. If
all such additional shares are purchased, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for such shares will be made at the offices of Cowen &
Company, New York, New York on or about , 1996.
------------------------------
COWEN & COMPANY MONTGOMERY SECURITIES
, 1996
<PAGE> 3
PICTURE
The picture consists of two three-dimensional columns which form an inverted "V"
shape and which join together at the top with the Company's logo. Each column
includes statements which summarize the Company's services (column 1:
enterprise-wide business process solutions, including strategic planning,
business process redesign, technology implementation, on-site and offshore
software development, change management and training and support;column 2:
system integration and custom software development, including system
integration, system analysis, system design, on-site and offshore software
development, implementation and training and support). The columns are joined by
three lines which include statements which summarize services of the Company
applicable to the services included on each column (value-oriented
implementation, Advanced Development Center and logo of the Company's
proprietary implementation methodology,
"4 SIGHT").
The Company intends to furnish its shareholders with annual reports
containing financial statements certified by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
"Intelligroup," " "4 SIGHT"" and the Company's logo are service marks and
OPMS is a trademark of the Company. All other trade names, trademarks or service
marks appearing in this Prospectus are the property of their respective owners
and are not the property of the Company.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise noted herein, all information in this
Prospectus: (i) assumes no exercise of the Underwriters' over-allotment option;
(ii) reflects a 81,351.1111-for-1 stock split of the Common Stock effected July
12, 1996; and (iii) includes 1,478,400 shares of Common Stock issuable upon the
exercise, for nominal consideration (less than $0.25 in the aggregate), of
outstanding warrants, which warrants will be exercised upon the effectiveness of
this offering. The maximum number of shares underlying the warrants is 1,922,845
shares of Common Stock, which number of shares is subject to downward adjustment
based upon the initial public offering price. At an assumed initial public
offering price of $9.00 per share, there are 1,478,400 shares of Common Stock
underlying the warrants. See "Capitalization," "Description of Capital Stock,"
"Principal and Selling Shareholders" and "Underwriting."
THE COMPANY
Intelligroup provides a wide range of information technology services,
including enterprise-wide business process solutions, systems integration and
custom software development based on leading technologies. The Company has grown
rapidly since 1994 when it made a strategic decision to diversify its customer
base by expanding the scope of its integration and development services and to
utilize SAP software as a primary tool to implement enterprise-wide business
process solutions. In 1995, the Company became a SAP National Implementation
Partner and also began to utilize Oracle products to diversify its service
offerings. The Company's custom software development services are enhanced by
its exclusive access to qualified and experienced programmers at its affiliated
Advanced Development Center located in India and connected to the Company's
headquarters in the United States and to certain customer sites by dedicated,
high speed satellite links. The Company provides its services directly to
end-user organizations or as a member of consulting teams assembled by other
information technology consulting firms. The number of customers billed by the
Company has grown substantially from three customers in 1993 to 75 customers for
the year ended December 31, 1995. The Company's customers are Fortune 1000 and
other large and mid-sized companies, as well as other information technology
consulting firms, and include AT&T, American Cyanamid, Citibank, Ernst & Young
LLP, IBM, ICS Deloitte & Touche LLP and Price Waterhouse LLP.
Many large and mid-sized businesses face a rapidly changing business
environment, intense global competition and accelerating technological change.
To remain competitive, businesses are implementing and utilizing advanced
information technology solutions that enable them to redesign their business
processes in such areas as product development, service delivery, manufacturing,
sales and human resources. Concurrently, businesses are migrating from legacy
systems running proprietary software to open systems and client/server systems.
Such client/server systems, when developed and implemented appropriately, enable
the creation and utilization of more functional and flexible applications which
are critical to the competitive needs of businesses. Organizations often acquire
packaged enterprise-wide business software applications for client/ server
systems, including those offered by leading vendors, such as SAP, Oracle,
PeopleSoft or Baan, and implement or customize these applications to match their
needs. Organizations also may develop customized software applications designed
for their specific business needs. Since organizations often lack sufficient
technical resources necessary to design, develop and implement emerging
information technology solutions on a timely basis, many businesses increasingly
engage experienced outside specialists to develop and implement solutions, in
shorter timeframes and at lower costs, while reducing implementation risks. As a
result, demand for information technology services has grown significantly.
According to industry sources, the global demand for SAP-related consulting
services alone was estimated to be $3.0 billion in 1995.
Intelligroup provides information technology services to develop and
implement cost-effective client/ server business solutions on a timely basis by
combining its expertise in a wide range of technologies and business processes
with its proprietary implementation methodology and development tools. The
Company's consultants have expertise with SAP and Oracle products and with a
wide variety of leading computing technologies. The Company recently has
developed a proprietary implementation methodology, "4 SIGHT",
3
<PAGE> 5
which is designed to minimize the time required to develop and implement SAP
solutions for its customers. "4 SIGHT" is designed to be technology independent
and modular so that it may be utilized by the Company's consultants and project
managers in other packaged applications development or software customization
projects.
The Company's objective is to be a leading provider of a wide range of
information technology services. The Company's strategy to achieve this
objective is to: (i) accelerate a shift from implementation assignments to
turnkey project management engagements; (ii) maintain and expand long-term
customer relationships; (iii) leverage and expand strategic relationships,
including existing relationships with SAP and Oracle; (iv) maintain
technological leadership and enhance its proprietary implementation methodology
and development tools; (v) continue to attract and retain skilled, motivated
technical employees; and (vi) expand its global sales and marketing efforts.
The Company was incorporated in New Jersey in October 1987 under the name
Intellicorp, Inc. The Company's name was changed to Intelligroup, Inc. in July
1992. The Company's executive offices are located at 517 Route One South,
Iselin, New Jersey 08830, and its telephone number is (908) 750-1600.
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 HEREOF.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,000,000 shares
Common Stock offered by the
Selling Shareholders....................... 250,000 shares
Common Stock to be outstanding
after the offering......................... 10,800,000 shares(1)
Use of proceeds.............................. For prepayment of subordinated debt;
repayment of obligations under accounts
receivable financing; purchase of capital
equipment; and other general corporate
purposes, including working capital.
Proposed Nasdaq National Market Symbol....... ITIG
</TABLE>
- ---------------
(1) The number of shares of Common Stock to be outstanding after the offering
has been calculated based upon an assumed initial public offering price of
$9.00 per share. At an initial public offering price of $10.00 per share,
the number of shares of Common Stock underlying warrants of the Company
would be reduced from 1,478,400 shares to 1,364,000 shares and, accordingly,
the number of shares of Common Stock to be outstanding after the offering
would be reduced from 10,800,000 shares to 10,685,600 shares. At an initial
public offering price of $8.00 per share, the number of shares of Common
Stock underlying the warrants of the Company would be increased from
1,478,400 shares to 1,578,720 shares and, accordingly, the number of shares
of Common Stock to be outstanding after this offering would be increased
from 10,800,000 shares to 10,900,320 shares. See "Capitalization." Excludes
500,000 shares of Common Stock issuable upon the exercise of stock options
outstanding as of the date of this Prospectus at an exercise price of $8.00
per share, none of which are currently exercisable. See "Management -- 1996
Stock Plan."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ 167 $ 481 $ 933 $ 6,800 $24,589 $ 3,850 $ 8,836
Gross profit.................. 78 129 305 958 4,568 (7) 2,413
Operating income (loss)....... -- 1 6 (28) 116 (728) 944
Net income (loss)............. -- 2 7 (437) (1,059) (1,048) 428
Net income (loss) per share... $ -- $ -- $ -- $ (0.03) $ (0.08) $ (0.08) $ 0.03
Shares used in per share
calculation(1)............. 13,737 13,737 13,737 13,737 13,737 13,737 13,737
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
DECEMBER 31, PRO FORMA AS
1995 ACTUAL PRO FORMA(2) ADJUSTED(3)
------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 71 $ 79 $ 4,021 $ 11,024
Working capital (deficit)................. (1,597) (1,263) 3,237 13,337
Total assets.............................. 6,784 7,642 11,584 18,587
Short-term debt........................... 3,489 3,674 3,116 19
Long-term debt and capital lease
obligations,
less current portion................... 81 74 4,674 74
Warrants.................................. -- -- 1,400 --
Shareholders' equity (deficit)............ (1,366) (938) (2,438) 13,662
</TABLE>
- ---------------
(1) Includes 4,881,066 shares repurchased by the Company from its current
shareholders, Messrs. Pandey, Koneru and Valluripalli, in April 1996 which
shares were cancelled by the Company. See "Capitalization."
(2) Gives effect to the April 1996 issuance of five-year 9% subordinated
debentures in the aggregate principal amount of $6.0 million and warrants to
purchase 1,478,400 shares of Common Stock upon the payment of nominal
consideration (less than $0.25 in the aggregate), and the application of the
proceeds therefrom to purchase certain of the shares of Common Stock of the
Company's current shareholders and to repay debt. See "Capitalization."
(3) Adjusted to reflect the estimated net proceeds from the sale of 2,000,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $9.00 per share and the application thereof as
described in "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RECENT DEVELOPMENTS
Preliminary Second Quarter Results
Based on preliminary, unaudited financial results, the Company estimates
that revenue increased by 96.4%, or $5.4 million, from $5.6 million in the
second quarter of 1995 to $11.0 million in the second quarter of 1996 and by
108.4%, or $10.3 million, from $9.5 million in the first two quarters of 1995 to
$19.8 million in the first two quarters of 1996. The Company estimates that
gross profit increased by 175.0%, or $2.1 million, from $1.2 million in the
second quarter of 1995 to $3.3 million in the second quarter of 1996 and by
375.0%, or $4.5 million, from $1.2 million in the first two quarters of 1995 to
$5.7 million in the first two quarters of 1996. Selling, general and
administrative expenses are estimated to have increased by 169.6%, or $1.4
million, from $816,000 in the second quarter of 1995 to $2.2 million in the
second quarter of 1996 and by 146.7%, or $2.2 million, from $1.5 million in the
first two quarters of 1995 to $3.7 million in the first two quarters of 1996.
The Company estimates that net income increased by 1,147.2%, or $413,000, from
$36,000 in the second quarter of 1995 to $449,000 in the second quarter of 1996
and increased $1.9 million, from a net loss of $1 million in the first two
quarters of 1995 to net income of $877,000 in the first two quarters of 1996.
These preliminary, unaudited results, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such financial data.
Third Quarter Extraordinary Charge
Upon the consummation of this offering, the Company will pre-pay all
amounts outstanding under its five-year 9% subordinated debentures and, as a
result, will incur a $1.4 million extraordinary, non-cash charge expected to be
recognized in the third quarter of 1996. See "Capitalization."
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating an
investment in the Company before purchasing any shares of the Common Stock
offered hereby. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in such forward-looking statements. Factors that may cause
such a difference are those discussed below.
SUBSTANTIAL VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's historical operating results have varied substantially from
quarter to quarter, and the Company expects that they will continue to do so.
Due to the relatively fixed nature of certain of the Company's costs, including
personnel and facilities costs, a decline in revenue in any fiscal quarter would
result in lower profitability in that quarter. A variety of factors, many of
which are not within the Company's control, influence the Company's quarterly
operating results, including seasonal patterns of hardware and software capital
spending by customers, information technology outsourcing trends, the timing,
size and stage of projects, new service introductions by the Company or its
competitors, levels of market acceptance for the Company's services or the
hiring of additional staff. Operating results also may be impacted by changes in
the Company's billing and employee utilization rates. The Company believes,
therefore, that past operating results and period-to-period comparisons should
not be relied upon as an indication of future performance. Demand for the
Company's services generally is lower in the fourth quarter due to reduced
activity during the holiday season and fewer working days for those customers
which curtail operations during such period. The Company anticipates that its
business will continue to be subject to such seasonal variations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Selected Quarterly Results of Operations."
MANAGEMENT OF GROWTH
The Company's growth has placed significant demands on its management,
administrative and operational resources. The Company's revenue increased 262%
in 1995, from $6.8 million in 1994 to $24.6 million in 1995. From January 1,
1995 through March 31, 1996, the Company's staff increased 104% from 113 to 231
full-time employees. The Company's ability to manage its growth effectively will
require the Company to continue developing and improving its operational,
financial and other internal systems, as well as its business development
capabilities, and to attract, train, retain, motivate and manage its employees.
In addition, the Company's future success will depend in large part on its
ability to continue to maintain high rates of employee utilization at profitable
billing rates and maintain project quality, particularly if the size and scope
of the Company's projects increases. In addition, other than the Company's Chief
Financial Officer, none of the Company's senior management previously has
managed a business of the Company's scale or scope or has any experience
managing a public company. If the Company is unable to manage its growth and
projects effectively, such inability could have a material adverse effect on the
quality of the Company's services and products, its ability to retain key
personnel and its ability to report financial results in an accurate and timely
manner which could have a material adverse effect on the Company's business,
financial condition and results of operations.
WEAKNESSES IN INTERNAL CONTROLS
Following the audit of the Company's consolidated financial statements for
the year ended December 31, 1995, the Company received a management letter from
its independent public accountants, Arthur Andersen LLP, which set forth
significant deficiencies and material weaknesses in the Company's internal
control structure. The Company's independent public accountants noted that,
during 1995, the Company's internal control structure had two material
weaknesses: (i) the Company did not reconcile its supporting records to the
general ledger or perform meaningful account analysis; and (ii) the Company did
not maintain, summarize or reconcile any books or records for its foreign
operations. The Company's independent public accountants have not conducted any
further reviews of the Company's internal control structure. The Company first
hired a Chief Financial Officer in January 1996, only recently implemented an
accounting system capable of
7
<PAGE> 9
generating information and reports necessary to appropriately manage the
Company, and currently is developing and implementing a system of internal
controls and otherwise developing an appropriate administrative infrastructure.
The failure to develop and maintain an effective internal control structure
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Legal
Proceedings" and " -- Employees."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE
FINANCIAL RESULTS
The Company's strategic decision in 1994 to diversify its customer base and
to utilize SAP software as a primary tool to implement enterprise-wide business
process solutions resulted in significant growth and a major change of the
Company's business. As a result, the Company has a limited operating history
within its current line of business. Despite the fact that the Company has
recognized substantially increased revenue during the years ended December 31,
1994 and 1995, respectively, the Company incurred net losses of $437,000 and
$1.1 million for such periods. Furthermore, the Company was profitable in only
five of the last nine quarters. Although the Company had net income of $428,000
for the quarter ended March 31, 1996, there can be no assurance that the Company
will continue to achieve profitable levels of operations in the future, thus
management could not determine that it was more likely than not that a future
tax benefit would be realized. The Company has offset its deferred tax asset of
$614,000 at March 31, 1996 with a valuation allowance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations."
DEPENDENCE ON SAP
During the years ended December 31, 1994 and 1995 and the first quarter of
1996, 33%, 69% and 70% of the Company's total revenue was derived from projects
in which the Company implemented software developed by SAP, a major
international German-based software company and the leading vendor of
client/server application software for business applications. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company's future success in its SAP-related consulting services depends largely
on its continued relationship with SAP America, SAP's United States affiliate,
and on its continued status as a SAP National Implementation Partner, which was
first obtained in 1995. Such status is awarded by SAP on an annual basis
pursuant to contract. The Company's 1996 contract expires on December 31, 1996.
While the Company has no reason to believe that its contract with SAP will not
be renewed or that the scope of such contract will be modified or limited in a
manner adverse to the Company, there can be no assurance that such contract will
be renewed on terms acceptable to the Company, if at all. In addition, in the
event that SAP is unable to maintain its leadership position within the business
applications software market, if the Company's relationship with SAP
deteriorates, or if SAP elects to compete directly with the Company, the
Company's business, financial condition and results of operations could be
materially adversely affected. See "Business."
SUBSTANTIAL RELIANCE ON KEY CUSTOMERS AND LARGE PROJECTS
The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of customers and
projects. For the years ended December 31, 1994 and 1995 and for the quarter
ended March 31, 1996, the Company's ten largest customers accounted for in the
aggregate approximately 61%, 56% and 63% of its revenue, respectively. During
1994, AT&T accounted for more than 10% of revenue, while in 1995 and the quarter
ended March 31, 1996, Ernst & Young LLP and Price Waterhouse LLP each accounted
for more than 10% of revenue. For the years ended December 31, 1994 and 1995 and
for the quarter ended March 31, 1996, 64%, 50% and 52%, respectively, of the
Company's revenue was generated by serving as a member of consulting teams
assembled by other information technology consulting firms, which also may be
competitors of the Company. Such firms included Andersen Consulting, Ernst &
Young LLP, ICS Deloitte & Touche LLP, KPMG Peat Marwick LLP, Price Waterhouse
LLP and other information technology consulting firms. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Customers." There can be no assurance that such information
technology consulting firms will continue to engage the Company in the future,
if at all, and all of
8
<PAGE> 10
such customer relationships are terminable at will. In addition, the volume of
work performed for specific customers is likely to vary from year to year, and a
major customer in one year or quarter may not continue to use the Company's
services. The loss of any large customer or project could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Customers."
Most of the Company's project-based contracts are terminable by the
customer with limited advance notice, typically not more than 30 days, and
without significant penalty, generally limited to fees earned and expenses
incurred by the Company through the date of termination. The cancellation or
significant reduction in the scope of a large project could have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Customers."
Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that may be
difficult to quantify. The Company's failure or inability to meet a customer's
expectations in the performance of its services could result in a material
adverse change to the customer's operations giving rise to claims for damages
against the Company or causing damage to the Company's reputation, adversely
affecting its business, financial condition and results of operations. In
addition, certain of the Company's agreements with its customers require the
Company to indemnify the customer for damages arising from services provided to,
or on behalf of, such customer. Such indemnification, if required, could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- Customers."
HIGHLY COMPETITIVE INFORMATION TECHNOLOGY SERVICES INDUSTRY
The markets for the Company's services are highly competitive. The Company
believes that its principal competitors include the internal information systems
groups of its prospective customers, as well as technology consulting and
systems integration firms, including the "Big Six" accounting firms, the ISSC
division of IBM, Cambridge Technology Partners, SHL Systemhouse (a subsidiary of
MCI), and Computer Sciences Corporation, and with the consulting divisions of
software applications vendors, some of which also are customers of the Company.
The consulting divisions of five of the "Big Six" accounting firms also are
customers of the Company and comprised 6%, 34% and 36% of the Company's revenue
for the years ended December 31, 1994 and 1995, and for the quarter ended March
31, 1996, respectively. Many of the Company's competitors have longer operating
histories, possess greater industry and name recognition and have significantly
greater financial, technical and marketing resources than the Company. In
addition, there are relatively low barriers to entry into the Company's markets
and the Company has faced, and expects to continue to face, additional
competition from new entrants into its markets.
The Company believes that the principal competitive factors in its markets
include quality of service and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes that it addresses these principal competitive
factors with competitive pricing, by utilizing experienced project managers and
consultants, through the use of its proprietary implementation methodology
designed to minimize time required to develop and implement SAP solutions and
its ability to provide other services, including systems integration and custom
software development, including access to the Advanced Development Center. See
"Business -- The Intelligroup Solution." The Company believes that its ability
to compete also depends in part on a number of competitive factors outside its
control, including the ability of its competitors to hire, retain and motivate
project managers and other senior technical staff, the development by others of
services that are competitive with the Company's services and the extent of its
competitors' responsiveness to customer needs. There can be no assurance that
the Company will be able to compete successfully with its competitors. See
"Business -- Competition."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS
The Company's success will depend in part on its ability to develop
solutions that keep pace with continuing changes in information technology,
evolving industry standards and changing customer objectives
9
<PAGE> 11
and preferences. There can be no assurance that the Company will be successful
in adequately addressing these developments on a timely basis or that, if these
developments are addressed, the Company will be successful in the marketplace.
In addition, there can be no assurance that products or technologies developed
by others will not render the Company's services non-competitive or obsolete.
The Company's failure to address these developments could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."
DEPENDENCE ON KEY PERSONNEL
The success of the Company for the foreseeable future will depend largely
on the continued services of its key executive officers and leading technical
personnel. Each executive officer and key employee has entered into an
employment agreement with the Company which contains non-competition,
non-disclosure and non-solicitation covenants that extends for a period of two
years following termination of employment. See "Management -- Employment
Agreements, Indemnification Agreements and Non-Competition, Non-Disclosure and
Non-Solicitation Agreements." Each of the leading technical personnel has
entered into an agreement with the Company which contains non-competition,
non-disclosure and non-solicitation provisions. See "Business -- Employees." The
Company maintains, and is the beneficiary of, life insurance policies on the
lives of Ashok Pandey, Rajkumar Koneru and Nagarjun Valluripalli. The face
amount of each such policy is $1.0 million. See "Management -- Key Man
Insurance." The Company does not maintain key man life insurance on any of its
other executive officers or employees. There can be no assurance that the
departure of one or more of such key personnel would not have a material adverse
effect on the Company's financial condition and results of operations.
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
The Company's business is labor intensive and, therefore, the Company's
success will depend in large part upon its ability to attract, retain, train and
motivate highly-skilled employees, particularly project managers and other
senior technical personnel. There is significant competition for employees with
the skills required to perform the services the Company offers. Qualified
project managers and senior technical staff, including in particular, personnel
with development experience, are in great demand and are likely to remain a
limited resource for the foreseeable future. There can be no assurance that the
Company will be successful in attracting a sufficient number of highly skilled
employees in the future, or that it will be successful in retaining, training
and motivating the employees it is able to attract, and any inability to do so
could impair the Company's ability to adequately manage and complete its
existing projects and to bid for or obtain new projects. If the Company's
employees are unable to achieve expected performance levels, the Company's
business, financial condition and results of operations could be adversely
affected. See "Business -- Employees."
UNCERTAINTIES RESULTING FROM PENDING LITIGATION MATTERS AND ADMINISTRATIVE
PROCEEDINGS
The Company is involved in disputes with third parties, including certain
former employees and a competitor. Such disputes have resulted in litigation
with such parties and, although the Company is a plaintiff in one of such
matters, the Company is subject to claims and counterclaims for damages and has
incurred, and likely will continue to incur, legal expenses in connection with
such matters. There can be no assurance that such litigation will result in
favorable outcomes for the Company. The Company also is aware of certain pending
and potential administrative and regulatory immigration and tax law matters
which may result in significant costs to the Company, as well as fines and
penalties. These matters also may result in diversion of management time and
effort from the operations of the business. There can be no assurance that
damages, fines and penalties, if any, and related legal expenses and management
diversion from operations will not have a material adverse effect on the
Company's business, reputation, financial condition or results of operations.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Business -- Legal
Proceedings."
10
<PAGE> 12
RELIANCE ON INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of trade secrets, nondisclosure and
other contractual arrangements, and copyright and trademark laws to protect its
proprietary rights. The Company's future success is dependent, in part, upon its
proprietary implementation methodology, "4 SIGHT", development tools and other
intellectual property rights. The Company enters into confidentiality agreements
with its employees, generally requires that its consultants and customers enter
into such agreements, and limits access to and distribution of its proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of its proprietary
information or that the Company will be able to detect unauthorized use of and
take appropriate steps to enforce its intellectual property rights. See
"Business -- Intellectual Property Rights" and " -- Legal Proceedings."
Although the Company believes that its services, methodology and
development tools do not infringe on the intellectual property rights of others,
there can be no assurance that such a claim will not be asserted against the
Company in the future, or that if asserted, any such claim will be successfully
defended. See "Business -- Intellectual Property Rights."
INTERNATIONAL OPERATIONS
While international operations accounted for an insignificant portion of
the Company's total revenue in each of 1994 and 1995, the Company anticipates
that in the future a larger percentage of its revenue may be derived from
international operations. To date, the Company has established foreign
operations in New Zealand, South Africa and the United Kingdom. In order to
expand sales on an international basis, the Company may establish additional
foreign operations. In addition, the Company has established operations in India
by forming an affiliation with Intelligroup Asia Private Limited ("Intelligroup
Asia"), an entity which currently is majority owned by Messrs. Koneru and
Valluripalli, two of the Company's principal shareholders. Mr. Pandey has the
right, subject to necessary Indian government approvals, to acquire the
remaining outstanding shares of Intelligroup Asia. The Company and Messrs.
Pandey, Koneru and Valluripalli have entered into an agreement pursuant to which
the Company will acquire, subject to necessary Indian government approvals, all
of the outstanding capital stock of Intelligroup Asia for nominal consideration.
See "Certain Transactions." Increasing foreign operations likely will require
significant management attention and financial resources and could materially
adversely affect the Company's business, financial condition or results of
operations. In addition, there can be no assurance that the Company will be able
to increase international market demand for its services. The risks inherent in
the Company's international business activities include unexpected changes in
regulatory environments, foreign currency fluctuations, tariffs and other trade
barriers, longer accounts receivable payment cycles, difficulties in managing
international operations and potential foreign tax consequences, including
restrictions on the repatriation of earnings, and the burdens of complying with
a wide variety of foreign laws and regulations. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international sales, if any, and, consequently, on the Company's business,
financial condition or results of operations. See "Business -- Sales and
Marketing."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion of
this offering, the 2,250,000 shares offered hereby will be freely tradeable by
persons other than "affiliates" of the Company without restriction. The
remaining 8,550,000 shares held by current shareholders of the Company are
subject to "lock-up" agreements under which the holders of such shares have
agreed not to sell or otherwise dispose of any shares of Common Stock without
the prior written consent of the representative of the Underwriters for a period
of 180 days after the date of this Prospectus. Of such shares of Common Stock,
7,083,500 shares will be eligible for resale after the expiration of the lock-up
period, subject to the provisions of Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"). The remaining 1,466,500 shares of Common
Stock will become eligible for sale over a period of less than two years and
could be sold earlier if the holders thereof exercise any available registration
rights. See "Description of Capital Stock -- Registration Rights." Of the shares
of Common Stock issuable upon the exercise of outstanding options, in December
1996, 166,667 shares will become
11
<PAGE> 13
eligible for immediate resale in the public market, subject to compliance with
Rules 144 and 701 under the Securities Act. Sales of substantial amounts of the
Common Stock in the public market, whether by purchasers in the offering or
other shareholders of the Company, or the perception that such sales could
occur, may adversely affect the market price of the Common Stock. See "Shares
Eligible for Future Sale."
CONTROL BY MANAGEMENT AND EXISTING SHAREHOLDERS
Upon completion of this offering, certain of the Company's current officers
(Messrs. Pandey, Koneru and Valluripalli), directors and affiliated entities
together will beneficially own approximately 79% of the outstanding shares of
Common Stock (76% if the Underwriters' over-allotment option is exercised in
full). As a result, these shareholders, acting together, will be able to control
matters requiring approval by the shareholders of the Company, including the
election of directors. Such a concentration of ownership may have the effect of
delaying or preventing a change in control of the Company, including
transactions in which shareholders might otherwise receive a premium for their
shares over then current market prices. See "Principal and Selling
Shareholders."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND NEW JERSEY LAW
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes the Board of Directors to issue,
without shareholder approval, 5,000,000 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. The issuance of
Preferred Stock or of rights to purchase Preferred Stock could be used to
discourage an unsolicited acquisition proposal. In addition, the possible
issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. The Certificate of Incorporation also
provides that: (i) the affirmative vote of the holders of at least 80% of the
voting power of all outstanding shares of the capital stock of the Company shall
be required to adopt, amend or repeal any provision of the By-laws of the
Company; (ii) shareholders of the Company may not take any action by written
consent; (iii) special meetings of shareholders may be called only by the
President, the Chairman of the Board or a majority of the Board of Directors and
business transacted at any such special meeting shall be limited to matters
relating to the purposes set forth in the notice of such special meeting; (iv)
the Board of Directors, when evaluating an offer related to a tender or exchange
offer or other business combination, is authorized to give due consideration to
any relevant factors, including the social, legal and economic effects upon
employees, suppliers, customers, creditors, the community in which the Company
conducts its business, and the economy of the state, region and nation; and (v)
the affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of the capital stock of the Company shall be required to
amend the above provisions or the limitation on director liability. The
foregoing provisions of the Certificate of Incorporation could have the effect
of delaying, deterring or preventing a change in control of the Company. In
addition, certain "anti-takeover" provisions of the New Jersey Business
Corporation Act, among other things, restrict the ability of certain
shareholders to effect a merger or business combination or obtain control of the
Company. These provisions may have the effect of delaying or preventing a change
of control of the Company without action by the shareholders and, therefore,
could adversely affect the price of the Company's Common Stock. In the event of
a merger or consolidation of the Company with or into another corporation or the
sale of all or substantially all of the Company's assets in which the successor
corporation does not assume outstanding options or issue equivalent options, the
Board of Directors of the Company is required to provide accelerated vesting of
outstanding options. See "Description of Capital Stock -- Preferred Stock,"
"-- Anti-takeover Provisions" and "-- Limitation of Director Liability."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that following this offering an active
trading market will develop or be maintained. The initial public offering price
of the Common Stock has been determined by negotiations between the Company and
the
12
<PAGE> 14
Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock in the future. For a description of the factors
considered in determining the initial public offering price, see "Underwriting."
The market price of the shares of Common Stock may be highly volatile. Factors
such as fluctuation in the Company's operating results, announcements of
technological innovations or new commercial products or services by the Company
or its competitors, market conditions in the computer software and hardware
industries generally and quarterly fluctuations in financial results may have a
significant effect on the market price of the Common Stock. Furthermore, the
stock market historically has experienced volatility which has particularly
affected the market prices of securities of many technology companies and which
sometimes has been unrelated to the operating performances of such companies.
See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial public offering price. The number of shares
underlying the warrants is subject to adjustment based upon the initial public
offering price and, therefore, could result in additional dilution to existing
shareholders and to purchasers of the shares of Common Stock offered hereby. See
"Capitalization," "Dilution," "Description of Capital Stock" and "Shares
Eligible for Future Sale."
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, the Board of Directors of the
Company will have broad discretion with respect to the use of the net proceeds
of this offering. See "Use of Proceeds."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. See "Dividend Policy."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$16.1 million, after deducting the Underwriters' discounts and commissions and
estimated offering expenses payable by the Company, at an assumed initial public
offering price of $9.00 per share. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Shareholders. See
"Principal and Selling Shareholders."
The Company intends to use approximately $6.2 million of the net proceeds
from this offering to pre-pay all amounts outstanding under the five-year 9%
subordinated debentures in the aggregate principal amount of $6.0 million issued
and sold in April 1996 to Summit Ventures IV, L.P. and Summit Investors III,
L.P., investment partnerships which are affiliates of the Company. The
subordinated debentures were issued to raise funds for working capital and
general corporate purposes, to repurchase from current shareholders, Messrs.
Pandey, Koneru and Valluripalli, a total of 4,881,066 shares of Common Stock for
an aggregate of $1.5 million and to repay approximately $300,000 outstanding
under a revolving credit facility, which facility carried interest at the
federal funds rate plus 1%. Such credit facility was terminated upon such
repayment. The Company also intends to use a portion of the net proceeds to
repay all amounts outstanding under its existing factoring relationship, of
which approximately $1.8 million was outstanding as of June 30, 1996. Pursuant
to such factoring arrangement, the Company is obligated to offer all of its
accounts receivable to the factor for financing. The factor is not, however,
obligated to accept such accounts receivable. The factor charges an
administrative fee of 0.75% on each invoice, plus an additional 0.75% for each
15-day increment of time during which the invoice remains unpaid, to a maximum
of 120 days, or 6.5%. The Company also intends to use approximately $400,000 of
the net proceeds from this offering to purchase or lease capital equipment.
The balance of the net proceeds, $7.9 million, will be used for general
corporate purposes, including working capital and possible acquisitions of
businesses or services complementary to the Company's business. Although the
Company reviews and considers possible acquisitions on an on-going basis, no
specific acquisitions are being negotiated or planned as of the date of this
Prospectus. Pending such uses, the net proceeds to the Company from this
offering will be invested in short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its capital stock.
The Company intends to retain any earnings to fund future growth and the
operation of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) as of
March 31, 1996; (ii) on a pro forma basis to give effect to the issuance and
sale by the Company in April 1996 of five-year 9% subordinated debentures in the
aggregate principal amount of $6.0 million and warrants to purchase Common Stock
and the application of the proceeds therefrom to purchase certain of the shares
of Common Stock of the Company's current shareholders and to repay debt; and
(iii) on a pro forma as-adjusted basis to give effect to the issuance and sale
by the Company of 2,000,000 shares of Common Stock offered hereby, at an assumed
initial public offering price of $9.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company and the application of the estimated net proceeds therefrom by
the Company.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt................................................ $ 3,674 $ 3,116 $ 19
======= ======= =======
Long-term debt and capital lease obligations, less current
portion(1)................................................... $ 74 $ 74 $ 74
Subordinated debt(3)(5)........................................ -- 4,600 --
------- ------- -------
Total long-term debt......................................... 74 4,674 74
------- ------- -------
Warrants(3)(5)................................................. -- 1,400 --
------- ------- -------
Shareholders' equity (deficit):
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized;
none issued............................................... -- -- --
Common Stock, $0.01 par value, 25,000,000 shares authorized,
12,202,666 shares actual (7,321,600 pro forma) (10,800,000
as adjusted) issued and outstanding(2)(4)................. 122 73 108
Additional paid-in capital................................... -- -- 17,465
Accumulated deficit(4)(5).................................... (1,060) (2,511) (3,911)
------- ------- -------
Total shareholders' equity (deficit)...................... (938) (2,438) 13,662
------- ------- -------
Total capitalization................................. $ (864) $ 3,636 $13,736
======= ======= =======
</TABLE>
- ---------------
(1) For information concerning the Company's long-term debt see Note 3 of Notes
to Consolidated Financial Statements.
(2) Excludes 500,000 shares of Common Stock issuable upon the exercise of stock
options outstanding as of the date of this Prospectus at an exercise price
of $8.00 per share, none of which are currently exercisable. See
"Management -- 1996 Stock Plan."
(3) Proceeds from the issuance of $6.0 million of 9% debentures were allocated
between the debentures and warrants based on their deemed fair market value.
The debentures were issued with detachable warrants to purchase a maximum of
20.8% of the Common Stock of the Company at a nominal exercise price (less
than $0.25 in the aggregate), decreasing to not less than 11.0% based upon
the initial public offering price. Using an assumed interest rate of 15%,
which the Company believes would reflect a fair market interest rate for the
debentures if the detachable warrants were not included, the fair market
value of the warrants and the resulting discount on the debentures would be
approximately $1.4 million. Other than the extraordinary, non-cash charge
that will result on the repayment of the debentures (See note (5) below), no
additional charges to earnings relating to the warrants will occur. The
maximum number of shares underlying the warrants is 1,922,845 shares of
Common Stock, which number is subject to downward adjustment based upon the
initial public offering price. At an assumed initial public offering price
of $9.00 per share, there are 1,478,400 shares of Common Stock underlying
the warrants. The warrants will be exercised upon the effectiveness of this
offering. The following table sets forth the number of shares of Common
Stock underlying the warrants and the number of shares of Common Stock to be
outstanding after the offering at certain prices within the anticipated
initial public offering price range:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
TO BE
NUMBER OF SHARES OUTSTANDING
ASSUMED INITIAL OF COMMON STOCK AFTER THE
PUBLIC OFFERING PRICE UNDERLYING WARRANTS OFFERING
---------------------- ------------------- ----------------
<S> <C> <C>
$ 8.00............................................... 1,578,720 10,900,320
9.00............................................... 1,478,400 10,800,000
10.00............................................... 1,364,000 10,685,600
</TABLE>
(4) Reflects the repurchase and cancellation by the Company of 4,881,066 shares
from the Company's current shareholders, Messrs. Pandey, Koneru and
Valluripalli, for an aggregate of $1.5 million. Such shares were repurchased
to allow Messrs. Pandey, Koneru and Valluripalli to diversify their
portfolios and achieve a degree of liquidity.
(5) Reflects the repayment of the debentures and the exercise of the warrants.
Based on an assumed initial public offering price of $9.00 per share, there
are 1,478,400 shares of Common Stock underlying the warrants. The repayment
of the debentures results in an extraordinary charge of $1.4 million.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was approximately $(1,038,000) or $(0.14) per share of Common Stock. Pro forma
net tangible book value per share is determined by dividing the net tangible
book value of the Company (tangible assets less total liabilities) by the number
of shares of Common Stock outstanding, and gives effect to the issuance and sale
by the Company in April 1996 of five-year 9% subordinated debentures in the
aggregate principal amount of $6.0 million and the warrants issued in connection
therewith and the application of the proceeds therefrom to purchase certain of
the shares of Common Stock of the Company's current shareholders and to repay
debt as if such transactions had occurred on March 31, 1996. Dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the offering made hereby and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the offering. Without taking into account any changes in such net tangible book
value after March 31, 1996, other than to give effect to the (i) sale of
2,000,000 shares of Common Stock by the Company in this offering (at an assumed
initial public offering price of $9.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses); (ii)
application of the estimated net proceeds therefrom; and (iii) effect of the
extraordinary charge of $1.4 million that would result from the early
extinguishment of debt to be repaid from the net proceeds of the offering if the
offering had been consummated on March 31, 1996, the pro forma net tangible book
value of the Company as of March 31, 1996 would have been $13,662,000 or $1.27
per share. This represents an immediate increase in net tangible book value of
$1.41 per share to existing shareholders and an immediate dilution in net
tangible book value of $7.73 per share to new investors. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)......... $ 9.00
Pro forma tangible book value per share before the
offering.............................................. $(0.14)
Increase per share attributable to new investors......... 1.41
------
Pro forma net tangible book value per share after the
offering................................................. 1.27
------
Dilution per share to new investors........................ $ 7.73
======
</TABLE>
- ---------------
(1) Before deducting the estimated underwriting discounts and commissions and
expense of the offering.
The following table summarizes, on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing shareholders
and by investors purchasing shares offered by the Company hereby:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).............. 8,800,000 81.5% $ 6,000 0.03% $ 0.001
New investors......................... 2,000,000 18.5 18,000,000 99.97 9.00
---------- ----- ---------- ----
Total(1).................... 10,800,000 100.0% $18,006,000 100.0%
========== ===== ========== ====
</TABLE>
- ---------------
(1) Excludes options to purchase 500,000 shares of Common Stock issuable under
the 1996 Stock Plan (the "1996 Stock Plan") upon the exercise of stock
options outstanding as of the date of this Prospectus at an exercise price
of $8.00 per share, none of which are currently exercisable. Additional
dilution will occur upon the exercise of outstanding options. In addition,
an aggregate of 1,090,000 shares of Common Stock are available for issuance
pursuant to the 1996 Stock Plan and the 1996 Non-Employee Director Stock
Option Plan (the "Non-Employee Director Plan"). See "Management -- 1996
Non-Employee Director Stock Option Plan" and "-- 1996 Stock Plan."
The sale of Common Stock by the Selling Shareholders in this offering will
reduce the number of shares held by existing shareholders to 8,550,000 shares,
or 79.2% of the total number of shares of Common Stock outstanding after the
offering, and will increase the number of shares held by new investors to
2,250,000 shares, or 20.8% of the total number of shares of Common Stock
outstanding after the offering.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1995 and for the two years then ended are derived from and are qualified by
reference to the audited consolidated financial statements and the related notes
thereto included elsewhere in this Prospectus. The selected consolidated
financial data as of December 31, 1991, 1992, 1993, 1994 and March 31, 1996, and
for the three years ended December 31, 1993 and for the three months ended March
31, 1995 and 1996 have been derived from the unaudited consolidated financial
statements of the Company. The unaudited financial data include all adjustments
consisting only of normal, recurring adjustments that the Company considers
necessary for fair presentation of the financial position and results of
operations for these periods. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results for any
future period or for the full year ending December 31, 1996. The following
should be read in conjunction with the consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................... $ 166 $ 481 $ 933 $ 6,800 $ 24,589 $ 3,850 $ 8,836
Cost of sales............... 88 352 628 5,842 20,021 3,857 6,423
---- ---- ---- ------ ------- ------- ------
Gross profit.............. 78 129 305 958 4,568 (7) 2,413
Selling, general and
administrative
expenses.................. 78 128 299 986 4,452 721 1,469
---- ---- ---- ------ ------- ------- ------
Operating income (loss)... -- 1 6 (28) 116 (728) 944
Factor charges/Interest
expense................... -- -- -- 409 1,175 320 315
---- ---- ---- ------ ------- ------- ------
Income (loss) before
provision for income
taxes..................... -- 1 6 (437) (1,059) (1,048) 629
Provision for income
taxes..................... -- -- -- -- -- -- 201
---- ---- ---- ------ ------- ------- ------
Net income (loss)........... $ -- $ 1 $ 6 $ (437) $ (1,059) $ (1,048) $ 428
==== ==== ==== ====== ======= ======= ======
Net income (loss) per
share..................... $ -- $ -- $ -- $ (0.03) $ (0.08) $ (0.08) $ 0.03
==== ==== ==== ====== ======= ======= ======
Shares used in per share
calculation............... 13,737 13,737 13,737 13,737 13,737 13,737 13,737
==== ==== ==== ====== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- -----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ 6 $ 3 $ 34 $ 209 $ 71 $ 79
Working capital (deficit)... 4 (2) 146 (426) (1,597) (1,263)
Total assets................ 9 14 257 2,313 6,784 7,642
Short-term debt............. -- -- 5 1,032 3,489 3,674
Long-term debt and capital
lease obligations, less
current portion........... 7 5 52 -- 81 74
Shareholders' equity
(deficit)................. 1 3 130 (307) (1,366) (938)
</TABLE>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1987 to provide systems integration and custom
software development. In March 1994, the Company acquired Oxford Systems Inc.
("Oxford") in a pooling-of-interests transaction, in exchange for an aggregate
two-thirds equity interest in the Company. The Company currently provides a wide
range of information technology services, including enterprise-wide business
process solutions, systems integration and custom software development based on
leading technologies. The Company has grown rapidly since 1994 when it made a
strategic decision to diversify its customer base by expanding the scope of its
integration and development services and to utilize SAP software as a primary
tool to implement enterprise-wide business process solutions. In 1995, the
Company became a SAP National Implementation Partner and also began to utilize
Oracle products to diversify its service offerings. To achieve SAP National
Implementation Partner status, the Company was required to demonstrate: (1)
customer satisfaction with the Company's SAP-related services; (2) its
capabilities and expertise with SAP software; and (3) that its employee base
included an appropriate number of SAP-experienced consultants. SAP National
Implementation Partner status is awarded by SAP on an annual basis pursuant to
contract. The Company's current contract expires on December 31, 1996. Contract
renewal is within SAP's discretion and is expected to be based on, among other
things, the following subjective criteria set forth in the Company's contract:
(1) customer satisfaction with the Company's performance and ability to deliver
services in a timely and cost-effective manner; (2) quality of the Company's
personnel performing SAP-related services; (3) the number and scope, without
assigning any dollar amounts in the contract, of SAP R/3 projects; (4) the
thoroughness of the Company's training programs for its employees; (5)
achievement of mutually agreed upon goals; and (6) level of effective
communication between the Company and SAP.
The Company generates revenue from professional services rendered to
customers and revenue is recognized as services are performed. The Company's
services range from providing customers with a single consultant to
multi-personnel full-scale projects. The Company provides these services to its
customers primarily on a time and materials basis and pursuant to written
contracts which can be terminated with limited advance notice, typically not
more than 30 days, and without significant penalty, generally limited to fees
earned and expenses incurred by the Company through the date of termination. The
Company provides its services directly to end-user organizations or as a member
of a consulting team assembled by another information technology consulting firm
to Fortune 1000 and other large and mid-sized companies. The Company generally
bills its customers semi-monthly for the services provided by its consultants at
contracted rates. Where contractual provisions permit, customers also are billed
for reimbursement of expenses incurred by the Company on the customers' behalf.
The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of customers and
projects. For the years ended December 31, 1994 and 1995 and for the quarter
ended March 31, 1996, the Company's ten largest customers accounted for
approximately 61%, 56% and 63% of its revenue, respectively. During 1994, AT&T
accounted for more than 10% of revenue. In 1995 and the quarter ended March 31,
1996, Ernst & Young LLP and Price Waterhouse LLP each accounted for more than
10% of revenue. For the years ended December 31, 1994 and 1995 and for the
quarter ended March 31, 1996, 64%, 50% and 52%, respectively, of the Company's
revenue was generated by serving as a member of consulting teams assembled by
other information technology consulting firms. There can be no assurance that
such information technology consulting firms will continue to engage the Company
in the future at current levels of retention, if at all. During the years ended
December 31, 1994 and 1995 and the quarter ended March 31, 1996, 33%, 69% and
70%, respectively, of the Company's total revenue was derived from projects in
which the Company implemented software developed by SAP.
The Company's most significant cost is project personnel expenses, which
consist of consultant salaries, benefits and payroll-related expenses. Thus, the
Company's financial performance is based primarily upon billing margin (billable
hourly rate less the cost to the Company of a consultant on an hourly basis) and
personnel utilization rates (billable hours divided by paid hours). The Company
believes that turnkey project
18
<PAGE> 20
management assignments typically carry higher margins. The Company intends to
accelerate a shift to such higher-margin turnkey management assignments and more
complex projects by leveraging its reputation, existing capabilities,
proprietary implementation methodology, development tools and offshore
development capabilities with expanded sales and marketing efforts and new
service offerings to develop turnkey project sales opportunities with existing
customers and to expand its market to new customers. The Company's inability to
accelerate a shift to higher-margin turnkey management assignments and more
complex projects may adversely impact the Company's future growth. Although the
Company expects that it will utilize its proprietary implementation methodology
in an increasing number of projects, there can be no assurance that the Company
will be engaged to do so.
Since late 1994, the Company has made substantial investments in its
infrastructure in order to support its rapid growth. For example, in 1994, the
Company established and funded an affiliated operation in India, the Advanced
Development Center, and established a sales office in California. In addition,
from 1994 to date, the Company has incurred significant expenses to develop
proprietary development tools and "4 SIGHT", its proprietary accelerated
implementation methodology. Commencing in 1995, the Company has been increasing
its sales force and its marketing, finance, accounting and administrative staff.
The Company employed 33 such personnel as of March 31, 1996, as compared to
eight such personnel as of January 1, 1995.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-----------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------- ---------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 85.9 81.4 100.2 72.7
----- ----- ----- -----
Gross profit.............................................. 14.1 18.6 (0.2) 27.3
Selling, general and administrative expenses................ 14.5 18.1 18.7 16.6
----- ----- ----- -----
Operating income (loss)................................... (0.4) 0.5 (18.9) 10.7
Factor fees/Interest expense................................ 6.0 4.8 8.3 3.6
----- ----- ----- -----
Income (loss) before provision for income taxes............. (6.4) (4.3) (27.2) 7.1
Provision for income taxes.................................. -- -- -- 2.3
----- ----- ----- -----
Net income (loss)........................................... (6.4)% (4.3)% (27.2)% 4.8%
===== ===== ===== =====
</TABLE>
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Revenue. Revenue increased by 129.5%, or $4.9 million, from $3.9 million
in the first quarter of 1995 to $8.8 million in the first quarter of 1996. This
increase was attributable primarily to increased demand for the Company's
SAP-related consulting services and, to a lesser extent, to increased demand for
the Company's systems integration and custom software development services.
Gross profit. The Company's cost of sales includes primarily the cost of
salaries to consultants and related employee benefits and payroll taxes. The
Company's cost of sales increased by 66.5%, or $2.5 million, from $3.9 million
in the first quarter of 1995 to $6.4 million in the first quarter of 1996. The
increase was due to increased personnel costs resulting from the hiring of
additional consultants to support the significant increase in demand for the
Company's services. The Company's gross profit increased by $2.4 million, from a
loss of $7,000 in the first quarter of 1995 to gross profit of $2.4 million in
the first quarter of 1996. Gross profit margin increased from (0.2)% of revenue
in the first quarter of 1995 to 27.3% of revenue in the first quarter of 1996.
The increase in such gross profit margin was attributable primarily to the fact
that revenue increased at a faster rate than cost of sales which resulted from a
combination of improved billing margins and greater consultant utilization.
19
<PAGE> 21
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of administrative salaries, sales
person compensation, the costs associated with the Advanced Development Center
and related development costs and professional fees. Selling, general and
administrative expenses increased by 103.7%, or $748,000, from $721,000 in the
first quarter of 1995 to $1.5 million in the first quarter of 1996, but
decreased as a percentage of revenue from 18.7% to 16.6% of revenue,
respectively. The increase in such expenses in absolute dollars was due
primarily to the expansion of the Company's sales and marketing force later in
1995 and the additional accounting and financial personnel added in the first
quarter of 1996.
Factor fees/Interest expense. Factor fees are the charges incurred by the
Company to finance its accounts receivable. The rapid increase in the Company's
business and revenue resulted in increased working capital requirements and the
Company utilized its increasing accounts receivable base as a source of security
to obtain financing because the Company was unable to attain more traditional
financing. See "-- Liquidity and Capital Resources." The Company also incurred
interest expense for bank borrowings and capital lease transactions. Such
expenses remained relatively constant at $320,000 in the first quarter of 1995
and $315,000 in the first quarter of 1996, but decreased as a percentage of
revenue from 8.3% to 3.6%, respectively. The Company changed factors in October
1995. The Company's previous factor charged significantly higher fees than the
current factor. The effect of the decrease in factor rates was offset by an
increase in the volume of accounts receivable financed. The Company expects to
utilize a portion of the net proceeds from this offering to repay all amounts
outstanding under its existing factoring relationship.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue increased by 261.6%, or $17.8 million, from $6.8 million
in 1994 to $24.6 million in 1995. This increase was attributable primarily to
increased demand for the Company's SAP-related consulting services and, to a
lesser extent, to increased demand for the Company's systems integration and
custom software development services.
Gross profit. The Company's cost of sales increased by 242.7%, or $14.2
million, from $5.8 million in 1994 to $20.0 million in 1995. The increase was
due to increased personnel costs resulting from the hiring of additional
consultants to support the Company's significant increase in demand for the
Company's services. The Company's gross profit increased by 376.8%, or $3.6
million, from $958,000 in 1994 to $4.6 million in 1995. Gross profit margin
increased from 14.1% of revenue in 1994 to 18.6% of revenue in 1995. The
increase in such gross profit margin was attributable primarily to the fact that
revenue increased at a faster rate than cost of sales which resulted from a
combination of improved billing margins and greater consultant utilization.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 351.5%, or $3.5 million, from $986,000 in
1994 to $4.5 million in 1995, and increased as a percentage of revenue from
14.5% to 18.1% of revenue, respectively. The increases in such expenses in
absolute dollars and as percentage of revenue were due primarily to the
expansion of the Company's sales and marketing activities to support the
Company's growth. In 1995, selling, general and administrative expenses included
operations in India and California which were established in late 1994.
Factor fees/Interest expense. Factors fees and interest expense increased
by 187.3%, or $766,000, from $409,000 in 1994 to $1.2 million in 1995 as a
result of increased volume of accounts receivable financed resulting from
revenue increases. The Company did not establish a collections department until
the first quarter of 1996. Slow accounts receivable turnover in 1995 contributed
to increased factor fees. Factor fees and interest expense decreased as a
percentage of revenue from 6.0% to 4.8% of revenue in 1994 and 1995,
respectively, as a result of increased revenue.
20
<PAGE> 22
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly
financial information for each of the nine quarters through March 31, 1996. This
information is derived from unaudited consolidated financial statements of the
Company that include, in the opinion of the Company, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
results of operations for such periods, when read in conjunction with the
audited Consolidated Financial Statements of the Company and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................... $ 644 $1,082 $ 2,481 $2,593 $ 3,850 $5,623 $ 7,272 $7,844 $8,836
Cost of sales................ 437 707 1,704 2,994 3,857 4,454 5,791 5,919 6,423
-------- -------- --------- -------- -------- -------- --------- -------- --------
Gross profit............... 207 375 777 (401) (7 ) 1,169 1,481 1,925 2,413
Selling, general and
administrative expenses.... 30 218 372 366 721 816 1,179 1,736 1,469
-------- -------- --------- -------- -------- -------- --------- -------- --------
Operating income (loss).... 177 157 405 (767) (728 ) 353 302 189 944
Factor fees/Interest
expense.................... 28 67 149 165 320 317 344 194 315
-------- -------- --------- -------- -------- -------- --------- -------- --------
Income (loss) before
provision for income
taxes...................... 149 90 256 (932) (1,048 ) 36 (42) (5) 629
Provision for income taxes... -- -- -- -- -- -- -- -- 201
-------- -------- --------- -------- -------- -------- --------- -------- --------
Net income (loss)............ $ 149 $ 90 $ 256 $ (932) $(1,048 ) $ 36 $ (42) $ (5) $ 428
======= ======= ======= ====== ======= ======= ======= ====== =======
Net income (loss) per
share...................... $ 0.01 $ 0.01 $ 0.02 $(0.07) $ (0.08 ) $ 0.00 $ 0.00 $ 0.00 $ 0.03
======= ======= ======= ====== ======= ======= ======= ====== =======
Shares used in per share
calculation................ 13,737 13,737 13,737 13,737 13,737 13,737 13,737 13,737 13,737
======= ======= ======= ====== ======= ======= ======= ====== =======
</TABLE>
The Company's historical operating results have varied substantially from
quarter to quarter, and the Company expects that they will continue to do so.
Due to the relatively fixed nature of certain of the Company's costs, including
personnel and facilities costs, a decline in revenue in any fiscal quarter would
result in lower profitability in that quarter. A variety of factors, many of
which are not within the Company's control, influence the Company's quarterly
operating results, including seasonal patterns of hardware and software capital
spending by customers, information technology outsourcing trends, the timing,
size and stage of projects, new service introductions by the Company or its
competitors, levels of market acceptance for the Company's services or the
hiring of additional staff. Operating results also may be impacted by the timing
of billings and changes in the Company's billing and utilization rates. The
Company believes, therefore, that past operating results and period-to-period
comparisons should not be relied upon as an indication of future performance.
Demand for the Company's services generally is lower in the fourth quarter due
to reduced activity during the holiday season and fewer working days for those
customers which curtail operations during such period. The Company anticipates
that its business will continue to be subject to such seasonal variations.
BACKLOG
The Company generally enters into written contracts with its customers at
the time it commences work on a project. These written contracts contain varying
terms and conditions and the Company does not generally believe it is
appropriate to characterize such written contracts as creating backlog. In
addition, because these written contracts often provide that the arrangement can
be terminated with limited advance notice and without significant penalty, the
Company does not believe that projects in process at any one time are a reliable
indicator or measure of expected future revenue. In the event that a customer
terminates a project, the customer remains obligated to pay the Company for
services performed by it through the date of termination.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations primarily from
cash generated by operations, factoring of accounts receivable and equipment
leases. Cash used in operating activities was $715,000 and
21
<PAGE> 23
$2.3 million in 1994 and 1995, respectively, and resulted primarily from the
growth in accounts receivable and unbilled services. During the quarter ended
March 31, 1996, cash flow from operating activities was $132,000 which resulted
primarily from net income, cash overdrafts and accrued expenses, offset in part
by the growth in accounts receivable and a reduction in accounts payable.
The Company's working capital deficits were $1.6 million and $1.3 million
at December 31, 1995 and March 31, 1996, respectively.
The Company invested $89,000, $142,000 and $27,000 in capital equipment and
furniture in 1994, 1995 and the first quarter of 1996, respectively. Although
there are no other material commitments for capital expenditures currently
outstanding, the Company intends further capital expenditures for computer
equipment in 1996 approximating $400,000. See "Use of Proceeds."
The Company's current factoring agreement with Access Capital, Inc. (the
"Factor") provides that the Company must offer all of its trade accounts
receivable to the Factor for financing; however, the Factor is under no
obligation to accept any or all of such receivables. The Factor charges an
administrative fee of 0.75% on each invoice plus an additional 0.75% for each
15-day period that the invoice remains unpaid, up to a maximum of 120 days or
6.5%. If the amount of a factored receivable is not paid by reason of the
financial inability of the customer, the Company is not liable to reimburse the
Factor. If, however, the Factor, through legal action or otherwise, settles,
compromises or assigns the claim for any receivable, the amount of any reduction
resulting from such settlement, compromise or assignment will reduce the balance
due to the Company. The agreement, which expires on October 19, 1996, is
renewable for a term of one year unless the Company or the Factor gives notice
of cancellation. The Factor has a security interest in all of the assets of the
Company. Due to a combination of factors, including the rapid growth of the
Company, the lack of available tangible security to utilize as collateral and
the absence of historical operating profits prior to 1996, the Company was
unable to obtain more traditional financing. The Company intends to seek more
traditional financing, such as a bank line of credit, following this offering.
No assurance can be made that such financing will be available on terms
acceptable to the Company, if at all.
In October 1995 and May 1996, the Company deposited $100,000 and $200,000
of cash, respectively, in an escrow account pursuant to an agreement with its
former factor subject to the disposition of certain unresolved differences
between the Company and such factor relating to the factor fees and amounts due
between the parties. These differences were resolved by the parties in June
1996, and approximately $197,000 will be returned to the Company and the
remaining balance will be released to such former factor.
In March 1996, in anticipation of the debenture financing described below,
the Company obtained a $750,000 line of credit, payable on demand, from a bank.
The line of credit carried interest at the federal funds rate plus 1%.
Borrowings under the line totalled $200,000 at March 31, 1996 and $300,000 in
April 1996, when the Company repaid all amounts outstanding under such line in
connection with the debenture financing described below. The line of credit has
been terminated in accordance with the terms of such debenture financing.
In April 1996, the Company issued and sold five-year 9% subordinated
debentures in the aggregate principal amount of $6.0 million to Summit Ventures
IV, L.P. and Summit Investors III, L.P. The subordinated debentures were issued
to raise funds for working capital and general corporate purposes, to repurchase
from current shareholders, Messrs. Pandey, Koneru and Valluripalli, an aggregate
of 4,881,066 shares of Common Stock for an aggregate of $1.5 million, to repay
approximately $300,000 outstanding under the $750,000 credit facility described
above and to satisfy approximately $358,000 of cash overdrafts. The Company
expects to prepay in full all amounts outstanding under such debentures with a
portion of the net proceeds from this offering. There is no prepayment penalty.
See "Use of Proceeds" and "Certain Transactions."
Subsequent to December 31, 1995, the Company determined that it had
unrecorded and unpaid federal and state payroll-related taxes for certain
employees. As a result of the Company's voluntary disclosure to the Internal
Revenue Service of certain unpaid tax liabilities, on June 5, 1996, the Company
received an audit assessment from the Internal Revenue Service for unpaid 1994
and 1995 federal income tax withholding,
22
<PAGE> 24
FICA and FUTA taxes in the aggregate amount of $814,000. No interest or
penalties were assessed. Reserves, aggregating $1.0 million, including the
amount of the Internal Revenue Service audit assessment, have been recorded. No
assurance may be given, however, that interest, penalties or additional state or
federal taxes will not be assessed in the future. The Company's principal
shareholders, Messrs. Pandey, Koneru and Valluripalli, have agreed to indemnify
the Company for any and all losses which the Company may sustain, in excess of
the $1.0 million reserve, net of any tax benefits realized by the Company,
arising from or relating to federal or state tax, interest or penalty payment
obligations resulting from the above subject matter. See "Certain Transactions."
The Company believes that its failure to record and pay 1994 and 1995 federal
and state payroll-related taxes for certain employees resulted from a
combination of factors, including lack of internal controls, lack of financial
expertise and oversight, and the Company's reliance on outside professional
advice. The Company hired a Chief Financial Officer in January 1996 who has
implemented accounting and financial controls to ensure the Company's compliance
with payroll tax regulations.
The Company believes that the net proceeds of this offering, together with
available funds, existing factoring arrangements and the cash flow expected to
be generated from operations, will be adequate to satisfy its current and
planned operations for at least the next 24 months.
RECENT PRONOUNCEMENTS ON ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
which requires companies to measure employee stock compensation plans based on
the fair value method using an option pricing model or to continue to apply
Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees,"
and provide pro forma footnote disclosures under the fair value method. The
Company continues to apply Accounting Principles Board No. 25 and will provide
pro forma footnote disclosure.
23
<PAGE> 25
BUSINESS
GENERAL
Intelligroup provides a wide range of information technology services,
including enterprise-wide business process solutions, systems integration and
custom software development based on leading technologies. The Company has grown
rapidly since 1994 when it made a strategic decision to diversify its customer
base by expanding the scope of its integration and development services, and to
utilize SAP software as a primary tool to implement enterprise-wide business
process solutions. In 1995, the Company became a SAP National Implementation
Partner and also began to utilize Oracle products to diversify its service
offerings. The Company's custom software development services are enhanced by
its exclusive access to qualified and experienced programmers at its affiliated
Advanced Development Center located in India and connected to the Company's
headquarters in the United States and to certain customer sites by dedicated,
high speed satellite links. The Company provides its services directly to
end-user organizations or as a member of consulting teams assembled by other
information technology consulting firms. The number of customers billed by the
Company has grown substantially from three customers in 1993 to 75 customers in
1995. The Company's customers are Fortune 1000 and other large and mid-sized
companies, as well as other information technology consulting firms, and include
AT&T, American Cyanamid, Citibank, Ernst & Young LLP, IBM, ICS Deloitte & Touche
LLP and Price Waterhouse LLP.
INDUSTRY BACKGROUND
Many large and mid-sized businesses face a rapidly changing business
environment, intense global competition and accelerating technological change.
To remain competitive, such businesses continually seek to improve the quality
of products and services, lower costs, reduce cycle times and increase value to
customers. Businesses are implementing and utilizing advanced information
technology solutions that enable them to redesign their business processes in
such areas as product development, service delivery, manufacturing, sales and
human resources. The ability of an organization to integrate and deploy
redesigned business processes and related information technologies timely and
cost effectively is critical in the changing business environment.
Concurrently, businesses are migrating from legacy systems running
proprietary software to open systems and client/server architectures based on
personal computers, LANs/WANs, shared databases and packaged software
applications. Such client/server systems, when developed and implemented
appropriately, enable the creation and utilization of more functional and
flexible applications which are critical to the competitive needs of businesses.
Organizations often acquire packaged enterprise-wide business software
applications for client/server systems, including those offered by leading
vendors, such as SAP, Oracle, PeopleSoft or Baan, and implement or customize
these applications to match their needs. Organizations also may develop
customized software applications designed for their specific business needs.
Despite the advantages of client/server systems, the complex task of
developing and implementing enterprise-wide, mission-critical, client/server
solutions presents significant challenges for most organizations and often is a
time consuming and costly undertaking. Implementing client/server solutions
typically requires significant allocation of organizational resources.
Information technology managers must integrate and manage open systems and
distributed computing environments consisting of multiple computing platforms,
operating systems, databases and networking protocols, and implement packaged
enterprise software applications to support business objectives. Companies also
must continually keep pace with new technological developments which can render
internal information technology skills outmoded. Professionals with the
requisite technology skills often are in short supply and many organizations are
reluctant to expand their internal information systems department for particular
projects. At the same time, external economic factors encourage organizations to
focus on their core competencies and trim workforces in the information
technology management area. Accordingly, organizations often lack sufficient
technical resources necessary to design, develop and implement emerging
information technology solutions on a timely basis.
24
<PAGE> 26
To support their information technology needs, many businesses increasingly
engage experienced outside specialists to develop and implement solutions, in
shorter timeframes and at lower costs, while reducing implementation risks. As a
result, demand for information technology services has grown significantly.
According to industry sources, the global demand for SAP-related consulting
services alone was estimated to be $3.0 billion in 1995.
THE INTELLIGROUP SOLUTION
Intelligroup provides information technology services to develop and
implement cost-effective client/server business solutions on a timely basis by
combining its expertise in a wide range of technologies and business processes
with its proprietary implementation methodology and development tools. The
Company believes it offers the following advantages:
Expertise in a Wide Range of Technologies: The Company's consultants have
expertise with SAP and Oracle products and with a wide variety of leading
computing technologies, including client/server architectures, object-oriented
technologies, CASE, distributed database management systems, micro-to-mainframe
connectivity, LAN/WAN and telecommunications technologies. Since many of the
Company's customers have invested in a variety of technologies, including legacy
systems, the Company also develops solutions for these environments.
Accelerated Implementation Methodology: The Company recently has developed
a proprietary implementation methodology, "4 SIGHT", which is designed to
minimize the time required to develop and implement SAP solutions for its
customers. "4 SIGHT" is designed to be technology independent and modular so
that it may be utilized by the Company's consultants and project managers in
other packaged applications development or software customization projects. The
Company only recently began marketing its new implementation capability, which
currently is being utilized in two projects, each of which involves
implementation of a SAP solution for a Fortune 500 company in which the Company
has been retained directly by the end-user organization. See "-- Customers."
Value-Oriented Implementation: The Company provides experienced project
managers and consultants to its customers. The Company believes that its
personnel are effective because of their industry experience. Currently, a
majority of its consultants have over three years information technology
consulting experience and approximately 25% of its consultants have over five
years of such experience. In addition, the Company has the ability to develop
and implement business solutions through its affiliated offshore Advanced
Development Center in India which gives the Company access to qualified and
experienced programmers at a reduced labor cost.
Customer-Driven Approach: The Company's project managers and consultants
maintain on-going communication and close interaction with customers to ensure
that they are involved in all facets of a project and that the solutions
designed and implemented by the Company meet the customer's needs. The Company's
goal is to provide training to its customers during a project to achieve high
levels of self-sufficiency among its customers' end users and internal
information technology personnel. The Company believes that its ability to
deliver the requisite knowledge base to its customers is critical to fostering
long-term relationships with, and generating referrals from, existing customers.
STRATEGY
The Company's objective is to be a leading provider of a wide range of
information technology services, including enterprise-wide business process
solutions, systems integration and custom software development based on leading
technologies. The Company's strategy includes the following key elements:
Accelerate Shift to Turnkey Project Management: The Company provides its
services directly to its customers or as a member of consulting teams in which
other information technology consulting firms serve as project managers. To
date, the Company has been retained primarily to implement project
specifications designed by other members of the project team. The Company
believes that turnkey project management assignments typically carry higher
margins. The Company intends to accelerate a shift to such higher-margin
25
<PAGE> 27
turnkey project management assignments and to more complex projects. The Company
seeks to accomplish such shift by leveraging its reputation, existing
capabilities, proprietary implementation methodology, development tools, and
offshore development capabilities with expanded sales and marketing efforts and
new service offerings to develop turnkey project sales opportunities with
existing customers and to expand its market to new customers. The Company's
inability to accelerate a shift to higher-margin turnkey project management
assignments and more complex projects may adversely impact the Company's future
growth. The Company is unable to determine the period of time it may take to
accomplish such shift and no assurance may be given that such shift will occur.
Turnkey project management assignments require the Company to allocate resources
to employ qualified project managers and consultants and direct sales personnel.
In addition, such assignments carry long sales cycles, typically ranging from
one to six months. See "-- Sales and Marketing."
Maintain and Expand Long-Term Customer Relationships: The Company
recognizes the importance of offering superior services to its customers, which
it believes is essential to building long-term customer relationships. The
Company believes that satisfying customer expectations within established
budgets and estimated timeframes is critical to gaining repeat business and
generating new business from referrals. As information technology continues to
evolve, the Company believes that service providers with established customer
relationships and the ability to maintain a high level of expertise in new
technologies will be market leaders.
Leverage and Expand Strategic Relationships: The Company currently
maintains strategic relationships with SAP and Oracle, which are leading
enterprise software applications developers. The Company believes that its
designation as a SAP National Implementation Partner and its status as an Oracle
services provider results in direct referrals and in enhanced industry
recognition. The Company also believes that such relationships enable the
Company to broaden its customer base, maintain technological leadership and
increase its competitiveness. The Company intends to continue to cultivate its
relationships with SAP and Oracle to expand its sales opportunities. The Company
also seeks to continue to form alliances with other developers and vendors of
information technologies. In addition, the Company seeks to form strategic
alliances with other business partners, such as management consulting firms, to
pursue joint business opportunities.
Maintain Technological Leadership and Enhance Methodology and Development
Tools: The Company intends to continue to enhance its proprietary
implementation methodology and development tools as new information technology
challenges and technologies emerge. The Company also intends to leverage "4
SIGHT" by porting it to other leading software applications in addition to SAP.
The Company continually evaluates new and emerging software applications and
technologies and intends to incorporate such technologies into the Company's
service offerings.
Attract and Retain Skilled, Motivated Technical Employees: The Company
believes that its future success depends upon its ability to continue to
attract, retain and train skilled, motivated technical employees. To this end,
the Company focuses on maintaining its merit-driven employment environment and
incentive systems, including the implementation of its stock incentive plan, to
continue to motivate and reward its employees and to align their goals with
those of the Company. The Company believes that it will continue to benefit from
the recruitment efforts of its existing employee base to attract additional
qualified consultants and programmers in a highly competitive employment
environment.
Expand Global Sales and Marketing Efforts: The Company intends to expand
its sales and marketing efforts by hiring additional experienced sales
personnel, leveraging existing customers to gain referrals, offering new
services to new and existing customers, and utilizing its relationships with
industry leading information technology providers. In addition, the Company
intends to expand by establishing additional sales offices in the United States
and abroad in areas in which the Company has a base of customers or perceives
significant market opportunities. The Company believes that a strong domestic
and international presence will enhance its competitiveness by providing
additional sales presence at the local level. To date, the Company has
established operations or affiliated operations in New Jersey, California,
India, New Zealand, South Africa and the United Kingdom.
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<PAGE> 28
INTELLIGROUP SERVICES
Intelligroup provides a wide range of information technology services,
including (i) enterprise-wide business process solutions utilizing SAP R/3 and
Oracle products, which are leading software applications; and (ii) systems
integration and custom software development solutions in a wide variety of
computing environments utilizing leading technologies, including client/server
architectures, object-oriented technologies, CASE, distributed database
management systems, LAN/WAN and telecommunications technologies. The Company's
services range from providing customers with a single consultant to
multi-personnel full-scale projects. The Company provides these services to its
customers primarily on a time and materials basis and pursuant to agreements
which are terminable upon relatively short notice. The Company's custom software
development services are enhanced by its exclusive access to qualified and
experienced programmers at the Advanced Development Center located in India and
connected to the Company's headquarters in the United States and to certain
customer sites by dedicated, high speed satellite links.
ENTERPRISE-WIDE BUSINESS PROCESS SOLUTIONS
The Company designs, develops, integrates and implements sophisticated
business process solutions utilizing SAP R/3 and Oracle products and
incorporating best business practices and methods. The Company builds business
solutions for its customers by focusing on each customer's business objectives
and by providing business process re-engineering, information systems strategic
planning, technology implementation, comprehensive training and organizational
change management services. The Company believes that its expertise in a wide
variety of technologies, coupled with its ability to provide comprehensive
business process solutions and timely and cost-effective implementation of new
business systems, enables its customers to achieve substantial improvements in
efficiency and effectiveness in their businesses and fosters long-term customer
relationships.
On-line Project Management System ("OPMS"): The Company utilizes its OPMS
to monitor enterprise-wide business process solutions development projects. The
Company designed OPMS as a SAP subsystem developed in R/3 and installable on
customers' SAP systems. OPMS provides real-time information relating to: the
current stage of development of each program; the number of man-hours spent at
each stage of development; total man-hours spent on development during any
interval of time; programs developed by each programmer; analysis of time spent
on the development project; and technical information, including source code,
documentation and tables used in the system. The Company believes that OPMS also
shortens the turn-around time for program development as it streamlines the
information flow between the Company's offices and customer sites.
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<PAGE> 29
Accelerated Implementation Methodology: As a result of its experience in
implementing SAP software, the Company has developed a proprietary methodology,
"4 SIGHT", for implementing enterprise business software applications. "4
SIGHT", used by the Company to date solely in projects implementing SAP R/3, is
designed to be portable to other packaged software applications, including those
offered by Oracle, PeopleSoft and Baan, and to be adaptable to the scope of a
particular project. The following chart outlines the framework of the Company's
methodology:
- --------------------------------------------------------------------------------
"4 SIGHT"
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PHASE DESCRIPTION SELECTED ACTIVITIES
---------------- ----------------------------- -------------------------------------
<S> <C> <C>
Requirements Develop a detailed project - Project goals definition
Analysis plan. - Project scoping and planning
- Process identification
- Cost/benefit analysis
- Data requirement analysis
- Detailed implementation plan
development
- ---------------------------------------------------------------------------------------------------
Prototyping Convert the customer's - Business process prototyping
business requirements to a - Report prototyping
basic systems solution. - Design data conversion
implementation and enhancements
- Transaction testing
- ---------------------------------------------------------------------------------------------------
Development Implement end user input to - Software customization
customize the solution, - New reports and layouts development
integrate with other systems - Data interfaces completion
and prepare for the "go-live" - Data conversion
point. - Technical implementation
- System testing
- Training preparation
- ---------------------------------------------------------------------------------------------------
Implementation Determine the most - Data conversion
appropriate implementation - Acceptance testing
approach, including "big - Maintenance handover
bang," functionally phased - Benefits tracking
and location phased - Implementation review
approaches.
</TABLE>
- --------------------------------------------------------------------------------
The Company believes that the use of "4 SIGHT" throughout an implementation
project may enable its customers to realize significant savings in time and
resources.
SYSTEMS INTEGRATION AND CUSTOM SOFTWARE DEVELOPMENT
The Company provides a broad range of systems integration and customized
application solutions to customers in a wide variety of industries. The Company
is engaged by customers to undertake feasibility studies, systems engineering,
custom software development and tailoring, migration strategies, systems design,
development, testing, integration, implementation, training and support in a
wide variety of computing environments. The Company, in providing such services,
utilizes leading technologies, including client/server architectures,
object-oriented technologies, CASE, distributed database management systems,
LAN/WAN and telecommunications technologies.
ADVANCED DEVELOPMENT CENTER
The Company provides cost-effective, timely custom software development and
tailoring in the United States, at customer sites and through its affiliated
Advanced Development Center ("ADC") located in Hyderabad, India. The ADC is
connected to the Company's headquarters in the United States and to certain
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<PAGE> 30
customer sites by dedicated, high speed satellite links. The ADC is owned by
Intelligroup Asia, a corporation organized pursuant to the laws of India and
majority owned by Messrs. Koneru and Valluripalli, two of the principal
shareholders of the Company. The ADC is operated for the sole and exclusive use
and benefit of the Company. See "Certain Transactions." The ADC is staffed with
qualified and experienced programmers, including those with SAP configuration
expertise and SAP's ABAP/4 programming capability. The Company utilizes the
programmers at the ADC, in conjunction with its consultants in the United States
who are on site at customer locations, to provide its customers with savings in
development and implementation costs and time to project completion. All
development projects undertaken by the ADC are monitored by the Company's OPMS.
OPMS also minimizes the turn-around time for program development as it
streamlines the information flow between customer sites and the ADC. The Company
intends to utilize the ADC to provide similar development services to customers
that utilize software applications other than SAP software.
SALES AND MARKETING
The Company historically has generated new sales leads from referrals from
existing customers, and from introductions to potential customers by SAP or
Oracle, which often need to recommend qualified systems integrators to implement
their software products. In addition, the Company has been introduced to
customers by certain of its competitors, such as "Big Six" accounting firms,
which at times require the Company's expertise and ability to deliver qualified
personnel for complex projects. To date, the Company has been able to grow its
customer base without allocating significant resources to its sales and
marketing effort. The Company believes, however, that in order to continue its
growth, it must dedicate an increased level of resources to more focused sales
and marketing efforts. The Company will continue to market to potential
customers with demonstrated needs for the Company's expertise in core
information technologies and solutions such as SAP. To implement this plan, the
Company intends to expand its dedicated sales and marketing force by hiring
several individuals with experience in the industry sectors in which the Company
has prior experience.
Among its sales and marketing efforts, the Company's sales force has
presented the Company's expertise at SAPPHIRE, the annual SAP America conference
for SAP service providers and end-users, and uses direct marketing techniques.
The Company intends to increase its participation in industry-recognized
programs and trade shows. Most importantly, however, the Company believes that
satisfying customer expectations within budgets and time schedules is critical
to gaining repeat business and obtaining new business from referrals. The
Company believes that it has consistently met customer expectations with respect
to budgets and time schedules.
As of March 31, 1996, the Company's sales and marketing group consisted of
nine employees in the United States. The Company markets and delivers its
services to customers on an international basis through its network of offices.
The Company's headquarters in New Jersey and its branch office in San Jose,
California serve the United States market. Intelligroup Asia serves as the
Company's sales agent in Asia and the Middle East. In addition, the Company also
has established operations in New Zealand and currently has information
technology consultants on-site at a customer location. The Company intends to
add sales and marketing capabilities in New Zealand. In February 1996, the
Company established a sales office in South Africa. The Company also established
operations in the United Kingdom in June 1996. The Company also intends to
increase its local presence in the United States by opening additional sales
offices and by expanding its sales and marketing staff in New Jersey and
California.
The Company's services require a substantial financial commitment by
customers and, therefore, typically involve a long sales cycle. Once a lead is
generated, the Company endeavors to understand quickly the potential customer's
business needs and objectives in order to develop the appropriate solution and
bid accordingly. The Company's project managers are involved throughout the
sales cycle to ensure mutual understanding of customer goals, including time to
completion, and technological requirements. Sales cycles for complex business
solutions projects typically range from one to six months from the time the
Company initially meets with a prospective customer until the customer decides
whether to authorize commencement of an engagement.
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<PAGE> 31
CUSTOMERS
The Company provides its services directly to Fortune 1000 and other large
and mid-sized companies, many of which have information-intensive, multinational
operations, or as a member of a consulting team assembled by other information
technology consultants, such as "Big Six" accounting firms. The number of
customers billed by the Company has grown substantially from three customers in
1993 to 75 customers for the year ended December 31, 1995. For the quarter ended
March 31, 1996, the Company billed 61 customers.
Since January 1, 1994, the Company has served customers in a broad range of
industries. The following list includes representative customers which have
engaged the Company to perform services for which the Company has generated a
minimum of $250,000 in revenue from January 1, 1994 through March 31, 1996.
IT CONSULTING
------------------------------
Andersen Consulting
Ernst & Young LLP
ICS Deloitte & Touche LLP
KPMG Peat Marwick LLP
Price Waterhouse LLP
BASIC INDUSTRIES
------------------------------
American Cyanamid
Coors Brewing
Hoechst Celanese
Hoffman LaRoche
National Starch
Schlumberger
Wisconsin Electric & Power
TECHNOLOGIES
---------------------
AT&T
Analog Devices
Brother Industries
GTech
IBM
Informix Software
Landmark Graphics
Merisel
NCR
Oracle
SAP America
FINANCIAL
---------------------
Citibank
PaineWebber
The Company's ten largest customers accounted for, in the aggregate,
approximately 61%, 56% and 63% of its revenue in 1994, 1995 and the quarter
ended March 31, 1996, respectively. During 1994, AT&T accounted for more than
10% of revenue, while in 1995 and the quarter ended March 31, 1996, Ernst &
Young LLP and Price Waterhouse LLP each accounted for more than 10% of revenue.
Currently, the Company is engaged in five separate projects for each of Ernst &
Young LLP and Price Waterhouse LLP. In 1994, 1995 and the quarter ended March
31, 1996, 64%, 50% and 52%, respectively, of the Company's revenue was generated
by serving as a member of consulting teams assembled by leading information
technology consulting firms retained by organizations to manage projects to
provide enterprise-wide business process solutions.
Although the Company has contracts with many of its large customers to
provide its services, in general, such contracts are terminable upon relatively
short notice, typically not more than 30 days. There can be no assurance that
the Company's customers will continue to enter into contracts with the Company
or that existing contracts will not be terminated.
While each customer project is different, the following case studies
illustrate some of the types of business needs addressed by the Company and the
range of information technology solutions the Company has provided to its
customers.
ENTERPRISE-WIDE IMPLEMENTATION OF SAP'S R/3 SOFTWARE:
MERISEL: Merisel, a leading national master distributor of micro-computer
products, engaged the Company to provide assistance in implementation of its SAP
business system in the United States and Canada.
Problem: Merisel, in its migration from a legacy system to a
UNIX-based SAP system, required substantial development of customized
reports in SAP to meet organizational requirements in the areas of sales
and distribution, finance, costing, and profitability and logistics. This
project required experienced
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<PAGE> 32
SAP consultants, including analysts and ABAP/4 programmers. Merisel
initially believed that it required approximately 500 reports to be
developed in a six-month period.
Solution: SAP recommended to Merisel that it engage the Company to
provide assistance in its SAP implementation project. The Company was able
rapidly to form a team of experienced ABAP/4 programmers and analysts. The
Company's on-site analyst team performed requirements analysis to identify
reports needed in each functional area. The Company's analysts ensured that
the user requirements were accurately transformed into a practical
technical design and its programming staff at the ADC provided timely and
cost-effective software development. The Company utilized its OPMS to
manage effectively the development effort by providing the appropriate
communications system, document and software management system, and
progress tracking and management system. The Company's analysts also
provided end-user training and documentation.
Result: The Company achieved the project goals on time and within
Merisel's budget, while reducing the number of reports required by
approximately 65%.
GATX CAPITAL: GATX, a diversified financial services company, has selected
the Company to manage its current SAP R/3 implementation project which includes
project management, business process re-engineering, SAP configuration and
prototyping, on-site and off-shore development, training, data conversion and
implementation. The GATX project is one of the first major implementations of
the new SAP R/3 Treasury Management module.
Problem: GATX required an implementation partner with SAP-experienced
personnel for its migration from a heterogeneous collection of software
applications and computing platforms to a new integrated and flexible
system utilizing SAP R/3. The project goal is to provide the functionality
required to administer the financial and physical asset management needs of
the GATX organization, which includes over 200 subsidiaries or affiliates
worldwide.
Solution: The Company is managing the SAP implementation utilizing "4
SIGHT" in implementing new business processes which incorporate accounting
and administration, treasury and cash management, invoicing, bookings,
dispositions, projections, depreciation, asset tracking and portfolio and
profitability analysis.
Result: The GATX SAP R/3 implementation project, which commenced in
January 1996, is proceeding as projected.
INTEGRATION OF INFORMATION TECHNOLOGIES:
AT&T: AT&T retained the Company to develop a creative software application
to provide instructional training exercises for certain of AT&T's customer
service representatives.
Problem: AT&T wanted to improve the efficiency and effectiveness of
its training of entry level representatives by using advanced information
technologies to enable on-line, on-the-job training.
Solution: The Company designed and developed training software using
Sun SparcStations connected via a LAN and utilizing state-of-the-art audio
and visual effects. The Company developed the software using Open Windows,
C, Xt, and Xlib in a networked environment and integrated all of these
technologies with the job functions of AT&T's proprietary customer service
applications system.
Result: The development of this software permitted AT&T to
administer, monitor and manage the performance of its trainees at reduced
costs. The Company achieved the project goals on time and within AT&T's
budget.
Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that may be
difficult to quantify. The Company's failure or inability to meet a customer's
expectations in the performance of its services could result in a material
adverse change to the customer's operations giving rise to claims for damages
against the Company or causing damage to the Company's reputation, adversely
affecting its business, financial condition and results of operations. In
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<PAGE> 33
addition, certain of the Company's agreements with its customers require the
Company to indemnify the customer for damages arising from services provided to,
or on behalf of, such customer. Under certain of the Company's customer
contracts, the Company warrants that it will repair errors or defects in its
deliverables without additional charge to the customer. The Company has not
experienced, to date, any material claims against such warranties. Subsequent to
the consummation of this offering, the Company intends to purchase and maintain
errors and omissions insurance to insure the Company for damages and expenses
incurred in connection with alleged negligent acts, errors or omissions. There
can be no assurance that such insurance will be available to the Company on
acceptable terms, if at all.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that its principal competitors include the internal information systems
groups of its prospective customers, as well as consulting and software
integration firms, including the "Big Six" accounting firms, the ISSC division
of IBM, Cambridge Technology Partners, SHL Systemhouse (a subsidiary of MCI),
and Computer Sciences Corporation, and with software applications vendors, some
of which are also customers of the Company. Many of the Company's competitors
have longer operating histories, possess greater industry and name recognition
and have significantly greater financial, technical and marketing resources than
the Company. In addition, there are relatively low barriers to entry into the
Company's markets and the Company has faced, and expects to continue to face,
additional competition from new entrants into its markets.
The Company believes that the principal competitive factors in its markets
include quality of service and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes that its ability to compete also depends in part
on a number of competitive factors outside its control, including the ability of
its competitors to hire, retain and motivate project managers and other senior
technical staff, the development by others of services that are competitive with
the Company's services and the extent of its competitors' responsiveness to
customer needs.
The Company believes that it competes based on its expertise in SAP and
Oracle products and a wide variety of technologies. There can be no assurance
that the Company will be able to continue to compete successfully with existing
and new competitors. See "Risk Factors -- Highly Competitive Information
Technology Services Industry."
EMPLOYEES
As of March 31, 1996, the Company employed 231 full-time employees, of whom
202 were engaged as consultants, 9 were engaged in sales and marketing, and 20
were engaged in finance, administration, and management. Of the total number of
employees, 214 were based in the United States, 13 were based in New Zealand and
4 were based in South Africa. In addition, the Company engaged 27 independent
contractors to perform information technology services and has exclusive access
to all of the employees of Intelligroup Asia, which consisted of 24 software
developers and four administrative personnel at March 31, 1996.
None of the Company's employees is covered by a collective bargaining
agreement. Substantially all of the Company's employees have executed a
non-competition, non-disclosure and non-solicitation assignment. In addition,
the Company requires that all new employees execute such agreement as a
condition of employment by the Company. The Company believes that it has been
successful in attracting and retaining skilled and experienced personnel. There
is increasing competition for experienced sales and marketing personnel and
technical professionals. The Company's future success will depend in part on its
ability to continue to attract, retain, train and motivate highly qualified
personnel. See "Risk Factors -- Competitive Market for Technical Personnel." The
Company considers relations with its employees to be good.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent, in part, upon its proprietary
accelerated implementation methodology, development tools and other intellectual
property rights. The Company relies upon a combination of trade secret,
nondisclosure and other contractual arrangements, and copyright and trademark
laws, to protect its
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proprietary rights. The Company generally enters into confidentiality agreements
with its employees, consultants and customers, and limits access to and
distribution of its proprietary information. The Company also requires that
substantially all of its employees and consultants assign to the Company their
rights in intellectual property developed while employed or engaged by the
Company. There can be no assurance that the steps taken by the Company in this
regard will be adequate to deter misappropriation of its proprietary information
or that the Company will be able to detect unauthorized use of and take
appropriate steps to enforce its intellectual property rights. See "Risk
Factors -- Reliance on Intellectual Property Rights."
FACILITIES
The Company owns no real property and currently leases all of its office
space. The Company subleases its headquarters in Iselin, New Jersey, totaling
approximately 13,200 square feet. The sublease expires in November 1999. The
Company believes that such headquarters has sufficient space for its current and
anticipated near-term needs. The Company uses such facility for certain
technical and support personnel, sales and marketing, administrative, finance
and management personnel. The Company also leases or subleases offices for its
operations in San Jose, California and Pretoria, South Africa.
LEGAL PROCEEDINGS
The Company currently is being investigated by the Immigration and
Naturalization Service (the "INS") concerning possible violations of the
Immigration Reform and Control Act of 1990. Specifically, the INS is
investigating whether the Company improperly employed certain foreign national
individuals prior to their obtaining appropriate work authorization and failed
to complete properly employment eligibility verification forms for all
employees. The Company has and will continue to cooperate fully with the INS. A
notice of intent to fine has not been served upon the Company, and, therefore,
the potential for fines is not known at this time. Upon review of the fines
generally assessed in similar matters, the Company believes, however, that
fines, if any, will not exceed $150,000. The Company anticipates that the INS
investigation may continue for six months or more. There can be no assurance,
however, as to the ultimate amount of fines which may be assessed or the length
of time it may take to conclude the INS investigation. The Company employs many
foreign national individuals and has implemented procedures and controls which
it believes will ensure full compliance with the Immigration Reform and Control
Act of 1990 and related regulations. Toward this end, the Company now employs
in-house counsel to oversee this function.
On February 16, 1996, the Company, as plaintiff, filed a complaint in the
Superior Court of New Jersey, Chancery Division, Middlesex County, against a
former consultant to the Company, seven former employees of the Company and
Pegasus Systems, Inc. ("Pegasus"), a corporation which currently employs such
individuals (collectively, the "Defendants"). The complaint, which seeks damages
and injunctive relief against the Defendants, alleges, among other things,
misappropriation of proprietary information, unfair competition, tortious
interference, breach of employment agreements, breach of a consulting agreement
between the Company and Pegasus, and breach of duty of loyalty, good faith and
fair dealing. Upon the filing of its complaint, the Company obtained a temporary
restraining order and in May 1996 obtained a preliminary injunction prohibiting
the Defendants from using or disclosing the Company's proprietary information,
prohibiting the Defendants from contacting or soliciting certain of the
Company's customers and prohibiting the Defendants from recruiting or attempting
to recruit the Company's employees, agents or contractors. The preliminary
injunction remains in effect and the Company intends to pursue vigorously
enforcement of the injunction against the Defendants. The Defendants have filed
an answer and counterclaim. Pegasus has asserted a breach of contract
counterclaim against the Company alleging that the Company owes it $129,000 for
consulting services. Pegasus and two of the individual Defendants also asserted
claims against the Company and two of its officers for tortious interference and
defamation. In addition, one of the individual Defendants has asserted that the
Company owes him $70,000 in commissions. In addition to monetary damages the
Defendants seek injunctive relief. The Defendants unsuccessfully sought a
temporary restraining order against the Company. The Company denies the
allegations made and intends to defend vigorously the
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counterclaims. The Company does not believe that the outcome of these claims and
counterclaims will have a material effect upon the Company's business, financial
condition or results of operations.
Oxford Systems Inc., a New Jersey corporation and a wholly-owned subsidiary
of the Company ("Oxford"), is named as a defendant in a civil complaint that was
filed on June 8, 1995 by Design Strategy Corp. ("Design Strategy"), in New York
State Supreme Court in the County of New York. Design Strategy alleges that
another named defendant, Citibank, N.A. ("Citibank"), contracted with Design
Strategy for database administration services. Design Strategy claims that
Citibank and Oxford conspired to deprive it of commissions, tortiously
interfered with contract, engaged in unfair competition, damaged its reputation
and misappropriated services. The Company denies the allegations made and
intends to continue to defend vigorously such action. The Company does not
believe that the outcome of the action will have a material effect upon the
Company's business, financial condition or results of operations.
There is no other material litigation pending to which the Company is a
party or to which any of its property is subject.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEE
The executive officers, directors and key employee of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- ---- ----------------------------------------
<S> <C> <C>
Ashok Pandey(1)(2)............................... 38 Chairman of the Board, President, Chief
Executive Officer and Director
Rajkumar Koneru.................................. 26 Vice President -- Business Solutions and
Director
Nagarjun Valluripalli............................ 28 Vice President -- Advanced Technology
and Director
Robert M. Olanoff................................ 40 Chief Financial Officer, Treasurer and
Secretary
Paul W. Coombs................................... 40 Director of Business Solutions
Kevin P. Mohan(1)(2)(3).......................... 32 Director
Thomas S. Roberts(1)(2)(3)....................... 32 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Option Committee.
Within 90 days of the consummation of this offering, the Company intends to
identify and elect two additional independent, unaffiliated directors, each of
whom is expected to serve on the Audit Committee.
All executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified. All
directors hold office until the next annual meeting of shareholders and until
their successors shall have been duly elected and qualified. There are no family
relationships among any of the executive officers, directors and key employee of
the Company.
Ashok Pandey founded the Company and has served as a director, Chairman of
the Board, President, and Chief Executive Officer of the Company since its
inception in 1987. Prior to founding the Company, Mr. Pandey was a consultant to
AT&T and Bell Laboratories. He has more than twelve years of experience in
developing systems and application software.
Rajkumar Koneru joined the Company in April 1996 and currently serves as
Vice President -- Business Solutions and as a director. In May 1993, Messrs.
Koneru and Valluripalli co-founded Oxford Systems Inc., a systems integration
company ("Oxford"). In March 1994, they sold all of the issued and outstanding
capital stock of Oxford to the Company. See "Certain Transactions." From June
1992 through December 1992, Mr. Koneru was a consultant with Super Solutions
Corporation and, from March 1993 until March 1996 he was a consultant for the
Boston Group, each an information technology consulting firm. Following
consummation of the Company's transaction with Oxford, Mr. Koneru continued to
be employed by the Boston Group, which subcontracted Mr. Koneru's services to
the Company.
Nagarjun Valluripalli joined the Company in March 1994 and currently serves
as Vice President -- Advanced Technology and as a director. In May 1993, Messrs.
Koneru and Valluripalli co-founded Oxford, at which Mr. Valluripalli was
responsible for business development. In March 1994, Messrs. Koneru and
Valluripalli sold all of the issued and outstanding capital stock of Oxford to
the Company. See "Certain Transactions." Prior to founding Oxford, from 1990,
Mr. Valluripalli was marketing manager for VJ Infosystems, a software training
and services company.
Robert M. Olanoff joined the Company in January 1996 and currently serves
as its Chief Financial Officer, Treasurer and Secretary. Prior to joining the
Company, from 1993 through 1995, Mr. Olanoff was Chief Financial Officer and
Vice President of InfoMed Holdings, Inc. From 1990 to 1993, he was Controller of
Execu-Flow Systems, Inc. Each company is a turnkey software provider to the
healthcare industry. Mr. Olanoff is a certified public accountant.
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Paul W. Coombs joined the Company in July 1994 and currently serves as
Director of Business Solutions. From November 1993 through December 1994, he was
a Director of CBC Limited, a computer consulting company, of which he was a
principal shareholder. From July 1986 through November 1993, he was an
Associate -- Strategic Planning with Touche Ross & Co.
Kevin P. Mohan has been a director of the Company since April 1996. Mr.
Mohan currently serves as a Vice President of various venture capital funds
(including Summit Ventures IV, L.P. and Summit Investors III, L.P., shareholders
of the Company) affiliated with Summit Partners, a venture capital firm, at
which he has been employed since 1994. Prior to joining Summit Partners, Mr.
Mohan served as an engagement manager at McKinsey & Company, Inc. Mr. Mohan is
also a director of several privately held companies.
Thomas S. Roberts has been a director of the Company since April 1996. Mr.
Roberts currently serves as a General Partner of various venture capital funds
(including Summit Ventures IV, L.P. and Summit Investors III, L.P., shareholders
of the Company) affiliated with Summit Partners, a venture capital firm, at
which he has been employed since 1989. Mr. Roberts is also a director of AMX
Corporation, Catalyst International, Inc., PowerCerv Corporation, and several
privately held companies.
The Board of Directors has a Compensation Committee, which approves
salaries and certain incentive compensation for management and key employees of
the Company; an Audit Committee, which reviews the results and scope of the
audit and other services provided by the Company's independent public
accountants; and an Option Committee, which administers the Company's 1996 Stock
Plan.
DIRECTORS' COMPENSATION
Currently, directors do not receive cash compensation for services on the
Board of Directors. The Company provides reimbursement to directors for
reasonable and necessary expenses incurred in connection with attendance at
meetings of the Board of Directors.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On June 3, 1996 the Board of Directors approved and shareholders adopted
the Company's Non-Employee Director Plan which became effective on July 12,
1996. The Non-Employee Director Plan provides for the grant of options to
purchase a maximum of 140,000 shares of Common Stock of the Company to non-
employee directors of the Company. The Non-Employee Director Plan is
administered by the Board of Directors.
Each person who is a director of the Company on the effective date of the
Company's initial public offering or who becomes a director of the Company
thereafter, and who is not also an employee or officer of the Company, shall be
granted, on the effective date or the date on which he or she becomes a
director, whichever is later, an option to purchase 20,000 shares of Common
Stock, at an exercise price per share equal to the then fair market value of the
shares. No subsequent grants are permitted to such individuals under the
Non-Employee Director Plan. All options become exercisable in five equal annual
installments commencing one year after the date of grant provided that the
optionee then remains a director at the time of vesting of the installments. The
right to exercise annual installments of options will be reduced proportionately
based on the optionee's actual attendance at directors' meetings if the optionee
fails to attend at least 80% of the directors' meetings held in any calendar
year. The term of each option will be for a period of ten years from the date of
grant, unless sooner terminated in accordance with the Non-Employee Director
Plan. Options may not be transferred except by will or by the laws of descent
and distribution or pursuant to a domestic relations order and are exercisable
to the extent vested at any time prior to the scheduled expiration date of the
option. The Non-Employee Director Plan terminates on the earlier of June 5, 2006
or at such time as all shares of Common Stock currently or hereafter reserved
for issuance shall have been issued.
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<PAGE> 38
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and to the only other executive officer of the Company whose
aggregate cash compensation exceeded $100,000 (collectively, the "Named
Executives") during the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
OTHER ANNUAL ALL OTHER
COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) (2)($) (3)($)
- ----------------------------------------------- ---- --------- ------------ ------------
<S> <C> <C> <C> <C>
Ashok Pandey................................... 1995 145,150 18,367 12,190
President and Chief
Executive Officer
Nagarjun Valluripalli.......................... 1995 147,968 19,727 3,858
Vice President -- Advanced Technology
</TABLE>
- ---------------
(1) Mr. Koneru joined the Company in April 1996 and currently serves as Vice
President -- Business Solutions and as a director. Immediately prior to
becoming an employee of the Company, Mr. Koneru was a consultant with the
Boston Group, which subcontracted Mr. Koneru's services to the Company from
March 1994 to April 1996.
(2) Represents car allowance and payment by the Company of certain non-recurring
personal expenses.
(3) Represents the value of insurance premiums paid by the Company with respect
to whole life insurance for the benefit of such Named Executive.
1996 STOCK PLAN
The 1996 Stock Plan was adopted by the Board of Directors and approved by
the shareholders of the Company on June 3, 1996 and became effective on July 12,
1996. A total of 1,450,000 shares are reserved for issuance upon the exercise of
options and/or stock purchase rights granted under the 1996 Stock Plan, 500,000
of which have been granted. Those eligible to receive stock option grants or
stock purchase rights under the 1996 Stock Plan include employees, non-employee
directors and consultants. The 1996 Stock Plan is administered by the Option
Committee of the Board of Directors of the Company, which is comprised solely of
outside directors.
Subject to the provisions of the 1996 Stock Plan, the administrator of the
1996 Stock Plan has the discretion to determine the optionees and/or grantees,
the type of options to be granted (incentive stock options ("ISOs") or
nonqualified stock options ("NQSOs")), the vesting provisions, the terms of the
grants and such other related provisions as are consistent with the 1996 Stock
Plan. The exercise price of an ISO may not be less than the fair market value
per share of the Common Stock on the date of grant or, in the case of an
optionee who beneficially owns 10% or more of the outstanding capital stock of
the Company, not less than 110% of the fair market value per share on the date
of grant. The exercise price of a NQSO may not be less than 85% of the fair
market value per share of the Common Stock on the date of grant or, in the case
of an optionee who beneficially owns 10% or more of the outstanding capital
stock of the Company, not less than 110% of the fair market value per share on
the date of grant. The purchase price of shares issued pursuant to stock
purchase rights may not be less than 50% of the fair market value of such shares
as of the offer date of such rights.
The options terminate not more than ten years from the date of grant,
subject to earlier termination on the optionee's death, disability or
termination of employment with the Company, but provide that the term of any
options granted to a holder of more than 10% of the outstanding shares of
capital stock may be no longer than five years. Options are not assignable or
otherwise transferable except by will or the laws of descent and
37
<PAGE> 39
distribution. In the event of a merger or consolidation of the Company with or
into another corporation or the sale of all or substantially all of the
Company's assets in which the successor corporation does not assume outstanding
options or issue equivalent options, the Board of Directors of the Company is
required to provide accelerated vesting of outstanding options. The 1996 Stock
Plan terminates on June 5, 2006.
In June 1996, the Option Committee granted ISOs effective July 1996, to
acquire an aggregate of 220,000 shares to the following officer and key
employee: Robert M. Olanoff, 88,000 shares; and Paul Coombs, 132,000 shares. All
of these options have an exercise price of $8.00 per share. One-third of the
shares subject to these options shall become exercisable on each of the
sixth-month, eighteenth-month and thirtieth-month anniversary of the date of
grant.
EMPLOYMENT AGREEMENTS, INDEMNIFICATION AGREEMENTS AND NON-COMPETITION,
NON-DISCLOSURE AND NON-SOLICITATION AGREEMENTS
Each of the executive officers and key employee of the Company entered into
a two-year employment agreement with the Company commencing June 1, 1996. Under
the terms of their respective agreements, Messrs. Pandey, Koneru, Valluripalli,
Olanoff and Coombs are entitled to annual base salary of $200,000, $200,000,
$200,000, $100,000 and $200,000, respectively, and bonuses, the amounts and
payments of which are within the discretion of the Compensation Committee of the
Board of Directors. In addition, the Company and Mr. Olanoff entered into a
Change in Control Severance Pay Agreement, dated June 1, 1996, pursuant to which
the Company has agreed, subject to certain restrictions, to pay Mr. Olanoff the
equivalent of six months salary in the event that Mr. Olanoff is terminated
without cause if there is a change in control of the Company.
The above described agreements require each individual to maintain the
confidentiality of Company information. In addition, each of such persons has
agreed that during the term of his respective agreement and thereafter for a
period of two years, such person will not compete with the Company in any state
or territory of the United States, or any other country, where the Company does
business by engaging in any capacity in any business which is competitive with
the business of the Company. The employment agreements also provide that for a
period of two years following the termination of employment, each such
individual shall not solicit the Company's customers or employees.
In addition to the foregoing employment contracts, the Company has executed
indemnification agreements with each of its executive officers and directors
pursuant to which the Company has agreed to indemnify such party to the full
extent permitted by law, subject to certain exceptions, if such party becomes
subject to an action because such party is a director, officer, employee, agent
or fiduciary of the Company.
Substantially all of the Company's employees have agreed not to compete
with the Company, not to disclose Company information and not to solicit Company
employees.
KEY MAN INSURANCE
Messrs. Pandey, Koneru and Valluripalli are key employees of the Company
and the contribution of each of them to the Company has been and will be a
significant factor in the Company's future success. The loss of any of them
could adversely affect the Company's business and results of operations. The
Company maintains, and is the beneficiary of, a life insurance policy on the
life of each of Messrs. Pandey, Koneru and Valluripalli. The face amount of each
such policy is $1.0 million.
CERTAIN TRANSACTIONS
In March 1994, the Company acquired all of the issued and outstanding
shares of Oxford Systems Inc., a New Jersey corporation ("Oxford"), from Messrs.
Koneru and Valluripalli, the co-founders of Oxford, in exchange for an aggregate
of a two-thirds equity interest in the Company.
Messrs. Koneru and Valluripalli are the majority shareholders of
Intelligroup Asia and Mr. Pandey has the right, subject to necessary Indian
government approvals, to acquire the remaining outstanding shares of
Intelligroup Asia. Intelligroup Asia operates the Advanced Development Center in
Hyderabad, India for the
38
<PAGE> 40
sole and exclusive use and benefit of the Company and all contracts and
commercial arrangements of Intelligroup Asia are subject to prior approval by
the Company. The Company and Messrs. Pandey, Koneru and Valluripalli have
entered into an agreement pursuant to which the Company will, subject to
necessary Indian government approvals, acquire the shares of Intelligroup Asia
for nominal consideration when such shares may be transferred in accordance with
the laws of India.
In March 1996, Summit Ventures IV, L.P., guaranteed a $750,000 line of
credit obtained by the Company from a bank. All borrowings under such line of
credit were repaid by the Company in April 1996, upon consummation of the
financing described below.
In April 1996, the Company issued and sold five-year 9% subordinated
debentures in the aggregate principal amount of $6.0 million to Summit Ventures
IV, L.P. and Summit Investors III, L.P. In connection therewith, the Company
also issued warrants to purchase, for nominal consideration (less than $0.25 in
the aggregate), up to a maximum of 1,922,845 shares of Common Stock of the
Company. The number of shares underlying the warrants is subject to downward
adjustment based upon the initial public offering price. At an assumed initial
public offering price of $9.00 per share, there are 1,478,400 shares of Common
Stock underlying the warrants. See "Capitalization," "Description of Capital
Stock -- Warrants" and "Principal and Selling Shareholders." The warrants will
be exercised upon effectiveness of this offering. The holders of the shares of
Common Stock issuable upon the exercise of the warrants are entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
In addition, each of the current shareholders have granted the warrantholders
certain rights of co-sale in the event that such shareholders propose to sell
their shares of Common Stock after this offering. The Company expects to prepay
in full the amounts outstanding under the subordinated debentures with a portion
of the net proceeds of this offering. There is no prepayment penalty. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Following the issuance and sale of the subordinated debentures and in
connection therewith, see "Use of Proceeds," the Company repurchased from
Messrs. Pandey, Koneru and Valluripalli an aggregate of 4,881,066 shares of
Common Stock for an aggregate cash payment of $1.5 million, or $500,000 to each
such shareholder, at a price per share equal to $0.31. The repurchased shares
were canceled upon consummation of such transaction. The debenture transaction
was consummated, in part, to allow Messrs. Pandey, Koneru and Valluripulli to
diversify their portfolios and achieve a degree of liquidity.
Subsequent to December 31, 1995, the Company determined that it had
unrecorded and unpaid federal and state payroll-related taxes for certain
employees. As a result of the Company's voluntary disclosure to the Internal
Revenue Service of certain unpaid tax liabilities, on June 5, 1996, the Company
received an audit assessment from the Internal Revenue Service for unpaid 1994
and 1995 federal income tax withholding, FICA and FUTA taxes in the aggregate
amount of $814,000. No interest or penalties were assessed. Reserves,
aggregating $1.0 million, including the amount of the Internal Revenue Service
audit assessment, have been recorded. No assurance may be given, however, that
interest, penalties or additional state or federal taxes will not be assessed in
the future. The Company's principal shareholders, Messrs. Pandey, Koneru and
Valluripalli, have agreed to indemnify the Company for any and all losses which
the Company may sustain, in excess of the $1.0 million reserve, net of any tax
benefits realized by the Company, arising from or relating to federal or state
tax, interest or penalty payment obligations resulting from the above subject
matter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The Board of Directors of the Company has adopted a policy requiring that
any future transactions between the Company and its officers, directors,
principal shareholders and their affiliates be on terms no less favorable to the
Company than could be obtained from unrelated third parties. In addition, New
Jersey law requires that any such transactions be approved by a majority of the
disinterested members of the Company's Board of Directors.
39
<PAGE> 41
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person who is known to the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors and
Named Executives, (iii) the Selling Shareholders, and (iv) all current directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY OWNED
DIRECTORS, PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)
NAMED EXECUTIVES AND --------------------- BEING ------------------------
5% SHAREHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT(2)
- -------------------------------------- --------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Ashok Pandey(3)....................... 2,440,534 27.7% 79,367 2,361,167 21.9%
Rajkumar Koneru(3).................... 2,440,533 27.7 79,367 2,361,166 21.9
Nagarjun Valluripalli(3).............. 2,440,533 27.7 79,366 2,361,167 21.9
Summit Ventures IV, L.P. and Summit
Investors III, L.P.(4).............. 1,478,400 16.8 11,900 1,466,500 13.6
Kevin P. Mohan(5)..................... 1,478,400 16.8 11,900 1,466,500 13.6
Thomas S. Roberts(6).................. 1,478,400 16.8 11,900 1,466,500 13.6
All directors and executive officers
as a group (6 persons)(7)........... 8,800,000 100.0% 250,000 8,550,000 79.2%
</TABLE>
- ---------------
(1) Except as set forth in the footnotes to this table and subject to applicable
community property law, the persons named in the table have sole voting and
investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 8,800,000 shares of Common
Stock outstanding on June 30, 1996, including 1,478,400 shares of Common
Stock issuable upon the exercise, for nominal consideration (less than $0.25
in the aggregate), of outstanding warrants, which warrants will be exercised
upon the effectiveness of this offering, and 10,800,000 shares of Common
Stock outstanding after the completion of this offering.
(3) The address for each of Messrs. Pandey, Koneru and Valluripalli is c/o
Intelligroup, Inc., 517 Route One South, Iselin, NJ 08830.
(4) Includes, based upon an assumed initial public offering price of $9.00 per
share, 1,404,480 shares and 73,920 shares of Common Stock issuable upon the
exercise of warrant shares owned by Summit Ventures IV, L.P. and Summit
Investors III, L.P., respectively. The number of shares underlying the
warrants is subject to a one-time adjustment upon the effectiveness of this
offering based upon the initial public offering price. Such warrants may
represent in the aggregate between 11.0% and 20.8% of the total number of
shares of Common Stock outstanding prior to this offering. See
"Capitalization." The address of both entities is 600 Atlantic Avenue, Suite
2800, Boston, MA 02210.
(5) Kevin P. Mohan is a Vice President of Summit Partners and, as such, has the
power to vote or direct the vote of and to dispose of or direct the
disposition of the shares owned by Summit Ventures IV, L.P. and Summit
Investors III, L.P. See Note 4. Mr. Mohan expressly disclaims beneficial
ownership of such shares, except as to his proportionate interest in Summit
Ventures IV, L.P. and Summit Investors III, L.P.
(6) Thomas S. Roberts is a General Partner of Summit Partners and, as such, has
the power to vote or direct the vote of and to dispose of or direct the
disposition of the shares owned by Summit Ventures IV, L.P. and Summit
Investors III, L.P. See Note 4. Mr. Roberts expressly disclaims beneficial
ownership of such shares, except as to his proportionate interest in Summit
Ventures IV, L.P. and Summit Investors III, L.P.
(7) See Notes 3, 5 and 6.
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<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.01 par value per share, and, upon the effective date of this
offering, 5,000,000 shares of undesignated Preferred Stock, $.01 par value per
share (the "Preferred Stock").
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Amended and Restated
Certificate of Incorporation, a copy of which has been filed as an exhibit to
the Registration Statement. The following summary is qualified in its entirety
by reference thereto.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the shareholders of the Company.
Holders of shares of Common Stock will be entitled to receive dividends, subject
to the senior rights of preferred shareholders, if any, when, as and if declared
by the Board of Directors (see "Dividend Policy") and to share ratably in the
assets of the Company legally available for distribution to its shareholders in
the event of the liquidation, dissolution or winding-up of the Company. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. All of the issued and outstanding shares of Common Stock are, and all
shares of Common Stock to be sold in this offering will be, duly authorized,
validly issued, fully paid and nonassessable.
At June 30, 1996, there were 7,321,600 shares issued and outstanding and
held of record by three shareholders, excluding shares issuable upon the
exercise of warrants. See "-- Warrants."
PREFERRED STOCK
The Company's Board of Directors may without further action by the
Company's shareholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. The holders of Preferred
Stock would normally be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of the Company before any payment is
made to the holders of the Common Stock. The Company does not presently intend
to issue any series of Preferred Stock.
The overall effect of the ability of the Company's Board of Directors to
issue Preferred Stock may be to render more difficult the accomplishment of
mergers or other takeover or change-in-control attempts. To the extent that this
ability has this effect, removal of the Company's incumbent Board of Directors
and management may be rendered more difficult. Further, this may have an adverse
impact on the ability of shareholders of the Company to participate in a tender
or exchange offer for the Common Stock and in so doing diminish the market value
of such stock. See "Risk Factors -- Control by Management and Existing
Shareholders" and "-- Anti-takeover Effect of Certain Charter and By-law
Provisions and New Jersey Law."
WARRANTS
In April 1996, in connection with the issuance and sale by the Company to
Summit Ventures IV, L.P. and Summit Investors III, L.P. of the subordinated
debentures, the Company also issued warrants to purchase, for nominal
consideration, up to a maximum of 1,922,845 shares of Common Stock of the
Company. The number of shares underlying the warrants is subject to downward
adjustment based upon the initial public offering price. At an assumed initial
public offering price of $9.00 per share, there are 1,478,400 shares of Common
Stock underlying the warrants. See "Capitalization." The warrants will be
exercised, for nominal consideration (less than $0.25 in the aggregate), upon
effectiveness of this offering. The holders of the shares of Common Stock
issuable upon the exercise of the warrants are entitled to certain registration
rights. See "-- Registration Rights."
REGISTRATION RIGHTS
In April 1996, the Company, in connection with the issuance of warrants to
Summit Ventures IV, L.P. and Summit Investors III, L.P., executed a Registration
Rights Agreement (the "Rights Agreement")
41
<PAGE> 43
pursuant to which the Company granted certain registration rights to such
entities. Pursuant to the Rights Agreement, at any time beginning six months
after the consummation of this offering, the holders of at least 25% of the
Common Stock issuable upon the exercise of the warrants (the "Registrable
Securities") have the right, subject to certain restrictions set forth in the
Rights Agreement, to require that the Company register, under the Securities
Act, the Registrable Securities requested by such holders at the Company's
expense (on no more than two occasions).
Under the Rights Agreement, the Company is obligated to use its best
efforts to qualify for registration of securities on Form S-3 under the
Securities Act. After the Company has qualified for the use of Form S-3, the
holders of Registrable Securities have the right to an unlimited number of
registrations on such form. The Company is not, however, required to effect the
registration on a Form S-3 more than once in any six-month period, or if the
aggregate market value of such securities to be registered is less than $1.0
million.
Also pursuant to the Rights Agreement, if, at any time following this
offering, subject to the lock-up agreements entered into by the holders of the
Registrable Securities, the Company proposes to register any of its Common Stock
under the Securities Act for sale to the public, the holders of the Registrable
Securities have unlimited piggyback registration rights at the Company's
expense, subject to certain restrictions set forth in the Rights Agreement. In
addition, the Company has agreed to indemnify the holders of such registration
rights and each underwriter in any such offering against certain liabilities,
including liabilities under the Securities Act.
LIMITATION OF DIRECTOR LIABILITY
The Amended and Restated Certificate of Incorporation of the Company limits
the liability of directors and officers of the Company to the Company or its
shareholders to the fullest extent permitted by New Jersey law. Specifically,
directors and officers of the Company will not be personally liable for money
damages for breach of a duty as a director or an officer, except for liability
(i) for any breach of the director's or officer's duty of loyalty to the Company
or its shareholders, (ii) for acts or omissions not in good faith or which
involve a knowing violation of law, (iii) as to directors only, under section
14A:6-12(1) of the New Jersey Business Corporation Act, which relates to
unlawful declarations of dividends or other distributions of assets to
shareholders or the unlawful purchase of shares of the corporation, or (iv) for
any transaction from which the director or officer derived an improper personal
benefit.
ANTI-TAKEOVER PROVISIONS
The Company is governed by the provisions of Section 14A:10A-1 et seq., the
New Jersey Shareholders Protection Act (the "New Jersey Act"), of the New Jersey
Business Corporation Act, an anti-takeover law. In general, the statute
prohibits a publicly-held New Jersey corporation from engaging in a "business
combination" with an "interested shareholder" for a period of five years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 10% or more of the corporation's voting stock.
After the five-year waiting period has elapsed, a business combination between a
corporation and an interested shareholder will be prohibited unless the business
combination is approved by the holders of at least two-thirds of the voting
stock not beneficially owned by the interested shareholder, or unless the
business combination satisfies the New Jersey Act. The New Jersey Act's fair
price provision is intended to provide that all shareholders (other than the
interested shareholders) receive a fair price for their shares.
In addition, the Company is authorized to issue up to 5,000,000 shares of
Preferred Stock, with rights, preferences and other designations, including
voting rights, to be determined by the Board of Directors. Furthermore, the
Amended and Restated Certificate of Incorporation also provides that: (i) the
affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of the capital stock of the Company shall be required to
adopt, amend or repeal any provision of the By-laws of the Company; (ii)
shareholders of the Company may not take any action by written consent; (iii)
special meetings shareholders may be called only by the President, the Chairman
of the Board or a majority of the Board of
42
<PAGE> 44
Directors and business transacted at any such special meeting shall be limited
to matters relating to the purposes set forth in the notice of such special
meeting; (iv) the Board of Directors, when evaluating an offer related to a
tender or exchange offer or other business combination, is authorized to give
due consideration to any relevant factors, including the social, legal and
economic effects upon employees, suppliers, customers, creditors, the community
in which the Company conducts its business, and the economy of the state, region
and nation; and (v) the affirmative vote of the holders of at least 80% of the
voting power of all outstanding shares of the capital stock of the Company shall
be required to amend the above provisions or the limitation on director
liability. The New Jersey statute, the undesignated authorized Preferred Stock
and the foregoing provisions of the Amended and Restated Certificate of
Incorporation may discourage certain types of transactions involving an actual
or potential change in control of the Company and could have the effect of
delaying, deterring or preventing a change in control of the Company. In
addition, in the event of a merger or consolidation of the Company with or into
another corporation or the sale of all or substantially all of the Company's
assets in which the successor corporation does not assume outstanding options or
issue equivalent options, the Board of Directors of the Company is required to
provide accelerated vesting of outstanding options.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
10,800,000 shares of Common Stock. See "Capitalization." Of these shares, the
2,250,000 shares sold in this offering will be freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act. The remaining 8,550,000 shares of Common
Stock, including the remaining 1,466,500 shares underlying the warrants, such
number of shares calculated on the basis of an assumed initial public offering
price of $9.00 per share, are "restricted securities" (the "Restricted Shares")
within the meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including an exemption afforded by Rule 144.
The Company's current shareholders and warrantholders have entered into
"lock-up" agreements with the Representatives of the Underwriters, providing
that, subject to certain exceptions, they will not offer, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Cowen & Company, acting as
a Representative of the Underwriters. Following the expiration of the "lock-up"
period, 7,083,500 of the Restricted Shares will be eligible for resale in the
public market pursuant to Rule 144, subject to certain limitations described
below. The remaining 1,466,500 shares of Common Stock underlying the warrants
will become eligible for sale over a period of less than two years and could be
sold earlier if the warrantholders exercise any available registration rights.
The warrantholders have the right in certain circumstances to require the
Company to register under the Securities Act the shares of Common Stock
underlying the warrants for resale to the public. See "Description of Capital
Stock -- Registration Rights."
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
Restricted Shares for at least two years but less than three years is entitled
to sell, commencing 90 days after the date of this Prospectus, within any
three-month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (108,000 shares
immediately after this offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not an "affiliate" of the Company at any time
during the three months preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is entitled to sell such shares
under Rule 144 without regard to the limitations described above.
43
<PAGE> 45
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding period required for shares
subject to Rule 144 to become eligible for resale in the public market. The
proposal, if adopted, would substantially increase the number of shares of
Common Stock eligible for immediate resale following the expiration of the
lock-up agreements, with a potential adverse effect on the market price. No
assurance can be given concerning whether or when such proposal will be adopted
by the Securities and Exchange Commission.
As of the date of this Prospectus, there were outstanding options to
purchase an aggregate of 500,000 shares of Common Stock. Giving effect to
vesting provisions limiting the exercisability of all of the outstanding
options, 166,667 additional shares of Common Stock will be eligible, commencing
January 1997, for immediate resale in compliance with Rules 144 and 701 under
the Securities Act (relating to the sale of shares issuable under certain
compensatory stock plans).
Since there has been no public market for shares of the Common Stock prior
to this offering, the Company is unable to predict the effect that sales made
pursuant to Rules 144 or 701, or otherwise, may have on the prevailing market
price at such times for shares of the Common Stock. Nevertheless, sales of a
substantial amount of the Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices. See "Risk
Factors -- Shares Eligible for Future Sale."
44
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated as
of the date hereof (the "Underwriting Agreement"), the Company and the Selling
Shareholders have agreed to sell to each of the Underwriters named below, and
each of the Underwriters, for whom Cowen & Company and Montgomery Securities are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company and the Selling Shareholders the respective number of
shares of Common Stock set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company......................................................
Montgomery Securities................................................
---------
Total...................................................... 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below),
if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and, in part, to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
The Selling Shareholders have granted the Underwriters an option,
exercisable for up to 30 days after the date of this Prospectus to purchase up
to an aggregate of 337,500 additional shares of Common Stock to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them as shown in the foregoing table bears to the
2,250,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the 2,250,000 shares of Common Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, as amended, and to contribute to payments that the
Underwriters may be required to make in respect thereof.
The Company, the Company's officers and directors, and all Selling
Shareholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any right to acquire Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent (which consent may be given without notice to the
Company's shareholders or other public announcement) of Cowen & Company. Cowen &
Company has advised the Company that it has no present intention of releasing
any of the Company's shareholders or warrantholders from such lock-up agreements
until the expiration of such 180-day period. See "Shares Eligible for Future
Sale."
The Representatives have advised the Company that they currently intend to
make a market in the Company's Common Stock following this offering although
they have no obligation to do so and may cease
45
<PAGE> 47
such market making at any time. There can be no assurance that a market in the
Common Stock will develop after the offering.
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales in excess of 5% of the
shares offered hereby to any accounts over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiation among the Company, the Selling Shareholders and the Representatives.
Among the factors to be considered in such negotiations are the prevailing
market conditions, the results of operations of the Company in recent periods,
the market capitalization and stage of development of other companies that the
Company, the Selling Shareholders and the Representatives believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development, and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this Prospectus is subject to change as a result of market conditions
and other factors.
The Company's Common Stock has been approved for quotation, subject to
notice of effectiveness, on the Nasdaq National Market under the symbol "ITIG."
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Buchanan Ingersoll, Princeton, New Jersey.
Certain legal matters will be passed upon for the Underwriters by Willkie Farr &
Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in giving said report.
On December 15, 1995, the Company retained Arthur Andersen LLP to act as
its independent public accountants and informed the prior auditors, Amper,
Politziner & Mattia, the Company's independent accountants since January 1995,
of its decision. In connection with its audit of the consolidated financial
statements for the year ended December 31, 1994, there were no disagreements
with the prior auditors on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures. The prior
auditors' report on the Company's consolidated financial statements for the year
ended December 31, 1994 contained no adverse opinion or disclaimer of opinion
and was not modified or qualified as to uncertainty, audit scope, or accounting
principles. The decision to change accountants was approved by the Board of the
Directors of the Company. The Company has provided the prior auditors with a
copy of the disclosure contained in this section of the Prospectus and the prior
auditors have furnished the Company with a letter addressed to the Securities
and Exchange Commission (the "Commission") stating its agreement with the above
statements. Prior to retaining Arthur Andersen LLP, the Company had not
consulted with Arthur Andersen LLP regarding accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act, with respect to
the shares of Common Stock offered hereby. This Prospectus, which forms a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement and the exhibits and schedules filed therewith. For
further information with respect to the Company and the shares of Common Stock
offered hereby, reference is made to the
46
<PAGE> 48
Registration Statement and to such exhibits and schedules filed therewith.
Statements contained herein as to the content of any contract or other document
are not necessarily complete and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement shall be deemed qualified in its entirety by
such reference.
The Registration Statement and the exhibits and schedules thereto may be
inspected without charge at the principal office of the Commission at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such documents may be obtained from the Public
Reference Section of the Commission, at prescribed rates.
47
<PAGE> 49
INTELLIGROUP, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995, March 31, 1996 (unaudited) and
March 31, 1996 Pro Forma (unaudited)............................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 (unaudited) and 1996 (unaudited)... F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years
Ended December 31, 1994 and 1995 and for the Three Months Ended March 31, 1996
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 (unaudited) and 1996 (unaudited)... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Intelligroup, Inc.:
We have audited the accompanying consolidated balance sheet of
Intelligroup, Inc. and subsidiary as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the years ended December 31, 1994 and 1995 (as revised, see Note 1).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Intelligroup, Inc. and subsidiary as of December 31, 1995, and the results of
their operations and their cash flows for the years ended December 31, 1994 and
1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
May 31, 1996 (except with respect to Note 8,
as to which the date is July 12, 1996)
F-2
<PAGE> 51
INTELLIGROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, MARCH 31, 1996 AND MARCH 31, 1996 PRO FORMA
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------ MARCH 31, 1996 MARCH 31, 1996
-------------- PRO FORMA
(UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 71,000 $ 79,000 $ 4,021,000
Restricted cash held in escrow.................. 100,000 100,000 100,000
Accounts receivable, less allowance for doubtful
accounts of $531,000 at December 31, 1995 and
$561,000 at March 31, 1996................... 4,729,000 5,598,000 5,598,000
Unbilled services............................... 1,569,000 1,435,000 1,435,000
Other current assets............................ 3,000 31,000 31,000
----------- ----------- -----------
Total current assets.................... 6,472,000 7,243,000 11,185,000
Property and equipment, less accumulated
depreciation of $99,000 at December 31, 1995 and
$123,000 at March 31, 1996...................... 282,000 285,000 285,000
Other assets...................................... 30,000 114,000 114,000
----------- ----------- -----------
$ 6,784,000 $ 7,642,000 $ 11,584,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Cash overdraft.................................. $ 83,000 $ 358,000 $ --
Lines of credit................................. 45,000 243,000 43,000
Loans from factors.............................. 3,343,000 3,054,000 3,054,000
Accounts payable................................ 1,480,000 1,113,000 1,113,000
Accrued payroll and related taxes............... 2,568,000 2,767,000 2,767,000
Accrued expenses and other liabilities.......... 532,000 751,000 751,000
Current portion of obligations under capital
leases....................................... 18,000 19,000 19,000
Income taxes payable............................ -- 201,000 201,000
----------- ----------- -----------
Total current liabilities............... 8,069,000 8,506,000 7,948,000
----------- ----------- -----------
Subordinated debt, net of unamortized
discount........................................ -- -- 4,600,000
----------- ----------- -----------
Obligations under capital leases, less current
portion......................................... 81,000 74,000 74,000
----------- ----------- -----------
Warrants.......................................... -- -- 1,400,000
----------- ----------- -----------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, $0.01 par value, 25,000,000 shares
authorized, 12,202,666 shares issued and
outstanding at December 31, 1995 and March
31, 1996 and 7,321,600 shares at March 31,
1996 pro forma............................... 122,000 122,000 73,000
Accumulated deficit............................. (1,488,000) (1,060,000) (2,511,000)
----------- ----------- -----------
Total shareholders' deficit............. (1,366,000) (938,000) (2,438,000)
----------- ----------- -----------
$ 6,784,000 $ 7,642,000 $ 11,584,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 52
INTELLIGROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue............................... $ 6,800,000 $24,589,000 $ 3,850,000 $ 8,836,000
Cost of sales......................... 5,842,000 20,021,000 3,857,000 6,423,000
----------- ----------- ----------- -----------
Gross profit..................... 958,000 4,568,000 (7,000) 2,413,000
Selling, general and administrative
expenses............................ 986,000 4,452,000 721,000 1,469,000
----------- ----------- ----------- -----------
Operating income (loss).......... (28,000) 116,000 (728,000) 944,000
----------- ----------- ----------- -----------
Other expenses:
Interest expense.................... 3,000 4,000 1,000 8,000
Factor charges...................... 406,000 1,171,000 319,000 307,000
----------- ----------- ----------- -----------
409,000 1,175,000 320,000 315,000
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes........................ (437,000) (1,059,000) (1,048,000) 629,000
Provision for income taxes............ -- -- -- 201,000
----------- ----------- ----------- -----------
Net income (loss)................ $ (437,000) $(1,059,000) $(1,048,000) $ 428,000
=========== =========== =========== ===========
Net income (loss) per share........... $ (0.03) $ (0.08) $ (0.08) $ 0.03
=========== =========== =========== ===========
Shares used in per share
calculation......................... 13,737,000 13,737,000 13,737,000 13,737,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 53
INTELLIGROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS SHAREHOLDERS'
--------------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................... 12,202,666 $122,000 $ 8,000 $ 130,000
Net loss..................................... -- -- (437,000) (437,000)
---------- -------- ---------- ----------
Balance at December 31, 1994................... 12,202,666 122,000 (429,000) (307,000)
Net loss..................................... -- -- (1,059,000) (1,059,000)
---------- -------- ---------- ----------
Balance at December 31, 1995................... 12,202,666 122,000 (1,488,000) (1,366,000)
Net income (unaudited)....................... -- -- 428,000 428,000
---------- -------- ---------- ----------
Balance at March 31, 1996 (unaudited).......... 12,202,666 $122,000 $(1,060,000) $ (938,000)
========== ======== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 54
INTELLIGROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
--------------------------- -------------------------
1994 1995 1995 1996
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ (437,000) $(1,059,000) $(1,048,000) $ 428,000
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation...................... 34,000 51,000 13,000 24,000
Provision for doubtful accounts... 208,000 411,000 17,000 30,000
Changes in assets and liabilities:
Restricted cash deposited in
escrow.......................... -- (100,000) -- --
Accounts receivable............... (2,009,000) (3,339,000) (209,000) (899,000)
Unbilled services................. (1,000) (1,386,000) (28,000) 134,000
Other current assets.............. -- 27,000 -- (28,000)
Other assets...................... (23,000) (30,000) 4,000 (84,000)
Cash overdraft.................... -- 83,000 -- 275,000
Accounts payable.................. -- 1,480,000 -- (367,000)
Accrued payroll and related
taxes........................... 1,466,000 1,035,000 1,174,000 199,000
Accrued expenses and other
liabilities..................... 47,000 478,000 257,000 219,000
Income taxes payable.............. -- -- -- 201,000
----------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities... (715,000) (2,349,000) 180,000 132,000
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment... (89,000) (142,000) (4,000) (27,000)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Loans from factors, net.............. 994,000 2,349,000 (17,000) (289,000)
Proceeds from lines of credit, net... 38,000 6,000 -- 198,000
Principal payments of long-term
debt.............................. (53,000) -- -- --
Principal payments under capital
leases............................ -- (2,000) -- (6,000)
----------- ----------- ----------- -----------
Net cash provided by (used
in) financing activities... 979,000 2,353,000 (17,000) (97,000)
----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash
equivalents................ 175,000 (138,000) 159,000 8,000
Cash and cash equivalents at beginning
of year.............................. 34,000 209,000 209,000 71,000
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
year................................. $ 209,000 $ 71,000 $ 368,000 $ 79,000
=========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid for interest............... $ 2,000 $ 4,000 $ 1,000 $ 7,000
=========== =========== =========== ===========
Noncash transactions:
Capital lease obligations............ $ -- $ 102,000 $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 55
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(FINANCIAL INFORMATION WITH RESPECT TO MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Intelligroup, Inc. and its subsidiary (the "Company") provide a wide range
of information technology services, including enterprise-wide business process
solutions, systems integration and custom software development based on leading
technologies. The Company markets its services to a wide variety of industries
primarily in the United States. The majority of the Company's business is with
large established companies, including consulting firms, serving numerous
industries.
The Company is proposing an initial public offering of its common stock.
Existing and prospective investors should consider, among other things, the
risks and difficulties encountered by any new business, including competition
from existing companies offering the same or similar services, rapid
technological change, management of growth, lack of financial resources and
minimal previous record of operations or earnings. See "Risk Factors" included
elsewhere in this Prospectus for a discussion of these and other factors (see
Note 8).
Restatement
Subsequent to December 31, 1995, the Company determined that it had
unrecorded and unpaid Federal and state payroll related taxes for certain
employees. Accordingly, the Company has restated its 1994 and 1995 financial
statements resulting in a $320,000 and $680,000 increase in cost of sales in
1994 and 1995, respectively, with corresponding increases to accrued payroll and
related taxes. As a result of the Company's voluntary disclosure to the Internal
Revenue Service ("IRS") on June 5, 1996, the IRS issued an audit assessment to
the Company for $814,000 which has been included in the above accrual. The
Company's principal shareholders have agreed to indemnify the Company for any
and all losses which the Company may sustain in excess of the amounts accrued as
of December 31, 1995 arising from or relating to Federal or state tax, interest
or penalty payment obligations, net of any tax benefits realized by the Company,
resulting from the subject matter discussed above.
Principles of Consolidation and Use of Estimates
Effective March 31, 1994, Intelligroup, Inc. entered into an agreement with
the shareholders of Oxford Systems Inc., whereby Intelligroup, Inc. acquired all
the outstanding shares of stock of Oxford Systems Inc. in exchange for a
two-thirds interest in Intelligroup, Inc. This transaction has been accounted
for as a pooling of interests, and accordingly, the accompanying financial
statements for 1994 include the accounts of Intelligroup, Inc. and its
wholly-owned subsidiary, Oxford Systems Inc. for all periods prior to the
transaction.
The accompanying financial statements include the accounts of Intelligroup,
Inc. and its wholly-owned subsidiary, Oxford Systems Inc. All significant
intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts of 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.
Unaudited Pro Forma Consolidated Balance Sheet
The unaudited pro forma consolidated balance sheet as of March 31, 1996 has
been prepared assuming that the issuance of the subordinated debentures and
warrants and the repurchase of the shares had been consummated as of that date
(see Note 3).
F-7
<PAGE> 56
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Information
The consolidated financial statements and accompanying financial
information as of March 31, 1996 and for the three months ended March 31, 1995
and 1996 are unaudited and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position of the
Company at such dates and the operating results and cash flows for those
periods. Results for interim periods are not necessarily indicative of results
for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents consist of investments in highly liquid
short-term instruments, with original maturities of three months or less.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets (five years). Costs of maintenance and repairs are
charged to expense as incurred.
Revenue Recognition
The Company generates revenue from professional services rendered. Revenue
is recognized as services are performed with the corresponding cost of providing
those services reflected as cost of sales. Substantially all customers are
billed on a per diem basis whereby actual time is charged directly to the
customer. Billings to customers for out-of-pocket expenses are recorded as a
reduction of expenses incurred. Unbilled services represent services provided in
excess of amounts billed.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts arising from
services, which is based upon a review of outstanding receivables as well as
historical collection information. In determining the amount of the allowance,
management is required to make certain estimates and assumptions regarding the
timing and amount of collection. Actual results could differ from those
estimates and assumptions. The provision for doubtful accounts totaled $208,000
and $411,000 in 1994 and 1995, respectively. Credit is granted to substantially
all customers on an unsecured basis.
Recoverability of Long-Lived Assets
The Company reviews the recoverability of its long-lived assets on a
periodic basis in order to identify business conditions which may indicate a
possible impairment. The assessment for potential impairment is based primarily
on the Company's ability to recover the unamortized balance of its long-lived
assets from expected future cash flows from its operations on an undiscounted
basis.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which requires companies to
measure employee stock compensation plans based on the fair value method using
an option pricing model or to continue to apply APB No. 25, "Accounting for
Stock Issued to Employees," and provide pro forma footnote disclosures under the
fair value method. The Company continues to apply APB No. 25 and will provide
the pro forma footnote disclosures.
F-8
<PAGE> 57
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations
For the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1996, approximately 33%, 69% and 70% of revenue, respectively, was
derived from projects in which Company personnel implemented software developed
by SAP. The Company's future success in its SAP-related consulting services
depends largely on its continued relationship with SAP and on its continued
status as a SAP National Implementation Partner, which was first obtained in
1995. The Company's agreement with SAP (the "Agreement") is awarded on an annual
basis pursuant to contract. The Company's current contract expires on December
31, 1996. The Agreement contains no minimum revenue requirements or cost sharing
arrangements and does not provide for commissions or royalties to either party.
A substantial portion of the Company's revenue is derived from projects in
which an information technology consulting firm other than the Company has been
retained by the end-user organization to manage the overall project. For the
years ended December 31, 1994 and 1995 and for the three months ended March 31,
1996, 64%, 50% and 52%, respectively, of the Company's revenue was generated by
serving as a member of consulting teams assembled by other information
technology consulting firms.
One customer accounted for approximately 10% and 17% of revenue for the
year ended December 31, 1995 and the three months ended March 31, 1996,
respectively. Accounts receivable due from this customer was $611,000 and
$631,000 as of December 31, 1995 and March 31, 1996, respectively. Another
customer accounted for approximately 12% and 14% of revenue for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
Accounts receivable due from this customer was $1,400,000 and
$852,000 as of December 31, 1995 and March 31, 1996, respectively. Another
customer accounted for approximately 15% of revenue for the year ended December
31, 1994.
Foreign Operations
Revenues from foreign operations were not significant in 1994 and 1995 and
for the three months ended March 31, 1996. Translation effects were not
material.
Income Taxes
The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which utilizes the liability method and results in the determination of
deferred taxes based on the estimated future tax effects of differences between
the financial statement and tax basis of assets and liabilities, using enacted
tax rates currently in effect. The principal differences arise from the
reporting of income and expenses under the accrual method for financial
statement purposes versus the cash basis method for income tax purposes.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the period
after giving retroactive effect to the stock split (see Note 8). Pursuant to the
requirements of the Securities and Exchange Commission, stock options and
warrants issued by the Company during the twelve months immediately preceding
the initial public offering (see Note 8) have been included in computing net
income (loss) per share as if they were outstanding for all periods using the
treasury stock method with an estimated public offering price of $9.00 per
share.
Financial Instruments
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and unbilled services. The fair value
of accounts receivable and unbilled services approximates carrying value.
F-9
<PAGE> 58
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 1995 and
March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Vehicles............................................ $ 26,000 $ 26,000
Furniture........................................... 98,000 98,000
Equipment........................................... 257,000 284,000
-------- ---------
381,000 408,000
Less- Accumulated depreciation...................... (99,000) (123,000)
-------- ---------
$282,000 $ 285,000
======== =========
</TABLE>
Included in the above is $102,000 of equipment held under capital leases.
Depreciation expense was $34,000 and $51,000 in 1994 and 1995, respectively, and
$13,000 and $24,000 for the three-months ended March 31, 1995 and 1996,
respectively.
(3) LINES OF CREDIT AND SUBORDINATED DEBENTURES
The Company had available, under an agreement with a bank, a $50,000 line
of credit bearing interest at the bank's prime lending rate plus 2% (10.5% as of
December 31, 1995), which was collateralized by all Company assets and
personally guaranteed by one of the Company's shareholders. The line of credit
expired May 26, 1996 and is anticipated to be renewed for a term of one year.
The outstanding balance was $45,000 as of December 31, 1995 and $43,000 as of
March 31, 1996.
In March 1996, in anticipation of the financing discussed below, the
Company obtained a $750,000 line of credit, payable on demand, from a bank. The
line of credit bears interest at the Federal funds rate plus 1%. Borrowings
under the line totaled $200,000 as of March 31, 1996. Aggregate borrowings in
the amount of $300,000 were repaid and the line was terminated by the Company in
accordance with the financing described below.
In April 1996, the Company issued $6,000,000 of five-year, 9% subordinated
debentures. All principal and interest is due at maturity (April 2001) or at
prepayment. The debentures were issued with detachable warrants to purchase
common stock of the Company (see Note 7). Proceeds from the debentures were
allocated between the debentures and the warrants based on estimated fair value
which resulted in a discount on the debentures (based on a 15% interest rate)
and a value assigned to the warrants of $1,400,000.
Subsequent to the issuance of the subordinated debentures, the Company
purchased and retired 4,881,066 shares of its common stock for $1,500,000 from
its shareholders.
(4) LOANS PAYABLE TO FACTORS
On October 20, 1995, the Company entered into a new factoring agreement
with a financing institution ("current factor") under which the Company must
offer all its trade accounts receivable to the current factor for financing;
however, the current factor is not obligated to accept them. The agreement has a
term of one year with automatic one-year renewals unless the Company or current
factor give notice of cancellation. The current factor charges an administrative
fee of 0.75% on each invoice plus an additional 0.75% for each 15-day increment
the invoice remains unpaid, to a maximum of 120 days, or 6.5%. If the amount of
a factored receivable is not paid by reason of the financial inability of the
customer, the Company is not liable to reimburse the current factor. If,
however, the current factor, through legal action or otherwise, settles,
F-10
<PAGE> 59
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compromises or assigns the claim for any receivable, the amount of any reduction
resulting from such settlement, compromise or assignment will reduce the balance
due to the Company.
The Company had factoring agreements with a former financing institution
("former factor") under which it could sell qualified trade accounts receivable,
with recourse provisions. The agreements, which were terminated in October 1995
required the Company to repurchase or replace any receivable remaining
uncollected for more than 120 days. At December 31, 1995 and March 31, 1996, the
Company has unresolved differences with this former factor regarding the
determination of former factor fees and amounts due between the two parties. As
of December 31, 1995, the Company has placed $100,000 in escrow which was
subsequently increased to $300,000 in May, 1996, subject to the disposition of
this matter. In June 1996, the parties agreed to settle the dispute for
$103,000, which had previously been accrued. Such amount will be paid out of the
escrow fund with the remainder of the escrow fund remitted to the Company.
(5) INCOME TAXES
The provision for income taxes for the three months ended March 31, 1996
consists of $156,000 related to current Federal and $45,000 related to current
state and local income taxes.
For the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1995, no income tax benefit was provided as management could not
determine that it was more likely than not that such benefit would be realized.
For the three months ended March 31, 1996, the effective rate was less than the
statutory rate due to the reversal of a portion of the valuation allowance.
The Company's deferred tax asset was $668,000 and $614,000 as of December
31, 1995 and March 31, 1996, respectively, and relates primarily to the
Company's allowance for doubtful accounts ($234,000 and $246,000, respectively)
and certain accrued liabilities ($434,000 and $368,000, respectively). Other
temporary differences are not significant. The deferred tax asset as of December
31, 1995 and March 31, 1996 has been offset by a valuation allowance.
(6) COMMITMENTS AND CONTINGENCIES
Employment Agreements
Commencing June 1, 1996, the Company entered into two year employment
agreements with five employees with aggregate annual compensation of $900,000.
F-11
<PAGE> 60
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Company leases office space and office equipment under capital and/or
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1995. Future minimum aggregate annual
lease payments are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31 CAPITAL OPERATING
--------------------------------------------------------------- -------- ---------
<S> <C> <C>
1996........................................................... $ 37,000 $77,000
1997........................................................... 37,000 15,000
1998........................................................... 37,000 5,000
1999........................................................... 20,000
2000........................................................... 20,000
--------
151,000
Less-Interest.................................................. (52,000)
--------
99,000
Less-Current portion........................................... (18,000)
--------
$ 81,000
========
</TABLE>
Rent expense for the years ended December 31, 1994 and 1995 was $24,000 and
$74,000, respectively and $26,000 for the three months ended March 31, 1996.
Commencing June 1, 1996, the Company entered into a lease for office space
at an annual rent of $220,000, plus common costs. The lease term is through
November 1999.
Legal
The Company currently is being investigated by the Immigration and
Naturalization Service concerning possible violations of the Immigration Reform
and Control Act of 1990. Although a notice of intent to fine has not been served
upon the Company and therefore the potential for fines is not known, the Company
believes that fines, if any, would not exceed $150,000. Management believes that
reserves recorded related to this matter are adequate. There can be no
assurance, however, as to the ultimate amount of the fines, which may be
assessed or the length of time it may take to conclude the investigation.
The Company is engaged in certain legal and administrative proceedings.
Management believes the outcome of these proceedings will not have a material
adverse effect on the Company's financial position or results of operations.
(7) STOCK OPTION PLANS AND WARRANTS
The Company's 1996 Stock Plan (the "Plan") permits the granting of options
to employees, nonemployee directors and consultants. The Plan is administered by
the Option Committee of the Board of Directors, which generally has the
authority to select individuals who are to receive options and to specify the
terms and conditions of each option so granted, including the number of shares
covered by the option, the type of option (incentive stock option or
nonqualified stock option), the exercise price (which in all cases must be at
least 100% of the fair market value of the common stock on the date of grant),
vesting provisions, and the overall option term. Options to purchase a total of
1,450,000 shares of common stock were reserved for future grants of options
under the Plan. In June 1996, effective July 1996, the Company granted options
to purchase an aggregate of 500,000 shares of its common stock to certain key
employees at an exercise price of $8.00 per share. One-third of these options
vest six months from date of grant with the remaining options vesting over the
following two years.
F-12
<PAGE> 61
INTELLIGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1996 Non-Employee Director Stock Option Plan provides for the granting
of options to purchase a maximum of 140,000 shares of common stock of the
Company to non-employee directors. An option to purchase 20,000 shares of common
stock, at an exercise price equal to the then fair value of the shares, will be
granted to non-employee directors. All options will vest in five equal
installments, commencing one year after grant and have a ten-year term.
The subordinated debenture holders (see Note 3) received warrants for the
purchase of 20.8% of the fully diluted common stock of the Company, as defined,
at a nominal exercise price (less than $0.25 in the aggregate). If the Company
becomes a public company prior to April 10, 1997, the potential fully diluted
common stock ownership of the warrant holders reduces on a straight-line formula
from the 20.8% to 11%, depending on the premoney valuation of the public
offering, as defined. The warrants are exercisable on the earlier of April 10,
1997, an initial public offering of the Company's common stock or a merger of or
sale of 50% or more of the Company. Such warrants expire in April, 2002. In
addition, the holders have certain registration rights, as defined. The
agreement provides that the debenture holders may put these warrants to the
Company at fair market value, as defined, in April, 2001 or earlier upon the
occurrence of certain events which include an initial public offering of the
Company's common stock. The put provision will terminate and the holders have
agreed to exercise the warrants upon the effectiveness of the initial public
offering. The Company has reserved up to a maximum of 1,922,845 shares of its
common stock relating to the warrants. At an assumed initial offering price of
$9.00 per share, there are 1,478,400 shares of common stock underlying the
warrants.
(8) PUBLIC OFFERING, STOCK SPLIT AND PREFERRED STOCK AUTHORIZATION
In June 1996, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell common stock to the public. In July 1996, the
Company's Board of Directors recommended and shareholders approved an amendment
to the Company's Certificate of Incorporation to effect an 81,351.1111-for-1
stock split. All common shares and per share amounts in the accompanying
financial statements have been adjusted retroactively to give effect to the
stock split.
In addition, the Company's Board of Directors authorized a change in the
Company's authorized capitalization to 25,000,000 shares of common stock, $0.01
par value per share, and 5,000,000 shares of undesignated preferred stock, $0.01
par value per share.
F-13
<PAGE> 62
- ------------------------------------------------------------
- ------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations not contained herein must
not be relied upon as having been authorized by the Company, the Selling
Shareholders, any of the Underwriters or by any other person. This Prospectus
does not constitute an offer to sell, or a solicitation of any offer to buy, any
securities other than the shares of Common Stock offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby, to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Consolidated Financial Data... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 24
Management............................. 35
Certain Transactions................... 38
Principal and Selling Shareholders..... 40
Description of Capital Stock........... 41
Shares Eligible for Future Sale........ 43
Underwriting........................... 45
Legal Matters.......................... 46
Experts................................ 46
Additional Information................. 46
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,250,000 Shares
LOGO
Common Stock
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
MONTGOMERY SECURITIES
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 63
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:3-5 of the New Jersey Business Corporation Act permits each New
Jersey business corporation to indemnify its directors, officers, employees and
agents against expenses and liabilities in connection with any proceeding
involving such persons by reason of his serving or having served in such
capacities or for each such person's acts taken in his capacity as a director,
officer, employee or agent of the corporation if such actions were taken in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal
proceeding, if he had no reasonable cause to believe his conduct was unlawful,
provided that any such proceeding is not by or in the right of the corporation.
Section 14A:2-7(3) of the New Jersey Business Corporation Act enables a
corporation in its certificate of incorporation to limit the liability of
directors and officers of the corporation to the corporation or its
shareholders. Specifically, the certificate of incorporation may provide that
directors and officers of the corporation will not be personally liable for
money damages for breach of a duty as a director or an officer, except for
liability (i) for any breach of the director's or officer's duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involve a knowing violation of law, (iii) as to directors only,
under Section 14A:6-12(1) of the New Jersey Business Corporation Act, which
relates to unlawful declarations of dividends or other distributions of assets
to shareholders or the unlawful purchase of shares of the corporation, or (iv)
for any transaction from which the director or officer derived an improper
personal benefit.
The registrant's Amended and Restated Certificate of Incorporation limits
the liability of its directors and officers as authorized by Section 14A:2-7(3).
The affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of the capital stock of the Company is required to amend such
provisions.
Article 11 of the registrant's Amended and Restated By-laws specifies that
the registrant shall indemnify its directors, officers, employees and agents to
the extent such parties are a party to any action because he was a director,
officer, employee or agent of the Company. The Company has agreed to indemnify
such parties for their actual and reasonable expenses if such party acted in
good faith and in a manner he reasonably believed to be in the best interests of
the Company and such party had no reasonable cause to believe his conduct was
unlawful. This provision of the By-laws is deemed to be a contract between the
registrant and each director and officer who serves in such capacity at any time
while such provision and the relevant provisions of the New Jersey Business
Corporation Act are in effect, and any repeal or modification thereof shall not
offset any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. The
affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of the capital stock of the Company is required to adopt,
amend or repeal such provision of the By-laws.
The registrant has executed indemnification agreements with each of its
officers and directors pursuant to which the registrant has agreed to indemnify
such parties to the full extent permitted by law, subject to certain exceptions,
if such party becomes subject to an action because such party is a director,
officer, employee, agent or fiduciary of the Company.
The registrant intends to obtain liability insurance for the benefit of its
directors and officers which will provide coverage for losses of directors and
officers for liabilities arising out of claims against such persons acting as
directors or officers of the registrant (or any subsidiary thereof) due to any
breach of duty, neglect, error, misstatement, misleading statement, omission or
act done by such directors and officers, except as prohibited by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the registrant as to which indemnification is being
sought nor is the registrant aware of any threatened litigation that may result
in claims for indemnification by any director or officer.
II-1
<PAGE> 64
Reference is made to Section 6 of the Underwriting Agreement, the proposed
form of which is filed as Exhibit One, in which the Underwriters agree to
indemnify the directors and officers of the registrant and certain other
persons, against civil liabilities, including certain liabilities under the
Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized estimate of fees and expenses
payable by the registrant in connection with the offering described in this
registration statement, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 10,706.90
NASD filing fee......................................................... 3,605.00
Nasdaq/NNM listing fee.................................................. 44,500.00
Counsel fees and expenses............................................... 225,000.00
Accounting fees and expenses............................................ 200,000.00
Blue sky fees and expenses.............................................. 20,000.00
Printing expenses....................................................... 120,000.00
Transfer agent and registrar fees....................................... 5,000.00
Miscellaneous........................................................... 11,188.10
----------
Total......................................................... $640,000.00
==========
</TABLE>
All of the above expenses will be paid by the registrant.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to all securities of the registrant sold
by the registrant within the past three years which were not registered under
the Securities Act:
1. On March 31, 1994, the registrant issued an aggregate of 8,135,111
shares of Common Stock (on a post-stock split recapitalization basis) to
Messrs. Koneru and Valluripalli in exchange for all of the issued and
outstanding shares of Oxford Systems Inc.
2. On April 19, 1996, the registrant issued to two venture capital
funds 9.0% subordinated debentures with warrants to purchase up to 20.8% of
the Common Stock of the Company for an aggregate purchase price of
$6,000,000.
No underwriter was employed by the registrant in connection with the
issuance and sale of the securities described above. The registrant claims that
the issuance and sale of all of the foregoing securities were exempt from
registration under Section 4(2) of the Securities Act as transactions not
involving any public offering. Appropriate legends were affixed to the stock
certificates issued in such transactions. All recipients had adequate access to
information about the registrant.
There were no other securities sold by the registrant within the past three
years.
II-2
<PAGE> 65
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
1(*) Form of Underwriting Agreement.
3.1(*) Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
4.1 Debenture and Warrant Purchase Agreement dated April 10, 1996 by and between the
Company, Messrs. Pandey, Koneru and Valluripalli and Summit Ventures IV, L.P. and
Summit Investors III, L.P.
4.2 Warrant Agreement dated April 10, 1996 by and between the Company and Summit
Ventures IV, L.P. and Summit Investors III, L.P.
4.3 Registration Rights Agreement dated April 10, 1996 by and between the Company and
Summit Ventures IV, L.P. and Summit Investors III, L.P.
4.4 Redemption Agreement dated April 10, 1996 by and between the Company and Summit
Ventures IV, L.P. and Summit Investors III, L.P.
4.5 Shareholders Agreement dated April 10, 1996 by and between the Company, Messrs.
Pandey, Koneru and Valluripalli and Summit Ventures IV, L.P. and Summit Investors
III, L.P.
5(*) Opinion of Buchanan Ingersoll as to validity of Common Stock.
10.1 1996 Stock Plan of the Company.
10.2 1996 Non-Employee Director Stock Option Plan.
10.3 Employment Agreement dated June 1, 1996 between the Company and Ashok Pandey.
10.4 Employment Agreement dated June 1, 1996 between the Company and Rajkumar Koneru.
10.5 Employment Agreement dated June 1, 1996 between the Company and Nagarjun
Valluripalli.
10.6 Employment Agreement dated June 1, 1996 between the Company and Robert M. Olanoff,
together with Change in Control Severance Pay Agreement dated June 1, 1996 between
the Company and Robert M. Olanoff.
10.7 Employment Agreement dated June 1, 1996 between the Company and Paul Coombs.
10.8 Form of Indemnification Agreement entered into by the Company and each of its
directors and officers.
10.9 Sublease Agreement between Micrognosis, Inc., as sublessor, the Company, as
sublessee, with master lease.
10.10 Employee's Invention Assignment and Confidentiality Agreement.
10.11 R/3 National Implementation Partner Agreement between SAP America, Inc. and the
Company dated January 13, 1995.
10.12 Services Provider Agreement by and between Oracle Corporation and the Company
dated July 26, 1994.
10.13(*) Amended and Restated Agreement by Messrs. Pandey, Koneru and Valluripalli dated
July 16, 1996 to indemnify the Company for certain losses.
10.14 Factoring Agreement by and between Access Capital, Inc. and the Company dated as
of October 20, 1995, with exhibits.
10.15(*) Agreement of Waiver and Consent dated as of June 4, 1996 by and among the Company,
the current shareholders of the Company, and Summit Ventures IV, L.P. and Summit
Investors III, L.P., with Amendment No. 1 thereto.
10.16(*) Agreement by and between the Company and Intelligroup Asia Private Limited
("Intelligroup Asia") relating to operational control of Intelligroup Asia, with
related agreements.
11(*) Statement re: Computation of per share earnings.
16 Letter re: Change of Certifying Accountant.
21(*) Subsidiaries of the Registrant.
</TABLE>
II-3
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
23.1(*) Consent of Arthur Andersen LLP.
23.2(*) Consent of Buchanan Ingersoll (contained in the opinion filed as Exhibit 5 to the
Registration Statement).
24 Powers of Attorney of certain officers and directors of the Company (contained on
the signature page of this Registration Statement).
27.1(*) Financial Data Schedule for the year ended December 31, 1995.
27.2(*) Financial Data Schedule for the quarter ended March 31, 1996.
</TABLE>
- ---------------
* Filed herewith. All other exhibits previously filed.
(b) Financial Statement Schedules
All financial statement schedules are omitted because the information is
not required, or is otherwise included in the consolidated financial statements
or the notes thereto.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers, and controlling persons of the registrant pursuant to
the provisions described in Item 24, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) For purpose of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) At the closing specified in the Underwriting Agreement, registrant
shall provide the Underwriters certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-4
<PAGE> 67
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned, in
the Township of Iselin, State of New Jersey, on July 16, 1996.
Intelligroup, Inc.
By: /s/ ASHOK PANDEY
------------------------------------
Ashok Pandey, President, and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ --------------
<S> <C> <C>
/s/ ASHOK PANDEY President, Chief Executive Officer July 16, 1996
- ------------------------------------- and Director
Ashok Pandey
* Vice President -- Business Solutions July 16, 1996
- ------------------------------------- and Director
Rajkumar Koneru
* Vice President -- Advanced July 16, 1996
- ------------------------------------- Technology and Director
Nagarjun Valluripalli
/s/ ROBERT M. OLANOFF Chief Financial Officer, Treasurer July 16, 1996
- ------------------------------------- and Secretary
Robert M. Olanoff
* Director July 16, 1996
- -------------------------------------
Kevin P. Mohan
* Director July 16, 1996
- -------------------------------------
Thomas S. Roberts
</TABLE>
- ---------------
* By his signature set forth below the undersigned, pursuant to duly authorized
powers of attorney filed with the Securities and Exchange Commission, has
signed this Amendment to the Registration Statement on behalf of the persons
indicated.
By: /s/ ROBERT M. OLANOFF
---------------------------------------------
Robert M. Olanoff (Attorney-in-fact)
II-5
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------ ----------
<S> <C> <C>
1(*) Form of Underwriting Agreement.
3.1(*) Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
4.1 Debenture and Warrant Purchase Agreement dated April 10, 1996 by and
between the Company, Messrs. Pandey, Koneru and Valluripalli and Summit
Ventures IV, L.P. and Summit Investors III, L.P.
4.2 Warrant Agreement dated April 10, 1996 by and between the Company and
Summit Ventures IV, L.P. and Summit Investors III, L.P.
4.3 Registration Rights Agreement dated April 10, 1996 by and between the
Company and Summit Ventures IV, L.P. and Summit Investors III, L.P.
4.4 Redemption Agreement dated April 10, 1996 by and between the Company and
Summit Ventures IV, L.P. and Summit Investors III, L.P.
4.5 Shareholders Agreement dated April 10, 1996 by and between the Company,
Messrs. Pandey, Koneru and Valluripalli and Summit Ventures IV, L.P. and
Summit Investors III, L.P.
5(*) Opinion of Buchanan Ingersoll as to validity of Common Stock.
10.1 1996 Stock Plan of the Company.
10.2 1996 Non-Employee Director Stock Option Plan.
10.3 Employment Agreement dated June 1, 1996 between the Company and Ashok
Pandey.
10.4 Employment Agreement dated June 1, 1996 between the Company and Rajkumar
Koneru.
10.5 Employment Agreement dated June 1, 1996 between the Company and Nagarjun
Valluripalli.
10.6 Employment Agreement dated June 1, 1996 between the Company and Robert
M. Olanoff, together with Change in Control Severance Pay Agreement
dated June 1, 1996 between the Company and Robert M. Olanoff.
10.7 Employment Agreement dated June 1, 1996 between the Company and Paul
Coombs.
10.8 Form of Indemnification Agreement entered into by the Company and each
of its directors and officers.
10.9 Sublease Agreement between Micrognosis, Inc., as sublessor, the Company,
as sublessee, with master lease.
10.10 Employee's Invention Assignment and Confidentiality Agreement.
10.11 R/3 National Implementation Partner Agreement between SAP America, Inc.
and the Company dated January 13, 1995.
10.12 Services Provider Agreement by and between Oracle Corporation and the
Company dated July 26, 1994.
10.13(*) Amended and Restated Agreement by Messrs. Pandey, Koneru and
Valluripalli dated July 16, 1996 to indemnify the Company for certain
losses.
10.14 Factoring Agreement by and between Access Capital, Inc. and the Company
dated as of October 20, 1995, with exhibits.
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ------------------------------------------------------------------------ ----------
<S> <C> <C>
10.15(*) Agreement of Waiver and Consent dated as of June 4, 1996 by and among
the Company, the current shareholders of the Company, and Summit
Ventures IV, L.P. and Summit Investors III, L.P., with Amendment No. 1
thereto.
10.16(*) Agreement by and between the Company and Intelligroup Asia Private
Limited ("Intelligroup Asia") relating to operational control of
Intelligroup Asia, with related agreements.
11(*) Statement re: Computation of per share earnings.
16 Letter re: Change of Certifying Accountant.
21(*) Subsidiaries of the Registrant.
23.1(*) Consent of Arthur Andersen LLP.
23.2(*) Consent of Buchanan Ingersoll (contained in the opinion filed as Exhibit
5 to the Registration Statement).
24 Powers of Attorney of certain officers and directors of the Company
(contained on the signature page of this Registration Statement).
27.1(*) Financial Data Schedule for the year ended December 31, 1995.
27.2(*) Financial Data Schedule for the quarter ended March 31, 1996.
</TABLE>
- ---------------
* Filed herewith. All other exhibits previously filed.
<PAGE> 1
2,250,000 Shares
INTELLIGROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
__, 1996
COWEN & COMPANY
MONTGOMERY SECURITIES
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Intelligroup, Inc., a New Jersey corporation (the
"Company"), and the selling shareholders named in Schedule B hereto (the
"Selling Shareholders") propose to sell, pursuant to the terms of this
Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of 2,250,000 shares of
Common Stock, par value $.01 per share (the "Common Stock") of the Company. The
aggregate of 2,250,000 shares so proposed to be sold is hereinafter referred to
as the "Firm Stock." The Company and the Selling Shareholders listed in Schedule
B hereto also propose to sell to the Underwriters, upon the terms and conditions
set forth in Section 3 hereof, up to an additional 337,500 shares of Common
Stock (the "Optional Stock"). The Firm Stock and the Optional Stock are
hereinafter collectively referred to as the "Stock." Cowen & Company ("Cowen")
and Montgomery Securities ("Montgomery") are acting as representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives."
2. (a) Representations, Warranties and Agreements of the Company. The
Company represents and warrants to, and agrees with, the several Underwriters
that:
(i) A registration statement on Form SB-2 (File No. 333-5981)
in the form in which it became or becomes effective and also in such
form as it may be when any post-effective amendment thereto shall
become effective with respect to the Stock, including any preeffective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the Securities Act of 1933, as amended
<PAGE> 2
(the "Securities Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, copies of which have heretofore been
delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been
filed with the Commission under the Securities Act; one or more
amendments to such registration statement, including in each case an
amended preeffective prospectus, copies of which amendments have
heretofore been delivered to you, have been so prepared and filed. If
it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or,
(A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act, the term "Prospectus"
as used in this Agreement means the prospectus in the form included in
the Registration Statement as supplemented by the addition of the Rule
430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are delivered
pursuant to Rule 434 under the Securities Act, then (i) the term
"Prospectus" as used in this Agreement means the "prospectus subject to
completion" (as such term is defined in Rule 434(g) under the
Securities Act) as supplemented by (a) the addition of Rule 430A
information or other information contained in the form of prospectus
delivered pursuant to Rule 434(b)(2) under the Securities Act or (b)
the information contained in the term sheets described in Rule
434(b)(3) under the Securities Act, and (ii) the date of such
prospectuses shall be deemed to be the date of the term sheets. The
term "Preeffective Prospectus" as used in this Agreement means the
prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
Prospectus.
-2-
<PAGE> 3
(ii) The Commission has not issued or threatened to issue any
order preventing or suspending the use of any Preeffective Prospectus,
and, at its date of issue, each Preeffective Prospectus conformed in
all material respects with the requirements of the Securities Act and
did not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; and, when the Registration Statement
becomes effective and at all times subsequent thereto up to and
including each Closing Date, the Registration Statement and the
Prospectus and any amendments or supplements thereto contained and will
contain all material statements and information required to be included
therein by the Securities Act and conformed and will conform in all
material respects to the requirements of the Securities Act and neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the Prospectus
or any such amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter, directly or through you, or by any Selling
Shareholder, specifically for use in the preparation thereof; there is
no franchise, lease, contract, agreement or document required to be
described in the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or
filed therein as required; and all descriptions of any such franchises,
leases, contracts, agreements or documents contained in the
Registration Statement are accurate and complete descriptions of such
documents in all material respects. The Company satisfies the
requirements for the use of Form SB-2 under the Securities Act.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, nor entered into any transactions
not in the ordinary course of business, and there has not been any
material adverse change in the condition (financial or otherwise),
properties,
-3-
<PAGE> 4
business, management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole, or any change
in the capital stock or short-term or long-term debt of the Company and
its subsidiaries considered as a whole. The Company and its
subsidiaries have no material contingent obligations which are not
disclosed in the Company's financial statements which are included in
the Registration Statement, as it may be amended or supplemented.
(iv) The financial statements, together with the related notes
and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the respective
periods therein specified. Such statements and related notes and
schedules have been prepared in accordance with generally accepted
accounting principles in the United States applied on a consistent
basis except as may be set forth in the Prospectus. The selected
financial and statistical data set forth in the Prospectus under the
caption "Selected Consolidated Financial Data" fairly present, on the
basis stated in the Registration Statement, the information set forth
therein.
(v) Arthur Andersen LLP, who have expressed their opinions on
the audited financial statements included in the Registration Statement
and the Prospectus, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(vi) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as corporations
under the laws of their respective jurisdictions of organization, with
power and authority (corporate and other) to own or lease their
properties and to conduct their businesses as described in the
Prospectus; the Company and its subsidiaries are in possession of and
operating in compliance with all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders
required for the conduct of their businesses, all of which are valid
and in full force and effect; and the Company and each of such
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in all other jurisdictions where their ownership
or leasing of properties or the conduct of their businesses requires
such qualification, except for those jurisdictions in which the failure
to so qualify has not had and will not have a material adverse effect
on the
-4-
<PAGE> 5
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company and its
subsidiaries considered as a whole. The Company and each of its
subsidiaries has all requisite power and authority, and all necessary
consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public regulatory
or governmental agencies and bodies to own, lease and operate its
properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and no such
consent, approval, authorization, order, registration, qualification,
license or permit contains a materially burdensome restriction not
adequately disclosed in the Registration Statement and the Prospectus.
The Company owns all of the issued and outstanding capital stock of
Oxford Systems, Inc. and Intelligroup New Zealand Ltd. and neither the
Company nor any of its subsidiaries owns or controls, directly or
indirectly, any other corporations, associations or other entities.
(vii) The Company's authorized and outstanding capital stock
is on the date hereof, and will be on the Closing Dates as set forth
under the heading "Capitalization" in the Prospectus; the information
set forth under the caption "Capitalization" in the Prospectus (after
giving effect to the transactions therein described) is true and
correct; the outstanding shares of Common Stock (including the
outstanding shares of Stock) of the Company conform to the description
thereof in the Prospectus and have been duly authorized and validly
issued and are fully paid and nonassessable and have been issued in
compliance with all federal and state securities laws and were not
issued in violation of or subject to any preemptive rights or similar
rights to subscribe for or purchase securities. Except as disclosed in
and or contemplated by the Prospectus and the financial statements of
the Company and related notes and schedules thereto included in the
Prospectus, the Company does not have outstanding any options or
warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option and other
stock plans or arrangements, and the options or other rights granted or
exercised thereunder, as set forth in the Prospectus, accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights. All outstanding shares of
capital stock of each subsidiary have been duly authorized and
-5-
<PAGE> 6
validly issued, and are fully paid and nonassessable and are owned
directly by the Company or by another wholly owned subsidiary of the
Company free and clear of any liens, charges, encumbrances, equities or
claims.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will conform to the description
thereof in the Prospectus.
(ix) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries or affiliates is a party or of which any property of the
Company or any subsidiary or affiliate is subject, which, if determined
adversely to the Company or any such subsidiary or affiliate, might
individually or in the aggregate (A) prevent or adversely affect the
transactions contemplated by this Agreement, (B) suspend the
effectiveness of the Registration Statement, (C) prevent or suspend the
use of the Preeffective Prospectus in any jurisdiction or (D) result in
a material adverse change in the condition (financial or otherwise),
properties, business, management, prospects, net worth or results of
operations of the Company and its subsidiaries considered as a whole;
and to the best of the Company's knowledge no such proceedings are
threatened or contemplated against the Company or any subsidiary or
affiliate by governmental authorities or others. The Company is not a
party nor subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body or other
governmental agency or body ("Governmental Authority"). All of the
Company's litigation required to be disclosed pursuant to the Rules and
Regulations has been disclosed and the description of the Company's
litigation under the heading "Business -- Legal Proceedings" in the
Prospectus is true and correct and complies with the Rules and
Regulations.
(x) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of or
constitute a default (or an event which with notice or lapse of time,
or both, would constitute a default) under any indenture, mortgage,
deed of trust, note agreement or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it or any
of its properties is or may be bound,
-6-
<PAGE> 7
the Amended and Restated Certificate of Incorporation, Amended and
Restated By-laws or other organizational documents of the Company or
any of its subsidiaries, or any law, order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or will
result in the creation of a lien.
(xi) No consent, approval, authorization or order of any court
or governmental agency or body is required or necessary in connection
with the execution and delivery by the Company or for the consummation
by the Company of the transactions contemplated by this Agreement,
except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the Securities Act or
the securities or "Blue Sky" laws of any jurisdiction in connection
with the purchase and distribution of the Stock by the Underwriters.
(xii) The Company has the full corporate power and authority
to enter into this Agreement to perform its obligations hereunder
(including to issue, sell and deliver the Stock) and this Agreement has
been duly and validly authorized, executed and delivered by the Company
and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent
that rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or the public policy underlying such
laws.
(xiii) Except as disclosed in the Prospectus with respect to
unrecorded and unpaid federal and state payroll-related taxes and with
respect to possible past violations of the Immigration Reform and
Control Act of 1990, the Company and its subsidiaries are in all
material respects in compliance with, and conduct their businesses in
conformity with, all applicable federal, state, local and foreign laws,
rules and regulations or any court or governmental agency or body; to
the knowledge of the Company, otherwise than as set forth in the
Registration Statement and the Prospectus, no prospective change in any
of such federal, state, local or foreign laws, rules or regulations has
been adopted which, when made effective, would have a material adverse
effect on the operations of the Company and its subsidiaries. The
Company has not engaged in a "pattern and practice" of violations of
the Immigration Reform and Control Act of 1990 or any similar laws,
rules or regulations. In the ordinary course of business, employees of
the Company conduct periodic reviews of the effect of Environmental
Laws (as defined below) on the business operations and properties of
the Company and
-7-
<PAGE> 8
its subsidiaries, in the ordinary course of which they seek to identify
and evaluate associated costs and liabilities. Except as disclosed in
the Registration Statement, the Company and its subsidiaries are in
compliance with all applicable existing federal, state, local and
foreign laws, rules and regulations relating to the protection of human
health or the environment or imposing liability or requiring standards
of conduct concerning any Hazardous Materials ("Environmental Laws"),
except for such instances of noncompliance which, either singly or in
the aggregate, would not have a material adverse effect. The term
"Hazardous Material" means (A) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (B) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (C) any petroleum
or petroleum product, (D) any polychlorinated biphenyl and (E) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of
any other Environmental Law.
(xiv) Except as disclosed in the Prospectus with respect to
unrecorded and unpaid federal and state payroll-related taxes, the
Company and its subsidiaries have filed all necessary federal, state,
local and foreign income, payroll, franchise and other tax returns and
have paid all taxes shown as due thereon or with respect to any of
their properties; and there is no tax deficiency that has been, or to
the knowledge of the Company is likely to be, asserted against the
Company or any of its subsidiaries or any of their respective
properties or assets that would adversely affect the financial
position, business or results of operations of the Company and its
subsidiaries. All tax liabilities have been adequately provided for in
the consolidated financial statements of the Company.
(xv) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement or otherwise,
except for Summit Investors III, L.P. and Summit Ventures IV, L.P.
which have the right to require the registration of its shares of Firm
Stock and Optimal Stock pursuant to the registration rights agreement
described in the Prospectus.
(xvi) Neither the Company nor any of its officers, directors
or affiliates has taken or will take, directly or indirectly, any
action designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in,
-8-
<PAGE> 9
or which might in the future reasonably be expected to cause or result
in, stabilization or manipulation of the price of any security of the
Company.
(xvii) The Company has provided you with all financial
statements of the Company and its subsidiaries since December 31, 1993
to the date hereof that are available to the officers of the Company,
including financial statements for the quarters ended March 31, 1996
and June 30, 1996.
(xviii) The Company and its subsidiaries own or possess all
patents, trademarks, trademark registrations, service marks, service
mark registrations, tradenames, copyrights, licenses, inventions, trade
secrets and rights described in the Prospectus as being owned by them
or any of them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary
or any challenge by any other person to the rights of the Company and
its subsidiaries with respect to the foregoing. The Company's business
as now conducted and as proposed to be conducted does not and will not
infringe or conflict with in any material respect patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses or
other intellectual property or franchise right of any person. Except as
described in the Prospectus, no claim has been made against the Company
alleging the infringement by the Company of any patent, trademark,
service mark, tradename, copyright, trade secret, license in or other
intellectual property right or franchise right of any person.
(xix) The Company and its subsidiaries have performed all
material obligations required to be performed by them under all
contracts required by Item 601(b)(10) of Regulation S-B under the
Securities Act to be filed as exhibits to the Registration Statement,
and neither the Company nor any of its subsidiaries nor any other party
to such contract is in default under or in breach of any such
obligations. Neither the Company nor any of its subsidiaries has
received any notice of such default or breach.
(xx) The Company is not involved in any labor dispute nor is
any such dispute threatened. The Company is not aware that (A) any
executive, key employee or significant group of employees of the
Company or any subsidiary plans to terminate employment with the
Company or any such subsidiary or (B) any such executive or key
employee is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreement that would be violated by
the
-9-
<PAGE> 10
present or proposed business activities of the Company and its
subsidiaries. Neither the Company nor any subsidiary has or expects to
have any liability for any prohibited transaction or funding deficiency
or any complete or partial withdrawal liability with respect to any
pension, profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to which
the Company or any subsidiary makes or ever has made a contribution and
in which any employee of the Company or any subsidiary is or has ever
been a participant. With respect to such plans, the Company and each
subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(xxi) The Company has obtained the written agreement described
in Section 8(l) of this Agreement from each of its officers, directors
and holders of Common Stock listed on Schedule C hereto.
(xxii) The Company and its subsidiaries have, and the Company
and its subsidiaries as of the Closing Dates will have, good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned or proposed to be owned
by them which is material to the business of the Company or of its
subsidiaries, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as
would not have a material adverse effect on the Company and its
subsidiaries considered as a whole; and any real property and buildings
held under lease by the Company and its subsidiaries or proposed to be
held after giving effect to the transactions described in the
Prospectus are, or will be as of each Closing Date, held by them under
valid, subsisting and enforceable leases with such exceptions as would
not have a material adverse effect on the Company and its subsidiaries
considered as a whole, in each case except as described in or
contemplated by the Prospectus.
(xxiii) The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are customary in the businesses in which
they are engaged or propose to engage after giving effect to the
transactions described in the Prospectus (except as described in the
Prospectus with respect to errors and omissions insurance); and neither
the Company nor any of its subsidiaries has any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not
-10-
<PAGE> 11
materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its
subsidiaries considered as a whole, except as described in or
contemplated by the Prospectus.
(xxiv) Other than as contemplated by this Agreement, there is
no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxv) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of doing Business with Cuba, and
the Company further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking
and Finance (the "Department"), whichever date is later, the Company
will provide the Department notice of such business in a form
acceptable to the Department.
(xxvi) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles in the United
States and to maintain accountability for assets; (C) access to assets
is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxvii) Neither the Company nor any of its subsidiaries nor
any director, employee or agent of the Company or any of its
subsidiaries has made any payment of funds of the Company or any of its
subsidiaries or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus.
(xxviii) Neither the Company nor any of its subsidiaries is,
or will become, as a result of the consummation of the transactions
contemplated by this
-11-
<PAGE> 12
Agreement, and application of the net proceeds therefrom as described
in the Prospectus, an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended.
(xxix) Neither the Company nor any of its subsidiaries is or
intends to become (a) a controlled foreign corporation, as such term is
defined in the Internal Revenue Code of 1986, as amended (the "Code"),
(b) a passive foreign investment company within the meaning of Section
1296(a) of the Code or (c) a foreign personal holding corporation, as
such term is defined in the Code.
(xxx) Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company as to the
matters covered thereby.
(xxxi) The Common Stock has been approved for quotation and
trading on the Nasdaq National Market, subject to official notice of
effectiveness.
(xxxii) The Company has paid in full: (a) the $814,000
Internal Revenue Service assessment described in the Prospectus and (b)
the $150,000 in state tax assessments, including state tax assessments
in New Jersey, California and in any other states which are material.
(xxxiii) [Intelligroup Asia]
For purposes of the foregoing representations and warranties which are
conditioned by reference to the knowledge of the Company, the Company shall be
charged with the knowledge of each Selling Shareholder.
(b) Representations, Warranties and Agreements of the Selling
Shareholders. Each Selling Shareholder represents and warrants to, and agrees
with, the several Underwriters that such Selling Shareholder:
(i) Now has, and on each Closing Date will have, valid and
marketable title to the Stock to be sold by such Selling Shareholder,
free and clear of any lien, claim, security interest or other
encumbrance, including, without limitation, any restriction on
transfer, and has full right, power and authority to enter into this
Agreement, the Power of Attorney and the Custody Agreement (each as
hereinafter defined), and, to the extent such Selling Shareholder is a
corporation or a partnership, has been duly organized and is validly
-12-
<PAGE> 13
existing and in good standing as a corporation or partnership, as
applicable, under the laws of its jurisdiction of organization.
(ii) Now has, and on each Closing Date will have, upon
delivery of and payment for each share of Stock hereunder, full right,
power, authority and any approval required by law to sell, transfer,
assign and deliver the Stock being sold by such Selling Shareholder
hereunder, and each of the several Underwriters will acquire valid and
marketable title to all of the Stock being sold to the Underwriters by
such Selling Shareholder, free and clear of any liens, encumbrances,
equities claims, restrictions on transfer or other defects whatsoever.
(iii) For a period of 180 days after the date of this
Agreement, without the consent of Cowen, such Selling Shareholder will
not offer to sell, sell, contract to sell or otherwise dispose of any
capital stock or securities convertible into or exchangeable for
capital stock, including, without limitation, capital stock which may
be deemed to be beneficially owned by such Selling Shareholder in
accordance with the Rules and Regulations, except for the Stock being
sold hereunder or as set forth in the agreement under Section 8(l)
herein.
(iv) Has duly executed and delivered a power of attorney, in
substantially the form heretofore delivered to the Representatives (the
"Power of Attorney"), appointing David J. Sorin, or his duly appointed
substitute as attorney-in-fact (the "Attorneys-in-fact") with authority
to execute and deliver this Agreement on behalf of such Selling
Shareholder, to authorize the delivery of the shares of Stock to be
sold by such Selling Shareholder hereunder and otherwise to act on
behalf of such Selling Shareholder in connection with the transactions
contemplated by this Agreement.
(v) Has duly executed and delivered a custody agreement, in
substantially the form heretofore delivered to the Representatives (the
"Custody Agreement"), with Buchanan Ingersoll as custodian (the
"Custodian"), pursuant to which certificates in negotiable form for the
shares of Stock to be sold by such Selling Shareholder hereunder have
been placed in custody for delivery under this Agreement.
(vi) Has, by execution and delivery of each of this Agreement,
the Power of Attorney and the Custody Agreement, created valid and
binding obligations of such Selling
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<PAGE> 14
Shareholder, enforceable against such Selling Shareholder in accordance
with its terms, except to the extent that rights to indemnity hereunder
may be limited by federal or state securities laws or the public policy
underlying such laws.
(vii) The performance of this Agreement, the Custody Agreement
and the Power of Attorney, and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation by such Selling Shareholder of any of the terms or provisions
of, or constitute a default by such Selling Shareholder under, any
indenture, mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other agreement or instrument
to which such Selling Shareholder is a party or by which such Selling
Shareholder or any of its properties is bound, or any judgment of any
court or governmental agency or body applicable to such Selling
Shareholder or any of its properties, or to such Selling Shareholder's
knowledge, any statute, decree, order, rule or regulation of any court
or governmental agency or body applicable to such Selling Shareholder
or any of its properties.
(viii) Neither such Selling Shareholder nor any of its
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might
in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(ix) Has no reason to believe that the representations and
warranties of the Company contained in this Section 2 are not true and
correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed
in the Registration Statement which has adversely affected or may
adversely affect the business of the Company or any of its
subsidiaries; and the sale of the Shares by such Selling Shareholder
pursuant hereto is not prompted by any materially adverse information
concerning the Company or any of its subsidiaries which is not set
forth in the Registration Statement. The information pertaining to the
Selling Shareholder under the caption "Selling Shareholder" in the
Prospectus is complete and accurate in all material respects.
Each Selling Shareholder agrees that the shares of Stock represented by
the certificates held in custody under the Custody Agreement are for the benefit
of and coupled with and subject to the interests of the Underwriters, the other
Selling Shareholders
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<PAGE> 15
and the Company hereunder, and that the arrangement for such custody and the
appointment of the Attorneys-in-fact are irrevocable; that the obligations of
such Selling Shareholder hereunder shall not be terminated by operation of law,
whether by the death or incapacity, liquidation or distribution of such Selling
Shareholder, or any other event, that if such Selling Shareholder should die or
become incapacitated or is liquidated or dissolved or any other event occurs,
before the delivery of the Stock hereunder, certificates for the Stock to be
sold by such Selling Shareholder shall be delivered on behalf of such Selling
Shareholder in accordance with the terms and conditions of this Agreement and
the Custody Agreement, and action taken by the Attorneys-in-fact or any of them
under the Power of Attorney shall be as valid as if such death, incapacity,
liquidation or dissolution or other event had not occurred, whether or not the
Custodian, the Attorneys-in-fact or any of them shall have notice of such death,
incapacity, liquidation or dissolution or other event.
(c) Additional Representations, Warranties and Agreements of the
Principal Shareholders. Each of Ashok Pandey, Rajkumar Koneru and Nagarjun
Valluripalli (individually, a "Principal Shareholder") represents and warrants
to, and agrees with, the several Underwriters that:
(i) Such Principal Shareholder has duly executed and delivered
the Indemnification Agreement, dated June 5, 1996 (the "Indemnification
Agreement"), among the Company and the Selling Shareholders, the Escrow
Agreement, dated ___, 1996 (the "Escrow Agreement") among ______, and
Pledge Agreement, dated _____, 1996 (the "Pledge Agreement"), among
______.
(ii) Such Principal Shareholder has, by execution and delivery
of the Indemnification Agreement, the Escrow Agreement and the Pledge
Agreement, created valid and binding obligations of such Principal
Shareholder, enforceable against such Principal Shareholder in
accordance with the respective terms of such agreements.
(iii) The execution, delivery and performance by such
Principal Shareholder of the Indemnification Agreement, the Escrow
Agreement and the Pledge Agreement, and the compliance by such
Principal Shareholder with his obligations thereunder, will not
conflict with, or result in a breach or violation of any of the terms
or provisions of, or constitute a default (or an event with notice or
lapse of time, or both, would constitute a default) by such Principal
Shareholder under any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument to which such Principal Shareholder is a
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<PAGE> 16
party or by which such Principal Shareholder or any of his properties
is bound, or any judgment of any court or governmental agency or body
applicable to such Principal Shareholder or any of his properties, or
to such Principal Shareholder's knowledge, any statute, decree, order,
rule or regulation of any court or governmental agency or body
applicable to such Principal Shareholder or any of his properties.
(iv) Such Principal Shareholder has, and on the First Closing
Date will have, valid and marketable title to the shares of Common
Stock to be pledged by such Principal Shareholder, pursuant to the
Pledge Agreement (the "Pledged Shares") free and clear of any lien,
claim, security interest or other encumbrance; upon delivery to the
escrow agent of the certificates evidencing the Pledged Shares by such
Principal Shareholder on the First Closing Date, the security interest
granted by the Pledge Agreement will constitute a valid, perfected
first priority lien on the Pledged Shares, enforceable as such against
all creditors of such Principal Shareholder and any persons purporting
to purchase any of the Pledged Shares from such Principal Shareholder.
(v) Upon delivery by such Principal Shareholder to the escrow
agent identified in the Escrow Agreement (the "Escrow Agent") of the
escrowed cash (the "Escrowed Cash") provided for in the Escrow
Agreement on the First Closing Date, the security interest granted by
the Escrow Agreement will constitute a valid, perfected first priority
lien on the Escrowed Cash, enforceable as such against all creditors of
such Principal Shareholder.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing Dates.
The Company and the Selling Shareholders agree, severally and not jointly, to
sell to the Underwriters the Firm Stock, with the number of shares to be sold by
the Company and each Selling Shareholder being the number of Shares set opposite
his, her or its name in Schedule B; and on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase the Firm Stock from the Company and the Selling
Shareholders, the number of shares of Firm Stock to be purchased by each
Underwriter being set opposite its name in Schedule A, subject to adjustment in
accordance with Section 12 hereof. The number of shares of Stock to be purchased
by each Underwriter from each Selling Shareholder hereunder shall bear the same
proportion to the total number of shares of Stock to be purchased by such
Underwriter hereunder as the number of shares of stock being sold by each
Selling Shareholder bears to the total number of shares of Stock
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<PAGE> 17
being sold by all Selling Shareholders, subject to adjustment by the
Representatives to eliminate fractions.
The purchase price per share to be paid by the Underwriters to the
Company and the Selling Shareholders net of underwriting commissions will be
$________ per share (the "Purchase Price").
The Company and the Selling Shareholders will deliver the Firm Stock to
the Representatives for the respective accounts of the several Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company and the Selling Shareholders given at or prior to 12:00 Noon, New York
Time, on the second full business day preceding the First Closing Date (as
defined below) or, if no such direction is received, in the names of the
respective Underwriters or in such other names as Cowen may designate (solely
for the purpose of administrative convenience) and in such denominations as
Cowen may determine, against payment of the aggregate Purchase Price therefor by
[wire transfer], certified or official bank check or checks in Clearing House
funds (next day funds), payable to the order of the Company and each Selling
Shareholder as more fully set forth in Schedule D, all at the offices of Willkie
Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York
10022. The time and date of the delivery and closing shall be at 10:00 a.m., New
York Time, on , 1996, in accordance with Rule 15c6-1 of the Exchange Act. The
time and date of such payment and delivery are herein referred to as the "First
Closing Date." The First Closing Date and the location of delivery of, and the
form of payment for, the Firm Stock may be varied by agreement among the
Company, the Selling Shareholders and Cowen. The First Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company and the Selling Shareholders shall make the certificates
for the Stock available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 a.m., New York Time, on the business day
preceding the First Closing Date at the offices of Cowen & Company, Financial
Square, New York, New York 10005.
It is understood that Cowen or Montgomery, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company or to the Selling Shareholders on behalf of any
Underwriter or Underwriters, for the Stock to be purchased by such Underwriter
or Underwriters. Any such payment by Cowen or Montgomery shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly
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<PAGE> 18
advise the Company and the Selling Shareholders of the making of the initial
public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, each
Selling Shareholder hereby grants to the Underwriters an option to purchase,
severally and not jointly, up to the aggregate number of shares of Optional
Stock set forth opposite each such Selling Shareholder's name on Schedule B
hereto, for an aggregate of up to 337,500 shares. The price per share to be paid
for the Optional Stock shall be the Purchase Price. The option granted hereby
may be exercised as to all or any part of the Optional Stock at any time, and
from time to time, not more than thirty (30) days subsequent to the effective
date of this Agreement. No Optional Stock shall be sold and delivered unless the
Firm Stock previously has been, or simultaneously is, sold and delivered. The
right to purchase the Optional Stock or any portion thereof may be surrendered
and terminated at any time upon notice by the Underwriters to the Company and
the Selling Shareholders.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Selling Shareholders setting forth the
number of shares of the Optional Stock to be purchased by them and the date and
time for delivery of and payment for the Optional Stock. Each date and time for
delivery of and payment for the Optional Stock (which may be the First Closing
Date, but not earlier) is herein called the "Option Closing Date" and shall in
no event be earlier than two (2) business days nor later than ten (10) business
days after written notice is given. (The Option Closing Date and the First
Closing Date are herein called the "Closing Dates" and each a "Closing Date.")
All purchases of Optional Stock from the Selling Shareholders shall be made on a
pro rata basis. Optional Stock shall be purchased for the account of each
Underwriter in the same proportion as the number of shares of Firm Stock set
forth opposite such Underwriter's name in Schedule B hereto bears to the total
number of shares of Firm Stock (subject to adjustment by the Underwriters to
eliminate odd lots). Upon exercise of the option by the Underwriters, each
Selling Shareholder agrees to sell to the Underwriters the number of shares of
Optional Stock set forth in the written notice of exercise and the Underwriters
agree, severally and not jointly and subject to the terms and conditions herein
set forth, to purchase the number of such shares determined as aforesaid.
The Selling Shareholders will deliver the Optional Stock to the
Representatives (in the form of definitive certificates, issued in such names
and in such denominations as the Representatives may direct by notice in writing
to the Selling Shareholders given at or prior to 12:00 Noon, New York Time, on
the second full business day preceding the Option Closing Date or, if no such
direction is received, in the names of the respective Underwriters or in such
other names as Cowen may designate (solely for the purpose of administrative
convenience) and in such
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<PAGE> 19
denominations as Cowen may determine, against payment of the aggregate Purchase
Price therefor by [wire transfer], certified or official bank checks in Clearing
House funds (next day funds), payable to the order of each Selling Shareholder
all at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022. The Selling Shareholders shall make the
certificates for the Optional Stock available to the Underwriters for
examination not later than 10:00 a.m., New York Time, on the business day
preceding the Option Closing Date at the offices of Cowen & Company, Financial
Square, New York, New York 10005. The Option Closing Date and the location of
delivery of, and the form of payment for, the Option Stock may be varied by
agreement between and among the Company, the Selling Shareholders and Cowen. The
Option Closing Date may be postponed pursuant to the provisions of Section 12.
4. Covenants and Agreements of the Company and the Selling
Shareholders.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) if the Company and the
Representatives have determined not to proceed pursuant to Rule 430A,
use its best efforts to cause the Registration Statement to become
effective, (B) if the Company and the Representatives have determined
to proceed pursuant to Rule 430A, use its best efforts to comply with
the provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and (C)
if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use
its best efforts to comply with all the applicable provisions thereof.
The Company will advise the Representatives promptly as to the time at
which the Registration Statement becomes effective, will advise the
Representatives promptly of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, and will use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible the lifting thereof, if issued. The Company
will advise the Representatives promptly of the receipt of any comments
of the Commission or any request by the Commission for any amendment of
or supplement to the Registration Statement or the Prospectus or for
additional information and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which shall
not previously have been submitted to the Representatives a reasonable
time prior to the proposed filing thereof or to which the
Representatives shall reasonably object in writing or
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<PAGE> 20
which is not in compliance with the Securities Act and the Rules and
Regulations.
(ii) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus which in
the opinion of the Representatives may be necessary to enable the
several Underwriters to continue the distribution of the Stock and will
use its best efforts to cause the same to become effective as promptly
as possible.
(iii) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock is
required to be delivered under the Securities Act any event relating to
or affecting the Company or any of its subsidiaries occurs as a result
of which the Prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the
Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus which
will correct such statement or omission; and in case any Underwriter is
required to deliver a prospectus relating to the Stock nine (9) months
or more after the effective date of the Registration Statement, the
Company upon the request of the Representatives and at the expense of
such Underwriter will prepare promptly such prospectus or prospectuses
as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act.
(iv) The Company will deliver to the Representatives, at or
before the Closing Date, signed copies of the Registration Statement,
as originally filed with the Commission, and all amendments thereto
including all financial statements and exhibits thereto, and will
deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements but without
exhibits, and all amendments thereto, as the Representatives may
reasonably request. The Company will deliver or mail to or upon the
order of the Representatives, from time to time until the effective
date of the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on the
date of the initial public offering, and thereafter from time to time
during the
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<PAGE> 21
period when delivery of a prospectus relating to the Stock is required
under the Securities Act, as many copies of the Prospectus, in final
form or as thereafter amended or supplemented as the Representatives
may reasonably request; provided, however, that the expense of the
preparation and delivery of any prospectus required for use nine (9)
months or more after the effective date of the Registration Statement
shall be borne by the Underwriters required to deliver such prospectus.
(v) The Company will make generally available to its
shareholders as soon as practicable, but not later than fifteen (15)
months after the effective date of the Registration Statement, an
earnings statement which will be in reasonable detail (but which need
not be audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
(vi) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering and sale by
the Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may designate and at the request
of the Representatives will make such applications and furnish such
consents to service of process or other documents as may be required of
it as the issuer of the Stock for that purpose; provided, however, that
the Company shall not be required to qualify to do business or to file
a general consent (other than that arising out of the offering or sale
of the Stock) to service of process in any such jurisdiction where it
is not now so subject. The Company will, from time to time, prepare and
file such statements and reports as are or may be required of it as the
issuer of the Stock to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for the
distribution of the Stock. The Company will advise the Representatives
promptly after the Company becomes aware of the suspension of the
qualifications or registration of (or any such exception relating to)
the Common Stock of the Company for offering, sale or trading in any
jurisdiction or of any initiation or threat of any proceeding for any
such purpose, and in the event of the issuance of any orders suspending
such qualifications, registration or exception, the Company will, with
the cooperation of the Representatives use its best efforts to obtain
the withdrawal thereof.
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<PAGE> 22
(vii) The Company will furnish to its shareholders annual
reports containing financial statements certified by independent public
accountants and with quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five (5)
years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters,
as soon as they are available, copies of each annual report of the
Company and each other report furnished by the Company to its
shareholders and will deliver to the Representatives, (A) as soon as
they are available, copies of any other reports (financial or other)
which the Company shall publish or otherwise make available to any of
its shareholders as such, (B) as soon as they are available, copies of
any reports and financial statements furnished to or filed with the
Commission or any national securities exchange and (C) from time to
time such other information concerning the Company as you may
reasonably request. So long as the Company has active subsidiaries,
such financial statements will be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its shareholders generally. Separate financial
statements shall be furnished for all subsidiaries whose accounts are
not consolidated but which at the time are significant subsidiaries as
defined in the Rules and Regulations.
(viii) The Company will file with the NASD all documents and
notices required by the NASD of companies that have securities
designated on the Nasdaq National Market and will use its best efforts
to list, subject to official notice of effectiveness, on the Nasdaq
National Market, the Stock to be issued and sold by the Company.
(ix) The Company will maintain a transfer agent and registrar
for its Common Stock.
(x) Prior to filing its quarterly statements on Form 10-Q or
10-QSB, as the case may be, the Company will have its independent
auditors perform a limited quarterly review of its quarterly numbers,
provided, however, that such review for two full years commencing the
quarter immediately following consummation of the Offering shall be in
accordance with standards and procedures as set forth in the Statement
on Auditing Standards No. 71.
(xi) The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise
dispose of, other than by operation of law, gifts, pledges or
dispositions by
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<PAGE> 23
estate representatives, any shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock
(including, without limitation, Common Stock of the Company which may
be deemed to be beneficially owned by the undersigned in accordance
with the Rules and Regulations) during the 180 days following the date
on which the price of the Common Stock to be purchased by the
Underwriters is set, other than the Company's sale of Common Stock
hereunder and the Company's issuance of Common Stock upon the exercise
of warrants and stock options which are presently outstanding and
described in the Prospectus.
(xii) The Company will apply the net proceeds from the sale of
the Stock as set forth in the description under "Use of Proceeds" in
the Prospectus, which description complies in all respects with the
requirements of Item 504 of Regulation S-B.
(xiii) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(xiv) Prior to each Closing Date the Company will furnish to
you, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company and its
subsidiaries for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the
Prospectus.
(xv) Prior to each Closing Date the Company will issue no
press release or other communications directly or indirectly and hold
no press conference with respect to the Company or any of its
subsidiaries, the financial condition, results of operation, business,
prospects, assets or liabilities of any of them, or the offering of the
Stock, without your prior written consent. For a period of twelve (12)
months following the later Closing Date, the Company will use its best
efforts to provide to you copies of each press release or other public
communications with respect to the financial condition, results of
operations, business, prospects, assets or liabilities of the Company
concurrently with, or as soon as may reasonably be practicable after
the issuance thereof.
(xvi) During the period of five (5) years hereafter, the
Company will furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (A) as soon as
practicable after the end of each fiscal year,
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<PAGE> 24
copies of the Annual Report of the Company containing the balance sheet
of the Company as of the close of such fiscal year and statements of
income, stockholder's equity and cash flows for the year then ended and
the opinion thereon of the Company's independent public accountants;
(B) as soon as practicable after the filing thereof, copies of each
proxy statement, Annual Report on Form 10-K or Form 10-KSB, as the case
may be, Quarterly Report on Form 10-Q or Form 10-QSB, as the case may
be, Report on Form 8-K or other report filed by the Company with the
Commission, or the NASD or any securities exchange; and (C) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock. The Company will deliver to
the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(xvii) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(b) Each Selling Shareholder, severally and not jointly, covenants and
agrees with the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock or other capital stock of the Company or other
securities convertible, exchangeable or exercisable for shares of
Common Stock or derivative of shares of Common Stock owned by such
Selling Shareholder or request by such Selling Shareholder for the
registration for the offer or sale of any of the foregoing (or as to
which such Selling Shareholder has the right to direct the disposition)
will be made for a period of 180 days after the date of this Agreement,
directly or indirectly, by such Selling Shareholder otherwise than
hereunder, as set forth in Section 8(l) herein or with the prior
written consent of Cowen.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, each
Selling Shareholder agrees to the extent required by applicable law or
regulation to deliver to you prior to or at the First Closing Date a
properly completed and executed United States Treasury Department Form
W-9 (or
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<PAGE> 25
other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
5. Payment of Expenses. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of the obligations of the Company and of the Selling
Shareholders under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to (i) all expenses and taxes
incident to the issuance and delivery of the Stock to the Representatives; (ii)
all expenses incident to the registration of the Stock under the Securities Act;
(iii) the costs of preparing stock certificates (including printing and
engraving costs); (iv) all fees and expenses of the registrar and transfer agent
of the Stock; (v) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Stock to the Underwriters; (vi)
fees and expenses of the Company's counsel and the Company's independent
accountants; (vii) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preeffective Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, the Selling Shareholders' Powers of Attorney and Custody Agreement,
the "Agreement Among Underwriters" between the Representatives and the
Underwriters, the Master Selected Dealers' Agreement, the Underwriters'
Questionnaire and the Blue Sky memoranda and this Agreement; (viii) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with exemptions from the qualifying or registering (or obtaining
qualification or registration of) all or any part of the Stock for offer and
sale and determination of its eligibility for investment under the Blue Sky or
other securities laws of such jurisdictions as the Representatives may
designate; (ix) all fees and expenses paid or incurred in connection with
filings made with the NASD; and (x) all other costs and expenses incident to the
performance of their obligations hereunder which are not otherwise specifically
provided for in this Section.
(b) Except as otherwise agreed with the Company with respect to the
Summit Selling Shareholders (as defined herein), each Selling Shareholder will
pay (directly or by reimbursement) all fees and expenses incident to the
performance of such Selling Shareholder's obligations under this Agreement which
are not otherwise specifically provided for herein, including but not limited to
any fees and expenses of counsel for such Selling Shareholder, such Selling
Shareholder's pro rata share of fees and expenses of the Attorneys-in-fact and
the Custodian and all
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expenses and taxes incident to the sale and delivery of the Stock to be sold by
such Selling Shareholder to the Underwriters hereunder.
(c) In addition to their other obligations under Section 6(a) hereof,
the Company and each Selling Shareholder, jointly and severally, agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon (i) any statement or
omission or any alleged statement or omission or (ii) any breach or inaccuracy
in their representations and warranties, that they will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
and each Selling Shareholder's obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company and each Selling Shareholder, as the
case may be, together with interest, compounded daily, determined on the basis
of the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Citibank, N.A., New York, New
York (the "Prime Rate"). Any such interim reimbursement payments which are not
made to an Underwriter in a timely manner as provided below shall bear interest
at the Prime Rate from the due date for such reimbursement. This expense
reimbursement agreement will be in addition to any other liability which the
Company or any Selling Shareholder may otherwise have. The request for
reimbursement will be sent to the Company with a copy to each Selling
Shareholder. In the event that the Company fails to make such reimbursement
payment within thirty (30) days of the reimbursement request, the
Representatives shall notify the Selling Shareholders of their obligation to
make such reimbursement payments within fifteen (15) days; provided, however,
that each Selling Shareholder shall be required to advance at such time only its
pro rata portion of the reimbursement payment. To the extent that any Selling
Shareholder fails to pay its pro rata portion in timely response to the
Underwriters' request, the other Selling Shareholders shall be jointly and
severally liable for such reimbursement payment and each shall render such
payment to the Representatives within fifteen (15) days of written demand
therefor by the Representatives.
(d) In addition to its other obligations under Section 6(b) hereof,
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in Section 6(b) hereof which relates to information
furnished to the Company pursuant to Section 6(c) hereof, it will
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reimburse the Company (and, to the extent applicable, each officer, director or
controlling person of the Company or any Selling Shareholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director or
controlling person of the Company or any Selling Shareholder) for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent applicable, each officer, director or controlling person of the Company
or any Selling Shareholder) shall promptly return it to the Underwriters
together with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments which are not made to the Company
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement will be
in addition to any liability which such Underwriter may otherwise have.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in paragraph (c) and/or (d) of
this Section 5 and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of
Section 6.
6. Indemnification and Contribution. (a) Each of the Company and each
Principal Shareholder, who comprise three of the Selling Shareholders, jointly
and severally, agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls such Underwriter within the meaning of the
Securities Act and the respective officers, directors, partners, employees,
representatives and agents of each of such Underwriter (collectively, the
"Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified
Party"), against any losses, claims, damages, liabilities or expenses (including
the reasonable cost of investigating and defending against any claims therefor
and counsel
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fees incurred in connection therewith), joint or several, which arise out of or
are based in whole or in part upon the Securities Act, the Exchange Act or any
other federal, state, local or foreign statute or regulation, or at common law,
on the ground or alleged ground that any Preeffective Prospectus, the
Registration Statement or the Prospectus (or any Preeffective Prospectus, the
Registration Statement or the Prospectus as from time to time amended or
supplemented) includes or allegedly includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company through the Representatives by or on behalf of any Underwriter
specifically for use in the preparation thereof. Each of the Company and each
Principal Shareholder will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Company or any such Principal Shareholder
elects to assume the defense, such defense shall be conducted by counsel chosen
by it. In the event the Company or any such Principal Shareholder elects to
assume the defense of any such suit and retain such counsel, any Underwriter
Indemnified Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) the
Company or such Principal Shareholder shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include any such
Underwriter Indemnified Parties, and the Company or such Principal Shareholder
and such Underwriter Indemnified Parties at law or in equity have been advised
by counsel to the Underwriters that one or more legal defenses may be available
to it or them which may not be available to the Company or such Principal
Shareholder, in which case the Company or such Selling Shareholder shall not be
entitled to assume the defense of such suit notwithstanding its obligation to
bear the fees and expenses of such counsel. This indemnity agreement is not
exclusive and will be in addition to any liability which each of the Company and
each Principal Shareholder might otherwise have and shall not limit any rights
or remedies which may otherwise be available at law or in equity to each
Underwriter Indemnified Party.
(b) Each of Summit Investors III, L.P. and Summit Ventures IV, L.P.
(the "Summit Selling Shareholders"), who comprise two of the Selling
Shareholders, severally and not jointly, agrees to indemnify and hold harmless
each Underwriter Indemnified Party against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which arise out of or are based in whole or in
part upon the Securities Act, the Exchange Act or any other federal, state,
local or foreign statute or regulation, or at common law, on the ground or
alleged ground that any Preeffective Prospectus, the Registration Statement or
the Prospectus (or any
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Preeffective Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading in each case only
to the extent that the untrue statement or alleged untrue statement or the
omission or the alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Summit
Selling Shareholder specifically for inclusion therein; provided, that, with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any Preeffective Prospectus, the indemnity agreement contained
in this subsection (b) shall not inure to the benefit of any Underwriter
Indemnified Party from whom the person asserting any such losses, claims,
damages or liabilities purchased the shares of Stock concerned to the extent
that any such loss, claim, damage or liability of such Underwriter Indemnified
Party results from the fact that a copy of the Prospectus was not sent or given
to which person at or prior to the written confirmation of the sale of such
shares of Stock to such person as required by the Securities Act and if the
untrue statement or omission concerned has been corrected in the Prospectus,
unless such failure resulted from non-compliance by the Company with Section
4(a)(ii). Such Summit Selling Shareholder will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if such Summit Selling
Shareholder elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event such Summit Selling Shareholder elects to
assume the defense of any such suit and retain such counsel, any Underwriter
Indemnified Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) such
Summit Selling Shareholder shall have specifically authorized the retaining of
such counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties, and such Summit Selling Shareholder and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel to the
Underwriters that one or more legal defenses may be available to it or them
which may not be available to such Summit Selling Shareholder, in which case
such Summit Selling Shareholder shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the fees and expenses of such
counsel. The liability if a Summit Selling Shareholder under this Section 6(b)
shall not exceed the net proceeds (before deducting offering expenses) received
by such Summit Selling Shareholder from the sale of Stock in the Offering. This
indemnity agreement is not exclusive and will be in addition to any liability
which each Summit Selling Shareholder might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
each Underwriter Indemnified Party.
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<PAGE> 30
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act (collectively, the "Company Indemnified
Parties") and each Selling Shareholder and each person, if any, who controls a
Selling Shareholder within the meaning of the Securities Act (collectively, the
"Shareholder Indemnified Parties"), against any losses, claims, damages,
liabilities or expenses (including, unless the Underwriter or Underwriters elect
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, which arise out of or are based in whole or in part upon the
Securities Act, the Exchange Act or any other federal, state, local or foreign
statute or regulation, or at common law, on the ground or alleged ground that
any Preeffective Prospectus, the Registration Statement or the Prospectus (or
any Preeffective Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company through the Representatives by or on behalf
of any Underwriter, specifically for use in the preparation thereof; provided,
however, that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party or Shareholder Indemnified
Party against whom the action is brought unless such Company Indemnified Party
or Shareholder Indemnified Party shall have notified such Underwriter in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
Indemnified Party or Shareholder Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party or Shareholder Indemnified Party otherwise
than on account of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to enforce any
such liability, but, if such Underwriter elects to assume the defense, such
defense shall be conducted by counsel chosen by it. In the event that any
Underwriter elects to assume the defense of any such suit and retain such
counsel, the Company Indemnified Parties or Shareholder Indemnified Parties and
any other Underwriter or Underwriters or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, respectively. The Underwriter against whom
indemnity may be sought shall not be liable to indemnify any person for any
settlement of any such claim effected without such Underwriter's consent. This
indemnity agreement is not exclusive and will be in addition to any liability
which such Underwriter might otherwise have and shall not limit any
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<PAGE> 31
rights or remedies which may otherwise be available at law or in equity to any
Company Indemnified Party or Shareholder Indemnified Party.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other from the offering
of the Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company , the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, defending, settling or
compromising any such claim. Notwithstanding the provisions of this subsection
(d), (x) no Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the public
exceeds the
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amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission, and (y) no Summit Selling Shareholder shall be required to contribute
any amount in excess of the net proceeds (before deducting offering expenses)
received by such Summit Selling Shareholder from the sale of Stock in the
Offering. The Underwriters' obligations to contribute are several in proportion
to their respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Shareholders, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations
of the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof, at and as of each
Closing Date, of the representations and warranties made herein by the Company
and the Selling Shareholders, to compliance at and as of each Closing Date by
the Company and the Selling Shareholders with their covenants and agreements
herein contained and other provisions hereof to be satisfied at or prior to the
Closing Dates, and to the following additional conditions:
(a) The Registration Statement shall have become effective and
no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations, shall
have been made in the manner and within the time period required by
Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may
be.
(b) The Representatives shall have been satisfied that there
shall not have occurred any change, on a consolidated basis, prior to
each Closing Date in the condition (financial or otherwise),
properties, business,
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management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole, or any change in
the capital stock, short-term or long-term debt of the Company and its
subsidiaries considered as a whole, such that (i) the Registration
Statement or the Prospectus, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the opinion of the
Representatives, is material, or omits to state a fact which, in the
opinion of the Representatives, is required to be stated therein or is
necessary to make the statements therein not misleading, or (ii) it is
unpracticable in the reasonable judgment of the Representatives to
proceed with the public offering or purchase the Stock as contemplated
hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's or the Selling Shareholders' ability to perform their
respective obligations under this Agreement shall have been instituted
or threatened and there shall have occurred no material adverse
development in any such existing action, suit or proceeding.
(d) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP,
independent certified public accountants, a letter, dated the date
hereof, in form and substance satisfactory to the Underwriters.
(e) The Representatives shall have received from Arthur
Andersen LLP, independent certified public accountants, a letter, dated
each Closing Date, to the effect that such accountants reaffirm, as of
each Closing Date, and as though made on each Closing Date, the
statements made in the letter furnished by such accountants pursuant to
paragraph (d) of this Section 8.
(f) The Representatives shall have received from Buchanan
Ingersoll, counsel for the Company and the Selling Shareholders, an
opinion, dated each Closing Date, addressed to the Underwriters to the
effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of New Jersey.
(ii) The Company has corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Registration Statement and to
enter into and perform its obligations under the Underwriting
Agreement.
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(iii) To the best of such counsel's knowledge, the
Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which
such qualification is required and in which the failure to so
qualify would, individually or in the aggregate, have a
material adverse effect on the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of the Company.
(iv) Each subsidiary of the Company (excluding
Intelligroup Europe Limited and Intelligroup New Zealand
Limited, as to which no opinion is being rendered) has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Registration Statement and, to the best of
such counsel's knowledge, is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required and
in which the failure to so qualify would, individually or in
the aggregate, have a material adverse effect on the condition
(financial or otherwise), properties, business, management,
prospects, net worth or results of the Company and its
subsidiaries taken as a whole; and all of the issued and
outstanding capital stock of each such subsidiary has been
duly authorized and validly issued, is fully paid and
non-assessable and, to the best of such counsel's knowledge,
is owned by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or
equity, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to
convert any obligations into shares of capital or ownership
interest in any such subsidiary are outstanding.
(v) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under
"Capitalization"; and all of the outstanding shares of the
Company's capital stock, including the shares of Stock to be
sold by the Company and the Selling Shareholders pursuant to
the Underwriting Agreement, have been duly authorized and
validly issued and are fully paid and non-assessable.
(vi) The issuance and sale of the Stock by the
Company and the sale of the Stock by the Selling Shareholders
are not subject to preemptive rights
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arising by operation of law or, to the best of such counsel's
knowledge, otherwise.
(vii) The Underwriting Agreement has been duly
authorized, executed and delivered by the Company and each
Selling Shareholder.
(viii) The Power of Attorney and Custody Agreement
has been duly authorized, executed and delivered by or on
behalf of each Selling Shareholder.
(ix) Each Attorney-in-Fact has been duly authorized
by each Selling Shareholder to deliver the Stock to be so sold
by such Selling Shareholder on behalf of such Selling
Shareholder in accordance with the terms of this Agreement.
(x) Immediately prior to the applicable Closing Date,
to the best knowledge of such counsel after due inquiry of
corporate books and records, review of certificates
representing the Shares to be sold by each Selling Shareholder
and review of all representations and warranties by and
certificates from such Selling Shareholder, each Selling
Shareholder had good and valid title to the Stock to be sold
by such Selling Shareholder hereunder on such date, free and
clear of all liens, encumbrances, equities and claims.
(xi) Each Selling Shareholder has full legal right,
power and authority, and has obtained any approval required by
law (other than as required by State securities and Blue Sky
laws as to which such counsel need express no opinion), to
sell, assign, transfer and deliver the Stock to be sold by
such Selling Shareholder.
(xii) The Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial
Code) have acquired good and marketable title to the shares of
Stock being sold by the Selling Shareholders on each Closing
Date, free and clear of all liens, encumbrances, equities and
claims.
(xiii) Except as described in the Prospectus, to such
counsel's knowledge, there are no outstanding securities of
the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock
of the Company and there are no outstanding or authorized
options, warrants or rights of any character obligating the
Company to issue any shares of its capital stock or
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<PAGE> 36
any securities convertible or exchangeable into or evidencing
the right to purchase or subscribe for any shares of such
stock; and except as described in the Prospectus, to such
counsel's knowledge, no holder of any securities of the
Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived,
to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the shares of
Stock or the right to have any shares of Stock or other
securities of the Company included in the Registration
Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the
Securities Act of any shares of Stock or other securities of
the Company.
(xiv) The Registration Statement is effective under
the Securities Act and, to the best of such counsel's
knowledge, no stop order proceedings with respect thereto have
been instituted or are pending or threatened under the
Securities Act and all filings required by Rule 424(b) of the
Rules and Regulations have been timely made.
(xv) At the time the Registration Statement became
effective and on each Closing Date, the Registration
Statement, the Preeffective Prospectus, the Prospectus and
each amendment or supplement thereto (other than the financial
statements and supporting schedules including therein, as to
which no opinion need be rendered) complied as to form in all
material respects with the requirements of the Securities Act
and the Rules and Regulations.
(xvi) The shares of Stock conform to the description
thereof contained in the Prospectus, and the form of
certificate used to evidence the shares of Stock is in due and
proper form and complies with all applicable statutory
requirements.
(xvii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required,
and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized
in all material respects.
(xviii) There is no litigation or governmental or
other action, suit, proceeding or investigation before any
court or before or by any
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public, regulatory or governmental agency or body including,
but not limited to, investigations and proceedings against the
Company with respect to INS issues, known to such counsel to
be pending or threatened against, or involving the properties
or business of, the Company or any of its subsidiaries which
is of a character required to be disclosed in the Registration
Statement and the Prospectus which has not been properly
disclosed therein.
(xix) No authorization, approval, consent or order of
any court or governmental authority or agency is required in
connection with the sale of the Stock to the Underwriters,
except such as may be required under the Securities Act or the
Rules and Regulations or State securities law; to the best of
such counsel's knowledge, the execution, delivery and
performance of the Underwriting Agreement and the consummation
of the transactions contemplated herein and compliance by the
Company with its obligations hereunder will not conflict with
or constitute a breach of, or default (or an event which with
notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, any indenture,
mortgage, deed of trust, note agreement, or other agreement or
instrument to which the Company or any of its subsidiaries is
a party or by which it or any of them may be bound, or to
which any of the properties or assets of the Company or any of
its subsidiaries is subject, nor will such action result in
any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company, or any applicable
law, administrative regulation or any order, rule or
regulation known to such counsel of any court, regulatory
body, administrative agency or other governmental body having
jurisdiction over the Company or any of its subsidiaries.
(xx) The statements under the captions "Description
of Capital Stock," insofar as they purport to constitute a
summary of the terms of the share capital, "Certain
Transactions," and "Shares Eligible for Future Sale," in the
Prospectus, insofar as they constitute a summary of relevant
matters of law, the Company's Certificate of Incorporation or
documents referred to therein, and "Principal and Selling
Shareholders" are in all material respects accurate summaries
and fairly and correctly present the information called for
with respect to such documents and matters; the descriptions
of certain provisions of the Company's stock option plans
contained under the
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caption "Management" are materially accurate; and the
statements made with respect to Rule 144 under the Act set
forth in "Shares Eligible for Future Sale" are fair and
correct statements about the provisions described without
purporting to summarize or describe all material aspects of
those rules and regulations.
(xxi) The Company has outstanding warrants and
options to purchase shares of the Company's capital stock as
set forth in the Prospectus; and all of such issued warrants
and granted options have been duly and validly authorized by
the Company and conform to the descriptions thereof contained
in the Prospectus.
(xxii) To the best of such counsel's knowledge, and
except as disclosed in the Registration Statement and
Prospectus, nothing has come to such counsel's attention which
indicates that the Company is not conducting its business in
compliance with all laws, rules and regulations of the United
States of America and of the State of New Jersey except for
such violations that would not, individually or in the
aggregate, have a material adverse effect on the Company's
condition (financial or otherwise), properties, business,
management, prospects, net worth or results.
(xxiii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by
the Underwriting Agreement, and application of the net
proceeds therefrom as described in the Prospectus, required to
register as an investment company under the Investment Company
Act.
(xxiv) The Company is not and will not become, as a
result of the consummation of the transactions contemplated by
the Underwriting Agreement, and the application of the net
proceeds therefrom as described in the Prospectus, (a) a
controlled foreign corporation, as such term is defined in the
Code, (b) a passive foreign investment company within the
meaning of Section 1296(a) of the Code or (c) a foreign
personal holding corporation, as such term is defined in the
Code.
(xxv) The shares of Stock to be sold under the
Underwriting Agreement to the Underwriters are duly authorized
for quotation and trading on the Nasdaq National Market,
subject to official notice of issuance.
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<PAGE> 39
(xxvi) To the best of such counsel's knowledge, the
Company is not subject to any current claim and has not
received any notice of infringement or other violation of any
copyright, copyright application, trade secret, trademark,
service mark, trademark registration or other proprietary
information or materials (collectively, "Intellectual
Property") of others; to the best of such counsel's knowledge
and except as set forth in the Prospectus, (A) there are no
legal or governmental proceedings pending relating to
Intellectual Property owned or used by the Company or any of
its subsidiaries, other than review of pending copyright
applications and trademark or service mark registrations, and
(B) no such proceedings, including without limitation
interference proceedings, are currently threatened or
contemplated by governmental authorities or others; such
counsel has no knowledge of any facts which would preclude the
Company from having clear title to the Company's Intellectual
Property. Except as otherwise described in the Prospectus,
such counsel has no knowledge of any facts that the Company
lacks any rights or licenses to use all Intellectual Property
materially necessary to the conduct of its business as now
being or proposed to be conducted by the Company as described
in the Prospectus. To such counsel's knowledge, the Company
has not received any notice of conflict with rights or claims
of others with respect to any Intellectual Property owned or
currently being used by, or intended to be used by it, except
as described in the Prospectus.
(xxvii) The Indemnification Agreement, the Escrow
Agreement and the Pledge Agreement have been duly executed and
delivered by each of the Principal Shareholders and each
constitutes the legal, valid and binding obligation of such
Principal Shareholder, enforceable against such Principal
Shareholder in accordance with its terms and, in the case of
the Indemnification Agreement, except as such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles
relating to the availability of remedies.
(xxviii) To the best of such counsel's knowledge, the
execution, delivery and performance of the Indemnification
Agreement, the Escrow Agreement and the Pledge Agreement and
the compliance by the Principal Shareholders with their
obligations thereunder will not conflict with, or constitute a
breach of, or default (or an event which with notice or
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<PAGE> 40
lapse of time, or both, would constitute a default) by any
Principal Shareholder under any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which
any Principal Shareholder or any of his properties is bound,
or any judgment of any court or governmental agency or body
applicable to such Principal Shareholder or any of his
properties, or to any statute, decree, order, rule or
regulation of any court or governmental agency or body
applicable to such Principal Shareholder or any of his
properties.
(xxix) The provisions of the Escrow Agreement and the
Pledge Agreement are effective to create in favor of the
Escrow Agent for the benefit of the Company a valid and
enforceable security interest in the cash and Pledged Shares
described therein. Upon the delivery to the Escrow Agent of
certificates evidencing (a) such Pledged Shares and duly
executed transfer instruments with respect thereto and (b) the
cash provided for in the Escrow Agreement, the Pledge
Agreement and the Escrow Agreement, respectively, will create
in favor of the Escrow Agent for the benefit of the Company a
perfected security interest in such Pledged Shares and cash
which will rank prior to any security interest which may be
created under the Uniform Commercial Code of the State of New
Jersey. In rendering the foregoing opinion, such counsel may
assume that the Escrow Agent is acting in good faith and
without notice or knowledge of any adverse claim to any of
such Pledged Shares.
(xxx) [Intelligroup Asia opinions]
In rendering such opinion, Buchanan Ingersoll may rely (A) as
to all matters governed other than by United States federal laws and
the laws of the State of New Jersey and on local counsel in the
relevant jurisdictions reasonably satisfactory to the Representatives
and counsel to the Underwriters, provided that in each case Buchanan
Ingersoll shall state that they believe that they and the Underwriters
are justified in relying on such other counsel; and (B) as to matters
of fact, to the extent they deem proper, on the representations and
warranties of the Company set forth in this Agreement and on
certificates of responsible officers of the Company or its subsidiaries
and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company or of its
subsidiaries; provided
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<PAGE> 41
that copies of any such statements or certificates shall be delivered
to counsel to the Underwriters. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that the Registration Statement, as of the time it became
effective under the Securities Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the
Securities Act), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any amendment or supplement thereto, on the date it was
filed pursuant to Rule 424(b), and the Registration Statement and the
Prospectus, or any amendment or supplement thereto, as of each Closing
Date, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (except that such counsel need express no
view as to financial statements, schedules and other financial
information included therein). With respect to such statement, Buchanan
Ingersoll may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(g) The Representatives shall have received from Fragomen, Del
Rey & Bernsen, P.C. ("Fragomen"), special immigration counsel for the
Company and the Selling Shareholders, an opinion, dated each Closing
Date, addressed to the Underwriters to the effect that:
(i) To the best of such counsel's knowledge, (x) the
total amount of any fines that the Company would become
obligated to pay for all violations of the Immigration Reform
and Control Act of 1990 and any other similar laws, rules or
regulations (collectively, the "INS Regulations") would not
exceed $150,000 and the and (y) it is unlikely that the INS
will institute a proceeding against the Company alleging a
"pattern and practice" of illegal conduct under applicable INS
Regulations based on violations that have occurred to date.
(ii) The statements under the caption "Legal
Proceedings," insofar as they relate to INS matters, are in
all material respects accurate summaries and fairly and
correctly present the investigations of the Company by the
Immigration and Naturalization Service or any other
Governmental Authority concerning violations of the INS
Regulations.
(iii) There is no litigation or governmental or other
action, suit, proceeding or investigation
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<PAGE> 42
before any court or before or by any public, regulatory or
governmental agency or body with respect to matters arising
under the INS Regulations known to such counsel to be pending
or threatened against, or involving the properties or business
of, the Company or any of its subsidiaries which is of a
character required to be disclosed in the Registration
Statement and the Prospectus which has not been properly
disclosed therein.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that, with
respect to all INS related issues, the Registration Statement, as of
the time it became effective under the Securities Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A
under the Securities Act), contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus or any amendment or supplement thereto, on the date it was
filed pursuant to Rule 424(b), and the Registration Statement and the
Prospectus, or any amendment or supplement thereto, as of each Closing
Date, with respect to such INS-related issues, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. With respect to such statement, Fragomen may state that
their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(h) The Representatives shall have received from Willkie Farr
& Gallagher counsel for the Underwriters, their opinion or opinions
dated each Closing Date with respect to the incorporation of the
Company, the validity of the Stock, the Registration Statement and the
Prospectus and such other related matters as it may reasonably request,
and the Company and the Selling Shareholders shall have furnished to
such counsel such documents as they may request for the purpose of
enabling them to pass upon such matters.
(i) The Representatives shall have received a certificate,
dated each Closing Date, of the chief executive officer or the
President and the chief financial or accounting officer of the Company
to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of
the knowledge of the signers, no proceedings for that purpose
have
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<PAGE> 43
been instituted or are pending or contemplated under the
Securities Act;
(ii) Neither any Preeffective Prospectus, as of its
date, nor the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, as of the time when the
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries
has incurred any material liabilities or obligations, direct
or contingent, nor entered into any material transactions not
in the ordinary course of business and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the
capital stock, short-term or long-term debt of the Company and
its subsidiaries considered as a whole;
(iv) The representations and warranties of the
Company in this Agreement are true and correct at and as of
each Closing Date, and the Company has complied with all the
agreements and performed or satisfied all the conditions on
its part to be performed or satisfied at or prior to each
Closing Date; and
(v) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as disclosed in or contemplated by the
Prospectus, (i) there has not been any material adverse change
or a development involving a material adverse change in the
condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole; (ii)
the business and operations conducted by the Company and its
subsidiaries have not sustained a loss by strike, fire, flood,
accident or other calamity
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<PAGE> 44
(whether or not insured) of such a character as to interfere
materially with the conduct of the business and operations of
the Company and its subsidiaries considered as a whole; (iii)
no legal or governmental action, suit or proceeding is pending
or threatened against the Company which is material to the
Company, whether or not arising from transactions in the
ordinary course of business, or which may materially and
adversely affect the transactions contemplated by this
Agreement; (iv) since such dates and except as so disclosed,
the Company has not incurred any material liability or
obligation, direct, contingent or indirect, made any change in
its capital stock (except pursuant to its stock plans), made
any material change in its short-term or funded debt or
repurchased or otherwise acquired any of the Company's capital
stock; and (v) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding
capital stock payable to stockholders of record on a date
prior to each Closing Date.
(j) The Representatives shall have received a certificate or
certificates, dated each Closing Date, of each Selling Shareholder to
the effect that as of the Closing Date its representations and
warranties in this Agreement are true and correct as if made on and as
of each Closing Date, and that it has performed all its obligations and
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Date.
(k) The Company and each Selling Shareholder shall have
furnished to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy, at
and as of the Closing Dates, of the representations and warranties made
herein by them and as to compliance at and as of each Closing Date by
them with their covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to the Closing Dates, and
as to satisfaction of the other conditions to the obligations of the
Underwriters hereunder.
(l) Cowen shall have received the written agreements of the
officers, directors and holders of Common Stock that each will not
offer, sell, assign, transfer, encumber, contract to sell, grant an
option to purchase or otherwise dispose of, other than by operation of
law, gifts, pledges or dispositions by estate representatives, any
shares of Common Stock (including, without limitation, Common Stock of
the Company which may be deemed to be beneficially owned by the
undersigned in accordance with the Rules and Regulations) during the
180 days following the date of the final
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<PAGE> 45
Prospectus, except for the Stock being sold hereunder by the Selling
Shareholders.
(m) The Indemnification Agreement, the Escrow Agreement and
the Pledge Agreement Shall have been duly executed and delivered by the
parties thereto, shall be in full force and effect and no default shall
exist thereunder; and each of the Principal Shareholders shall have
delivered to the Escrow Agent the cash, Pledged Shares and other
documents and instruments required to be delivered thereunder.
All opinions, certificates, letters and other documents will
be in compliance with the provisions hereunder only if they are
satisfactory in form and substance to the Representatives. The Company
will furnish to the Representatives conformed copies of such opinions,
certificates, letters and other documents as the Representatives shall
reasonably request. If any of the conditions hereinabove provided for
in this Section shall not have been satisfied when and as required by
this Agreement, this Agreement may be terminated by the Representatives
by notifying the Company of such termination in writing or by telegram
at or prior to each Closing Date, but Cowen shall be entitled to waive
any of such conditions.
9. Effective Date. This Agreement shall become effective immediately as
to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
10. Termination. This Agreement (except for the provisions of Section
5) may be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be terminated
by the Representatives at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at
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<PAGE> 46
or prior to the First Closing Date or the Option Closing Date (only for such
portion) trading in securities on any of the Nasdaq National Market shall have
been suspended or minimum or maximum prices shall have been established on any
such exchange or market, or a banking moratorium shall have been declared by New
York or United States authorities; (ii) trading of any securities of the Company
shall have been suspended on any exchange or in any over-the-counter market;
(iii) if at or prior to the First Closing Date or the Option Closing Date (only
for such portion) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or (B) any change in
financial markets or any calamity or crisis which, in the judgment of the
Representatives, makes it impractical or inadvisable to offer or sell the Firm
Stock or Optional Stock, as applicable on the terms contemplated by the
Prospectus; (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the Representatives, makes it impracticable
or inadvisable to offer or deliver the Firm Stock or the Optional Stock, as
applicable on the terms contemplated by the Prospectus; (v) if there shall be
any litigation or proceeding, pending or threatened, which, in the judgment of
the Representatives, makes it impracticable or inadvisable to offer or deliver
the Firm Stock or Optional Stock, as applicable, on the terms contemplated by
the Prospectus; or (vi) if there shall have occurred any of the events specified
in the immediately preceding clauses (i) - (v) together with any other such
event that makes it, in the judgment of the Representatives, impractical or
inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable
on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company or the Selling Shareholders pursuant to the first paragraph of
Section 10 or shall be terminated by the Representatives under Section 8 or
Section 10, the Company will bear and pay the expenses specified in Section 5
hereof and, in addition to its their obligations pursuant to Section 6 hereof,
the Company will reimburse the reasonable out-of-pocket expenses of the several
Underwriters (including reasonable fees and disbursements of counsel for the
Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
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<PAGE> 47
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Shareholders shall have the right to postpone any Closing Date for a
period of not more than five (5) full business days in order that the Company
and the Selling Shareholders may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company, the Selling Shareholders or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter, the Selling Shareholders or the Company, except
for expenses to be paid or reimbursed pursuant to Section 5 and except for the
provisions of Section 6.
13. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed
to you, as their Representatives c/o Cowen & Company at Financial Square, New
York, New York 10005, with a copy to Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022, Attention: William N.
Dye, except that notices given to an Underwriter pursuant to Section 6 hereof
shall be sent to such Underwriter at the address furnished by the
Representatives or, if sent to the Company or the Selling Shareholders, shall be
mailed, delivered or telegraphed and confirmed c/o Intelligroup, Inc. at 517
Route One South, Iselin, New Jersey 08330, with a copy to Buchanan Ingersoll,
College Centre, 500 College Road East, Princeton, New Jersey 08540, Attention:
David J. Sorin.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Shareholders
and their respective successors and legal representatives. Nothing expressed or
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<PAGE> 48
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Shareholders contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Shareholders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. Applicable Law; Submission to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to its conflict-of-law principles. Each of the parties
hereto consents to the jurisdiction of and venue in federal and state courts
located in the Borough of Manhattan, City and State of New York, over any suit,
action or proceeding with respect to this Agreement.
16. Authority of the Representatives. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be binding
on all the Underwriters; and any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Shareholders.
17. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
18. General. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and
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<PAGE> 49
the observance of any term of this Agreement may be waived, only by a writing
signed by the Company, the Selling Shareholders and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Shareholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Shareholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action.
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<PAGE> 50
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
INTELLIGROUP, INC.
By:____________________________
Name: Ashok Pandey
Title: President
SELLING SHAREHOLDERS LISTED
IN SCHEDULE B
By: Attorney-in-fact
By:____________________________
Attorney-in-fact
Acting on behalf of the Selling
Shareholders listed in Schedule B.
Accepted and delivered in
New York, New York as of
the date first above written.
COWEN & COMPANY
MONTGOMERY SECURITIES
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: Cowen & Company
By: Cowen Incorporated,
its general partner
By:______________________________
Title:
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<PAGE> 51
SCHEDULE A
<TABLE>
<CAPTION>
Number of
shares of
Number of Optional
shares of Stock
Firm Stock to to be
Name be Purchased Purchased
- ---- ------------- ---------
<S> <C> <C>
Cowen & Company.................
Montgomery Securities...........
------------- ---------
Total........................... 2,250,000 337,500
============= =========
</TABLE>
<PAGE> 52
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Number of Optional
Firm Shares Shares
to be Sold to be Sold
----------- ----------
<S> <C> <C>
Intelligroup, Inc................. 2,000,000 -
Selling Shareholders
- --------------------
Ashok Pandey...................... [ ] [ ]
-------- --------
Rajkumar Koneru................... [ ] [ ]
-------- --------
Nagarjun Valluripalli............. [ ] [ ]
-------- --------
Summit Investors III, L.P......... [ ] [ ]
-------- --------
Summit Ventures IV, L.P........... [ ] [ ]
-------- --------
----------- ----------
Total............................. 2,250,000 337,500
============ ==========
</TABLE>
<PAGE> 53
SCHEDULE C
Ashok Pandey
Rajkumar Koneru
Nagarjun Valluripalli
Summit Investors III, L.P.
Summit Ventures IV, L.P.
<PAGE> 1
Exhibit 3.1
CERTIFICATE REQUIRED TO BE FILED WITH THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTELLIGROUP, INC.
Pursuant to the provisions of Section 14A:9-5(5) of the New Jersey
Business Corporations Act, the undersigned corporation hereby executes the
following certificate:
1. The name of the corporation is Intelligroup, Inc. (the
"Corporation").
2. The Amended and Restated Certificate of Incorporation was
adopted by the Board of Directors of the Corporation on July 12, 1996 and by the
shareholders of the Corporation on July 12, 1996.
3. The total shares outstanding and entitled to vote thereon was
7,546,000 and all of such shares were voted in favor of the adoption of the
Amended and Restated Certificate of Incorporation.
4. The Amended and Restated Certificate of Incorporation restates,
integrates and amends in its entirety the provisions of the Corporation's
Amended and Restated Certificate of Incorporation, as amended to date. The
Amended and Restated Certificate of Incorporation provides for, among other
things, (i) the reversal of the stock split recapitalization effected on June
6, 1996 in its entirety, and (ii) the reclassification, immediately upon the
effect of such reversal of such stock split recapitalization, of each share of
issued and outstanding Common Stock, $.01 par value, into 81,351.1111 shares of
Common Stock, $.01 par value.
IN WITNESS WHEREOF, the undersigned has signed this Certificate on
behalf of the Corporation this 12th day of July, 1996.
By: _________________________________
Ashok Pandey, President
<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTELLIGROUP, INC.
Pursuant to Section 14A:9-5 of the New Jersey Business Corporation Act
(the "Act"), the undersigned corporation hereby executes this Amended and
Restated Certificate of Incorporation.
FIRST: The name of the Corporation is Intelligroup, Inc. (the
"Corporation").
SECOND: The purpose or purposes for which the Corporation is organized
is to engage in any lawful activity within the purposes for which corporations
may be organized under Title 14A of the Act.
THIRD: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is thirty million (30,000,000)
shares. The Corporation is authorized to issue two classes of stock designated
"Common Stock" and "Preferred Stock," respectively. The total number of shares
of Common Stock authorized to be issued by the Corporation is twenty-five
million (25,000,000), each such share of Common Stock having a par value of
$.01. Effective upon the effectiveness of the Company's initial public offering
of Common Stock, the total number of shares of Preferred Stock authorized to be
issued by the Corporation shall be five million (5,000,000), each such share of
Preferred Stock having a par value of $.01, all of which is undesignated.
The undesignated Preferred Stock may be issued from
time to time in one or more series. The Board of Directors of the Corporation
is hereby authorized, by adopting a resolution or resolutions and filing a
certificate or certificates pursuant to the applicable provisions of the Act,
to establish from time to time the number of shares to be included in each such
series of Preferred Stock, and to fix the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions thereof, including but not limited to the fixing or alteration of
the dividend rights, dividend rate or rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of shares of Preferred Stock, or any of them, and to increase
or decrease the number of shares of any series subsequent to the issuance of
shares of that series, but not below the number of shares of such series then
outstanding. In the event the number of shares of any series shall be so
decreased, the shares removed from such series by such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
<PAGE> 3
FOURTH: The stock split recapitalization effected on June 6, 1996 is
hereby reversed in its entirety. Immediately upon the effectiveness of such
reversal of such stock split recapitalilzation, each share of Common Stock,
$.01 par value, of the Corporation issued and outstanding is hereby
reclassified and changed into 81,351.1111 fully paid and nonassessable shares
of Common Stock, $.01 par value, of the Corporation and each holder of record
of a certificate for one or more shares of Common Stock, $.01 par value, of the
Corporation as of the close of business on the date this Amended and Restated
Certificate of Incorporation becomes effective shall be entitled to receive, as
soon as practicable, upon surrender of such certificate, a certificate or
certificates representing 81,351.1111 shares of Common Stock, $.01 par value,
for each share of Common Stock, $.01 par value, represented by the certificate
of such holder, and any fractional shares resulting will be rounded up to the
next whole share.
FIFTH: The address of the Corporation's current registered office is
517 Route One South, Iselin, New Jersey 08830 and the name of its current
registered agent at such address is Ashok Pandey.
SIXTH: The number of directors constituting the current Board of
Directors is five. The names and addresses of each of such directors is as
follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Ashok Pandey c/o Intelligroup, Inc.
517 Route One South
Iselin, New Jersey 08830
Rajkumar Koneru c/o Intelligroup, Inc.
517 Route One South
Iselin, New Jersey 08830
Nagarjun Valluripalli c/o Intelligroup, Inc.
517 Route One South
Iselin, New Jersey 08830
Kevin P. Mohan c/o Summit Partners
600 Atlantic Avenue, Suite 2800
Boston, Massachusetts 02210
Thomas S. Roberts c/o Summit Partners
600 Atlantic Avenue, Suite 2800
Boston, Massachusetts 02210
</TABLE>
SEVENTH: The following provisions are included for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and shareholders:
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<PAGE> 4
(i) The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the Bylaws of the
Corporation, subject to any limitation thereof contained in
the Bylaws. The shareholders also shall have the power to
adopt, amend or repeal the Bylaws of the Corporation;
provided, however, that, in addition to any vote of the
holders of any class or series of stock of the Corporation
required by law or by this Amended and Restated Certificate of
Incorporation, the affirmative vote of the holders of at least
eighty percent (80%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors,
voting together as a single class, shall be required to adopt,
amend or repeal any provision of the Bylaws of the
Corporation.
(ii) Upon the consummation of an initial public offering of
securities of the Corporation under the Securities Act of
1933, as amended, shareholders of the Corporation may not take
any action by written consent in lieu of a meeting.
(iii) Special meetings of shareholders may be called at any time
only by the President, the Chairman of the Board of Directors
of the Corporation (if any) or a majority of the Board of
Directors of the Corporation. Business transacted at any
special meeting of shareholders shall be limited to matters
relating to the purpose or purposes set forth in the notice of
such special meeting.
(iv) The Board of Directors of the Corporation, when evaluating any
offer of another party (a) to make a tender or exchange offer
for any equity security of the Corporation or (b) to effect a
business combination, shall, in connection with the exercise
of its judgment in determining what is in the best interests
of the Corporation as a whole, be authorized to give due
consideration to any such factors as the Board of Directors of
the Corporation determines to be relevant, including, without
limitation:
(1) the interests of the Corporation's shareholders,
including the possibility that these interests might
be best served by the continued independence of the
Corporation;
(2) whether the proposed transaction might violate
federal or state laws;
(3) not only the consideration being offered in the
proposed transaction, in relation to the then current
market price for the outstanding capital stock of the
Corporation, but also to the market price for the
capital stock of the Corporation over a period of
years, the estimated price that might be achieved in
a negotiated sale of the Corporation as a whole or in
part or through orderly liquidation, the premiums
over market price for the securities of other
corporations in similar transactions, current
political, economic and other factors bearing on
securities prices and the Corporation's financial
condition and future prospects; and
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<PAGE> 5
(4) the social, legal and economic effects upon
employees, suppliers, customers, creditors and others
having similar relationships with the Corporation,
upon the communities in which the Corporation
conducts its business and upon the economy of the
state, region and nation.
In connection with any such evaluation, the Board of Directors of the
Corporation is authorized to conduct such investigations and engage in
such legal proceedings as the Board of Directors of the Corporation
may determine.
(v) in addition to any vote of the holders of any class or series
of stock of the Corporation required by law or by this Amended
and Restated Certificate of Incorporation, the affirmative
vote of the holders of at least eighty percent (80%) of the
voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class,
shall be required to amend any provision of Articles SEVENTH
or EIGHTH of this Amended and Restated Certificate of
Incorporation.
EIGHTH: No director or officer shall be personally liable to the
Corporation or its shareholders for damages for breach of any duty owed to the
Corporation or its shareholders, except that this provision shall not relieve a
director or officer from liability for any breach of duty based on an act or
omission (a) in breach of such person's duty of loyalty to the Corporation or
its shareholders, (b) not in good faith or involving a knowing violation of
law, or (c) resulting in receipt by such person of an improper personal
benefit. No amendment to, expiration of or repeal of this Article shall have
any effect on the liability or alleged liability of any director or officer of
the Corporation for or with respect to any acts or omissions of such director
or officer occurring prior to such amendment, expiration or repeal.
IN WITNESS WHEREOF, the undersigned has signed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation this 12th
day of July, 1996.
By: ___________________________________
Ashok Pandey, President
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<PAGE> 1
Exhibit 5
BUCHANAN INGERSOLL
Attorneys
500 College Road East
Princeton, New Jersey 08540
July 17, 1996
Intelligroup, Inc.
517 Route One South
Iselin, New Jersey 08830
Gentlemen:
In connection with the Registration Statement on Form SB-2, as amended
(Registration No. 333-5981) (the "Registration Statement"), filed by
Intelligroup, Inc., a New Jersey corporation (the "Company"), under the
Securities Act of 1933, as amended, relating to the public offering of an
aggregate of up to 2,587,500 shares of the Company's Common Stock, par value of
$.01 per share, of which (a) 2,000,000 shares will be purchased by the
underwriters from the Company; (b) 250,000 shares will be purchased by the
underwriters from the existing securityholders of the Company (the "Selling
Shareholders"); and (c) up to 337,500 shares may be purchased by the
underwriters from the Selling Shareholders, if the underwriters exercise the
option granted to them by the Selling Shareholders to cover over-allotments
(collectively, the "Shares"), we, as counsel for the Company, have examined
such corporate records, other documents, and questions of law as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that in our opinion:
(i) the Shares to be issued and sold by the Company have been duly
and validly authorized and, when sold in the manner contemplated by the
underwriting agreement (the "Underwriting Agreement") filed as an exhibit to
the Registration Statement and upon receipt by the Company of payment therefor
as provided in the Underwriting Agreement, will be legally issued, fully paid
and non-assessable; and
(ii) the Shares to be sold by the Selling Shareholders are duly and
validly authorized, legally issued, fully paid and non- assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus contained therein.
/s/Buchanan Ingersoll
<PAGE> 1
EXHIBIT 10.13
AMENDED AND RESTATED
INDEMNIFICATION AGREEMENT
This Amended and Restated Agreement (the "Agreement") is made as of
July 16, 1996, by and among each of Ashok Pandey, Rajkumar Koneru and Nagarjun
Valluripalli (the "Indemnitors"), on the one hand, and Intelligroup, Inc., a New
Jersey corporation (the "Company"), on the other. This Agreement supersedes in
its entirety that certain Indemnification Agreement made as of June 5, 1996 by
and among the parties hereto and the Prior Agreement (the "Prior Agreement") is
null and void and of no further force or effect.
WHEREAS, the Company has made voluntary disclosure to the Internal
Revenue Service (the "IRS") of certain unpaid 1994 and 1995 federal tax
liabilities of the Company and, as a result thereof, has received an audit
assessment, dated June 4, 1996, from the IRS for unpaid 1994 and 1995 federal
income tax withholding, FICA and FUTA payments in the aggregate amount of
approximately $814,000 (the "Audit Assessment");
WHEREAS, the Company and the IRS have not entered into a closing
agreement as provided for under Section 7121 of the Internal Revenue Code of
1986, as amended (a "Closing Agreement"), with respect to the subject matter of
the Audit Assessment and, therefore, the matters relating to the Audit
Assessment may not have been fully and finally determined, including the
possibility that interest, penalties or additional federal taxes may be assessed
in the future relating to the subject matter of the Audit Assessment;
WHEREAS, the Company also is liable for certain unpaid 1994 and 1995
state income tax withholding and state unemployment tax liabilities and has
reserved $186,000 for estimated payment obligations (the "State Tax Reserves");
WHEREAS, the Company also may be liable for additional 1994 and 1995
state income tax withholding, state unemployment and/or other state tax,
interest or penalty payment obligations, in excess of the State Tax Reserves, in
an amount or amounts not fully determinable as of the date hereof;
WHEREAS, the Indemnitors are the principal shareholders and executive
officers of the Company;
WHEREAS, the Company currently is contemplating an initial public
offering of its Common Stock (the "IPO") whereby the Company and the
Indemnitors, together with other selling shareholders, are proposing to offer
and sell Common Stock;
WHEREAS, the Indemnitors and the Company desire to insulate the Company
and potential public shareholders from the financial impact, if any, that may be
incurred by the Company for interest, penalties, and any additional state or
additional federal taxes which may be payable in the future as a result of,
arising from or in any way relating to the subject matter of the Audit
Assessment and/or the State Tax Reserves, but only to the extent of any amounts
in excess of the total of $1,000,000 to be paid by the Company pursuant to and
in accordance with the terms of such Audit Assessment and State Tax Reserves,
and for any additional losses or expenses the Company may incur in connection
therewith, including without limitation, legal expenses the Company may incur in
enforcing its rights hereunder.
<PAGE> 2
NOW, THEREFORE, the Company and the Indemnitors hereby agree as
follows:
1. Indemnification; Escrow Deposit. Each of the Indemnitors shall
jointly and severally indemnify the Company for any and all liabilities and
losses or expenses which the Company may sustain, in excess of the total of
$1,000,000 to be paid by the Company pursuant to and in accordance with the
terms of the Audit Assessment and the State Tax Reserves, which liabilities are
a result of, arise from or are in any way related to federal or state tax,
interest or penalty payment obligations which may result from or otherwise be
related to the subject matter of the Audit Assessment and the State Tax Reserves
or which losses or expenses may be incurred by the Company in connection
therewith, including without limitation, legal expenses the Company may incur in
enforcing its rights hereunder. Any indemnification payments required to be made
hereunder shall be made by the Indemnitors within thirty (30) days of receipt by
an Indemnitor of written notice of a claim for indemnification by the Company
hereunder. The failure by the Company to provide written notice of a claim for
indemnification shall not in any way limit the Company's rights to
indemnification under this Agreement. To secure the Indemnitors' payment
obligations hereunder, but without limiting the amount of such obligations, upon
consummation of the IPO, each Indemnitor hereby agrees to deposit (i) 63,889
shares of Common Stock of the Company currently owned by such Indemnitor free
and clear of any claim, security interest or encumbrance whatsoever, other than
restrictions on resale generally applicable to unregistered securities held by
affiliates of an issuer; and (ii) $150,000 cash, with an escrow agent to be
approved by the independent members of the Board of Directors of the Company
(the "Board") and pursuant to an escrow agreement and pledge agreement
satisfactory to such members of the Board. The selection of the escrow agent and
the terms of the escrow agreement and the pledge agreement shall be subject to
the approval of Cowen & Company, one of the representatives of the several
underwriters of the IPO, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, it is expressly understood and agreed that the
indemnitor/shareholder of any shares subject to the escrow and pledge
arrangements contemplated hereby shall, in the absence of a default by such
indemnitor, continue to possess all rights of a common shareholder of the
Company, including voting rights and dividend rights, but excluding any rights
of disposition, except as may be expressly agreed in the pledge agreement or
escrow agreement. All decisions of the Company with respect to this Agreement,
and the escrow and pledge arrangements and the enforcement hereof and thereof
and the transactions and documents contemplated hereby and thereby shall be made
on behalf of the Company by the independent members of the Board.
2. Closing Agreement/Release of Collateral from Escrow. The Company
agrees to seek a Closing Agreement with the IRS, if the independent members of
the Board, in consultation with the Company's independent accountants and
counsel, conclude that seeking a Closing Agreement is in the best interests of
the Company. Upon the earlier of (i) the expiration of applicable statutes of
limitation or (ii) the execution of a Closing Agreement, if any, which, in the
opinion of counsel for the independent members of the Board, fully and finally
resolves all liabilities for federal taxes, penalties, and interest, and the
payment by the Indemnitors of any additional liabilities and expenses the
Company may incur as a result thereof, the indemnification provisions hereof
shall lapse, but
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<PAGE> 3
only as to federal tax matters and not as to state tax matters which may result
from or otherwise be related to the subject matter of the Audit Assessment or
the State Tax Reserves. At such time, and if no claims have been made against
the shares or cash held in escrow, the escrow agent shall release to each
Indemnitor 80% of the number of shares and the amount of cash initially
deposited in escrow by such Indemnitor. In any event, the balance of the number
of shares and cash held in escrow, if any, shall be released to the Indemnitors
upon the expiration of the last of the applicable statutes of limitation.
3. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives.
4. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by all of the parties hereto and expressly approved by the independent
members of the Board. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
5. Governing Law and Consent to Jurisdiction. This Agreement shall be
construed in accordance with and governed by the laws of the State of New Jersey
applicable to agreements made and to be performed entirely within such State.
Each of the indemnitors agrees to (i) the irrevocable designation of the
Secretary of State of the State of New Jersey as his agent upon whom process
against him may be served and (ii) personal jurisdiction in any action brought
in any court, Federal or State, within the State of New Jersey having subject
matter jurisdiction arising under this Agreement.
6. Integration and Entire Agreement. This Agreement sets forth the
entire understanding by and among the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements, in each instance relating to the subject matter hereof between the
parties hereto.
*****
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
_______________________
Ashok Pandey
_______________________
Rajkumar Koneru
_______________________
Nagarjun Valluripalli
INTELLIGROUP, INC.
By:____________________
Robert M. Olanoff,
Chief Financial Officer
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<PAGE> 1
Exhibit 10.15
AGREEMENT OF WAIVER AND CONSENT
This Agreement of Waiver and Consent ( the "Agreement") is made as of
June 4, 1996, by and among Intelligroup, Inc., a New Jersey corporation (the
"Company" or "Intelligroup"), the current shareholders of Intelligroup (the
"Shareholders"), and Summit Ventures IV, L.P. and Summit Investors III, L.P.
(collectively, "Summit").
WHEREAS, Intelligroup, the Shareholders and Summit are parties to that
certain Debenture and Warrant Purchase Agreement dated as of April 10, 1996 (the
"Purchase Agreement") and certain other related agreements, including (i) the
Warrant Agreement and related Warrant Certificates, (ii) the Redemption
Agreement, (iii) the Registration Rights Agreement, and (iv) the Shareholders'
Agreement, each dated as of April 10, 1996 (all defined terms used herein and
not otherwise defined herein shall have the meaning ascribed thereto in the
applicable aforementioned agreement); and
WHEREAS, the Board of Directors of Intelligroup (the "Board") has
approved a proposed underwritten initial public offering of the Common Stock of
Intelligroup (the "IPO"), in which the Company proposes to issue and sell shares
of Common Stock and certain shareholders, including the Shareholders and, upon
the exercise of the Warrants to purchase Common Stock, Summit, propose to sell
shares of Common Stock; and
WHEREAS, as a condition precedent to the consummation of the IPO,
certain waivers and amendments are necessary to the aforementioned documents;
NOW, THEREFORE, in consideration of the mutual promises herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. WAIVER OF REDEMPTION RIGHTS.
Upon the declaration of effectiveness ("Effectiveness") by the
Securities and Exchange Commission (the "SEC") of the Company's Registration
Statement filed in connection with the IPO, Summit shall waive any and all of
its redemption rights as contemplated by section 1.3 of the Purchase Agreement
and as set forth with specificity in the Redemption Agreement. Upon
Effectiveness, the Redemption Agreement shall terminate and shall be of no
further force or effect.
2. WAIVER OF LIMITATION ON OPTION SHARES.
Effective as of the date hereof, Summit hereby waives any and all
limitations as to the scope of, size of, or eligibility under, the Company's
stock option plans as set forth in Section 5.8 of the Purchase Agreement. Upon
the date hereof, such Section 5.8 shall be deemed to be deleted from the
Purchase Agreement and shall be of no further force or effect. It is understood
and agreed that the Company shall comply in all respects with the terms of the
Company's 1996 Stock
<PAGE> 2
Plan and 1996 Non-Employee Stock Option Plan, as adopted by the Board and
approved by the shareholders of the Company.
3. WAIVER OF PREEMPTIVE RIGHTS.
Effective as of the date hereof, and subject to the condition that,
from the date hereof through Effectiveness of the IPO or until the earlier
termination of the IPO, the Company not issue any securities, other than options
granted pursuant to the 1996 Stock Plan or the 1996 Non-Employee Director Stock
Option Plan or upon the exercise of outstanding options or warrants, Summit
hereby waives any and all preemptive rights set forth in or contemplated by
Article VI, Sections 6.1-6.5 of the Purchase Agreement. Upon the date hereof and
subject to the foregoing condition, such Article VI shall be deemed to be
deleted from the Purchase Agreement and shall be of no further force or effect;
provided that upon the first to occur of termination of the IPO prior to
Effectiveness or termination of this Agreement in accordance with its terms, all
such preemptive rights shall be reinstated.
4. DEFINITION OF QUALIFIED PUBLIC OFFERING.
Effective as of the date hereof, the parties hereto agree that the
definition of "Qualified Public Offering" set forth in Article XI of the
Purchase Agreement is hereby amended to provide that the minimum net proceeds to
the Company be equal to at least $15,000,000 and not $20,000,000.
5. WAIVER OF VOTING RIGHTS OF WARRANTHOLDERS.
Effective as of the date hereof, Summit hereby waives its rights to
vote as a warrant holder on an as-converted to Common Stock basis as set forth
in Section 11 of the Warrant Agreement and as provided in the Warrant
Certificates. Upon the date hereof, Section 11 of the Warrant Agreement and the
applicable provisions set forth in the penultimate paragraph of page (ii) of
each of the Warrant Certificates shall be deemed to be deleted in their
entirety. Such provisions shall be of no further force or effect. The Company
agrees that until the first to occur of Effectiveness or termination of this
Agreement in accordance with its terms, the Company will not submit any action
for approval or any other action by its shareholders without the consent of
Summit, such consent not to be unreasonably withheld.
6. RIGHT TO EXERCISE WARRANTS; COVENANT TO EXERCISE WARRANTS.
Effective as of the date hereof, the parties hereto agree that Section
4 (a) of the Warrant Agreement and the first paragraph of each of the Warrant
Certificates are hereby amended to provide that each Warrant may first be
exercised upon the Effectiveness, as herein defined, rather than not upon the
consummation of an initial public offering of the Common Stock. Summit hereby
covenants and agrees that it shall exercise all of the outstanding Warrants held
by Summit upon notice of Effectiveness, and shall immediately thereafter deliver
to the Company (i) duly
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<PAGE> 3
authorized and executed forms of election to purchase shares of Common Stock,
and (ii) the original Warrant Certificates for cancellation by the Company.
7. TERMINATION OF SHAREHOLDERS' AGREEMENT; SURVIVAL OF RIGHT OF PARTICIPATION.
Upon Effectiveness, the parties hereto agree that the Shareholders'
Agreement shall terminate and shall be of no further force or effect.
Notwithstanding the foregoing, Section 4 of the Shareholders' Agreement, which
sets forth the right of Summit to participate in sales by the current
shareholders of Intelligroup, shall survive and continue to be binding upon the
parties thereto. The other provisions of the Shareholders' Agreement which are
necessary for definition purposes shall be used for such informational purposes
only.
8. WAIVER OF CERTAIN REGISTRATION RIGHTS.
Effective upon the date hereof, Summit hereby agrees to waive any and
all registration rights as to the IPO, except as provided in the Underwriting
Agreement between the Company, the Selling Shareholders (to include Summit), and
the representatives of the underwriters. It is further understood that Summit
shall be entitled to sell an aggregate of 50,000 shares of Common Stock in the
IPO and an aggregate of 7,500 shares of Common Stock (representing Summit's pro
rata allocation of the underwriters' over-allotment option) in the event the
underwriters' over-allotment option is exercised in full.
9. TERMINATION UPON CANCELLATION OF IPO; REVERSION.
In the event the Company does not consummate the IPO by October 31,
1996, the IPO is not consummated within ten days of Effectiveness or upon
earlier notice to the Company from the representatives of the underwriters of
the IPO that the IPO has been terminated, this Agreement shall be terminated and
deemed to be of no further force and effect. The modified provisions of each
agreement referenced above shall revert to the form of the executed original as
if this Agreement never was in effect.
10. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.
11. BINDING EFFECT; SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of any of
the parties.
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<PAGE> 4
12. NOTICE.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipt made therefor by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to any party are as shown in the Purchase Agreement, or as subsequently
modified by written notice.
13. SEVERABILITY.
The provisions of this Agreement shall be severable in the event that
any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
14. AMENDMENT.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless it is in writing signed by all of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
15. INTEGRATION AND ENTIRE AGREEMENT.
Except as provided in this Agreement of Waiver and Consent, the
Purchase Agreement and documents and agreements contemplated thereby and all of
their respective terms and provisions remain in full force and effect.
16. COMPOSITION OF COMMITTEES OF THE BOARD.
The Company agrees that it will take no action to enlarge or change the
composition of the Audit, Compensation, Option or Pricing Committees of the
Board, as they exist on the date hereof without the consent of Summit. Such
restriction shall continue until the first to occur of the consummation of the
IPO or the termination of this Agreement in accordance with its terms.
**************
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTELLIGROUP, INC.
By:_____________________________________
Ashok Pandey
President and Chief Executive Officer
SUMMIT VENTURES, IV
By: Summit Partners, IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co. IV,
Its General Partner
By: ____________________________________
Its General Partner
SUMMIT INVESTORS III, L.P.
By:_____________________________________
Authorized Signatory
INTELLIGROUP SHAREHOLDERS
________________________________________
Ashok Pandey
________________________________________
Rajkumar Koneru
________________________________________
Nagarjun Valluripalli
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<PAGE> 6
Exhibit 10.15
AMENDMENT NO. 1
TO
AGREEMENT OF WAIVER AND CONSENT
This Amendment No. 1 (the "Amendment") is made as of July 12, 1996 to
the Agreement of Waiver and Consent (the "Agreement") made as of June 4, 1996,
by and among Intelligroup, Inc., a New Jersey corporation (the "Company" or
"Intelligroup"), the current shareholders of Intelligroup (the "Shareholders"),
and Summit Ventures IV, L.P. and Summit Investors III, L.P. (collectively,
"Summit").
WHEREAS, as a condition precedent to the consummation of the IPO (as
defined in the Agreement), certain waivers and amendments were necessary to the
Purchase Agreement (as defined in the Agreement);
NOW, THEREFORE, in consideration of the mutual promises herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITION OF QUALIFIED PUBLIC OFFERING.
Effective as of the date hereof, the parties hereto agree that the
definition of "Qualified Public Offering" set forth in Article XI of the
Purchase Agreement is hereby amended to provide that the minimum net proceeds
to the Company be equal to at least $12,000,000 and not $15,000,000.
2. WAIVER OF CERTAIN REGISTRATION RIGHTS.
Effective upon the date hereof, Summit hereby agrees to waive any and
all registration rights as to the IPO, except as provided in the Underwriting
Agreeement between the Company, the Selling Shareholders (to include Summit),
and the representatives of the underwriters. It is further understood that
Summit shall be entitled to sell an aggregate of 11,900 shares of Common Stock
in the firm commitment portion of the IPO and an aggregate number of shares of
Common Stock as shall be set forth in the Underwriting Agreement (such number
shall not exceed 56,700 shares, as adjusted if the number of shares of Common
Stock underlying the warrants increases or decreases) in the event the
underwriters' over-allotment option is exercised in full.
<PAGE> 7
3. COUNTERPARTS.
This Amendment may be executed in one or more counterparts, each of
which shall constitute an original.
4. EFFECT OF AMENDMENT.
Except as provided in this Amendment, the Agreement, the Purchase
Agreement and documents and agreements contemplated thereby and all of their
respective terms and provisions remain in full force and effect.
*****
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
INTELLIGROUP, INC.
By: ___________________________________
Ashok Pandey
President and Chief Executive
Officer
SUMMIT VENTURES, IV
By: Summit Partners, IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co. IV
Its General partner
By: ___________________________________
Its General Partner
SUMMIT INVESTORS III, L.P.
By: ___________________________________
Authorized Signatory
INTELLIGROUP SHAREHOLDERS
___________________________________________
Ashok Pandey
___________________________________________
Rajkumar Koneru
___________________________________________
Nagarjun Valluripalli
<PAGE> 1
EXHIBIT 10.16
This Agreement made this 4th day of April, One Thousand Nine Hundred
Ninety Six BETWEEN Mr. RAJ KUMAR KONERU, being the sole Proprietor of
Intelligroup Asia having its place of business at 418, 4th floor, Nilgiri,
Aditya Enclave, Ameerpet, Hyderabad - 500 038, (hereinafter referred to as "the
Assignor" which expression unless repugnant to the context or meaning thereof
include the heirs, legal representatives and successors of Mr. Raj Kumar
Koneru) of the One Part and INTELLIGROUP ASIA PVT. LTD, a Company incorporated
under the Companies Act, 1956, having registered office at 418, 4th floor,
Nilgiri, Aditya Enclave, Ameerpet, Hyderabad - 500 038, hereinafter referred to
as "the Company" which expression shall unless repugnant to the context or
meaning thereof include its successors and permitted assigns) of the other part:
WHEREAS:
a) The Assignor is carrying on the business, inter alia of designing and
development of systems and application software for its own use and for
sale in India and elsewhere in the world;
b) Mr. Raj Kumar Koneru, the Sole Proprietor of the Assignor is a director
and a share holder of the Company;
c) The Company and Assignor had agreed that the Company will take over the
entire business of the Assignor as a going concern together with all the
assets and properties thereof and accordingly the Company has with
effect from April, 1996, taken over the said business as a going concern
together with all the assets and properties thereof;
<PAGE> 2
d) Certified true copy of the Balance Sheet and Profit & Loss account of
the Assignor, as at 31st March, 1996 is annexed to this Agreement;
e) The transfer of all the assets and properties of the Assignor including
those mentioned in the annexure was completed by manual delivery prior
to the execution of this Agreement;
f) The parties are desirous of recording the terms and conditions on which
the Company has taken over the business of the Assignor as a going
concern.
NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED, CONFIRMED,
RECORDED AND DECLARED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:
1. The Parties agree, record and confirm that with effect from 01st April,
1996, the Company has taken over the business of the Assignor as a going
concern together with all the assets and properties of the Assignor
including those mentioned in the annexure to this Agreement. In
consideration thereof the Company has also taken over all the
liabilities and obligations of the Assignor and has agreed to keep the
Assignor indemnified in this behalf.
2. With effect from 01st April, 1996, the Assignor shall be deemed to have
carried on the business activity for and on behalf of and for the
benefit and on account of the Company.
3. All the properties and income arising to the Assignor and/or expenditure
accruing or losses incurred by or arising from the business of the
Assignor shall for every purpose be treated and be deemed to and accrue
as the profit or loss or expenditure as the case may be of the Company.
4. With a view to effectively implement this Agreement the Assignor shall
sign, execute and deliver all such further deeds, documents, and papers
as also do all such acts and things as may be reasonably required by the
Company.
5. It is clarified that the Company shall be entitled to have benefits of
contracts, deeds, bonds, agreements, permissions, approval certificates
and other instruments of every kind of the said business. For the sake
of convenience the existing contracts (or any of them) of the Assignor
may be carried on in the name of the Assignor, but all the benefits
arising therefrom as also all the liabilities and losses would be to the
account of the Company.
6. The employees of the Assignor in service on 31st March 1996, shall
subject to exercise of their option to the contrary, become the
employees of the Company on 01st April, 1996 without any break or
interruption in service.
<PAGE> 3
7. As stated above, all the liabilities, and obligations of the Assignor
are taken over and shall be discharged by the Company and accordingly,
the Company shall indemnify and keep indemnified the Assignor against
any and all liabilities, claims, demands, actions, suits, and
obligations which the Assignor may, face, suffer, incur or may be called
upon to perform by virtue of any transaction relating to the business
carried on by the Assignor till 31st March, 1996 in the name and style
of Intelligroup Asia.
8. All the credit balances, standing to the accounts of the Assignor in its
Bank accounts shall be transferred to the account/s of the Company,
whenever required by the Company as certified by any one of the
Directors of the Company. For convenience the Company may continue to
operate the Bank accounts standing to the credit of the said accounts
though the title to such accounts shall have passed to the Company with
effect from 01st April, 1996.
9. In the event of any disputes or differences arising between the parties
hereto concerning or relating to this Agreement, the same shall be
referred to arbitration in accordance with the law governing the
arbitration in India.
SIGNED AND DELIVERED BY THE )
withinnamed RAJ KUMAR KONERU )
in the presence of ______________ )
SIGNED AND DELIVERED BY THE )
withinnamed INTELLIGROUP ASIA )
PVT. LTD. in the presence of )
<PAGE> 4
This Agreement made this 9th day of June 1996 between Mr.
NAGARJUN VALLURIPALLI NRI based in USA (the Transferor) and INTELLIGROUP INC.,
a Company registered in New Jersey, USA.
WHEREAS:
a) The Transferor owns and holds 200 shares in INTELLIGROUP ASIA
PVT. LTD, a Company incorporated under the laws of India and
having its registered office at Hyderabad.
b) The parties have arrived at an Agreement regarding the transfer
of all the said shares as set out hereinafter:
<PAGE> 5
THIS AGREEMENT RECORDS AND CONFIRMS THAT -
1. The Transferor agrees to transfer the said 200 shares held by him in
the said Company to the transferee at or for the consideration of Rs.
10/-per share or such other consideration as may be directed by the
Reserve Bank of India and may be acceptable to the parties hereto.
2. For the aforesaid purpose the Transferor shall execute and deliver all
such deeds and documents including the transfer forms to the Company and
shall ensure that all steps are taken for completing the proposed
transfer.
3. The parties shall make an application to Reserve Bank of India for its
approval to the proposed transfer and till such permission is received
the Transferor agrees and undertakes not to sell issue or assign the
said shares or any of them or to create any charge lien or encumbrances
thereon.
4. Till the completion of the transfer, the Transferor shall exercise all
the rights relating to the said shares including the voting rights, in
accordance with the directions of the Transferee.
5. This agreement is subject to the requisite approval or Reserve Bank of
India.
/s/ [illegible] /s/ [illegible]
(NAGARJUN VALLURIPALLI) (INTELLIGROUP INC.)
(Constituted Attorney) (Director)
<PAGE> 6
This Agreement made this 7th day of June 1996 between Mr.
RAJ KUMAR KONERU NRI based in USA (the Transferor) and INTELLIGROUP INC.,
a Company registered in New Jersey, USA.
WHEREAS:
a) The Transferor owns and holds 200 shares in INTELLIGROUP ASIA
PVT. LTD, a Company incorporated under the laws of India and
having its registered office at Hyderabad.
b) The parties have arrived at an Agreement regarding the transfer
of all the said shares as set out hereinafter:
<PAGE> 7
THIS AGREEMENT RECORDS AND CONFIRMS THAT -
1. The Transferor agrees to transfer the said 200 shares held by him in
the said Company to the transferee at or for the consideration of Rs.
10/-per share or such other consideration as may be directed by the
Reserve Bank of India and may be acceptable to the parties hereto.
2. For the aforesaid purpose the Transferor shall execute and deliver all
such deeds and documents including the transfer forms to the Company and
shall ensure that all steps are taken for completing the proposed
transfer.
3. The parties shall make an application to Reserve Bank of India for its
approval to the proposed transfer and till such permission is received
the Transferor agrees and undertakes not to sell issue or assign the
said shares or any of them or to create any charge lien or encumbrances
thereon.
4. Till the completion of the transfer, the Transferor shall exercise all
the rights relating to the said shares including the voting rights, in
accordance with the directions of the Transferee.
5. This agreement is subject to the requisite approval or Reserve Bank of
India.
/s/ [illegible] /s/ [illegible]
(RAJ KUMAR KONERU) (INTELLIGROUP INC.)
(Director)
<PAGE> 8
This Agreement made this 9th day of June 1996 between Mr. ASHOK PANDEY
NRI based in USA (the Transferor) and INTELLIGROUP INC., a Company registered in
New Jersey, USA.
WHEREAS:
a) The Transferor has entered into agreements with Mr. Rama Sastry and
Mr. D. Sriram, Indian share holders of Intelligroup Asia Private
Limited for purchasing from them totally 200 shares held by them in
the said Company.
b) The parties have arrived at an Agreement regarding the transfer of
all the said shares as set out hereinafter:
<PAGE> 9
THIS AGREEMENT RECORDS AND CONFIRMS THAT -
1. After the transfer the of the said 200 shares in favour of the
Transferor is completed, the Transferor shall sell and transfer to the
Transferee and the Transferee shall acquire from the Transferor the said
200 shares at or for the considerate of Rs.10/-per share or such other
consideration as may be directed by the Reserve Bank of India and may be
acceptable to the parties hereto.
2. For the aforesaid purpose the Transferor shall execute and deliver all
such deeds and documents including the transfer forms to the Company and
shall ensure that all steps are taken for completing the proposed
transfer.
3. The parties shall make an application to Reserve Bank of India for its
approval to the proposed transfer and till such permission is received
the Transferor agrees and undertakes not to sell issue or assign the
said shares or any of them or to create any charge lien or encumbrances
thereon.
4. Till the completion of the transfer, the Transferor shall exercise all
the rights relating to the said shares including the voting rights, in
accordance with the directions of the Transferee.
5. This agreement is subject to the requisite approval or Reserve Bank of
India.
[Illegible] [Illegible]
(ASHOK PANDEY) (INTELLIGROUP)
(Constituted Attorney) (Director)
<PAGE> 10
This AGREEMENT made this 15th day of June 1996 by and between
INTELLIGROUP INC, a New Jersey Corporation (Intelligroup NJ) and INTELLIGROUP
ASIA PRIVATE LIMITED, a Company incorporated under the Companies Act, 1996 in
India (Intelligroup Asia).
WHEREAS:
a) Intelligroup Asia is currently engaged in the business of designing and
development of systems and applications soft wear;
b) Intelligroup Asia is an "EOU" i.e. 100% Export Oriented Unit and
accordingly it is exporting outside India the systems and applications
software designed and developed by it;
c) Intelligroup NJ has agreed to provide all the necessary support and
assistance to Intelligroup Asia including technical and financial
support;
d) In consideration thereof both the parties have arrived at certain
agreements as recorded hereinafter:
<PAGE> 11
NOW THIS AGREEMENT RECORDS AND CONFIRMS THAT -
1. In consideration of Intelligroup NJ agreeing to provide all the
requisite support and assistance including technical and financial, to
Intelligroup Asia, Intelligroup Asia agrees and confirms that it shall
operate for the sole and exclusive benefit of Intelligroup NJ.
2. Intelligroup Asia further agrees and confirms that no additional or
further shares of Intelligroup Asia shall be issued without the prior
written approval of Intelligroup NJ. Intelligroup N.J. shall be at
liberty to acquire all the issued and outstanding shares of Intelligroup
Asia and for this purpose subject to applicable laws, Intelligroup Asia
shall do and execute all such acts, deeds, and things as may be
necessary.
3. This agreement is subject to the necessary permissions, approvals and/or
comments of Reserve Bank of India and/or other Governmental authorities
as may be required under the provisions of the Foreign Exchange
Regulations Act, 1973 of India.
FOR INTELLIGROUP ASIA PVT. LTD. FOR INTELLIGROUP INC.
/s/ [illegible] /s/ [illegible]
DIRECTOR (Director)
<PAGE> 12
THIS SUPPLEMENTAL AGREEMENT made on ____ of July 1996 by and between
INTELLIGROUP, INC. a New Jersey corporation ("Intelligroup NJ") and INTELLIGROUP
ASIA PRIVATE LIMITED, a company incorporated under the Companies Act, 1956 in
India ("Intelligroup Asia").
WHEREAS:
a) the parties hereto have, on or about the 15th of June 1996 entered
into an agreement, inter alia, for Intelligroup NJ acquiring all the
shares of Intelligroup Asia:
b) the parties hereto have agreed upon certain further terms as
recorded in this Supplemental Agreement.
NOW THIS AGREEMENT RECORDS AND CONFIRMS THAT:
1. It is agreed between the parties that Intelligroup Asia shall not
enter into any commercial transaction without the prior consent of a duly
authorized officer of Intelligroup NJ.
2. Save and except as modified as above, the said Agreement dated the
15th of June 1996 shall continue to be valid, binding and enforceable.
FOR INTELLIGROUP ASIA FOR INTELLIGROUP, INC.
PRIVATE LIMITED
- ------------------------------- --------------------------------
Director Director
<PAGE> 1
EXHIBIT 11
INTELLIGROUP, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss)..................... $ (437,000) $(1,059,000) $(1,048,000) $ 428,000
=========== =========== =========== ===========
Weighted average shares
outstanding......................... 12,202,666 12,202,666 12,202,666 12,202,666
Incremental shares considered
outstanding (1)..................... 1,533,956 1,533,956 1,533,956 1,533,956
----------- ----------- ----------- -----------
Shares used in per share
calculation......................... 13,736,622 13,736,622 13,736,622 13,736,622
=========== =========== =========== ===========
Net income (loss) per share........... $ (0.03) $ (0.08) $ (0.08) $ 0.03
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Pursuant to the requirements of the Securities and Exchange Commission,
stock options and warrants issued by the Company during the twelve months
immediately preceding the initial public offering have been included in
computing net income (loss) per share as if they were outstanding for all
periods using the treasury stock method.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Oxford Systems Inc., a New Jersey corporation and a wholly-owned subsidiary
of Intelligroup, Inc.
Intelligroup New Zealand Limited, a corporation formed pursuant to the laws
of New Zealand and a wholly-owned subsidiary of Intelligroup, Inc.
Intelligroup Europe Limited, a corporation formed pursuant to the laws of
the United Kingdom and a wholly-owned subsidiary of Intelligroup, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Intelligroup, Inc.:
As independent public accountants, we hereby consent to the use of our
report and all references to our firm included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
July 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM SB-2 FOR THE PERIOD ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 71,000
<SECURITIES> 0
<RECEIVABLES> 5,260,000
<ALLOWANCES> (531,000)
<INVENTORY> 0
<CURRENT-ASSETS> 6,472,000
<PP&E> 381,000
<DEPRECIATION> (99,000)
<TOTAL-ASSETS> 6,784,000
<CURRENT-LIABILITIES> 8,069,000
<BONDS> 0
0
0
<COMMON> 122,000
<OTHER-SE> (1,488,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,784,000
<SALES> 24,589,000
<TOTAL-REVENUES> 24,589,000
<CGS> 20,021,000
<TOTAL-COSTS> 20,021,000
<OTHER-EXPENSES> 4,452,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,175,000
<INCOME-PRETAX> (1,059,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,059,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,059,000)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM SB-2
FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 79,000
<SECURITIES> 0
<RECEIVABLES> 6,159,000
<ALLOWANCES> (561,000)
<INVENTORY> 0
<CURRENT-ASSETS> 7,243,000
<PP&E> 408,000
<DEPRECIATION> (123,000)
<TOTAL-ASSETS> 7,642,000
<CURRENT-LIABILITIES> 8,506,000
<BONDS> 0
0
0
<COMMON> 122,000
<OTHER-SE> (1,060,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,642,000
<SALES> 8,836,000
<TOTAL-REVENUES> 8,836,000
<CGS> 6,423,000
<TOTAL-COSTS> 6,423,000
<OTHER-EXPENSES> 1,469,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,000
<INCOME-PRETAX> 629,000
<INCOME-TAX> 201,000
<INCOME-CONTINUING> 428,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428,000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
