<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 AND PRINCIPAL PLACE OF BUSINESS)
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. MARK G. BORDEN, ESQ.
ANDREW P. GILBERT, ESQ. BRENT B. SILER, ESQ.
BUCHANAN INGERSOLL HALE AND DORR LLP
500 COLLEGE ROAD EAST 1455 PENNSYLVANIA AVENUE, N.W.
PRINCETON, NEW JERSEY 08540 WASHINGTON, D.C. 20004
(609) 987-6800 (202) 942-8400
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value............. 1,150,000(2) $10.79 $12,408,500 $3,760.16
=============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act, based on the average of
the high and low prices per share of Common Stock of the Registrant as
reported on the Nasdaq National Market on June 9, 1997.
(2) Includes 150,000 shares subject to the Underwriter's over-allotment option.
------------------------
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.
SUBJECT TO COMPLETION DATED JUNE 13, 1997
1,000,000 SHARES
LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
Intelligroup, Inc. ("Intelligroup" or the "Company"). The Company's Common Stock
is traded on the Nasdaq National Market under the symbol "ITIG." On June 12,
1997, the last reported sale price of the Common Stock on the Nasdaq National
Market was $10.625 per share. See "Price Range of Common Stock." Upon completion
of this offering, certain of the Company's current officers, directors and
affiliated entities will together beneficially own approximately 66% of the
Company's outstanding Common Stock. See "Risk Factors" and "Principal
Shareholders."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
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>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses, estimated to be $230,000, payable by the Company.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
150,000 additional shares of Common Stock, solely to cover over-allotments,
if any. If the Underwriter exercises this option in full, the Price to
Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the Underwriter named herein,
subject to receipt and acceptance by it and subject to its right to reject any
order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Montgomery Securities on or about
, 1997.
---------------------
MONTGOMERY SECURITIES
, 1997
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended
(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 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 any amendments thereto, including
exhibits filed or incorporated by reference as a part thereof, are available for
inspection and copying at the offices of the Securities and Exchange Commission
(the "Commission") as described in the following paragraph.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy and information statements and
other information with the Commission. Such reports, proxy and information
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of filed
reports, proxy and information statements and other information can be obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549,
upon payment of prescribed rates or in certain cases by accessing the
Commission's World Wide Web site at http://www.sec.gov. The Common Stock of the
Company is traded on the Nasdaq National Market under the symbol "ITIG," and
such reports, proxy and information statements and other information concerning
the Company also can be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
The Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the Common Stock. Such transactions may include
stabilizing and the purchase of Common Stock to cover short positions. For a
description of these activities, see "Underwriting."
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER AND SELLING GROUP MEMBERS,
IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
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, including information under "Risk Factors." Except as otherwise
noted herein, all information in this Prospectus assumes no exercise of the
Underwriter's over-allotment option.
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. In 1997, the Company achieved National Logo Partner status with SAP.
The Company believes such status and designation result in direct referrals and
in enhanced industry recognition. Also in 1997, the Company began to provide
implementation services to PeopleSoft and Baan licensees to further 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 117
customers for the year ended December 31, 1996. 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, Bristol-Myers Squibb,
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.
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, Oracle, PeopleSoft and Baan
products and with a wide variety of leading computing technologies. The Company
has developed a proprietary implementation methodology, "4 SIGHT", which is
designed to minimize the time required to develop and implement SAP, Oracle and
Baan 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.
3
<PAGE> 5
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.
"Intelligroup," " "4 SIGHT"," " "4 SIGHT"plus" and the Company's logo are
service marks and OPMS and OIM are trademarks 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.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,000,000 shares
Common Stock to be outstanding after
the offering............................... 11,778,267 shares(1)
Use of proceeds.............................. For general corporate purposes, including
working capital and possible acquisitions.
See "Use of Proceeds."
Nasdaq National Market Symbol................ ITIG
</TABLE>
- ---------------
(1) Based upon the number of shares outstanding as of June 10, 1997. Excludes
885,383 shares of Common Stock issuable upon the exercise of stock options
outstanding as of that date granted under the Company's 1996 Stock Plan,
120,795 of which were then exercisable, and 80,000 shares of Common Stock
issuable upon the exercise of stock options outstanding as of that date
granted under the Company's 1996 Non-Employee Director Stock Option Plan,
none of which were then exercisable. See "Management -- 1996 Stock Plan" and
"Management -- 1996 Non-Employee Director Stock Option Plan."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ 481 $ 933 $ 6,800 $24,589 $47,189 $ 8,710 $15,738
Gross profit.................. 129 305 958 4,568 13,584 2,287 4,402
Operating income (loss)....... 1 6 (28) 116 3,676 643 1,316
Income (loss) before
extraordinary charge....... 1 6 (437) (1,059) 1,941 227 837
Extraordinary charge(1)....... -- -- -- -- (1,148) -- --
Net income (loss)............. 1 6 (437) (1,059) 793 227 837
Income (loss) per share before
extraordinary charge....... 0.00 0.00 (0.03) (0.08) 0.18 0.02 0.08
Net income (loss) per share... $ 0.00 $ 0.00 $ (0.03) $ (0.08) $ 0.07 $ 0.02 $ 0.08
Shares used in per share
calculation(2)............. 13,737 13,737 13,737 13,737 10,989 13,737 10,889
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, ------------------------
1996 ACTUAL AS ADJUSTED(3)
------------ ------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 7,479 $ 5,330 $ 15,194
Working capital.......................................... 15,713 15,406 25,270
Total assets............................................. 21,262 21,856 31,720
Shareholders' equity..................................... 17,162 17,999 27,863
</TABLE>
- ---------------
(1) The extraordinary charge relates to the early extinguishment of the
Company's subordinated debentures, net of an income tax benefit of $296,000.
See Note 3 of Notes to Consolidated Financial Statements.
(2) In April 1996, 4,881,066 shares were repurchased by the Company from its
then current shareholders, Messrs. Pandey, Koneru and Valluripalli, and such
shares were cancelled by the Company. See "Capitalization."
(3) Adjusted to reflect the estimated net proceeds from the sale of 1,000,000
shares of Common Stock offered by the Company hereby. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
Certain statements included in this Prospectus, including without
limitation, statements regarding the Company's intention to shift to higher
margin turnkey management assignments and more complex projects and to utilize
its proprietary implementation methodology in an increasing number of projects,
the Company's objective to grow through strategic acquisitions and trends in
future operating performance, are forward-looking statements within the meaning
of Section 27A of the Securities Act. Other forward-looking statements may be
identified by the use of words such as "believe," "anticipate" and "expect." The
factors discussed below could cause actual results and developments to be
materially different from those expressed in or implied by such statements.
Accordingly, in addition to the other information contained in this Prospectus,
the following factors should be considered carefully by prospective investors in
evaluating an investment in the shares of Common Stock offered hereby.
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 from
$6.8 million in 1994, to $24.6 million in 1995 and to $47.2 million in 1996.
From January 1, 1995 through March 31, 1997, the Company's staff increased 282%
from 113 to 432 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 increase. 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
previous 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
6
<PAGE> 8
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 first hired a Chief
Financial Officer in January 1996 and in March 1996 it implemented an accounting
system capable of generating information and reports necessary to appropriately
manage the Company. The Company continues to develop and implement a system of
internal controls and otherwise develop an appropriate administrative
infrastructure. Following the audit of the Company's consolidated financial
statements for the year ended December 31, 1996, the Company's independent
public accountants issued a management letter which, although it did set forth
significant deficiencies, did not specify any material weaknesses in the
Company's internal control structure. The failure to continue 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."
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
recognized substantially increased revenue during the years ended December 31,
1994 and 1995, the Company incurred net losses of $437,000 and $1.1 million for
such respective periods. Although the Company had net income of $793,000 for the
year ended December 31, 1996 and $837,000 for the three months ended March 31,
1997, there can be no assurance that the Company will continue to achieve
profitable levels of operations in the future. 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, 1995 and 1996 and for the three
months ended March 31, 1997, 33%, 69%, 74% and 69% of the Company's revenue,
respectively, was derived from projects in which the Company implemented
software developed by SAP, a major international German-based software company
and a 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 Logo Partner. The Company executed its SAP National Logo Partner
Agreement in April 1997 and previously had been a SAP National Implementation
Partner since 1995. Such status is awarded by SAP on an annual basis pursuant to
contract. The Company's current contract expires on December 31, 1997 and is
automatically renewed for a successive one-year period, unless terminated by
either party. 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
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, 1995 and 1996 and for the three
months ended March 31, 1997, the Company's ten largest customers accounted for
in the aggregate approximately 61%, 56%, 66% and 67% of its revenue,
respectively. During 1995, Ernst & Young LLP and Price Waterhouse LLP each
accounted for more than 10% of revenue. In 1996 and the three months ended March
31, 1997, Price Waterhouse LLP and Bristol-Myers Squibb each accounted for more
than 10% of revenue. For the years ended December 31, 1994, 1995 and 1996 and
for the three months ended March 31, 1997, 64%, 50%, 44% and 38%, respectively,
of the Company's revenue was generated by serving as a member
7
<PAGE> 9
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 and at current levels of retention. 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 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 contract 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."
The Company provides services to its customers primarily on a time and
materials basis. Recently, however, the Company has bid on certain projects in
which it, at the request of the potential clients, offered a fixed price for its
services. The Company believes that, as it pursues its strategy of making
turnkey project management a larger portion of its business, it will likely be
required to offer fixed price projects to a greater degree. The Company has had
limited prior experience in pricing and performing under fixed price
arrangements. There can be no assurance that the Company will be able to
complete such projects within the fixed price and required timeframes. The
failure to perform within such fixed price contracts, if entered into, 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."
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 could have a material
adverse effect on the Company's financial condition and results of operations.
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. The Company currently is seeking 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. 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, IBM Global
Services, Cambridge Technology Partners, SHL Systemhouse (a subsidiary of MCI),
and Computer Sciences Corporation, and the consulting divisions of software
applications vendors, some of which also are 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
8
<PAGE> 10
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. There can be no assurance that
the Company will be able to compete successfully with its existing and new
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 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 has entered into an employment agreement with
the Company which contains non-competition, non-disclosure and non-solicitation
covenants that extends for a period ranging from one to two years following
termination of employment. See "Management -- Employment Agreements,
Indemnification Agreements and Non-Competition, Non-Disclosure and
Non-Solicitation Agreements." In addition, 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. 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 and adversely affect the
Company's business, financial condition and results of operations. See
"Business -- Employees."
ACQUISITION RISKS
The Company may acquire other businesses with services complementary to
those offered by the Company. The Company intends to evaluate potential
acquisitions in the ordinary course of business and aggressively pursue
attractive businesses. 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. The success of such acquisitions,
if any, depends not only upon the Company's ability to acquire complementary
businesses on a cost-effective basis, but also upon its ability to integrate
acquired operations into its organization effectively, to retain and motivate
key personnel, and to retain customers of acquired firms.
9
<PAGE> 11
Furthermore, there can be no assurance that financing for any such transactions
will be available on satisfactory terms, or that the Company will be able to
accomplish its objectives as a result of any such transaction or transactions.
Finally, acquisitions also may involve a number of specific risks including:
possible adverse short-term effects on the Company's operating results;
diversion of management's attention; amortization of acquired intangible assets;
and risks associated with unanticipated problems, liabilities or contingencies.
See "Use of Proceeds."
UNCERTAINTIES RESULTING FROM PENDING LITIGATION MATTERS AND ADMINISTRATIVE
PROCEEDINGS
The Company is involved in disputes with third parties, including certain
former employees and other information technology consulting firms. 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. 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, 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."
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 and toolset, "4 SIGHT" and "4 SIGHT"
plus, 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
"Business -- Legal Proceedings."
Although the Company believes that its trademarks, service marks, 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 historically have accounted for an
insignificant portion of the Company's revenue, 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, the United Kingdom and Singapore. 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 wholly-owned by Messrs. Pandey, Koneru and
Valluripalli, certain of the Company's principal shareholders. 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
10
<PAGE> 12
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, an aggregate of 3,988,917 shares, consisting of: (i) the
1,000,000 shares offered hereby; (ii) the 2,846,250 shares offered and sold
pursuant to the Company's initial public offering of its Common Stock
consummated in October 1996; and (iii) an aggregate of 142,667 shares, including
100,000 shares resold by certain shareholders pursuant to the provisions of Rule
144 under the Securities Act and 42,667 shares which were issued upon the
exercise of vested stock options pursuant to the provisions of Rule 701 under
the Securities Act, will be freely tradeable by persons other than "affiliates"
of the Company without restriction. Of the remaining 7,789,350 shares held by
certain current shareholders of the Company, 6,606,662 shares are subject to
"lock-up" agreements under which the holders of such shares (Messrs. Pandey,
Koneru and Valluripalli) have agreed not to sell or otherwise dispose of any
shares of Common Stock without the prior written consent of the Underwriter for
a period of 90 days following the date of this Prospectus. The Underwriter may,
in its sole discretion, and at any time without notice, release all or a portion
of the shares subject to these lock-up agreements. Subject to such lock-up
arrangements, all of such shares of Common Stock are eligible for resale in
accordance with the provisions of Rule 144, including, without limitation, the
volume limitations thereunder. The holders of 1,182,688 of such shares also have
certain registration rights. See "Description of Capital Stock -- Registration
Rights." Of the shares of Common Stock issuable upon the exercise of outstanding
options, 120,795 shares are eligible for immediate resale in the public market,
subject to compliance with Rules 144 and 701. The Company intends to file a
Registration Statement on Form S-8 shortly after the consummation of this
offering to register an aggregate of 1,547,333 shares of Common Stock issuable
upon stock options granted, or to be granted, under its 1996 Stock Plan and 1996
Non-Employee Director Stock Option Plan. 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, Messrs. Pandey, Koneru and Valluripalli
together will beneficially own approximately 56.1% of the outstanding shares of
Common Stock (approximately 66.3% together with the shares beneficially owned by
the other directors, officers and affiliated entities). 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 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 of the then 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
11
<PAGE> 13
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 without limitation, 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 of the then outstanding shares of the capital stock of the
Company shall be required to amend the above provisions (i) through (iv) or the
limitation on director liability, as set forth in the Certificate of
Incorporation. 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."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock has been and in the future
may be highly volatile. Factors such as actual or anticipated fluctuations 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, changes
in recommendations or earnings estimates by securities analysts and actual or
anticipated 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 "Price Range
of Common Stock" and "Underwriting."
UNALLOCATED NET PROCEEDS
The anticipated net proceeds of this offering have 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. Failure
to utilize the net proceeds within a reasonable period of time may result in a
dilution of the Company's earnings per share which could have a material adverse
effect on the price of the Company's Common Stock. 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."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$9.9 million (approximately $11.4 million if the Underwriter's over-allotment
option is exercised in full), based on an assumed offering price of $10.625 per
share after deducting the estimated Underwriter's discount and estimated
offering expenses.
The Company intends to use the net proceeds from this offering 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. Furthermore, the Company's credit
arrangement with PNC Bank, National Association, which expires on January 22,
1999, contains, among other provisions, a covenant which prohibits the Company
from paying cash dividends or making other distributions of assets to
shareholders.
PRICE RANGE OF COMMON STOCK
The Common Stock has been traded on the Nasdaq National Market under the
symbol "ITIG" since September 27, 1996 when the Company completed its initial
public offering. The following table sets forth, for the periods indicated, the
high and low sale prices per share of Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ----------------------------------------------------------------------------- ------ ------
<S> <C> <C>
September 30, 1996 (from September 27, 1996)................................. $13 7/8 $12 5/8
December 31, 1996............................................................ 19 3/4 11
March 31, 1997............................................................... 12 3/4 9 7/8
June 30, 1997 (through June 12, 1997)........................................ 11 7/8 8 1/4
</TABLE>
The prices shown above represent quotations among securities dealers, do
not include retail markups, markdowns or commissions and may not represent
actual transactions.
On June 12, 1997, the last sale price per share of the Common Stock as
reported by the Nasdaq National Market was $10.625 per share. The number of
shareholders of record at June 10, 1997 was 78.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth as of March 31, 1997 the actual
capitalization of the Company and the capitalization of the Company on an
as-adjusted basis to reflect the sale of 1,000,000 shares of Common Stock
offered by the Company hereby, at an assumed offering price of $10.625 per
share:
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations, less current portion............................. $ 53 $ 53
------- -------
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized;
none issued............................................................ -- --
Common Stock, $0.01 par value, 25,000,000 shares authorized, 10,735,600
shares actual (11,735,600 as adjusted) issued and outstanding(1)....... 107 117
Additional paid-in capital................................................ 19,201 29,055
Accumulated deficit....................................................... (1,309) (1,309)
------- -------
Total shareholders' equity............................................. 17,999 27,863
------- -------
Total capitalization.............................................. $18,052 $27,916
======= =======
</TABLE>
- ---------------
(1) Excludes 928,050 shares of Common Stock issuable upon the exercise of stock
options outstanding as of March 31, 1997 granted under the Company's 1996
Stock Plan and 80,000 shares of Common Stock issuable upon the exercise of
stock options outstanding as of March 31, 1997 granted under the Company's
1996 Non-Employee Director Stock Option Plan. See "Management -- 1996 Stock
Plan" and "Management -- 1996 Non-Employee Director Stock Option Plan."
Subsequent to March 31, 1997, 42,667 shares of Common Stock were issued upon
the exercise of vested stock options granted under the 1996 Stock Plan.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1995 and 1996 and for the 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, 1994 and for the year then ended have been
derived from audited financial statements of the Company which are not included
in this Prospectus. The selected consolidated financial data as of December 31,
1992 and 1993 and March 31, 1997 and for the two years ended December 31, 1993
and for the three months ended March 31, 1996 and 1997 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, 1997 are not necessarily
indicative of the results for any future period or for the full year ending
December 31, 1997. 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,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ 481 $ 933 $ 6,800 $24,589 $47,189 $ 8,710 $15,738
Cost of sales............................... 352 628 5,842 20,021 33,605 6,423 11,336
---- ---- ---- ------ ------- ------- ------
Gross profit.............................. 129 305 958 4,568 13,584 2,287 4,402
Selling, general and administrative
expenses.................................. 128 299 986 4,452 9,908 1,644 3,086
---- ---- ---- ------ ------- ------- ------
Operating income (loss)................... 1 6 (28) 116 3,676 643 1,316
Factor charges/Interest expense (income),
net....................................... -- -- 409 1,175 1,235 315 (79)
---- ---- ---- ------ ------- ------- ------
Income (loss) before provision for
income taxes and extraordinary
charge.................................. 1 6 (437) (1,059) 2,441 328 1,395
Provision for income taxes.................. -- -- -- -- 500 101 558
---- ---- ---- ------ ------- ------- ------
Income (loss) before extraordinary charge... 1 6 (437) (1,059) 1,941 227 837
Extraordinary charge, net of income tax
benefit of $296........................... -- -- -- -- 1,148 -- --
---- ---- ---- ------ ------- ------- ------
Net income (loss)......................... $ 1 $ 6 $ (437) $(1,059) $ 793 $ 227 $ 837
==== ==== ==== ====== ======= ======= ======
Earnings (loss) per share:
Income (loss) before extraordinary
charge.................................. $ 0.00 $ 0.00 $ (0.03) $ (0.08) $ 0.18 $ 0.02 $ 0.08
Extraordinary charge, net of income tax
benefit................................. -- -- -- -- (0.11) -- --
---- ---- ---- ------ ------- ------- ------
Net income (loss) per share.......... $ 0.00 $ 0.00 $ (0.03) $ (0.08) $ 0.07 $ 0.02 $ 0.08
==== ==== ==== ====== ======= ======= ======
Shares used in per share calculation........ 13,737 13,737 13,737 13,737 10,989 13,737 10,889
==== ==== ==== ====== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 3 $ 34 $ 209 $ 71 $ 7,479 $ 5,330
Working capital (deficit)................... (2) 146 (426) (1,597) 15,713 15,406
Total assets................................ 14 257 2,313 6,784 21,262 21,856
Short-term debt, including subordinated
debentures................................ -- 5 1,032 3,489 20 20
Capital lease obligations, less current
portion................................... 5 52 -- 81 57 53
Shareholders' equity (deficit).............. 3 130 (307) (1,366) 17,162 17,999
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company 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. In 1997, the Company achieved National Logo Partner status with SAP.
The Company's current contract with SAP expires on December 31, 1997 and
provides for an automatic one-year renewal period unless either party provides
at least six weeks prior written notice of its intention not to renew. The
Agreement contains no minimum revenue requirements or cost sharing arrangements
and does not provide for commissions or royalties to either party. Also in 1997,
the Company began to provide implementation services to PeopleSoft and Baan
licensees to further diversify its service offerings.
The Company generates revenue from professional services rendered to
customers. 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 recently has bid on certain projects in which it, at the
request of the potential clients, offered a fixed price for its services. The
Company believes that, as it pursues its strategy of making turnkey project
management a larger portion of its business, it will likely be required to offer
fixed price projects to a greater degree. The Company has had limited prior
experience in pricing and performing under fixed price arrangements. There can
be no assurance that the Company will be able to complete such projects within
the fixed price and required timeframes. The failure to perform within such
fixed price contracts, if entered into, could have a material adverse effect on
the Company's business, financial condition and results of operations.
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 year ended December 31, 1996 and the three months ended March
31, 1997, the Company's ten largest customers accounted for approximately 66%
and 67% of its revenue, respectively. During the three months ended March 31,
1997, Price Waterhouse LLP and Bristol-Myers Squibb each accounted for more than
10% of revenue. For the year ended December 31, 1996, and the three months ended
March 31, 1997, 44% and 38%, 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 year ended
December 31, 1996, and the three months ended March 31, 1997, 74% and 69%,
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 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,
16
<PAGE> 18
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
both new and existing 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 in 1995 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" and "4 SIGHT"plus, its
proprietary accelerated implementation methodology and toolset. Commencing in
1995, the Company has been increasing its sales force and its marketing,
finance, accounting and administrative staff. The Company employed 59 such
personnel as of March 31, 1997, 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
-----------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
--------------- ---------------
1995 1996 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 81.4 71.2 73.7 72.0
----- ----- ----- -----
Gross profit.............................................. 18.6 28.8 26.3 28.0
Selling, general and administrative expenses................ 18.1 21.0 18.9 19.6
----- ----- ----- -----
Operating income (loss)................................... 0.5 7.8 7.4 8.4
Factor fees/Interest expense (income), net.................. 4.8 2.6 3.6 (0.5)
----- ----- ----- -----
Income (loss) before provision for income taxes and
extraordinary charge...................................... (4.3) 5.2 3.8 8.9
Provision for income taxes.................................. -- 1.1 1.2 3.6
----- ----- ----- -----
Income (loss) before extraordinary charge................... (4.3) 4.1 2.6 5.3
Extraordinary charge, net of income tax benefit............. -- 2.4 -- --
----- ----- ----- -----
Net income (loss)......................................... (4.3)% 1.7% 2.6% 5.3%
===== ===== ===== =====
</TABLE>
17
<PAGE> 19
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1997
Revenue. Revenue increased by 80.7%, or $7.0 million, from $8.7 million
during the three months ended March 31, 1996 to $15.7 million during the three
months ended March 31, 1997. 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 76.5%, or $4.9 million, from $6.4 million
during the three months ended March 31, 1996 to $11.3 million during the three
months ended March 31, 1997. The increase was due to increased personnel costs
resulting from the hiring of additional consultants to support the increase in
demand for the Company's services. The Company's gross profit increased by
92.5%, or $2.1 million, from $2.3 million during the three months ended March
31, 1996 to $4.4 million during the three months ended March 31, 1997. Gross
profit margin increased from 26.3% of revenue during the three months ended
March 31, 1996 to 28.0% of revenue during the three months ended March 31, 1997.
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 consist primarily of administrative salaries, sales
person compensation, travel and entertainment, the costs associated with its
Advanced Development Center and related development costs and professional fees.
Selling, general and administrative expenses increased by 87.7%, or $1.4
million, from $1.7 million during the three months ended March 31, 1996 to $3.1
million during the three months ended March 31, 1997, and increased as a
percentage of revenue from 18.9% to 19.6%. The increase in such expenses both in
absolute dollars and as a percentage of revenue was due primarily to the
expansion of the Company's sales and marketing activities and increased travel
and entertainment expenses. These expenses were incurred to support the
continued revenue growth of the Company.
Factor fees/Interest expense. Factor fees in the 1996 period were the
charges incurred by the Company to finance its accounts receivable. On October
10, 1996, the Company terminated its factoring agreement and repaid the factor
approximately $4.4 million with a portion of the proceeds from the Company's
initial public offering. Such repayment constituted all amounts outstanding
under the agreement with the Company's factor.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Revenue. Revenue increased by 91.9%, or $22.6 million, from $24.6 million
in 1995 to $47.2 million in 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 increased by 67.8% or $13.6
million, from $20.0 million in 1995 to $33.6 million in 1996. 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 197.4%, or $9.0
million, from $4.6 million in 1995 to $13.6 million in 1996. Gross profit margin
increased from 18.6% of revenue in 1995 to 28.8% of revenue in 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.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 122.6%, or $5.4 million, from $4.5 million
in 1995 to $9.9 million in 1996, and increased as a percentage of revenue from
18.1% to 21.0% in 1995 and 1996, respectively. The increases in such expenses in
absolute dollars and as a percentage of revenue were due primarily to the
expansion of the Company's sales and marketing activities in 1995 and 1996, the
additional accounting and financial personnel added in 1996 and
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<PAGE> 20
increased travel and entertainment expenses due to the growth of the business
and the employee base. These expenses were incurred to support the continued
revenue growth of the Company. In 1996, selling, general and administrative
expenses also included the Company's operations in the United Kingdom which were
established during the year.
Factor fees/Interest expense. During 1995 and 1996, the rapid increase in
the Company's business and revenue resulted in working capital requirements and
the Company utilized its increasing accounts receivable base as a source of
liquidity to obtain financing from the factor because the Company was unable to
obtain more traditional financing. See "-- Liquidity and Capital Resources." The
Company also incurred interest expense in connection with subordinated
debentures issued in April 1996. Factor fees and interest expense increased by
5.1% or $60,000 from 1995 to 1996 but decreased as a percentage of revenue from
4.8% to 2.6% in 1995 and 1996, respectively. Although the volume of accounts
receivable financed increased as a result of the revenue increase, the Company
was able to fund much of its working capital requirements during 1996 with the
proceeds from the subordinated debentures, which debentures carried an interest
rate lower than that charged by the factor. In addition, the Company established
a collections department in the first quarter of 1996. Slow accounts receivable
turnover in 1995 contributed to increased factor fees in that year.
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<PAGE> 21
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly
financial information for each of the nine quarters through March 31, 1997. 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
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,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 3,850 $5,623 $ 7,272 $7,844 $8,710 $ 10,916 $13,845 $ 13,718 $15,738
Cost of sales................ 3,857 4,454 5,791 5,919 6,423 7,723 9,825 9,634 11,336
------- ------ ------ ------ ------ ------- ------- ------ -------
Gross profit............... (7) 1,169 1,481 1,925 2,287 3,193 4,020 4,084 4,402
Selling, general and
administrative expenses.... 721 816 1,179 1,736 1,644 2,421 2,831 3,012 3,086
------- ------ ------ ------ ------ ------- ------- ------ -------
Operating income (loss).... (728) 353 302 189 643 772 1,189 1,072 1,316
Factor fees/Interest expense
(income), net.............. 320 317 344 194 315 387 562 (29) (79)
------- ------ ------ ------ ------ ------- ------- ------ -------
Income (loss) before
provision for income taxes
and extraordinary charge... (1,048) 36 (42) (5) 328 385 627 1,101 1,395
Provision for income taxes... -- -- -- -- 101 117 193 89 558
------- ------ ------ ------ ------ ------- ------- ------ -------
Income (loss) before
extraordinary charge....... (1,048) 36 (42) (5) 227 268 434 1,012 837
Extraordinary charge, net of
income tax benefit......... -- -- -- -- -- -- (1,034) (114) --
------- ------ ------ ------ ------ ------- ------- ------ -------
Net income (loss).......... $(1,048) $ 36 $ (42) $ (5) $ 227 $ 268 $ (600) $ 898 $ 837
======= ====== ====== ====== ====== ======= ======= ====== =======
Earnings (loss) per share:
Income (loss) before
extraordinary charge..... $ (0.08) $ 0.00 $ (0.00) $(0.00) $ 0.02 $ 0.02 $ 0.05 $ 0.09 $ 0.08
Extraordinary charge, net
of income tax benefit.... -- -- -- -- -- -- (0.12) (0.01) --
------- ------ ------ ------ ------ ------- ------- ------ -------
Net income (loss) per
share.................. $ (0.08) $ 0.00 $ (0.00) $(0.00) $ 0.02 $ 0.02 $ (0.07) $ 0.08 $ 0.08
======= ====== ====== ====== ====== ======= ======= ====== =======
Shares used in per share
calculation................ 13,737 13,737 13,737 13,737 13,737 11,913 8,877 10,989 10,889
======= ====== ====== ====== ====== ======= ======= ====== =======
</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.
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<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations primarily from cash flow generated from
operations, and to a lesser extent, from cash balances generated from the
Company's initial public offering consummated in October 1996. Cash used in
operating activities was $2.3 million and $4.3 million in 1995 and 1996,
respectively, and resulted primarily from the growth in accounts receivable and
unbilled services. During the three months ended March 31, 1997, cash used in
operating activities was $1.1 million which resulted primarily from the growth
in unbilled services and the payment during such period of accrued expenses and
other liabilities, offset in part by a decline in accounts receivable.
The Company's working capital was $15.7 million and $15.4 million at
December 31, 1996 and March 31, 1997, respectively.
In accordance with investment guidelines approved by the Company's Board of
Directors, cash balances in excess of those required to fund operations have
been invested in short-term U.S. Treasury securities and commercial paper with a
credit rating no lower than A1/P1.
The Company invested $1.1 million and $1.0 million in computer equipment
and furniture in 1996 and the first three months of 1997, respectively. Although
there are no other material commitments for capital expenditures currently
outstanding, the Company intends further capital expenditures for computer
equipment and furniture in the remainder of 1997 approximating an additional
$1.0 million.
The Company's factoring agreement required that the Company offer all of
its trade accounts receivable to the factor for financing; however, the factor
was under no obligation to accept any or all of such receivables. For a variety
of reasons, 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. On October 10, 1996, the Company repaid approximately
$4.4 million, consisting of all amounts outstanding under the agreement with the
factor and terminated the factoring agreement.
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 the then-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. Upon
receipt of the net proceeds from the Company's initial public offering in
October 1996, the Company prepaid approximately $6.3 million, representing all
amounts outstanding under such debentures, including interest. See "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, FICA and FUTA taxes in the aggregate
amount of $814,000, of which approximately $800,000 was paid in August 1996. No
interest or penalties were assessed. Reserves, aggregating $1.0 million,
including the amount of the Internal Revenue Service audit assessment, were
recorded at December 31, 1995. 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
21
<PAGE> 23
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 and lack of financial expertise and oversight. 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.
In January 1997, the Company entered into a two-year credit agreement with
PNC Bank, National Association (the "Bank"). The credit facility with the Bank
has two components comprised of (i) a revolving line of credit pursuant to which
the Company may borrow up to $7.5 million (at the Bank's prime rate plus 0.25%)
to finance the working capital needs of the Company and (ii) equipment term
loans pursuant to which the Company may borrow up to an aggregate of $350,000
(at the Bank's prime rate plus 0.75%) to purchase equipment. The credit limit of
the revolving line of credit is the lesser of $7.5 million or the Company's
borrowing base. Such borrowing base is 70% of the net face amount of the
Company's eligible accounts receivable at the time of any loan under the
revolving line of credit. The credit agreement contains covenants which require
the Company to (i) maintain its working capital during the year at no less than
90% of the working capital at the end of the immediately preceding fiscal year
and at the end of each fiscal year at no less than 105% of its working capital
at the end of the immediately preceding fiscal year; and (ii) maintain its
tangible net worth during the year at no less than 95% of its tangible net worth
at the end of the immediately preceding fiscal year and at the end of each
fiscal year at no less than 108% of tangible net worth at the end of the
immediately preceding fiscal year. The Company's obligations under the credit
agreement are collateralized by substantially all of the Company's assets,
including its accounts receivable and intellectual property. The Company's
obligations under the credit facility are payable at the expiration of such
facility on January 22, 1999. As of March 31, 1997, there were no amounts
outstanding under the revolving line of credit and no equipment term loans
outstanding.
In June 1997, the Company and the Bank entered into a letter agreement, to
modify several terms of the credit facility, subject to the execution of a
definitive modification agreement. Under the new terms, the borrowing base
limitation will be eliminated and the interest rate will be reduced to, at the
Company's option, either the Bank's prime rate per annum or the EuroRate plus 2%
on the revolving line of credit and to the Bank's prime rate plus 0.25% on the
equipment line of credit. These terms are subject to the Company maintaining an
unsubordinated debt to tangible net worth ratio of no greater than one to one
and an earnings before interest and taxes to interest expense ratio of no
greater than three to one. The Bank also agreed to release the collateral
securing the revolving line of credit if the Company meets certain financial
criteria at December 31, 1997. Although the Company has no reason to believe
that the definitive modification agreement with the Bank reflecting these terms
will not be executed, there can be no assurance that such agreement will be
executed in the near term, if at all.
The Company believes that the net proceeds of this offering, together with
available funds, its existing credit 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.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share" ("FAS 128"). FAS
128 is effective for fiscal years ending after December 15, 1997 and changes the
method in which earnings per share will be determined. If the Company had
adopted FAS 128 for the period ended March 31, 1997, there would have been no
effect on earnings per share, on either the basic or diluted basis.
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<PAGE> 24
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. In 1997, the Company achieved National Logo Partner status with SAP.
The Company believes that such status and designation result in direct referrals
and enhanced industry recognition. Also in 1997, the Company began to provide
implementation services to PeopleSoft and Baan licensees to further 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 117
customers in 1996. 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, Bristol-Myers Squibb, 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
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<PAGE> 25
technology management area. Accordingly, organizations often lack sufficient
technical resources necessary to design, develop and implement emerging
information technology solutions on a timely basis.
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.
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, Oracle, PeopleSoft and Baan 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 and Toolset: The Company recently
has developed a proprietary implementation methodology, "4 SIGHT", as well as a
software-based implementation toolset, "4 SIGHT" plus, which are designed to
minimize the time required to develop and implement SAP, Oracle and Baan
solutions for its customers. "4 SIGHT" and "4 SIGHT" plus are designed to be
technology independent and modular so that they 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 three
projects, each of which involves implementation of a SAP solution for a Fortune
500 or other large 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. 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 turnkey
project management assignments and to more complex projects. The Company seeks
to accomplish
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<PAGE> 26
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 Logo Partner and its status as an Oracle services
provider result 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 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 stock options, 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, Singapore and the United Kingdom.
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<PAGE> 27
INTELLIGROUP SERVICES
Intelligroup provides a wide range of information technology services,
including (i) enterprise-wide business process solutions utilizing SAP R/3, as
well as Oracle, PeopleSoft and Baan products, all of 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, as well as Oracle, PeopleSoft and
Baan 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> 28
Accelerated Implementation Methodology and Software-Based Implementation
Toolset: 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 and "4 SIGHT"plus, a software-based
implementation toolset. "4 SIGHT" and "4 SIGHT"plus, used by the Company to date
solely in projects implementing SAP R/3, are designed to be portable to other
packaged software applications and to be adaptable to the scope of a particular
project. "4 SIGHT" and "4 SIGHT"plus have been adapted for Oracle and Baan
implementations. 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" and "4 SIGHT"plus 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
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<PAGE> 29
Hyderabad, India. The ADC is connected to the Company's headquarters in the
United States and to certain customer sites by dedicated, high speed satellite
links. 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. The ADC is owned by Intelligroup Asia, a corporation organized
pursuant to the laws of India and wholly-owned by Messrs. Pandey, Koneru and
Valluripalli, three 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."
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. Toward this end, the Company hired Anthony Knight, its
Vice President -- Sales and Marketing, in December 1996.
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, 1997, the Company's sales and marketing group consisted of
21 employees in the United States and three in the United Kingdom. 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
recently added sales and marketing capabilities in New Zealand. The Company also
established operations in the United Kingdom in June 1996. In November 1996, the
Company commenced operations in Singapore with the incorporation of Intelligroup
Singapore Private Ltd. See "Certain Transactions."
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
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<PAGE> 30
initially meets with a prospective customer until the customer decides whether
to authorize commencement of an engagement.
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 117 customers for the year ended December 31, 1996.
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, 1997.
IT CONSULTING
------------------------------
Andersen Consulting
Ernst & Young LLP
ICS Deloitte & Touche LLP
KPMG Peat Marwick LLP
Price Waterhouse LLP
BASIC INDUSTRIES
------------------------------
American Cyanamid
Bristol-Myers Squibb
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 56%, 66% and 67% of its revenue in 1995, 1996 and the three months
ended March 31, 1997, respectively. In 1995, Ernst & Young LLP and Price
Waterhouse LLP each accounted for more than 10% of revenue. During 1996 and the
three months ended March 31, 1997, Price Waterhouse LLP and Bristol-Myers Squibb
each accounted for more than 10% of revenue. Currently, the Company is engaged
in nine projects for Price Waterhouse LLP. In 1995, 1996 and the three months
ended March 31, 1997, 50%, 44% and 38%, 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.
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. 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
29
<PAGE> 31
against such warranties. The Company currently is seeking 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, IBM Global
Services, Cambridge Technology Partners, SHL Systemhouse (a subsidiary of MCI),
and Computer Sciences Corporation, and 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,
Oracle, PeopleSoft and Baan 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, 1997, the Company employed 432 full-time employees, of whom
373 were engaged as consultants, 21 were engaged in sales and marketing, and 38
were engaged in finance, administration, and management. Of the total number of
employees, 402 were based in the United States, 13 were based in New Zealand and
17 were based in the United Kingdom. In addition, the Company engaged 35
independent contractors to perform information technology services and has
exclusive access to all of the employees of Intelligroup Asia, which consisted
of 85 software developers and 4 administrative personnel at March 31, 1997.
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 agreement. 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 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
30
<PAGE> 32
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 or subleases 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 operations in New Zealand,
Singapore and the United Kingdom, In addition, the Company provides funds to
Intelligroup Asia, which Intelligroup Asia uses to satisfy its lease obligations
for its offices in Hyderabad and Bombay, India.
LEGAL PROCEEDINGS
The Company had been investigated by the Immigration and Naturalization
Service (the "INS") and on April 2, 1997, the Company received two Notices of
Intent to Fine from the INS in relation to violations by the Company of the
Immigration Reform and Control Act of 1990. Specifically, the INS investigated
whether the Company improperly employed certain foreign national individuals
prior to their obtaining appropriate work authorization and failed to complete
proper employment eligibility verification forms for all employees. The Company
cooperated fully with the INS. Pursuant to settlement agreements signed April
28, 1997, fines totaling approximately $42,000 were assessed and paid by the
Company. Such amounts were accrued as of December 31, 1996. 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. 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 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 formerly a wholly-owned
subsidiary of the Company ("Oxford") which was merged into the Company in
December 1996, was 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
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<PAGE> 33
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. Design Strategy recently settled its claims against
Citibank. 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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<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- ---- ----------------------------------------
<S> <C> <C>
Ashok Pandey(1)(2)............................... 39 Chairman of the Board, President, Chief
Executive Officer and Director
Rajkumar Koneru.................................. 27 Executive Vice President and Director
Nagarjun Valluripalli............................ 29 Executive Vice President and Director
Robert M. Olanoff................................ 40 Chief Financial Officer, Treasurer and
Secretary
Paul W. Coombs................................... 41 Vice President -- Business Solutions
Anthony Knight................................... 38 Vice President -- Sales and Marketing
Klaus P. Besier(2)(3)............................ 45 Director
David A. Finley(2)(3)............................ 64 Director
Kevin P. Mohan(1)................................ 33 Director
Thomas S. Roberts(1)............................. 33 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Option 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 and directors 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
Executive Vice President 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 Executive Vice President 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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<PAGE> 35
Paul W. Coombs joined the Company in July 1994 and currently serves as Vice
President -- 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.
Anthony Knight joined the Company in December 1996 and currently serves as
Vice President -- Sales and Marketing. Prior to joining the Company, Mr. Knight
served in various sales and sales management positions from September 1995 to
December 1996 with EDS, and from June 1991 to September 1995 with Computer
Sciences Corp. Both companies engage in outsourcing and systems integration.
Klaus P. Besier has been a director of the Company since December 1996. Mr.
Besier was Chairman and Chief Executive Officer of OneWave, Inc., a provider of
intranet and internet business solutions, from early 1996 to June 1997.
Effective July 1997, Mr. Besier will join Clear With Computers, Inc., a
privately-held provider of technology-enabled selling solutions, as its
President and Chief Executive Officer. Prior to joining OneWave, Inc., Mr.
Besier served from 1994 to early 1996 as Chief Executive Officer and from 1992
to 1993 as President of SAP America, Inc., a subsidiary of SAP AG and a leading
provider of client/service business application solutions software. Prior to
joining SAP America, Inc., Mr. Besier was Corporate Vice President and a general
manager of a subsidiary of Hoechst Celanese.
David A. Finley has been a director of the Company since January 1997. Mr.
Finley currently serves as Executive Vice President, Chief Financial Officer and
as a director of Broadway and Seymour, Inc., a software and services company.
Prior to joining Broadway and Seymour, Inc., Mr. Finley was self-employed from
January 1990 to January 1996 as a consultant to various software companies,
investment firms and finance companies. Mr. Finley is the founder and first
chief executive of IBM Credit Corporation. Mr. Finley also served for over 30
years with IBM, most recently as its Treasurer.
Kevin P. Mohan has been a director of the Company since April 1996. Mr.
Mohan currently serves as a Principal 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, 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
On October 19, 1996, the Company's Board of Directors adopted a policy to
compensate each non-employee director who is elected to the Company's Board of
Directors after such date. The Board of Directors established a cash payment of
$1,500 per meeting, for each meeting attended by each such director. Other than
Messrs. Besier and Finley, who are each compensated pursuant to such policy,
directors do not otherwise receive cash compensation for services on the
Company's Board of Directors. The Company does provide, however, 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
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<PAGE> 36
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. Effective September 26,
1996, Messrs. Roberts and Mohan each was granted options to purchase 20,000
shares of Common Stock, at an exercise price of $10.00 per share, under such
plan. On December 17, 1996, Mr. Besier was granted options to purchase 20,000
shares of Common Stock at an exercise price of $12.125 per share and on January
28, 1997, Mr. Finley was granted options to purchase 20,000 shares of Common
Stock at an exercise price of $11.75 per share, under such plan.
Each person who was a director of the Company on the effective date of the
Company's initial public offering or became or will become a director of the
Company thereafter, and who is not also an employee or officer of the Company,
was or shall be granted, on the date of such initial public offering or the date
on which he or she became or 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 May 31, 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> 37
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 each other executive officer of the Company whose
aggregate cash compensation exceeded $100,000 (collectively, the "Named
Executives") during the years ended December 31, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(L) (#) ($)(2)
- ------------------------------------------------------- ---- --------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ashok Pandey........................................... 1996 208,461 -- 12,290 -- 11,570
Chairman of the Board, President and 1995 145,150 -- 18,367 -- 12,190
Chief Executive Officer(3)
Rajkumar Koneru........................................ 1996 141,667 -- 7,678 -- --
Executive Vice President(3) 1995 -- -- -- -- --
Nagarjun Valluripalli.................................. 1996 200,000 -- -- -- --
Executive Vice President(3) 1995 147,968 -- 19,727 -- 3,858
Robert M. Olanoff...................................... 1996 91,316 10,000 -- 88,000 --
Chief Financial Officer, Treasurer 1995 -- -- -- -- --
and Secretary(3)(4)
Paul Coombs............................................ 1996 210,533 -- -- 132,000 --
Vice President -- 1995 148,588 -- -- -- --
Business Solutions(3)(5)
</TABLE>
- ---------------
(1) Represents car allowance payments by the Company and, in the case of each of
Ashok Pandey and Nagarjun Valluripalli, for 1995, includes certain
non-recurring personal expenses.
(2) Represents the value of insurance premiums paid by the Company with respect
to whole life insurance for the benefit of the Named Executive.
(3) Each of the Named Executives has entered into an employment agreement with
the Company. See "-- Employment Agreements, Change-In-Control Agreements,
Indemnification Agreements, Non-Competition, Non-Disclosure and
Non-Solicitation Agreements."
(4) Mr. Olanoff joined the Company in January 1996.
(5) Paul Coombs served as Director of Business Solutions of the Company in 1995
and 1996. Mr. Coombs was promoted to the position of Vice
President -- Business Solutions in February 1997.
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, of which
options to purchase 885,383 shares have been granted and are currently
outstanding, while options to purchase 42,667 shares were granted and have been
exercised. 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
non-qualified stock options ("NQSOs")), the vesting provisions, the terms of the
grants
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<PAGE> 38
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 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
July 11, 2006.
EMPLOYMENT AGREEMENTS, CHANGE-IN-CONTROL AGREEMENTS, INDEMNIFICATION AGREEMENTS,
NON-COMPETITION,
NON-DISCLOSURE AND NON-SOLICITATION AGREEMENTS
Each of the executive officers of the Company entered into a two-year
employment agreement with the Company commencing June 1, 1996, with the
exception of Anthony Knight whose employment agreement was executed in December
1996 and provides for termination upon thirty days written notice by either
party. Pursuant to Mr. Coombs' amended employment agreement, Mr. Coombs is an
employee-at-will and may be terminated at any time with or without cause. Under
the terms of their respective agreements, Messrs. Pandey, Koneru, Valluripalli,
Olanoff, Coombs and Knight currently are entitled to annual base salary of
$200,000, $200,000, $200,000, $135,000, $200,000 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 Company has not entered into any change-in-control
agreement with any other employee.
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, and in the case of Mr. Knight for a period of one year,
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, or in the case of Mr. Knight in certain limited capacities, in
any business which is competitive with the business of the Company. The
employment agreements also provide that for a period of two years, and in the
case of Mr. Knight for a period of one year, 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
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<PAGE> 39
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.
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<PAGE> 40
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. In December 1996, Oxford was
merged into the Company and ceased to exist as a corporate entity.
Messrs. Pandey, Koneru and Valluripalli are the sole shareholders of
Intelligroup Asia. Intelligroup Asia operates the Advanced Development Center in
Hyderabad, India for the 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 and if such shares may be
transferred in accordance with the laws of India. The Company has agreed to
provide all of the necessary support and assistance to Intelligroup Asia,
including technical and financial support, subject to certain financial
restrictions set forth in the Company's credit agreement with PNC Bank.
In November 1996, the Company commenced operations in Singapore with the
incorporation of Intelligroup Singapore Private Ltd. ("Intelligroup Singapore").
Each of the Company and Mr. Koneru owns 50% of Intelligroup Singapore.
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 was subject to downward
adjustment based upon the initial public offering price. At the initial public
offering price of $10.00 per share, there were 1,364,000 shares of Common Stock
underlying the warrants. The warrants were exercised upon effectiveness of the
Company's initial public offering on September 26, 1996. Summit Ventures IV,
L.P. and Summit Investors III, L.P. have certain registration rights. See
"Description of Capital Stock -- Registration Rights." In addition, each of
Messrs. Pandey, Koneru and Valluripalli have granted Summit Ventures IV, L.P.
and Summit Investors III, L.P. certain rights of co-sale in the event that such
individuals propose to sell their shares of Common Stock. In October 1996, the
Company prepaid in full the amounts outstanding under the subordinated
debentures, including accrued interest, with a portion of the net proceeds from
its initial public offering. See "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, 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, of which approximately $800,000 has been paid as of the date
of this Prospectus. No interest or penalties were assessed. Reserves,
aggregating $1.0 million, including the amount of the Internal Revenue Service
audit assessment, were recorded at December 31, 1995. 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
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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. To secure
such indemnification obligations, Messrs. Pandey, Koneru and Valluripalli have
pledged to the Company an aggregate of $450,000 and 191,667 shares of Common
Stock owned by them. 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.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1997, of (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, and (iii) all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENT OF CLASS
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING(2) OFFERING(2)
- ------------------------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C>
Ashok Pandey(3)(4).................................... 2,202,221 20.4% 18.7%
Rajkumar Koneru(3)(4)................................. 2,202,220 20.4 18.7
Nagarjun Valluripalli(3)(4)........................... 2,202,221 20.4 18.7
Summit Ventures IV, L.P. and Summit Investors III,
L.P.(5)............................................. 1,182,688 11.0 10.0
Klaus Besier.......................................... -- -- --
David Finley.......................................... -- -- --
Kevin P. Mohan(6)..................................... 1,182,688 11.0 10.0
Thomas S. Roberts(7).................................. 1,182,688 11.0 10.0
Robert M. Olanoff(3)(8)............................... 29,334 * *
Paul W. Coombs(3)(9).................................. 44,000 * *
All directors and officers as a group (10
persons)(10)........................................ 7,862,684 72.5 66.3
</TABLE>
- ---------------
* Less than one percent.
(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 of Common Stock
shown as beneficially owned by such shareholder.
(2) Applicable percentage of ownership is based on 10,778,267 shares of Common
Stock outstanding on May 31, 1997, plus any presently exercisable stock
options and options which will become exercisable within 60 days after May
31, 1997 held by each such holder, and 11,778,267 shares of Common Stock
outstanding after the completion of this offering.
(3) The address for each of Messrs. Pandey, Koneru, Valluripalli, Olanoff,
Coombs and Knight is c/o Intelligroup, Inc., 517 Route One South, Iselin,
New Jersey 08830.
(4) Ashok Pandey, Rajkumar Koneru, and Nagarjun Valluripalli each has sole
power to vote or to direct the vote of and to dispose of or direct the
disposition of 2,202,221, 2,202,220, and 2,202,221 shares, respectively,
provided, however, that 63,889 of each such individual's shares have been
pledged to the Company to secure certain indemnification obligations. See
"Certain Transactions."
(5) Represents 1,123,554 shares and 59,134 shares of Common Stock owned by
Summit Ventures IV, L.P. and Summit Investors III, L.P., respectively. The
address of both entities is 600 Atlantic Avenue, Suite 2800, Boston,
Massachusetts 02210.
(6) Kevin P. Mohan is a Principal 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 5. 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. Excludes 20,000 shares
underlying options held by Mr. Mohan which become exercisable over time
commencing in September 1997.
(7) 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 5. Mr. Roberts expressly disclaims beneficial
ownership of such shares, except as to his proportionate interest in Summit
Ventures IV, L.P.
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<PAGE> 43
and Summit Investors III, L.P. Excludes 20,000 shares underlying options
held by Mr. Roberts which become exercisable over time commencing in
September 1997.
(8) Represents 29,334 shares of Common Stock underlying options which are
exercisable as of May 31, 1997 or sixty (60) days after such date. Excludes
58,666 shares underlying options which become exercisable over time after
such period.
(9) Represents 44,000 shares of Common Stock underlying options which are
exercisable as of May 31, 1997 or sixty (60) days after such date. Excludes
484,000 shares underlying options which become exercisable over time after
such period. Subsequent to May 31, 1997, Mr. Coombs exercised options to
purchase 28,000 shares of Common Stock and resold such shares in a broker's
transaction pursuant to Rules 701 and 144 under the Securities Act.
(10) Includes an aggregate of 73,334 shares of Common Stock underlying options
granted to individuals listed in the table which are exercisable as of May
31, 1997 or within sixty (60) days after such date.
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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 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 incorporated by reference
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 10, 1997, there were 10,778,267 shares issued and outstanding and
held of record by 78 shareholders.
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 "Risk Factors -- Anti-takeover Effect of Certain Charter and
By-law Provisions and New Jersey Law."
REGISTRATION RIGHTS
In April 1996, in connection with the sale of subordinated debentures and
warrants by the Company, the Company and Summit Ventures IV, L.P. and Summit
Investors III, L.P. executed a Registration Rights Agreement (the "Rights
Agreement") pursuant to which the Company granted certain registration rights to
such entities. Pursuant to the Rights Agreement, Summit Ventures IV, L.P. and
Summit Investors III, L.P. and their assignees 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, as
defined in the Rights Agreement (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.
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<PAGE> 45
Also pursuant to the Rights Agreement, if, at any time, 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. The holders of such Registrable Securities have waived their
registration rights with respect to this offering.
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 of
the then 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 without limitation, 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 of the then outstanding shares of the capital stock of the
Company shall be required to amend the above provisions (i) through (iv) or the
limitation on director liability as set forth in the Amended and Restated
Certificate of Incorporation. The New Jersey statute, the authorized
undesignated 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
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<PAGE> 46
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.
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<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
11,778,267 shares of Common Stock, based on shares outstanding as of June 10,
1997. See "Capitalization." Of these shares, an aggregate of 3,988,917 shares,
consisting of: (i) the 1,000,000 shares sold in this offering; (ii) the
2,846,250 shares offered and sold pursuant to the Company's initial public
offering of Common Stock consummated in October 1996; and (iii) an aggregate of
142,667 shares, including 100,000 shares resold by certain shareholders pursuant
to the provisions of Rule 144 and 42,667 shares which were issued upon the
exercise of vested stock options pursuant to Rule 701, will be freely
transferable by persons other than "affiliates" of the Company without
restriction or further registration under the Securities Act. The remaining
7,789,350 shares of Common Stock are "restricted securities" (the "Restricted
Shares") within the meaning of Rule 144 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.
Messrs. Pandey, Koneru and Valluripalli, owning in the aggregate 6,606,662
shares, have entered into "lock-up" agreements with the Underwriter, providing
that, subject to certain exceptions, they will not offer, sell or otherwise
dispose of any shares of Common Stock for a period of 90 days following the date
of this Prospectus without the prior written consent of the Underwriter. The
Underwriter may, in its sole discretion, and at any time without notice, release
all or a portion of the shares subject to these "lock-up" agreements. Subject to
the "lock-up" agreements, all of such shares will be eligible for resale in the
public market pursuant to Rule 144, subject to certain limitations described
below. Certain other affiliated shareholders holding an aggregate of 1,182,688
shares are also eligible to resell such shares in the public market under Rule
144 and have the right in certain circumstances to require the Company to
register under the Securities Act such shares of Common Stock for resale to the
public. See "Description of Capital Stock -- Registration Rights."
Rule 144 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 one year but less than two years is entitled to sell, 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 (117,783 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 two years, is entitled to sell such shares under
Rule 144 without regard to the limitations described above.
As of June 10, 1997, there were outstanding options to purchase an
aggregate of 885,383 shares of Common Stock, of which 120,795 shares are
eligible for immediate resale in compliance with Rules 144 and 701 (relating to
the sale of shares issuable under certain compensatory stock plans). The Company
intends to file a Registration Statement on Form S-8 shortly after the
consummation of this offering to register an aggregate of 1,547,333 shares of
Common Stock issuable upon stock options granted, or to be granted, under its
1996 Stock Plan and 1996 Non-Employee Director Stock Option Plan.
The Common Stock has been traded on the Nasdaq National Market since
September 27, 1996. 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 the market price of the shares of Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors -- Shares Eligible for Future Sale."
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UNDERWRITING
Montgomery Securities (the "Underwriter") has agreed, subject to the terms
and conditions in the underwriting agreement (the "Underwriting Agreement"), by
and between the Company and the Underwriter, to purchase from the Company
1,000,000 shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent and that the Underwriter is committed to
purchase all of the shares of Common Stock, if it purchases any.
The Underwriter has advised the Company that it initially proposes to offer
the Common Stock to the public on the terms set forth on the cover page of this
Prospectus. The Underwriter may allow selected dealers a concession of not more
than $ per share; and the Underwriter may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the public offering, the public offering price and other selling
terms may be changed by the Underwriter. The Common Stock is offered subject to
receipt and acceptance by the Underwriter, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriter, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 150,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriter. The Underwriter may purchase such shares only to cover
over-allotments made in connection with the offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
Messrs. Pandey, Koneru and Valluripalli have agreed that for a period of 90
days following the date of this Prospectus they will not, without the prior
written consent of the Underwriter, directly or indirectly, sell, offer,
contract or grant an option to sell (including without limitation any short
sale), pledge, transfer, establish an open put equivalent position or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable or exercisable or convertible into
shares of Common Stock held by them, or publicly announce the intention to do
any of the foregoing. In addition, the Company has agreed that for a period of
90 days after the date of this Prospectus it will not, without the consent of
Montgomery Securities, directly or indirectly, sell, offer, contract or grant an
option to sell, pledge, transfer or otherwise dispose of, or announce the
offering of, or file any registration statement under the Securities Act in
respect of, any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock, or publicly announce the intention to do any of the
foregoing, except for shares of Common Stock offered hereby and shares issued
pursuant to the 1996 Stock Option Plan and 1996 Non-Employee Director Stock
Option Plan. See "Shares Eligible for Future Sale."
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter and
certain selling group members, if any, to bid for and purchase the Common Stock.
As an exception to these rules, the Underwriter is permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock. If the Underwriter creates a short
position in the Common Stock in connection with the offering, i.e., if it sells
more shares of Common Stock than are set forth on the cover page of this
Prospectus, the Underwriter may reduce that short position by purchasing Common
Stock in the open market. The Underwriter may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. Neither the Company nor the
Underwriter makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither
47
<PAGE> 49
the Company nor the Underwriter makes any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
The Common Stock is traded on the Nasdaq National Market under the symbol
ITIG.
48
<PAGE> 50
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 in connection with the offering will be passed upon for
the Underwriter by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The consolidated financial statements included in this Prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their report have been audited by Arthur Andersen LLP, independent
public accountants and are 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. The former auditor's report on the Company's financial
statements for the year ended December 31, 1994 does not cover the financial
statements of the Company included in this Prospectus. 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 previously provided the prior auditors with a copy of the above
disclosure and the prior auditors furnished the Company with a letter addressed
to the Securities and Exchange 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.
49
<PAGE> 51
INTELLIGROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996........................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995 and
1996............................................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1995 and 1996....................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and
1996............................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Financial Statements:
Consolidated Balance Sheet as of March 31, 1997 (unaudited)......................... F-14
Consolidated Statements of Income for the Three Months Ended March 31, 1996 and 1997
(unaudited)...................................................................... F-15
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and
1997 (unaudited)................................................................. F-16
Notes to Consolidated Financial Statements (unaudited)................................ F-17
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Intelligroup, Inc.:
We have audited the accompanying consolidated balance sheets of
Intelligroup, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years then ended. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Intelligroup, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
February 5, 1997 (except with respect to
Note 9, as to which the date is June 13, 1997)
F-2
<PAGE> 53
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 71,000 $ 7,479,000
Restricted cash held in escrow................................ 100,000 --
Accounts receivable, less allowance for doubtful accounts of
$531,000 and $546,000 at December 31, 1995 and 1996,
respectively............................................... 4,729,000 8,538,000
Unbilled services............................................. 1,569,000 2,916,000
Deferred income taxes......................................... -- 331,000
Other current assets.......................................... 3,000 492,000
----------- ----------
Total current assets.................................. 6,472,000 19,756,000
Property and equipment, less accumulated depreciation of $99,000
and $243,000 at December 31, 1995 and 1996, respectively...... 282,000 1,281,000
Other assets.................................................... 30,000 225,000
----------- ----------
$ 6,784,000 $21,262,000
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.............................................. $ 1,480,000 $ 406,000
Accrued payroll and related taxes............................. 2,568,000 1,814,000
Accrued expenses and other liabilities........................ 532,000 1,268,000
Income taxes payable.......................................... -- 535,000
Cash overdraft................................................ 83,000 --
Line of credit................................................ 45,000 --
Loans from factors............................................ 3,343,000 --
Current portion of obligations under capital leases........... 18,000 20,000
----------- ----------
Total current liabilities............................. 8,069,000 4,043,000
----------- ----------
Obligations under capital leases, less current portion.......... 81,000 57,000
----------- ----------
Commitments and contingencies
Shareholders' Equity (Deficit)
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none outstanding........................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized,
12,202,666 and 10,735,600 issued and outstanding at
December 31, 1995 and 1996, respectively................... 122,000 107,000
Additional paid-in capital.................................... -- 19,201,000
Accumulated deficit........................................... (1,488,000) (2,146,000)
----------- ----------
Total shareholders' equity (deficit).................. (1,366,000) 17,162,000
----------- ----------
$ 6,784,000 $21,262,000
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 54
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue........................................................... $24,589,000 $47,189,000
Cost of sales..................................................... 20,021,000 33,605,000
----------- -----------
Gross profit................................................. 4,568,000 13,584,000
Selling, general and administrative expenses...................... 4,452,000 9,908,000
----------- -----------
Operating income............................................. 116,000 3,676,000
----------- -----------
Other expenses:
Interest expense, net........................................... 4,000 236,000
Factor charges.................................................. 1,171,000 999,000
----------- -----------
1,175,000 1,235,000
----------- -----------
Income (loss) before provision for income taxes and extraordinary
charge.......................................................... (1,059,000) 2,441,000
Provision for income taxes........................................ -- 500,000
----------- -----------
Income (loss) before extraordinary charge......................... (1,059,000) 1,941,000
Extraordinary charge-loss on early extinguishment of debt, net of
income tax benefit of $296,000.................................. -- 1,148,000
----------- -----------
Net income (loss)............................................ $(1,059,000) $ 793,000
=========== ===========
Earnings (loss) per share:
Income (loss) before extraordinary charge....................... $ (0.08) $ 0.18
Extraordinary charge, net of income tax benefit................. -- (0.11)
----------- -----------
Net income (loss) per share.................................. $ (0.08) $ 0.07
=========== ===========
Shares used in per share calculation.............................. 13,737,000 10,989,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 55
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL SHAREHOLDERS'
--------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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....................... -- -- -- 793,000 793,000
Repurchase and retirement of
common stock.................. (4,881,066) (49,000) -- (1,451,000) (1,500,000)
Issuance of common stock, net of
related costs................. 2,050,000 20,000 17,815,000 -- 17,835,000
Exercise of warrants............. 1,364,000 14,000 1,386,000 -- 1,400,000
---------- -------- ----------- ----------- -----------
Balance at December 31, 1996....... 10,735,600 $107,000 $19,201,000 $(2,146,000) $17,162,000
========== ======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 56
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $(1,059,000) $ 793,000
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization................................ 51,000 214,000
Provision for doubtful accounts.............................. 411,000 590,000
Extraordinary charge......................................... -- 1,444,000
Deferred income taxes........................................ -- (331,000)
Changes in assets and liabilities:
Restricted cash deposited in escrow.......................... (100,000) 100,000
Accounts receivable.......................................... (3,339,000) (4,399,000)
Unbilled services............................................ (1,386,000) (1,347,000)
Other current assets......................................... 27,000 (489,000)
Other assets................................................. (30,000) (197,000)
Cash overdraft............................................... 83,000 (83,000)
Accounts payable............................................. 1,480,000 (1,074,000)
Accrued payroll and related taxes............................ 1,035,000 (754,000)
Income taxes payable......................................... -- 535,000
Accrued expenses and other liabilities....................... 478,000 736,000
----------- -----------
Net cash used in operating activities................... (2,349,000) (4,262,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.............................. (142,000) (1,143,000)
----------- -----------
Cash flows from financing activities:
Proceeds from subordinated debentures and warrants, net of
issuance costs............................................... -- 5,888,000
Repayment of subordinated debentures............................ -- (6,000,000)
Repurchase of common stock...................................... -- (1,500,000)
Proceeds from issuance of common stock, net of issuance costs... -- 17,835,000
Loans from (repayments to) factors, net......................... 2,349,000 (3,343,000)
Proceeds from (repayments of) lines of credit, net.............. 6,000 (45,000)
Principal payments under capital leases......................... (2,000) (22,000)
----------- -----------
Net cash provided by financing activities............... 2,353,000 12,813,000
----------- -----------
Net increase (decrease) in cash and cash equivalents.... (138,000) 7,408,000
Cash and cash equivalents at beginning of period.................. 209,000 71,000
----------- -----------
Cash and cash equivalents at end of period........................ $ 71,000 $ 7,479,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest.......................................... $ 1,175,000 $ 1,264,000
=========== ===========
Noncash transactions:
Capital lease obligations....................................... $ 102,000 $ --
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 57
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Intelligroup, Inc., and its subsidiaries (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.
Principles of Consolidation and Use of Estimates
The accompanying financial statements include the accounts of Intelligroup,
Inc. and its majority-owned subsidiaries. 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.
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 at December 31, 1995 and 1996
represent services provided which are billed subsequent to year-end. All such
amounts are anticipated to be realized in the following year.
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. The provision
for doubtful accounts totaled $411,000 and $590,000 in 1995 and 1996,
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.
F-7
<PAGE> 58
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 provides pro
forma disclosures (See Note 7).
Concentrations
For the years ended December 31, 1995 and 1996, approximately 69% and 74%
of revenue, respectively, was derived from projects in which the Company's
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 Logo
Partner. The Company's agreement with SAP (the "Agreement") is awarded on an
annual basis. The Company's current contract expires on December 31, 1997. The
Agreement contains no minimum revenue requirement or cost sharing arrangements
and does not provide for commissions or royalties to either party. In February
1997, the Company achieved National Logo Partner status with SAP, SAP's highest
consulting alliance partnership status, and will begin operating under the terms
of such partnership agreement pending partnership agreement negotiations.
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 years
ended December 31, 1995 and 1996, 50% and 44%, 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 13% of revenue in 1996. Accounts
receivable due from this customer was $2,268,000 as of December 31, 1996.
Another customer accounted for approximately 10% and 20% of revenue for 1995 and
1996, respectively. Accounts receivable due from this customer was $611,000 and
$988,000 as of December 31, 1995 and 1996, respectively. Another customer
accounted for approximately 12% of revenue for 1995. Accounts receivable due
from this customer was $1,400,000 as of December 31, 1995.
Foreign Operations
Revenues from foreign operations were not significant in 1995 and 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.
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
F-8
<PAGE> 59
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrants issued by the Company during the twelve months immediately preceding
its 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.
Financial Instruments
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and unbilled services. Management of
the Company believes the fair value of accounts receivable and unbilled services
approximates the carrying value.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Vehicles............................................ $ 26,000 $ 26,000
Furniture........................................... 98,000 98,000
Equipment........................................... 257,000 1,400,000
---------- --------
381,000 1,524,000
Less -- Accumulated depreciation.................... (99,000) (243,000)
---------- --------
$ 282,000 $1,281,000
========== ========
</TABLE>
Included in the above is $102,000 of equipment held under capital leases.
Depreciation expense was $51,000 and $144,000 in 1995 and 1996, respectively.
NOTE 3 -- LINES OF CREDIT AND SUBORDINATED DEBENTURES
In January 1997, the Company entered into a two-year credit agreement with
a bank. The credit facility with the bank includes (i) a revolving line of
credit pursuant to which the Company may borrow up to $7,500,000 (at the bank's
prime rate plus 1/4 of 1% per annum) to finance the working capital needs of the
Company and (ii) equipment term loans pursuant to which the Company may borrow
up to an aggregate of $350,000 (at the bank's prime rate plus 3/4 of 1% per
annum) to purchase equipment. The credit limit of the revolving line of credit
is the lesser of $7,500,000 or the Company's borrowing base. Such borrowing base
is 70% of the Company's eligible accounts receivable at the time of any loan
under the revolving line of credit. The credit agreement contains covenants
which, among other things, require the maintenance of a minimum working capital
ratio and a minimum net worth, as defined, and prohibit distribution of cash
dividends. The Company's obligations under the credit agreement are
collateralized by substantially all of the Company's assets. The Company's
obligations under the credit facility are payable at the expiration of such
facility on January 22, 1999.
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%, 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 was repaid
in November 1996. The outstanding balance as of December 31, 1995 was $45,000.
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.
Aggregate borrowings in the amount of $300,000 were repaid and the line of
credit 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 was due at maturity (April 2001). The
debentures were issued with detachable warrants to purchase Common Stock of the
Company (See Note 7). Proceeds from the debentures were allocated
F-9
<PAGE> 60
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. A portion of the net proceeds of
the Company's initial public offering (see Note 8) was used to repay the
subordinated debentures which resulted in an extraordinary charge of $1,148,000,
net of an income tax benefit of $296,000.
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.
NOTE 4 -- LOANS PAYABLE TO FACTORS
On October 20, 1995, the Company entered into a factoring agreement with a
financing institution (the "Factor") under which the Company was required to
offer all its trade accounts receivable to the Factor for financing; however,
the Factor was not obligated to accept them. The agreement had a term of one
year with automatic one-year renewals unless the Company or the Factor gave
notice of cancellation. The Factor charged an administration fee of 0.75% on
each invoice plus an additional 0.75% for each 15-day increment the invoice
remained unpaid, to a maximum of 120 days, or 6.5%. If the amount of a factored
receivable was not paid by reason of financial inability of the customer, the
Company was not liable to reimburse the Factor. If, however, the Factor, through
legal action or otherwise, settled, compromised or assigned the claim for any
receivable, the amount of any reduction resulting from such settlement,
compromise or assignment reduced the balance due to the Company. The Company
used approximately $4.4 million of the net proceeds from the Company's initial
public offering to repay loans from the Factor (See Note 8). The Factor
agreement was terminated in October 1996.
The Company had factoring agreements with a former financing institution
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.
NOTE 5 -- INCOME TAXES
Income tax attributable to income from continuing operations consists of
the following:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Current:
Federal........................................................ $ 631,000
State.......................................................... 200,000
---------
831,000
---------
Deferred:
Federal........................................................ (259,000)
State.......................................................... (72,000)
---------
(331,000)
---------
Total.................................................. $ 500,000
=========
</TABLE>
F-10
<PAGE> 61
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35% to income (loss) before income taxes. The principal
reasons for this difference are:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Tax at federal statutory rate.................................. (35% ) 35%
Nondeductible expenses......................................... -- 1
State income tax, net of federal benefit....................... -- (3)
Utilization of net operating loss carryforwards................ -- (8)
Foreign losses for which no benefit is available............... -- 9
Changes in valuation allowance................................. 35 (14)
--- ---
Effective tax rate............................................. -- % 20%
=== ===
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities under SFAS No.
109 as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................... $ 234,000 $ 224,000
Certain accrued liabilities........................ 207,000 146,000
Net operating losses............................... 227,000 131,000
Other.............................................. -- 37,000
--------- ---------
Total deferred tax assets............................ 668,000 538,000
Valuation allowance for deferred tax assets.......... (668,000) (207,000)
--------- ---------
Net deferred tax assets.............................. $ -- $ 331,000
========= =========
</TABLE>
Realization of the net deferred tax assets is dependent on the timing of
the reversal of other temporary differences. Although realization is not
assured, management believes it is more likely than not, that the majority of
the 1996 net deferred tax assets will be realized. The Company reduced their
valuation allowance in 1996 as a result of current and anticipated future
profitability. The Company's 1996 valuation allowance relates primarily to the
net operating loss of a foreign subsidiary which is yet to be profitable.
NOTE 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 $935,000.
Payroll and Related Taxes
As of December 31, 1995, the Company had $1,000,000 included in accrued
payroll and related taxes related to unpaid federal and state payroll related
taxes for certain employees. 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 had been included in the above
accrual. The assessment was paid in 1996. 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.
F-11
<PAGE> 62
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Company leases office space and office equipment under capital and
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1996. Future minimum aggregate annual
lease payments are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31, CAPITAL OPERATING
------------------------------------------------------- -------- ---------
<S> <C> <C>
1997................................................... $ 37,000 $ 254,000
1998................................................... 37,000 245,000
1999................................................... 20,000 221,000
2000................................................... 20,000 19,000
2001................................................... -- 16,000
--------
114,000
Less -- Interest....................................... (37,000)
--------
77,000
Less -- Current portion................................ (20,000)
--------
$ 57,000
========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 was $74,000 and
$176,000, respectively.
Legal
The Company 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 have a material effect on the Company's results of
operations or financial condition.
The Company is engaged in certain other 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.
NOTE 7 -- STOCK OPTION PLANS AND WARRANTS
The Company's 1996 Stock Plan (the "Plan") permits the granting of options
to employees, non-employee 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
non-qualified stock option), the exercise price, vesting provisions, and the
overall option term. A total of 1,450,000 shares of Common Stock have been
reserved for issuance 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 employees at an exercise price of $8.00 per share. One-third of
these options vest six months from date of grant with remaining options vesting
over the following two years. At December 31, 1996, 492,000 of these options
remain outstanding, none of which are exercisable. Eight thousand options were
forfeited in 1996. Subsequent to December 31, 1996, the Company granted options
to purchase an aggregate of 459,000 shares of its Common Stock to certain
employees at an exercise price of $11.00 per share. All of the options issued
pursuant to this Plan expire ten years from the date of grant.
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. Each person who was a director of the Company
on the effective date of the Company's initial public offering or becomes a
director of the Company thereafter, and who is not also an employee or officer
of the Company, was or shall be
F-12
<PAGE> 63
INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted, on the effective date of such initial public offering or on 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. All options will vest in five equal
installments, commencing one year after grant and have a ten-year term. Options
to purchase 80,000 shares of the Company's Common Stock were granted in 1996
with exercise prices ranging from $10 to $12.125 per share with a weighted
average exercise price of $10.78. At December 31, 1996 all of these options
remain outstanding, none of which are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 41%, risk-free interest rate of 5.6%; and
expected lives of three years. The weighted-average grant-date fair value of
options granted during the year was $2.93 per share.
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company has chosen to continue
accounting for stock options at their intrinsic value. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's two stock option plans been determined based
on the fair value option pricing method of accounting, the Company's net income
and earnings per share would have been reduced to $434,000 and $0.04,
respectively.
The subordinated debenture holders (see Note 3) received warrants for the
purchase of up to 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). The
warrants were exercised in September 1996 which resulted in the issuance of
1,364,000 shares of the Company's Common Stock.
NOTE 8 -- INITIAL PUBLIC OFFERING, STOCK SPLIT AND PREFERRED STOCK AUTHORIZATION
The Company's initial public offering for the sale of 2,050,000 shares of
its common stock became effective on September 26, 1996 and the net proceeds of
approximately $19,065,000 (before deducting expenses of the offering paid by the
Company) were received on October 2, 1996. A portion of the net proceeds was
used to prepay subordinated debentures and repay other debt (See Notes 3 and 4).
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.
NOTE 9 -- SUBSEQUENT EVENT
In June 1997, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission to
register a maximum of 1,150,000 shares of the Company's Common Stock to sell to
the public. Existing and prospective investors should consider, among other
things, the risks and difficulties faced by the Company, including competition
from existing companies offering the same or similar services, rapid
technological change and management of growth. See "Risk Factors" included
elsewhere in this Prospectus for a discussion of these and other factors.
F-13
<PAGE> 64
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 5,330,000
Accounts receivable, less allowance for doubtful accounts of $523,000......... 6,891,000
Unbilled services............................................................. 6,029,000
Deferred income taxes......................................................... 331,000
Other current assets.......................................................... 629,000
-----------
Total current assets.................................................. 19,210,000
Property and equipment, less accumulated depreciation of $299,000............... 2,272,000
Other assets.................................................................... 374,000
-----------
$21,856,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $ 653,000
Accrued payroll and related taxes............................................. 2,079,000
Accrued expenses and other liabilities........................................ 548,000
Income taxes payable.......................................................... 504,000
Current portion of obligations under capital leases........................... 20,000
-----------
Total current liabilities............................................. 3,804,000
-----------
Obligations under capital leases, less current portion.......................... 53,000
-----------
Commitments and contingencies
Shareholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
outstanding................................................................ --
Common stock, $.01 par value, 25,000,000 shares authorized; 10,735,600 shares
issued and outstanding..................................................... 107,000
Additional paid-in capital.................................................... 19,201,000
Accumulated deficit........................................................... (1,309,000)
-----------
Total shareholders' equity............................................ 17,999,000
-----------
$21,856,000
===========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE> 65
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenue........................................................... $ 8,710,000 $15,738,000
Cost of sales..................................................... 6,423,000 11,336,000
----------- -----------
Gross profit................................................. 2,287,000 4,402,000
Selling, general and administrative expenses...................... 1,644,000 3,086,000
----------- -----------
Operating income............................................. 643,000 1,316,000
----------- -----------
Other expenses (income):
Interest expense (income), net.................................. 7,000 (79,000)
Factor charges.................................................. 308,000 --
----------- -----------
315,000 (79,000)
----------- -----------
Income before provision for income taxes.......................... 328,000 1,395,000
Provision for income taxes........................................ 101,000 558,000
----------- -----------
Net income................................................... $ 227,000 $ 837,000
=========== ===========
Earnings per share:
Net income per share......................................... $ 0.02 $ 0.08
=========== ===========
Shares used in per share calculation.............................. 13,737,000 10,889,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 66
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1996 1997
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 227,000 $ 837,000
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................. 24,000 56,000
Provision for doubtful accounts............................... 205,000 --
Changes in assets and liabilities:
Accounts receivable........................................... (436,000) 1,647,000
Unbilled services............................................. 134,000 (3,113,000)
Other current assets.......................................... (28,000) (137,000)
Other assets.................................................. (84,000) (149,000)
Cash overdraft................................................ 8,000 --
Accounts payable.............................................. (436,000) 247,000
Accrued payroll and related taxes............................. 199,000 265,000
Income taxes payable.......................................... 100,000 (31,000)
Accrued expenses and other liabilities........................ 219,000 (720,000)
----------- ---------
Net cash provided by (used in) operating activities...... 132,000 (1,098,000)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment............................... (27,000) (1,047,000)
----------- ---------
Cash flows from financing activities:
Repayment of loans to factors, net............................... (289,000) --
Proceeds from lines of credit, net............................... 198,000 --
Principal payments under capital leases.......................... (6,000) (4,000)
----------- ---------
Net cash used in financing activities.................... (97,000) (4,000)
----------- ---------
Net increase (decrease) in cash and cash equivalents..... 8,000 (2,149,000)
Cash and cash equivalents at beginning of period................... 71,000 7,479,000
----------- ---------
Cash and cash equivalents at end of period......................... $ 79,000 $ 5,330,000
=========== =========
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $ 7,000 $ --
=========== =========
Cash paid for income taxes....................................... $ -- $ 586,000
=========== =========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 67
INTELLIGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements and accompanying financial
information as of March 31, 1997 and for the three months ended March 31, 1996
and 1997 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. The financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the instructions of
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1996.
Results for interim periods are not necessarily indicative of results for
the entire year.
(2) EARNINGS PER SHARE
Net income 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 an 81,351.1111-for-1 stock split effected in July
1996. 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 Company's initial public offering consummated in
October 1996 have been included in computing net income per share as if they
were outstanding for all periods prior to the Initial Public Offering using the
treasury stock method.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share" ("FAS
128"). FAS 128 is effective for fiscal years ending after December 15, 1997,
and, when adopted, it will require restatement of prior years' earnings per
share and changes the method in which earnings per share will be determined. If
the Company had adopted FAS 128 for the period ended March 31, 1997, there would
have been no effect on earnings per share, on either the basic or diluted basis.
(3) LEGAL PROCEEDINGS
The Company was being investigated by the Immigration and Naturalization
Service (the "INS") and on April 2, 1997, the Company received two Notices of
Intent to Fine from the INS in relation to violations by the Company of the
Immigration Reform and Control Act of 1990. Specifically, the INS investigated
whether the Company improperly employed certain foreign national individuals
prior to their obtaining appropriate work authorization and failed to complete
proper employment eligibility verification forms for all employees. The Company
cooperated fully with the INS. Pursuant to settlement agreements signed April
28, 1997, fines totaling approximately $42,000 were assessed and paid by the
Company. Such amounts were accrued as of December 31, 1996. 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. The Company now employs in-house
counsel to oversee this function.
(4) SUBSEQUENT EVENT
In June, 1997, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission to
register a maximum of 1,150,000 shares of the Company's Common Stock to sell to
the public.
F-17
<PAGE> 68
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 33
Certain Transactions.................. 39
Principal Shareholders................ 41
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 46
Underwriting.......................... 47
Legal Matters......................... 49
Experts............................... 49
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
1,000,000 SHARES
LOGO
COMMON STOCK
--------------------------
PROSPECTUS
--------------------------
MONTGOMERY SECURITIES
, 1997
======================================================
<PAGE> 69
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, (iv) or
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 and officers to the extent such
parties are involved in or made a party to any action, suit or processing
because he was a director or officer 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
directors and executive officers 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 has 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, or otherwise
excluded by such insurance policy.
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> 70
Reference is made to Section 8 of the Underwriting Agreement, the proposed
form of which is filed as Exhibit One, in which the Underwriter agrees 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.................................................... $ 3,760.16
NASD filing fee......................................................... 1,740.85
Nasdaq National Market additional listing fee........................... 17,500.00
Counsel fees and expenses............................................... 100,000.00
Accounting fees and expenses............................................ 50,000.00
Blue sky fees and expenses.............................................. 5,000.00
Printing expenses....................................................... 35,000.00
Transfer agent and registrar fees....................................... 5,000.00
Miscellaneous........................................................... 11,998.99
----------
Total......................................................... $230,000.00
==========
</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.
3. On May 1, 1997 the registrant sold to Mr. Uma Pandey 14,667 shares
of the registrant's Common Stock and on June 3, 1997 the registrant sold to
Mr. Paul Coombs 28,000 shares of the registrant's Common Stock, each such
sale being made pursuant to the exercise of stock options that were issued
to each of Messrs. Pandey and Coombs on July 12, 1996 at an exercise price
of $8.00 per share.
No underwriter was employed by the registrant in connection with the
issuance and sale of the securities described above. The registrant believes
that the issuance and sale of all of the foregoing securities were exempt from
registration under either (i) Section 4(2) of the Securities Act as transactions
not involving any public offering, or (ii) Rule 701 under the Securities Act as
transactions made pursuant to a written contract relating to compensation.
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> 71
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement.
2# Agreement and Plan of Merger of the Company and its wholly owned subsidiary Oxford
Systems Inc.
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. See
Exhibit 10.21.
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 Intentionally Left Blank.
10.12* Services Provider Agreement by and between Oracle Corporation and the Company
dated July 26, 1994. See Exhibit 10.20.
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. See Exhibit 10.17.
10.15* Agreement of Waiver and Consent dated as of June 4, 1996 by and among the Company,
certain shareholders of the Company, and Summit Ventures IV, L.P. and Summit
Investors III, L.P., with Amendment No. 1 thereto. See Exhibit 10.24.
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.
</TABLE>
II-3
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
10.17# Letter agreements terminating factoring arrangements by and between each of the
Company and Oxford Systems Inc., and Access Capital, Inc. dated October 10, 1996.
See Exhibit 10.14.
10.18# Loan and Security Agreement between PNC Bank, National Association and the Company
dated as of January 22, 1997, and related documents.
10.19 Intentionally Left Blank.
10.20# Amendment No. 1 to Services Provider Agreement by and between Oracle Corporation
and the Company dated December 30, 1996. See Exhibit 10.12.
10.21# Amendment No. 1, dated February 18, 1997, to Employment Agreement dated June 1,
1996, between the Company and Paul Coombs. See Exhibit 10.7.
10.22 R/3 National Logo Partner Agreement by and between SAP America, Inc. and the
Company dated as of April 29, 1997.
10.23+ Employment Agreement dated December 6, 1996 between the Company and Anthony
Knight, as amended on February 18, 1997.
10.24 Amended and Restated Agreement of Waiver and Consent dated June 6, 1997 by and
among the Company, certain shareholders of the Company, Summit Ventures IV, L.P.
and Summit Investors III, L.P. See Exhibit 10.15.
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, 1996.
27.2 Financial Data Schedule for the three months ended March 31, 1997.
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (Registration Statement No. 333-5981) declared effective on September
26, 1996.
# Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996 filed with the Securities and Exchange
Commission on March 28, 1997.
+ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 1997 filed with the Securities and
Exchange Commission on May 14, 1997.
(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,
II-4
<PAGE> 73
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.
II-5
<PAGE> 74
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 authorized this Registration
Statement to be signed on its behalf by the undersigned, in the Township of
Iselin, State of New Jersey, on June 13, 1997.
Intelligroup, Inc.
By: /s/ ASHOK PANDEY
------------------------------------
Ashok Pandey, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Ashok Pandey and Robert M. Olanoff, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and a related registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, and in each case, to file the same with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
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 June 13, 1997
- ------------------------------------- and Director (Principal Executive
Ashok Pandey Officer)
/s/ RAJKUMAR KONERU Executive Vice President and June 13, 1997
- ------------------------------------- Director
Rajkumar Koneru
/s/ NAGARJUN VALLURIPALLI Executive Vice President and June 13, 1997
- ------------------------------------- Director
Nagarjun Valluripalli
/s/ ROBERT M. OLANOFF Chief Financial Officer, Treasurer June 13, 1997
- ------------------------------------- and Secretary (Principal Financial
Robert M. Olanoff and Accounting Officer)
/s/ KLAUS BESIER Director June 13, 1997
- -------------------------------------
Klaus Besier
/s/ DAVID FINLEY Director June 13, 1997
- -------------------------------------
David Finley
/s/ KEVIN P. MOHAN Director June 13, 1997
- -------------------------------------
Kevin P. Mohan
/s/ THOMAS S. ROBERTS Director June 13, 1997
- -------------------------------------
Thomas S. Roberts
</TABLE>
II-6
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- ----------------------------------------------------------------------- ------------
<S> <C> <C>
1 Form of Underwriting Agreement.
2# Agreement and Plan of Merger of the Company and its wholly owned
subsidiary Oxford Systems Inc.
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. See Exhibit 10.21.
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 Intentionally Left Blank.
10.12* Services Provider Agreement by and between Oracle Corporation and the
Company dated July 26, 1994. See Exhibit 10.20.
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. See Exhibit 10.17.
</TABLE>
<PAGE> 76
<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, certain current shareholders of the Company, and Summit
Ventures IV, L.P. and Summit Investors III, L.P., with Amendment No. 1
thereto. See Exhibit 10.24.
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.
10.17# Letter agreements terminating factoring arrangements by and between
each of the Company and Oxford Systems Inc., and Access Capital, Inc.
dated October 10, 1996. See Exhibit 10.14.
10.18# Loan and Security Agreement between PNC Bank, National Association and
the Company dated as of January 22, 1997, and related documents.
10.19 Intentionally Left Blank.
10.20# Amendment No. 1 to Services Provider agreement by and between Oracle
Corporation and the Company dated December 30, 1996. See Exhibit 10.12.
10.21# Amendment No. 1, dated February 18, 1997, to Employment Agreement dated
June 1, 1996, between the Company and Paul Coombs. See Exhibit 10.7.
10.22 R/3 National Logo Partner Agreement by and between SAP America, Inc.
and the Company dated as of April 29, 1997.
10.23+ Employment Agreement dated December 6, 1996 between the Company and
Anthony Knight, as amended on February 18, 1997.
10.24 Amended and Restated Agreement of Waiver and Consent dated June 6, 1997
by and among the Company, certain shareholders of the Company, Summit
Ventures IV, L.P. and Summit Investors III, L.P. See Exhibit 10.15.
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, 1996.
27.2 Financial Data Schedule for the three months ended March 31, 1997.
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (Registration Statement No. 333-5981) declared effective on September
26, 1996.
# Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996 filed with the Securities and Exchange
Commission on March 28, 1997.
+ Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 1997 filed with the Securities and
Exchange Commission on May 14, 1997.
<PAGE> 1
Draft of 6/12/97
[Execution Copy]
[Conformed Copy]
1,000,000 SHARES
INTELLIGROUP, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED JUNE __, 1997
<PAGE> 2
June __, 1997
MONTGOMERY SECURITIES
As Underwriter
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Intelligroup, Inc., a New Jersey corporation (the
"Company"), proposes to issue and sell to Montgomery Securities (the
"Underwriter") an aggregate of 1,000,000 shares (the "Firm Common Shares") of
its Common Stock, par value $0.01 per share (the "Common Stock"). In addition,
the Company has granted to the Underwriter an option to purchase up to an
additional 150,000 shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares."
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), any information deemed to be a part
thereof at the time of effectiveness pursuant to Rule 430A or Rule 434 under the
Securities Act, is called the "Registration Statement." Any registration
statement filed by the Company pursuant to Rule 462(b) under the Securities Act
is called the "Rule 462(b) Registration Statement," and from and after the date
and time of filing of the Rule 462(b) Registration Statement the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
Such prospectus, in the form first used by the Underwriter to confirm sales of
the Common Shares, is called the "Prospectus"; provided, however, if the Company
has, with the consent of Montgomery Securities, elected to rely upon Rule 434
under the Securities Act, the term "Prospectus" shall mean the Company's
prospectus subject to completion (each, a "preliminary prospectus") dated June
13, 1997 (such preliminary prospectus is called the "Rule 434 preliminary
prospectus"), together with the applicable term sheet (the "Term Sheet")
prepared and filed by the Company with the Commission under Rules 434 and 424(b)
under the Securities Act and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
<PAGE> 3
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to the Underwriter as follows:
(a) The Registration Statement and any Rule 462(b) Registration
Statement have been declared effective by the Commission under the
Securities Act. The Company has complied to the Commission's satisfaction
with all requests of the Commission for additional or supplemental
information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in
effect and no proceedings for such purpose have been instituted or are
pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
(b) Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy
thereof delivered to the Underwriter for use in connection with the offer
and sale of the Common Shares. Each of the Registration Statement, any
Rule 462(b) Registration Statement and any post-effective amendment
thereto, at the time it became effective and at all subsequent times,
complied and will comply in all material respects with the Securities Act
and did not and will not contain 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 not misleading. The Prospectus,
as amended or supplemented, as of its date and at all subsequent times,
did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions
from the Registration Statement, any Rule 462(b) Registration Statement,
or any post-effective amendment thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in conformity
with information relating to the Underwriter furnished to the Company in
writing by the Underwriter expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus or
to be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(c) 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, 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
2
<PAGE> 4
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.
(d) 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.
(e) 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.
(f) 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 Registration Statement
and 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 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.
3
<PAGE> 5
(g) 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 of the Company conform to the
description thereof in the Registration Statement and 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 Registration
Statement and the Prospectus and the financial statements of the Company
and related notes and schedules thereto included in the Registration
Statement and 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 Registration Statement and 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 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.
(h) The Shares to be issued and sold by the Company to the
Underwriter 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 Registration Statement and the Prospectus.
(i) Except as set forth in the Registration Statement and 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 (i)
prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration Statement,
(iii) prevent or suspend the use of the preliminary prospectus in any
jurisdiction or (iv) 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
4
<PAGE> 6
("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 of the Commission under the Securities Act (the
"Rules and Regulations").
(j) 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, 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.
(k) 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 Underwriter.
(l) 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 Shares) 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.
(m) Except as disclosed in the Registration Statement and 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. To the best knowledge of the Company, any violations by the
Company of the Immigration Reform and Control Act of 1990 or any similar
laws, rules or regulations would not be found to be a "pattern and
practice" by the Immigration and Naturalization Service. In the ordinary
course of business, employees
5
<PAGE> 7
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 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 and the Prospectus, 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 (i) any "hazardous substance"
as defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined
by the Resource Conservation and Recovery Act, as amended, (iii) any
petroleum or petroleum product, (iv) any polychlorinated biphenyl and (v)
any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of any
other Environmental Law.
(n) Except as disclosed in the Registration Statement and 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.
(o) 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. Summit
Investors III, L.P. and Summit Ventures IV, L.P., which would otherwise
have the right to require the registration of their shares of Common Stock
pursuant to the registration rights agreement described in the Prospectus,
have waived such rights.
(p) 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, 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.
(q) 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 quarter ended March 31, 1997.
6
<PAGE> 8
(r) 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.
(s) 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.
(t) The Company is not involved in any labor dispute nor is any such
dispute threatened. The Company is not aware that (i) 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 (ii) any such executive or key employee is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by the 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.
(u) 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
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<PAGE> 9
proposed to be held after giving effect to the transactions described in
the Registration Statement and 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 Registration Statement and the
Prospectus.
(v) 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 Registration Statement and the Prospectus (except as described in the
Registration Statement and 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 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.
(w) 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.
(x) 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.
(y) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) 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; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(z) 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
8
<PAGE> 10
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
Registration Statement and the Prospectus.
(aa) Neither the Company nor any of its subsidiaries is, or will
become, as a result of the consummation of the transactions contemplated
by this 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.
(bb) Neither the Company nor any of its subsidiaries is or intends
to become (i) a controlled foreign corporation, as such term is defined in
the Internal Revenue Code of 1986, as amended (the "Code"), (ii) a passive
foreign investment company within the meaning of Section 1296(a) of the
Code or (iii) a foreign personal holding corporation, as such term is
defined in the Code.
(cc) Each certificate signed by any officer of the Company and
delivered to the Underwriter or counsel for the Underwriter shall be
deemed to be a representation and warranty by the Company as to the
matters covered thereby.
(dd) The Common Stock has been approved for quotation and trading on
the Nasdaq National Market.
(ee) The Company has paid $793,000 of the $814,000 Internal Revenue
Service assessment described in the Prospectus, has reserved an additional
$21,000 for the assessed but unbilled Internal Revenue Service assessment
and has reserved an additional $186,000 for any additional state tax
assessments.
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 Principal Shareholder.
B. 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 Underwriter that:
(a) Such Principal Shareholder has duly executed and delivered the
Indemnification Agreement, dated July 16, 1996 (the "Indemnification
Agreement"), among the Company and the Principal Shareholders; the Escrow
Agreement, dated as of September 26, 1996 (the "Escrow Agreement") among
each of the Principal Shareholders, as indemnitors, the Company and Summit
Bank, as escrow agent; and the Pledge Agreement, dated as of September 26,
1996 (the "Pledge Agreement"), made by the Principal Shareholders, as
pledgors, to the Company, as pledgee. The Indemnification Agreement, the
Escrow Agreement and the Pledge Agreement are each in full force and
effect and the parties thereto are in full compliance with all their
obligations under such agreements.
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<PAGE> 11
(b) 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.
(c) 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, did not and 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 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.
(d) On October 2, 1996, the first closing date of the Company's
initial public offering of Common Stock (the "IPO Closing Date"), the
Principal Shareholders pledged an aggregate of 191,667 shares of Common
Stock to the Company (with Summit Bank serving as escrow agent for the
benefit of the Company). The security interest created by the Pledge
Agreement in the shares of Common Stock pledged by each Principal
Shareholder pursuant to the Pledge Agreement (the "Pledged Shares")
constitutes a valid, perfected first priority lien on the Pledged Shares,
enforceable by the Company as such against all creditors of such Principal
Shareholder and any persons purporting to purchase any of the Pledged
Shares from such Principal Shareholder.
(e) On the IPO Closing Date, the Principal Shareholders delivered a
total of $450,000 (the "Escrowed Cash") to Summit Bank, as escrow agent
under the Escrow Agreement (the "Escrow Agreement"). The security interest
created by the Escrow Agreement in the Escrowed Cash constitutes a valid,
perfected first priority lien on the Escrowed Cash, enforceable by the
Company as such against all creditors of such Principal Shareholder.
C. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS REGARDING INTELLIGROUP ASIA PRIVATE LTD.
Each of the Company and each Principal Shareholder represents and warrants
to, and agrees with, the Underwriter that:
(a) 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, Intelligroup Asia Private Ltd.
("Intelligroup Asia") has not incurred any
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<PAGE> 12
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, business, management, prospects, net worth or
results of operations of Intelligroup Asia, or any change in the capital
stock or short-term or long-term debt of Intelligroup Asia. Intelligroup
Asia has no material contingent obligations which are not disclosed in the
Registration Statement, as it may be amended or supplemented.
(b) Intelligroup Asia has been duly organized and is validly
existing and in good standing as a corporation under the laws of India,
with power and authority (corporate and other) to own or lease its
properties and to conduct its business as described in the Registration
Statement and the Prospectus; Intelligroup Asia is in possession of and
operating in compliance with all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders required
for the conduct of its businesses, all of which are valid and in full
force and effect; and Intelligroup Asia is duly qualified to do business
and in good standing as foreign corporations in all other jurisdictions
where its ownership or leasing of properties or the conduct of its
business 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 condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
Intelligroup Asia. Intelligroup Asia 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.
(c) The 200 shares of capital stock of Intelligroup Asia ("Asia
Shares") owned by Rajkumar Koneru, the 200 Asia Shares owned by Nagarjun
Valluripalli, the 100 Asia Shares owned by K. Rama Sastry and the 100 Asia
Shares owned by D. Sriram represent all of the issued and outstanding
capital stock of Intelligroup Asia and all such capital stock has been
duly authorized and validly issued, is fully paid and non-assessable and
is owned, as described in the Registration Statement and Prospectus, by
Mr. Koneru, Mr. Valluripalli, Mr. Sastry and Mr. Sriram, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim, charge
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 Intelligroup
Asia exist or are outstanding.
(d) Except as set forth in the Registration Statement and the
Prospectus, there are no legal or governmental proceedings pending to
which Intelligroup Asia is a party or of which any property of
Intelligroup Asia is subject, which, if determined adversely to
Intelligroup Asia, might individually or in the aggregate (i) prevent or
adversely affect the transactions contemplated by this Agreement, (ii)
prevent or adversely affect the transactions contemplated by the
Agreement, dated April 4, 1996,
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<PAGE> 13
between Rajkumar Koneru, as Sole Proprietor of Ms. Intelligroup Asia, as
assignor, and Intelligroup Asia, as assignee, (the "Take-over Agreement");
the Agreement, dated as of June 15, 1996, by and between the Company and
Intelligroup Asia (the "Support Agreement,"); the Agreement, dated June 7,
1996, between Rajkumar Koneru, as transferor, and the Company, as
transferee (the "First Transfer Agreement"); the Agreement, dated June 9,
1996, between Nagarjun Valluripalli, as transferor, and the Company, as
transferee (the "Second Transfer Agreement"); the Agreement, dated June 9,
1996, between Ashok Pandey, as transferor, and the Company, as transferee
(the "Third Transfer Agreement"); the Agreement, dated June 10, 1996,
between D. Sriram, as transferor, and Ashok Pandey, as transferee (the
"Fourth Transfer Agreement"); and the Agreement, dated June 10, 1996,
between Shri Rama Sastry, as transferor, and Ashok Pandey, as transferee
(the "Fifth Transfer Agreement," and the above-referenced Agreements,
collectively, the "Transfer Agreements," and, together with the Take-Over
Agreement and the Support Agreement, the "Intelligroup Asia Documents"),
(iii) suspend the effectiveness of the Registration Statement, (iv)
prevent or suspend the use of any preliminary prospectus in any
jurisdiction or (v) result in a material adverse change in the condition
(financial or otherwise), properties, business, management, prospects, net
worth or results of operations of Intelligroup Asia; and to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated against Intelligroup Asia by governmental authorities or
others. Intelligroup Asia is not a party to, nor subject to the provisions
of, any material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body. All of Intelligroup
Asia's litigation required to be disclosed pursuant to the Rules and
Regulations has been disclosed.
(e) The execution, delivery and performance of the Intelligroup Asia
Documents by each party thereto and the consummation of the transactions
therein contemplated did not and 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 by which such party or any of its properties is or
may be bound, any organizational documents of such party, or any law,
order, rule or regulation of any court or governmental agency or body
having jurisdiction over such party or any of its properties or will
result in the creation of a lien. Each of the Intelligroup Asia Documents
is in full force and effect and the parties thereto are in full compliance
with all their obligations under such agreements
(f) 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 each party to the Intelligroup Asia
Documents of, or for the consummation by each party to the Intelligroup
Asia Documents of the transactions contemplated by, the Intelligroup Asia
Documents, except for the approval of the Reserve Bank for (i) each
transfer of Asia Shares contemplated by the Fourth and Fifth Transfer
Agreements, in respect of which the necessary application has been made
and (ii) each transfer of Asia Shares contemplated by the First, Second
and Third Transfer Agreements, in respect of which application is proposed
to be made to the Reserve Bank upon receipt of the approvals pursuant to
sub clause (i) above. Intelligroup Asia and the Principal
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<PAGE> 14
Shareholders have no reason to believe that each of the aforesaid
approvals will not be granted.
(g) Each party to the Intelligroup Asia Documents has the full
corporate or other power and authority to enter into the Intelligroup Asia
Documents and to perform its obligations thereunder and the Intelligroup
Asia Documents have been duly and validly authorized, executed and
delivered by such party and are valid and binding obligations of such
party, enforceable against such party in accordance with their terms.
(h) Intelligroup Asia is in all material respects in compliance
with, and conducts its business 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 Intelligroup Asia. In
the ordinary course of business, employees of Intelligroup Asia conduct
periodic reviews of the effect of Environmental Laws on the business
operations and properties of Intelligroup Asia, in the ordinary course of
which they seek to identify and evaluate associated costs and liabilities.
(i) Intelligroup Asia has filed all necessary local and foreign
income, payroll, franchise and other tax returns and has paid all taxes
shown as due thereon or with respect to any of its properties; and there
is no tax deficiency that has been, or to the knowledge of the Company or
the Principal Shareholders is likely to be, asserted against Intelligroup
Asia or any of its properties or assets that would adversely affect the
financial position, business or results of operations of Intelligroup
Asia. All tax liabilities of Intelligroup Asia have been adequately
provided for in the consolidated financial statements of the Company.
(j) Intelligroup Asia owns or possesses 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 it or necessary for the
conduct of its business, and Intelligroup Asia is not aware of any claim
to the contrary or any challenge by any other person to the rights of
Intelligroup Asia with respect to the foregoing. Intelligroup Asia's
business as now conducted and as proposed to be conducted does not and
will not infringe or conflict, in any material respect, with patents,
trademarks, service marks, trade names, copyrights, trade secrets,
licenses or other intellectual property or franchise right of any person.
No claim has been made against Intelligroup Asia alleging the infringement
by Intelligroup Asia of any patent, trademark, service mark, tradename,
copyright, trade secret, license in or other intellectual property right
or franchise right of any person.
(k) Intelligroup Asia is not involved in any labor dispute nor is
any such dispute threatened. Intelligroup Asia is not aware that (i) any
executive, key employee
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<PAGE> 15
or significant group of employees of Intelligroup Asia plans to terminate
employment with it or (ii) any such executive or key employee is subject
to any noncompete, nondisclosure, confidentiality, employment, consulting
or similar agreement that would be violated by the present or proposed
business activities of Intelligroup Asia. Intelligroup Asia neither has
nor 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, to which
Intelligroup Asia makes or ever has made a contribution and in which any
employee of the Intelligroup Asia is or has ever been a participant.
(l) Intelligroup Asia has, and Intelligroup Asia as of each Closing
Date 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 it which is material to the business of
Intelligroup Asia, 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 Intelligroup Asia; and any
real property and buildings held under lease by Intelligroup Asia or
proposed to be held after giving effect to the transactions described in
the Registration Statement and the Prospectus are, or will be as of each
Closing Date, held by it under valid, subsisting and enforceable leases
with such exceptions as would not have a material adverse effect on
Intelligroup Asia, in each case except as described in or contemplated by
the Registration Statement and the Prospectus.
(m) Intelligroup Asia is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the business in which it is engaged or proposes to engage
after giving effect to the transactions described in the Registration
Statement and the Prospectus (except with respect to errors and omissions
insurance); and Intelligroup Asia does not have 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
materially and adversely affect the condition, financial or otherwise, or
the earnings, business or operations of Intelligroup Asia.
(n) Intelligroup Asia maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) 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; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(o) Neither Intelligroup Asia nor any of its directors, employees or
agents has made any payment of funds of Intelligroup Asia or received or
retained any funds in violation of any law, rule or regulation, which
payment, receipt or retention of funds
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<PAGE> 16
is of a character required to be disclosed in the Registration Statement
and the Prospectus.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
Underwriter the Firm Common Shares upon the terms herein set forth. On the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriter agrees to
purchase from the Company the Firm Common Shares. The purchase price per Firm
Common Share to be paid by the Underwriter to the Company shall be $[___] per
share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriter and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Underwriter) at 6:00 a.m. San Francisco time, on [___], or such other time and
date not later than 10:30 a.m. San Francisco time, on [___] as the Underwriter
shall designate by notice to the Company (the time and date of such closing are
called the "First Closing Date"). The Company hereby acknowledges that
circumstances under which the Underwriter may provide notice to postpone the
First Closing Date as originally scheduled include, but are in no way limited
to, any determination by the Company or the Underwriter to recirculate to the
public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the Underwriter to purchase up to an aggregate of
150,000 Optional Common Shares from the Company at the purchase price per share
to be paid by the Underwriter for the Firm Common Shares. The option granted
hereunder is for use by the Underwriter solely in covering any over-allotments
in connection with the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
upon notice by the Underwriter to the Company which notice may be given at any
time within 30 days from the date of this Agreement. Such notice shall set forth
(i) the aggregate number of Optional Common Shares as to which the Underwriter
is exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Underwriter and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The Underwriter may
cancel the option at any time prior to its expiration by giving written notice
of such cancellation to the Company
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<PAGE> 17
Public Offering of the Common Shares. The Underwriter hereby advises
the Company that the Underwriter intends to offer for sale to the public, as
described in the Prospectus, the Common Shares as soon after this Agreement has
been executed and the Registration Statement has been declared effective as the
Underwriter, in its sole judgment, has determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall
be made at the First Closing Date (and, if applicable, at the Second Closing
Date) by wire transfer of immediately available funds to the order of the
Company.
It is understood that the Underwriter has been authorized, for its
own account, to accept delivery of and receipt for, and make payment of the
purchase price for, the Firm Common Shares and any Optional Common Shares the
Underwriter has agreed to purchase.
Delivery of the Common Shares. The Company shall deliver, or cause
to be delivered, to the Underwriter certificates for the Firm Common Shares at
the First Closing Date, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor. The
Company shall also deliver, or cause to be delivered, to the Underwriter,
certificates for the Optional Common Shares the Underwriter has agreed to
purchase at the First Closing Date or the Second Closing Date, as the case may
be, against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The certificates for the
Common Shares shall be in definitive form and registered in such names and
denominations as the Underwriter shall have requested at least two full business
days prior to the First Closing Date (or the Second Closing Date, as the case
may be) and shall be made available for inspection on the business day preceding
the First Closing Date (or the Second Closing Date, as the case may be) at a
location in New York City as the Underwriter may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Delivery of Prospectus to the Underwriter. Not later than 12:00 p.m.
on the second business day following the date the Common Shares of released by
the Underwriter for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Underwriter shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY
The Company further covenants and agrees with the Underwriter as follows:
(a) Underwriter's Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of
the First Closing Date or such date, as in the opinion of counsel for the
Underwriter, the Prospectus is no longer required by law to be delivered
in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), prior to amending or supplementing the Registration
Statement (including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus, the Company shall furnish to
the Underwriter for review a copy of each such proposed amendment or
supplement, and
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<PAGE> 18
the Company shall not file any such proposed amendment or supplement to
which the Underwriter reasonably objects.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Underwriter in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which the it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any
of such purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees
that it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts
to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if in the opinion of the
Underwriter or counsel for the Underwriter it is otherwise necessary to
amend or supplement the Prospectus to comply with law, the Company agrees
to promptly prepare (subject to Section 3(A)(a) hereof), file with the
Commission and furnish at its own expense to the Underwriter and to
dealers, amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Underwriter, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Underwriter may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Underwriter and counsel for the Underwriter to qualify or register the
Common Shares for sale under (or obtain exemptions from the application
of) the Blue Sky or state securities laws of those jurisdictions
designated by the Underwriter, shall comply with such laws and shall
continue such qualifications, registrations and exemptions in effect so
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<PAGE> 19
long as required for the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise the
Underwriter promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat
of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will
make generally available to its security holders and to the Underwriter an
earnings statement (which need not be audited) covering the twelve-month
period ending at the end of the Company's first fiscal quarter that ends
more than one year after the effectiveness of the Registration Statement
and satisfying the provisions of Section 11(a) of the Securities Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the
Commission all reports on Form SR as may be required under Rule 463 under
the Securities Act.
(k) Agreement Not To Offer or Sell Additional Securities. During the
period of 90 days following the date of the Prospectus, the Company will
not, without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery Securities),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of
or transfer, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Common
Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to
the Common Shares); provided, however, that the Company may issue shares
of its Common Stock or options to purchase its Common Stock, or Common
Stock upon exercise of options, pursuant to any stock option, stock bonus
or other stock plan or arrangement described in the Prospectus, but only
if the holders of such shares, options, or shares issued upon exercise of
such options, agree in writing not to sell, offer, dispose of or otherwise
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transfer any such shares or options during such 90 day period without the
prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of the Montgomery Securities).
(l) Future Reports to the Underwriter. During the period of five
years hereafter the Company will furnish to the Underwriter at Two
International Place, Boston, MA 02110 Attention: M. Benjamin Howe (i) as
soon as practicable after the end of each fiscal year, 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,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Current Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
(m) During the Prospectus Delivery Period, the Company will file all
documents required to be filed with the Commission pursuant to Section 13,
14 or 15 of the Exchange Act in the manner and within the time periods
required by the Exchange Act.
(n) 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.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriter, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriter in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, and, if requested by the Underwriter,
preparing and printing a "Blue Sky Survey" or memorandum, and any supplements
thereto, advising the Underwriter of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the reasonable fees and
expenses of
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counsel for the Underwriter in connection with, the NASD's review and approval
of the Underwriter's participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with listing the Common
Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 14 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriter shall pay its own expenses, including the fees and disbursements of
its counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITER. The
obligations of the Underwriter to purchase and pay for the Common Shares as
provided herein on the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Principal
Stockholders set forth in Section 1 hereof as of the date hereof and as of the
First Closing Date as though then made and, with respect to the Optional Common
Shares, as of the Second Closing Date as though then made, to the timely
performance by the Company of its covenants and other obligations hereunder, and
to each of the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Underwriter
shall have received from Arthur Andersen LLP, independent public or
certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriter, in form and substance satisfactory to
the Underwriter, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date.
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under
the Securities Act) in the manner and within the time period
required by Rule 424(b) under the Securities Act; or the Company
shall have filed a post-effective amendment to the Registration
Statement containing the information required by such Rule 430A, and
such post-effective amendment shall have become effective; or, if
the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Underwriter's consent thereto, the Company shall
have filed a Term Sheet with the Commission in the manner and within
the time period required by such Rule 424 (b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or
any post-effective amendment to
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<PAGE> 22
the Registration Statement, shall be in effect and no proceedings
for such purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the
date of this Agreement and prior to the First Closing Date and, with
respect to the Optional Common Shares, the Second Closing Date, in the
judgment of the Underwriter there shall not have occurred 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.
(d) Opinions of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Underwriter shall have
received the favorable opinions dated as of such Closing Date of (i)
Buchanan Ingersoll, counsel for the Company, in the form attached as
Exhibit A, (ii) Mulla & Mulla & Craigie Blunt and Caroe, local Indian
counsel for the Company, in the form attached as Exhibit B, and (iii)
Fragomen, Del Ray & Bernsen, P.E., special immigration counsel to the
Company, in the form attached as Exhibit C.
(e) Opinion of Counsel for the Underwriter. On each of the First
Closing Date and the Second Closing Date the Underwriter shall have
received the favorable opinion of Hale and Dorr LLP, counsel for the
Underwriter, dated as of such Closing Date, with respect to the matters
set forth in paragraphs (i), (vii), (xxv), (ix), (x), and (xx).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Underwriter shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsection (b)(ii) of this Section 5, and further to
the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred 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.
(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) and (C) of this Agreement are true and
correct with the same force and effect as though expressly made on and as
of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to such Closing Date.
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(g) Certificate of Principal Stockholders. On each of the First
Closing Date and the Second Closing Date the Underwriter shall have
received a written certificate executed by the Principal Shareholders
dated as of such Closing Date, to the effect that the representations,
warranties and covenants of the Principal Stockholders set forth in
Section 1(B) and (C) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date.
(h) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Underwriter shall have received from Arthur
Andersen LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to
the Underwriter, to the effect that they reaffirm the statements made in
the letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be.
(i) Lock-Up Agreement from Certain Stockholders of the Company. On
the date hereof, the Company shall have furnished to the Underwriter an
agreement in the form of Exhibit D hereto from each of the Principal
Stockholders and such agreement shall be in full force and effect on each
of the First Closing Date and the Second Closing Date.
(j) Additional Documents. On or before each of the First Closing
Date and the Second Closing Date, the Underwriter and counsel for the
Underwriter shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when
and as required to be satisfied, this Agreement may be terminated by the
Underwriter by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITER'S EXPENSES. If this
Agreement is terminated by the Underwriter pursuant to Section 5, Section 7,
Section 10 or Section 11, or if the sale to the Underwriter of the Common Shares
on the First Closing Date is not consummated because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or to
comply with any provision hereof, the Company agrees to reimburse the
Underwriter upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Underwriter in connection with the proposed purchase
and
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the offering and sale of the Common Shares, including but not limited to fees
and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Underwriter of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to the Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Underwriter pursuant to Sections 4 and 6 hereof, (b) of the Underwriter to the
Company. Notwithstanding anything to the contrary herein, the provisions of
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriter. Each of the Company and each
Principal Shareholder, jointly and severally, agrees to indemnify and hold
harmless the Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or
expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof
as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; or (iii) in whole or in part
upon any inaccuracy in the representations and warranties of the Company
or any such Principal Shareholder contained herein; or (iv) in whole or in
part upon any failure of the Company or any such Principal Shareholder to
perform its obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Common Stock or the
offering contemplated hereby, and which is included as part of or referred
to in any loss,
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claim, damage, liability or action arising out of or based upon any matter
covered by clause (i) or (ii) above, provided that neither the Company nor
any Principal Shareholder shall not be liable under this clause (v) to the
extent that a court of competent jurisdiction shall have determined by a
final judgment that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its gross negligence or willful
misconduct; and to reimburse the Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by Montgomery Securities) as such expenses are reasonably
incurred by the Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of
or based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use
in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided,
further, that with respect to any preliminary prospectus, the foregoing
indemnity agreement shall not inure to the benefit of any Underwriter from
whom the person asserting any loss, claim, damage, liability or expense
purchased Common Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant
to Section 2 and a copy of the Prospectus (as then amended or supplemented
if the Company shall have furnished any amendments or supplements thereto)
was not sent or given by or on behalf of such Underwriter to such person,
if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition to
any liabilities that the Company and each Principal Shareholder may
otherwise have.
(b) Indemnification of the Company, its Directors and Officers. The
Underwriter agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law
or regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent of
such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out
of or is based upon any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), or arises out
of or is based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each
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case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Underwriter expressly
for use therein; and to reimburse the Company, or any such director,
officer or controlling person for any legal and other expense reasonably
incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action. The
Company hereby acknowledges that the only information that the Underwriter
has furnished to the Company expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) are the statements set forth (i) as the last two
paragraphs on the inside front cover page of the Prospectus concerning
stabilization and passive market making by the Underwriter and (ii) as the
second and sixth paragraphs under the caption "Underwriting" in the
Prospectus; and the Underwriter confirms that such statements are correct.
The indemnity agreement set forth in this Section 8(b) shall be in
addition to any liabilities that the Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained
in this Section 8 or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that a conflict may arise between the
positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently
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incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than
one separate counsel (together with local counsel), approved by the
indemnifying party (Montgomery Securities in the case of Section
8(b) and Section 9), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) Settlements. The indemnifying party under this
Section 8 shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against
any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if
at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by Section 8(c) hereof, the
indemnifying party agrees that it shall be liable for any settlement
of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise
or consent to the entry of judgment in any pending or threatened
action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriter, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and
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warranties herein which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other hand, in connection with the offering of the Common Shares pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company, and the total
underwriting discount received by the Underwriter, in each case as set forth on
the front cover page of the Prospectus (or, if Rule 434 under the Securities Act
is used, the corresponding location on the Term Sheet) bear to the aggregate
initial public offering price of the Common Shares as set forth on such cover.
The relative fault of the Company, on the one hand, and the Underwriter, on the
other hand, shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company, on the one hand, or the Underwriter, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, the
Underwriter shall not be required to contribute any amount in excess of the
underwriting commissions received by the Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. 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. For purposes of this Section 9,
each officer and employee of the Underwriter and each person, if any, who
controls the Underwriter within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company with
the meaning of the Securities Act and the Exchange Act shall have the same
rights to contribution as the Company.
SECTION 10. DEFAULT OF THE UNDERWRITER. [Intentionally
Deleted]
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SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Underwriter by notice given
to the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York or
California authorities; (iii) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
United States' or international political, financial or economic conditions, as
in the judgment of the Underwriter is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Underwriter there shall have occurred 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 (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Underwriter may interfere materially with
the conduct of the business and operations of the Company regardless of whether
or not such loss shall have been insured. Any termination pursuant to this
Section 11 shall be without liability on the part of (a) the Company to the
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Underwriter pursuant to Sections 4 and 6 hereof, (b) any
Underwriter to the Company. Notwithstanding anything to the contrary herein, the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of the Underwriter set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Underwriter:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
28
<PAGE> 30
with copies to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
and
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Facsimile: 617-526-5000
Attention: Mark G. Borden, Esq.
If to the Company:
Intelligroup, Inc.
517 US Highway 1 South
5th Floor
Iselin, New Jersey 08830
Facsimile: (908) 750-1880
Attention: President
with a copy to:
Buchanan Ingersoll
500 College Road East
Princeton, NJ 08540
Facsimile: 609-520-0360
Attention: David Sorin, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto.
SECTION 15. 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.
29
<PAGE> 31
SECTION 16. (a) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located in the
City and County of San Francisco (collectively, the "Specified Courts"), and
each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum. Each party
not located in the United States irrevocably appoints CT Corporation System,
which currently maintains a San Francisco office at 49 Stevenson Street, San
Francisco, California 94105, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such suit, action
or proceeding that may be instituted in any state or federal court in the City
and County of San Francisco.
(c). Waiver of Immunity. With respect to any Related
Proceeding, each party irrevocably waives, to the fullest extent permitted by
applicable law, all immunity (whether on the basis of sovereignty or otherwise)
from jurisdiction, service of process, attachment (both before and after
judgment) and execution to which it might otherwise be entitled in the Specified
Courts, and with respect to any Related Judgment, each party waives any such
immunity in the Specified Courts or any other court of competent jurisdiction,
and will not raise or claim or cause to be pleaded any such immunity at or in
respect of any such Related Proceeding or Related Judgment, including, without
limitation, any immunity pursuant to the United States Foreign Sovereign
Immunities Act of 1976, as amended.
SECTION 17. GENERAL PROVISIONS. 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. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
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<PAGE> 32
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
INTELLIGROUP, INC.
By:
--------------------------
Name:
Title:
PRINCIPAL SHAREHOLDERS
-------------------------
Ashok Pandey
-------------------------
Rajkumar Koneru
-------------------------
Nagarjun Valluripalli
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<PAGE> 33
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Underwriter in San Francisco, California as of the date first
above written.
MONTGOMERY SECURITIES
----------------------------
By:
Authorized Signatory
32
<PAGE> 34
EXHIBIT A - OPINION OF BUCHANAN INGERSOLL
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(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 Prospectus and to enter into and perform its
obligations under the Underwriting Agreement.
(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 other jurisdiction in which
such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(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
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outstanding shares of the Company's capital stock, including the
Shares to be sold by the Company 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 Shares by the Company
are not subject to preemptive rights 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.
(viii) 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 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 Common Shares or the right to have any shares of
Common 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 Common Stock or other securities of
the Company.
(ix) 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.
(x) At the time the Registration Statement became
effective and on each Closing Date, the Registration Statement, the
preliminary 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.
(xi) The Shares conform to the description thereof
contained in the Prospectus, and the form of certificate used to
evidence the Shares in due and proper form and complies with all
applicable statutory requirements.
(xii) 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
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<PAGE> 36
such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material
respects.
(xiii) There is no litigation or governmental or other
action, suit, proceeding or investigation before any court or before
or by any 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.
(xiv) No authorization, approval, consent or order of
any court or governmental authority or agency is required in
connection with the sale of the Shares to the Underwriter, 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.
(xv) 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 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 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.
A-3
<PAGE> 37
(xvi) The Company has options to purchase shares of the
Company's capital stock as set forth in the Prospectus; and all of
such granted options have been duly and validly authorized by the
Company and conform to the descriptions thereof contained in the
Prospectus.
(xvii) 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.
(xviii) 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.
(xix) 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.
(xx) The Shares be sold under the Underwriting Agreement
to the Underwriter are duly authorized for quotation and trading on
the Nasdaq National Market, subject to official notice of
effectiveness.
(xxi) 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
A-4
<PAGE> 38
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.
(xxii) 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.
(xxiii) 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 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.
(xxiv) 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.
The Pledge Agreement and the Escrow Agreement, respectively, created
in favor of the Escrow Agent for the benefit of the Company a
perfected security interest in the Pledged Shares and cash which
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
acted in good faith and without notice or knowledge of any adverse
claim to any of such Pledged Shares.
(xxv) The Common Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance
and sale pursuant to the Underwriting Agreement and, when issued and
delivered by the Company pursuant to the Underwriting Agreement
against payment of the consideration set forth therein, will be
validly issued, fully paid and nonassessable.
A-5
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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 York and the State of New Jersey and on local counsel in the
relevant jurisdictions reasonably satisfactory to the Underwriter and counsel to
the Underwriter, provided that in each case Buchanan Ingersoll shall state that
they believe that they and the Underwriter 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 that
copies of any such statements or certificates shall be delivered to counsel to
the Underwriter. 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.
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EXHIBIT B - OPINION OF MULLA & MULLA
& CRAIGIE BLUNT & CAROE
Opinion of local Indian counsel to the Company to be delivered pursuant
to Section 5(d) of the Underwriting Agreement
References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.
(i) Intelligroup Asia has been duly incorporated as a
private company under the provisions of the Companies Act, 1956
which is the law governing, inter alia, limited liability companies
in India. Intelligroup Asia is validly existing as a private company
in good standing under the laws of India.
(ii) Intelligroup Asia 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 Take-over Agreement and
the Support Agreement.
(iii) Intelligroup Asia is entitled to the benefit of
all instruments (including, but not limited to, contracts, leases,
lease deeds, bonds, agreements, permissions, and approval
certificates) acquired by Ms. Intelligroup Asia, prior to and
subsequent to the execution of the Take-Over Agreement, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim, charge or equity.
(iv) Intelligroup Asia has not borrowed any amount from
any bank, financial institution or other creditor. So far as Ms.
Intelligroup Asia is concerned, its indebtedness is as reflected in
its balance sheet for the year ended March 31, 1996, which is
annexed to the Take-Over Agreement.
(v) Rajkumar Koneru is a non-resident Indian under the
exchange control laws of India and all necessary filings have been
made with governmental authorities of India including, but not
limited to, the Reserve Bank, for Mr. Koneru to freely invest by way
of capital contribution in Intelligroup Asia.
(vi) To the best of such counsel's knowledge,
Intelligroup Asia is duly qualified as a company incorporated under
the Companies Act, 1956 to transact business and is in good standing
in Indian 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 Intelligroup Asia or the Company;
the 200 Asia Shares owned by Rajkumar Koneru, the 200 Asia Shares
owned by Nagarjun Valluripalli, the 100 Asia Shares owned by K. Rama
Sastry and the 100 Asia Shares owned by D. Sriram represent all of
the issued and outstanding capital stock of Intelligroup Asia and
all such capital stock
B-1
<PAGE> 41
has been duly authorized and validly issued, is fully paid and
non-assessable and, to the best of such counsel's knowledge, is
owned, as described in the Registration Statement and Prospectus, by
Mr. Koneru, Mr. Valluripalli, Mr. Sastry and Mr. Sriram, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim, charge 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 Intelligroup Asia are outstanding, save and except the
transactions contemplated by the Fifth and Fourth Transfer
Agreements, respectively.
(vii) Each of the Intelligroup Asia Documents has been
duly executed and delivered by the parties thereto subject to the
requisite permissions/approvals of the Reserve Bank of India and
constitutes the legal, valid and binding obligations of the parties
thereto, enforceable against them in accordance with its terms.
(viii) To the best of such counsel's knowledge, the
execution, delivery and performance of the Intelligroup Asia
Documents and the compliance by each party thereto with its
obligations thereunder 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 any (1) indenture,
mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other agreement or
instrument to which any party to the Intelligroup Asia Documents or
any of his properties is bound, (2) any judgment of any court or
governmental agency or body applicable to it or any of its
properties, or (3) any statute, decree, order, rule or regulation of
any court or governmental agency or body applicable to it or any of
its properties.
(ix) Each of K. Rama Sastry and D. Sriram has full legal
right, power and authority, and has applied for any and all
approvals required by law, to sell, assign, transfer and deliver 100
Asia Shares each (the "Transfer Shares") to Ashok Pandey pursuant to
Fifth and Fourth Transfer Agreements, respectively. Each such
Agreement requires approval only of the Reserve Bank to complete the
transfer of the Transfer Shares from Mr. Sastry and Mr. Sriram to
Mr. Pandey, for which all necessary applications have been made, and
such counsel has no reason to believe that approvals for the
Transfer Shares from Mr. Sastry and Mr. Sriram to Mr.
Pandey will not be granted.
(x) Each Principal Shareholder has full legal right,
power and authority, and has obtained any and all approvals required
by law, to sell, assign, transfer and deliver all 600 issued and
outstanding Asia Shares to the Company pursuant to the First, Second
and Third Transfer Agreements, respectively. Each such Agreement
requires approval only of the Reserve Bank to complete the transfer
of all issued and outstanding Asia Shares from Mr. Koneru, Mr.
Valluripalli and Mr. Pandey to the Company, all necessary
applications are proposed to be made immediately subsequent to
obtaining the approvals of the Reserve Bank pursuant to Section (ix)
above, and such counsel has no reason to believe that approval by
B-2
<PAGE> 42
the Reserve Bank for transfer of all the issued and outstanding Asia
Shares from Mr. Koneru, Mr. Valluripalli and Mr. Pandey to the
Company will not be granted.
(xi) To the best of such counsel's knowledge, there are
no outstanding securities of Intelligroup Asia convertible or
exchangeable into or evidencing the right to purchase or subscribe
for any shares of capital stock of Intelligroup Asia and there are
no outstanding or authorized options, warrants or rights of any
character obligating Intelligroup Asia to issue any shares of its
capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such
stock; and, to the best of such counsel's knowledge, no holder of
any securities of Intelligroup Asia or any other person has the
right, contractual or otherwise, which has not been satisfied or
effectively waived, to cause Intelligroup Asia to sell or otherwise
issue to them, or to permit them to underwrite the sale of, any of
the shares of Stock of Intelligroup Asia or the right to have any
shares of Stock of Intelligroup Asia or other securities of
Intelligroup Asia 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 of Intelligroup Asia or other securities
of Intelligroup Asia.
(xii) The form of certificate used to evidence the
shares of Stock of Intelligroup Asia is in due and proper form and
complies with all applicable statutory requirements. Under the
Indian law, this is governed by the Companies Act, 1956, read with
the Companies (Issue of Share Certificates) Rules, 1960.
(xiii) All contracts and documents with respect to
Intelligroup Asia summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(xiv) Such counsel is not aware of any litigation or
governmental or other action, suit, proceeding or investigation
before any court or before or by any public, regulatory or
governmental agency or body including, but not limited to,
investigations and proceedings against Intelligroup Asia known to
such counsel to be pending or threatened against, or involving the
properties or business of, the Company or Intelligroup Asia.
(xv) Except for the approvals of the Reserve Bank of
India with respect to the Transfer Agreements and the Support
Agreement, no authorization, approval, consent or order of any court
or governmental authority or agency is required in connection with
the execution of the Intelligroup Asia Documents; to the best of
such counsel's knowledge, the execution, delivery and performance of
the Intelligroup Asia Documents and the consummation of the
transactions contemplated therein and compliance by each of the
parties thereto 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 Intelligroup Asia or the Company or any of its
subsidiaries pursuant to, any indenture, mortgage, deed of trust,
note agreement, or other agreement or
B-3
<PAGE> 43
instrument to which Intelligroup Asia or 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 Intelligroup Asia or
the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Memorandum
and Articles of Association of Intelligroup Asia or the Certificate
of Incorporation 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 Intelligroup Asia
or the Company or any of its subsidiaries.
(xvi) The statements in the Prospectus under the
captions "International Operations" and "Certain Transactions"
insofar as they purport to constitute a summary of the terms of the
ownership of Intelligroup Asia are in all material respects accurate
summaries and fairly and correctly present the information called
for with respect to such documents and matters.
(xvii) Nothing has come to such counsel's attention
which indicates that Intelligroup Asia is not conducting its
business in compliance with all laws, rules and regulations of India
except for such violations that would not, individually or in the
aggregate, have a material adverse effect on Intelligroup Asia's
condition (financial or otherwise), properties, business,
management, prospects, net worth or results.
(xviii) Intelligroup Asia is not subject to any current
claim and has not received any notice of infringement or other
violation of any Intellectual Property of others; to the best of
such counsel's knowledge, (A) there are no legal or governmental
proceedings pending relating to Intellectual Property owned or used
by Intelligroup Asia 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 Intelligroup Asia
from having clear title to Intelligroup Asia's Intellectual
Property. Such counsel has no knowledge of any facts that
Intelligroup Asia 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 Intelligroup
Asia as described in the Prospectus. To such counsel's knowledge,
Intelligroup Asia 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.
In rendering such opinion, Mulla & Mulla & Craigie Blunt
& Caroe may rely as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Intelligroup Asia 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 Intelligroup Asia or of its
subsidiaries; provided that copies of any such statements or certificates shall
be delivered to counsel to the Underwriter. 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
B-4
<PAGE> 44
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, in relation to Intelligroup Asia, 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 the Closing Date,
contain, in relation to Intelligroup Asia, 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, Mulla & Mulla & Craigie Blunt & Caroe
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
B-5
<PAGE> 45
EXHIBIT C - OPINION OF
FRAGOMEN, DEL RAY & BERNSEN, P.C.
Opinion of special immigration counsel to the Company to be
delivered pursuant to Section 5(d) of the Underwriting Agreement.
References to this Prospectus in this Exhibit C include any
supplements thereto at the Closing Date.
(i) 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.
(ii) There is no litigation or governmental or other
action, suit, proceeding or investigation 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.
C-1
<PAGE> 46
EXHIBIT D
June __, 1997
Montgomery Securities
As Underwriter
600 Montgomery Street
San Francisco, California 94111
RE: Intelligroup, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
underwriter. The undersigned recognizes that the Offering will be of benefit to
the undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act
of 1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date 90 days after the date
of the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
D-1
<PAGE> 47
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
______________________________
Printed Name of Holder
By: __________________________
Signature
______________________________
Printed Name of Person Signing (and indicate capacity of person signing if
signing as custodian, trustee, or on behalf of an entity)
D-2
<PAGE> 1
EXHIBIT 5
BUCHANAN INGERSOLL
ATTORNEYS
500 COLLEGE ROAD EAST
PRINCETON, NJ 08540
DAVID J. SORIN
609-987-6801
June 13, 1997
Intelligroup, Inc.
517 Route One South
Iselin, New Jersey 08830
Gentlemen:
In connection with the Registration Statement on Form SB-2 (the
"Registration Statement"), filed on June 13, 1997 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 1,000,000
shares of the Company's authorized but unissued Common Stock, par value of $.01
per share, which will be purchased by the underwriter from the Company and up to
an aggregate of 150,000 shares which may be purchased by the underwriter from
the Company, if the underwriter exercises the option granted to it by the
Company 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 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.
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.
Very truly yours,
/s/ BUCHANAN INGERSOLL
<PAGE> 1
EXHIBIT 10.22
R/3 NATIONAL LOGO PARTNER AGREEMENT
SAP AMERICA, INC. - INTELLIGROUP, INC.
This National Logo Partner Agreement (the "Agreement"), made as of
April 29th, 1997, is by and between Intelligroup, Inc. ("IGI"), a New Jersey
corporation located at 517 Route 1 South, Islein, NJ 08830, and SAP America,
Inc., ("SAP"), a Delaware corporation with its principal place of business at
701 Lee Road, Wayne, Pennsylvania 19087.
RECITALS
WHEREAS IGI and SAP, desiring to work together, pursuant to the intent
of the R/3 Partner Program of SAP, with the goal of furthering the
implementation of SAP's R/3 Software System;
WHEREAS SAP desires to enhance its capabilities to market and support
SAP Products through the use of IGI's services; and
WHEREAS IGI and SAP desire to expand their formal relationship by
entering into this non-exclusive arrangement to undertake cooperative efforts
for SAP R/3 Products within the SAP Partner Program.
NOW, THEREFORE, in reliance upon the foregoing recitals, intending to
be legally bound, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, IGI and SAP agree as follows:
1. Definitions.
As used in this Agreement:
(a) The SAP-IGI R/3 National Logo Partner Program (the "R/3 Logo
Program") means the business relationship set forth in this Agreement and
Appendix A to this Agreement.
(b) Software. Software shall mean all SAP R/3 software, in whole or
in part, provided to IGI under the R/3 Program by SAP AG, SAP America, Inc., or
any SAP full-time or engagement consultants, in any release, version or
correction level and including all improvements, modifications, and extensions
thereto, whether in human or machine readable form.
(c) Documentation. Documentation shall mean all human and machine
readable materials and copies of SAP manuals, program listings, flow charts,
logic diagrams, input
<PAGE> 2
and output forms, data models, specifications, and instructions relating to the
Software made available to IGI under this Agreement.
(d) R/3 Products. R/3 Products shall mean the Software,
Documentation and related materials.
(e) Proprietary Information. Proprietary Information shall
include information concerning IGI and IGI's clients, and their respective
products, businesses, techniques, designs, formulations, systems, programs,
processes, policies, business strategies and plans or other information which
is not in the public domain, and SAP's R/3 Products, program concepts including
literal and nonliteral structure, sequence and organization, SAP's training
materials, literature, and related SAP materials, SAP's customers, their
respective products, businesses, techniques, designs, formulations, systems,
programs, processes, policies, business strategies and plans and all other
information which is disclosed by either party to the other party either in
writing and marked bearing a legend such as "confidential" or "proprietary" or
"for internal use only" or orally when contemporaneously described as such.
(f) Territory. Territory shall mean the United States of
America.
2. Authorization and Commitment of Resources.
(a) SAP hereby authorizes IGI to offer services as related to
R/3 Products to potential users in the Territory under the terms of this
Agreement and any Appendices hereto. This authorization does not include
maintenance of the R/3 Products, physical installation of the R/3 Products, and
training. This authorization is non-exclusive and non-transferable.
(b) As a National Logo IGI, IGI is entitled to display the SAP
R/3 Partner Logo which will identify it as an official R/3 Partner, authorized
as described in Section 2.(a), upon SAP's written consent for each such display
in a context not previously approved by SAP.
(c) IGI agrees to make its name and logo available to SAP for
SAP's use in promoting IGI's services under the R/3 Program. Prior to each new
use, SAP shall submit the proposed use to IGI for its consent.
(d) SAP in its sole discretion shall have the right to limit
the Territory, the R/3 Products, and the type of customers to be covered by
this Agreement, as SAP deems advisable in its sole discretion following
reasonable notice and consultation with IGI. SAP may authorize other parties to
offer services as related to the R/3 Products in the Territory as it deems
advisable in its sole discretion.
(e) Services to be provided by either party to its clients
and customers are to be contracted for separately by each party, independently
of each other, unless otherwise expressly agreed upon in writing between SAP
and IGI for that specific engagement. Each party shall be solely liable to its
customers and clients for its own services.
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<PAGE> 3
3. Services and Responsibilities of SAP.
(a) SAP shall provide to IGI the Software under the terms
of the R/3 Software Training and Demonstration License which is attached to
this Agreement as Appendix A. The Software shall only be used internally by IGI
solely for (i) training of IGI's personnel who are to work under this Agreement
and (ii) for demonstration of the Software to potential prospects upon the
prior written consent of SAP. The Software provided hereunder may not be used
in the operation of the business of IGI or of any other entity or person.
(b) Should IGI desire to license all or any part of the
Software for use in the operation of its own business, SAP will license it to
IGI under the terms of SAP's standard end-user license agreement and at SAP's
standard license fees then in effect.
(c) With regard to training for the Software, SAP shall:
(i) use reasonable efforts to offer training to IGI
personnel prior to the public announcement of new products or new features for
the Software;
(ii) provide SAP regularly scheduled alliance
partner training. The cost for such training to be determined by mutual
agreement on an annual basis. IGI shall be responsible for all related travel
and living expenses;
(iii) provide access to IGI for its personnel
participating in the R/3 Partner Program to customer training courses generally
offered by SAP, such training courses to be available at SAP's current prices
and terms;
(iv) provide marketing-oriented training courses to
IGI on a cost-sharing basis to be agreed upon between the parties; and
(v) in consultation with IGI, consider the need and
demand for other training courses, such courses to be offered on a cost-sharing
basis to be agreed upon between the parties.
(d) Upon IGI's prior written request, SAP, in its sole
discretion, shall provide IGI, on a no cost basis, reasonable quantities of
SAP's published marketing materials.
(e) With respect to participation in SAP events;
(i) SAP shall permit up to two (2) IGI personnel to
participate (without payment of SAP's usual charges) in SAP's regularly
scheduled user conference held in the United States for the R/3 Products. IGI
shall be responsible for its personnel's travel and living expenses.
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<PAGE> 4
(ii) SAP shall organize "Partner Days", on a
calendar quarterly basis, to develop and promote joint marketing activities as
well as to inform IGI of upcoming and ongoing projects scheduled for the next
twelve (12) months.
(f) SAP shall provide to IGI access to SAP internal support
systems as mutually agreed upon by the parties.
(g) SAP shall otherwise inform and instruct IGI as to R/3
Products and provide guidance, as SAP deems necessary in its sole judgment, for
IGI to carry out its responsibilities under this Agreement.
4. Services and Responsibilities of IGI.
IGI agrees that it shall:
(a) acquire as soon as possible and maintain a
comprehensive and fundamental knowledge of the R/3 Products and ensure that its
employees are technically qualified and sufficiently trained in SAP courses,
including ongoing training at SAP, and internally, to provide appropriate
advice on the use of the R/3 Products to clients and prospective users of the
Software;
(b) use its best efforts to promote internally the R/3
Products and to offer services as related to the R/3 Products throughout the
Territory and ensure that its employees who perform any services hereunder
shall have the proper skill, training and background to enable them to
demonstrate the R/3 Products in a competent and professional manner;
(c) ensure that it has the necessary number of qualified
personnel (as set out in Section 4.(a) of this Agreement) available according
to the annual business plans (as set out in Section 5.(c) of this Agreement);
(d) continually improve its training of all personnel who
are or will be acting under this Agreement:
(e) use its best efforts to make the R/3 Products known to
its customers and potential customers; make every effort to see that the R/3
Products it suggests to each potential customer meet that entity's application
requirements; present the R/3 Products using only the product names given by
SAP; provide potential customers such marketing materials and nonproprietary
information necessary for evaluating the R/3 Products being considered (except
as limited by Section 10.(b) below); and, make no warranties, assurances or
statements concerning R/3 Product features that are misleading or materially
divergent from the descriptive literature supplied by SAP;
(f) not engage in any business activity, either directly or
indirectly, in any manner or capacity, in its own behalf or in behalf of any
other person, firm, corporation or
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<PAGE> 5
organization, nor accept or continue any obligations which may interfere with
or impair its ability to perform any of its duties or obligations under this
Agreement;
(g) to the extent it conducts end-user training within its other
consultation activities, not offer or conduct end user training which competes
with official SAP courses offered by SAP or SAP AG or any other SAP-related
entity without prior written authorization from SAP;
(h) participate actively in joint marketing events by presenting
speeches, providing information to potential prospects (subject to Section
10.(b) below), and assisting in the organization and implementation of the
events;
(i) organize information events jointly with SAP for the exchange
of information between SAP and IGI;
(j) expressly inform its customers that modifications and
extensions to the Software may impair or terminate the maintenance or support
services provided by SAP and may nullify the warranty; and
(k) undertake to provide customers with release and version
management and migration support as related to the Software throughout the
period of productive installation of the Software.
5. Services and Responsibilities of the Parties.
To the extent reasonable under the circumstances, the parties shall
undertake the following cooperative activities with respect to identifying and
bringing to each other opportunities to promote the R/3 Products:
(a) Regularly inform each other about general market developments
and factors relating to the R/3 Products in the marketplace and current
projects and customer implementations in which IGI is involved; this
information shall be designated and treated as Proprietary Information under
Section 10. of this Agreement;
(b) Furnish each other with appropriate information for support and
planning purposes; provided, however, that each party reserves the right, in
its sole discretion, to determine the content and availability of such
information;
(c) Based upon each party's own business plan, mutually agree on an
annual basis upon business plans for the implementation of the goals of this
Agreement, which plans shall be updated quarterly; the business plans should
detail such items as planned training of IGI personnel who will be working
under this Agreement, marketing, and other projects;
(d) Inform appropriate personnel in their respective organizations
of the existence of this Agreement;
5
<PAGE> 6
(e) Subject to confidentiality constraints, endeavor to keep each
other appraised about new products and services;
(f) Each establish an internal R/3 support group with an adequate
support structure to coordinate activities with the other party and designate a
contact person within the support group to be available to the other party and
authorized to act on behalf of that party within the scope of this Agreement;
and
(g) Exchange such other information and conduct such other
activities as the parties agree will carry out the intent of this Agreement.
6. General Representations and Warranties.
Each party hereby represents and warrants to the other that:
(a) it has the right and power to enter into this Agreement;
(b) entering into this Agreement does not violate the terms and
conditions of any other agreement providing for cooperative marketing of
products of another entity, or any other legal obligations;
(c) the information which it may disclose to the other party, and
the process of disclosure and use of such information in accordance with the
provisions of this Agreement, will not violate any trade secret right,
trademark, issued United States patent, copyright or other proprietary right of
any third party;
(d) it holds good title or right, free and clear of all liens and
encumbrances, to the products and services which it is providing under this
Agreement;
(e) the products and services being provided under this Agreement
do not infringe any United States copyright, trademark, issued patent, trade
secret or other proprietary right of any third party; and
(f) EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER PARTY MAKES
ANY OTHER WARRANTY TO THE OTHER PARTY, EITHER EXPRESS, IMPLIED OR STATUTORY, OR
ARISING BY COURSE OF CONDUCT OR PERFORMANCE, CUSTOM OR USAGE IN THE TRADE,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
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<PAGE> 7
7. Term and Termination.
(a) This Agreement shall have an initial term expiring on
December 31, 1997, with an automatic renewal for one (1) additional year
unless, at least six (6) weeks prior to the renewal date, either party gives
written notice of its intention not to renew this Agreement.
(b) At least four (4) months prior to any scheduled expiration
date, SAP will decide whether to continue or terminate the Agreement applying
the following criteria:
i. Customer satisfaction with the projects conducted
by IGI, with special regard to the length and cost
of the project, the project objectives met by IGI,
and the achievements and professionalism of IGI
employees;
ii. Number and scope of R/3 projects executed;
iii. Number and quality of the events coordinated by IGI;
iv. Thoroughness of employee training;
v. Extent of IGI participation in partner program
events;
vi. Accomplishment of goals set herein and in the
annual business plans;
vii. Nature and volume of the information exchange with
SAP; and
viii. Extent and effectiveness of use of marketing
materials.
The procedures for such audits and the weights to be assigned
each criterion will be provided in writing by SAP to IGI prior to the first
such audit.
On the basis of this evaluation and subsequent consultations
with IGI, IGI agrees that SAP, in its sole discretion, may choose to terminate
this Agreement six (6) weeks prior to the next scheduled expiration date.
(c) Notwithstanding the above, either party may terminate
this Agreement:
(i) In accordance with the provisions of Section 7.(a)
and (b) at the end of a term;
(ii) Upon thirty (30) days prior written notice in the
event of material breach of a material provision of this Agreement by the other
party, except that the party in breach shall have the right, during that 30-day
period, to cure the claimed breach or default; for
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<PAGE> 8
purposes of this Paragraph 7.(c)(ii) only, Sections 2.(e), 4., 5.(a), 6., 8.,
9., 10., and 11.(h) shall be considered to be material provisions of this
Agreement; or
(iii) Immediately and without prior written notice if there
is: (a) a consolidation, merger or reorganization of the other party with or
into another corporation or entity; (b) creation of a new majority interest in,
or change in majority ownership of, the other party; (c) a sale of all or
substantially all of the assets of the other party; or (d) a breach of the
confidentiality provisions as specified in Section 10. below.
(d) Upon any termination of this Agreement:
(i) each party shall promptly return to the other party or
dispose of as mutually agreed all advertising materials and other properties,
including all confidential materials, furnished to it by the other party
pursuant to this Agreement and so certify in writing;
(ii) IGI shall promptly return R/3 Products and related
materials and all copies thereof to SAP, or as the case may be, delete all R/3
Products from IGI hardware, including binary or other resulting files (if any),
and erase all R/3 Products from any storage media before discarding such, and
so certify in writing;
(iii) IGI shall not hold itself out as a participant in the
R/3 National Partner Program; and
(iv) both parties shall cease acting in a manner that would
suggest any continuing relationship between the parties regarding SAP's
Software, and shall cease all display advertising contemplated under this
Agreement.
(e) Termination of this Agreement shall not impact upon any
proposals issued to clients or prospective clients prior to such termination,
or upon any active engagements in process prior to such termination.
(f) The following provisions of this Agreement shall in all events
survive its termination: Section 6. (General Representations and Warranties);
7. (Provisions Applicable to Termination); 8. (Relationship of Parties); 10.
(Confidentiality); and 11. (General Provisions).
(g) Termination of this Agreement shall result in termination of
Appendix A, R/3 Software Training and Demonstration License.
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<PAGE> 9
8. Relationship of Parties.
(a) IGI and SAP are independent contractors acting for their own
account, and neither party or its employees are authorized to make any
representation otherwise or any commitment on the other party's behalf unless
previously authorized by such party in writing. Neither party is responsible to
any end user for the quality of services or products provided by the other
party. Each party is solely responsible for establishing the prices for its own
products.
(b) Neither party is a distributor or agent for the products or
services of the other. Each party's products and services shall be available to
a prospective client only through separate agreement between that party and the
client. Each party shall independently develop and price its respective products
and services offered between such party and a client.
(c) It is understood and agreed upon by the parties hereto, that
during the term of this Agreement, the use of the terms "joint venturer,"
"co-venturer," "partner," "marketing partner," "partnership" or similar terms to
be used to describe the relationship between the parties under this Agreement
refer to the spirit of cooperation between IGI and SAP, and do not describe, or
expressly or by implication create, a legal partnership or joint venture, or any
responsibility by one party for the actions of the other.
9. Intellectual Property Rights.
(a) The name "R/3 Partner Program" shall be used by the parties
only jointly and pursuant to the terms of this Agreement; and upon any
termination of this Agreement, neither SAP nor IGI may use the name in
conjunction with the parties' respective corporate names; however, SAP shall
have the right to use the name with any other parties who choose to participate
in the SAP R/3 Partner Programs.
(b) Nothing in this Agreement grants to either party the right to
use or display any other names, trademarks, trade names, logos or service marks
of the other party, except to identify the products and associated services and
deliverables of the other party to the extent obligations are undertaken
pursuant to this Agreement. Except in the case of correspondence and proposals
issued in the ordinary course of business, each party agrees to submit to the
other party for written prepublication approval, any materials which may use or
display any name, trademark, trade name, logo or service mark of the other
party. Notwithstanding the foregoing, nothing contained in this Agreement shall
affect either party's rights and obligations to use any trademarks, service
marks or proprietary words or symbols of the other party to properly identify
the goods or services of such other party to the extent otherwise permitted by
applicable law or by written agreement between the parties.
(c) IGI herein acknowledges that title to all intellectual property
rights, including patent, copyright, trademark, and trade secret rights in R/3
Products, including any modifications, enhancements, versions, releases, or
correction levels thereto, program concepts including literal or nonliteral
structure, sequence and organization, training materials, literature,
9
<PAGE> 10
and other SAP related materials shall remain exclusively with SAP AG, Walldorf,
Germany, or SAP as the case may be, and that by virtue of this Agreement, no
such rights have been transferred, licensed, granted, assigned or acquired by
IGI from SAP AG or SAP.
10. Confidentiality.
(a) Each party acknowledges that, during the term of this
Agreement, it will receive Proprietary Information from the other party.
Neither party shall disclose, provide or otherwise make available to any third
party (including any prospective client) any Proprietary Information of the
other party and shall utilize such Proprietary Information on an internal
organization need-to-know basis only to the extent necessary to effect the
provisions and purposes of, and as expressly contemplated under the terms of,
this Agreement.
(b) Each party agrees that it will protect the Proprietary
Information of the other party through the exercise of no less protection and
care than it customarily uses in safeguarding its own confidential and
proprietary information which it desires to retain in confidence, but always at
least a reasonable degree of care. Disclosure of the other party's Proprietary
Information to employees shall only be made on a need-to-know basis. Further,
each party shall take reasonable steps to advise their employees of the
confidential nature of Proprietary Information, to ensure by agreement or
otherwise that such employees are prohibited from copying, revealing or using
such Proprietary Information except to the extent required to carry out the
parties' obligations under this Agreement, and to require that Proprietary
Information be kept in a secure location. Each party will promptly notify the
other if it believes that Proprietary Information has lost its status as such.
(c) The foregoing shall not prohibit or limit a party's use of
information, including but not limited to ideas, concepts, know how, techniques
and methodologies, which: (i) is or become publicly available through no act of
failure to act of the receiving party; (ii) is released by the disclosing party
to any other person, firm or entity without restriction; (iii) rightfully
obtained by the receiving party without restriction; (iv) is released by the
receiving party into the public domain in response to lawful legal process and
with prior notice to the other party; (v) is rightfully already known to or is
independently developed by the receiving party prior to disclosure; or (vi) is
or becomes part of the public domain through no breach of the confidentiality
provisions of this Agreement.
(d) Neither party will be liable to the other for any inadvertent
or accidental disclosure of Proprietary Information if the disclosure occurs
notwithstanding the party's exercise of (i) the precautions set forth in this
Section; and (ii) the same level of care that each party customarily uses in
preserving and safeguarding its Proprietary Information, but always at least a
reasonable degree of care.
(e) Notwithstanding the foregoing, each party hereto understands
that they may become familiar with each other's services and that IGI may
become familiar with SAP's R/3 Products, specifically its proprietary software.
Accordingly, IGI agrees, with respect to the R/3 Products (including all
program concepts therein) SAP's training materials, literature and other
10
<PAGE> 11
SAP related materials, that as the case may be, IGI shall not copy, translate,
disassemble or decompile, nor create or attempt to create by reverse
engineering or otherwise the source code from the object code, or to use such
items to create derivative works, unless so authorized in advance, in writing,
by SAP. All updates, replacements, revisions, enhancements, additions, or
conversions to such SAP items specified above shall be subject to the provisions
as stated herein.
11. General Provisions.
(a) Non-solicitation. During the term of this Agreement and
for one (1) year after its termination, SAP and IGI agree that neither shall
directly or indirectly solicit for employment any staff of the other party who
have been directly and substantively involved in performance under this
Agreement.
(b) Non-exclusivity. Nothing in this Agreement shall limit
or restrict either party from entering into or continuing any agreement or
other arrangement with any other party, whether similar to this Agreement in
nature or scope. Moreover, each party shall remain free to provide products and
services to any client or prospective client so long as the terms of this
Agreement are not violated.
(c) Notices. All notices required to be given under this
Agreement shall be sent by certified mail to:
Intelligroup, Inc.
517 Route 1 South
Islein, NJ 08830
Attention: Mr. Raj Koneru,
Vice President
and to
SAP America, Inc.
701 Lee Road
Wayne, PA 19087
Attention: Legal Department
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without reference to its choice of law rules. To the extent that the parties
are permitted under this Agreement to seek judicial remedies, each party hereby
consents to the jurisdiction of the federal and state courts within the
Commonwealth of Pennsylvania to resolve any and all such matters.
(e) Merger. This Agreement and any Appendices hereto
constitute the entire agreement between the parties with respect to the matters
set forth herein. All prior agreements,
11
<PAGE> 12
oral or otherwise, between the parties and relating to the subject matter
contained herein, are hereby superseded, provided, however, that the R/3
End-User Software License Agreement dated July 11, 1996 between SAP and IGI
shall not be superseded and shall continue pursuant to its terms with respect
to the subject matter thereof.
(f) Amendments. This Agreement may not be modified except by
a writing signed by both parties.
(g) Severability. If any of the provisions of this Agreement
are held invalid, such provisions shall be deemed severed and the remaining
provisions shall remain in full force and effect.
(h) Non-assignment. This Agreement may not be assigned or
transferred, nor may rights or obligations be delegated, without the prior
written agreement of the parties; notwithstanding the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties of this
Agreement, as well as their respective permitted successors and assigns.
(i) Waiver. Failure of any party to enforce, in any one or
more instances, any of the terms or conditions of this Agreement shall not be
construed as a waiver of the future performance of any such terms or conditions.
(j) Limitation of Liability.
(i) SAP SHALL NOT BE LIABLE TO IGI OR THIRD PARTIES FOR
ANY LOSS OF BUSINESS, LOSS OF PROFITS OR ANY INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE
POSSIBILITY THEREOF, INCLUDING BUT NOT LIMITED TO DAMAGES OR LOSS RESULTING
FROM ANY UNAUTHORIZED MODIFICATION OR DISTRIBUTION OF SAP SOFTWARE; or
(ii) in no event shall the liability of SAP under this
Agreement, for any reason whatsoever, whether in contract, tort or statute
(including, without limitation, negligence), or otherwise, exceed
$1,000,000.00; provided, however, that this limitation of liability clause
shall not apply to claims for personal injury caused by SAP's gross negligence
or willful misconduct.
(k) No Endorsement. Execution of this Agreement does not, and
shall not be construed to be, an endorsement by either party of the products or
services of the other party.
(l) Press Releases and Publicity. Any news release, public
announcement, advertisement, or publicity proposed to be released by either
party concerning the R/3 Partner Program or any matters arising under this
Agreement shall be subject to the approval of the designated representatives of
both parties.
(m) Dispute Resolution Procedures.
12
<PAGE> 13
(i) Any dispute, disagreement, claim or controversy between the
parties arising under or relating to this Agreement or the parties' performance
thereunder (the "Disputed Matter") which cannot be resolved by consultations
between the senior executives of IGI and SAP shall be resolved by binding
arbitration, according to the then prevailing Commercial Arbitration Rules of
the American Arbitration Association, before a panel of three arbitrators. Each
party will select one arbitrator, and the third arbitrator will be selected by
the party-selected arbitrators. Any such arbitration shall be held in the City
of Philadelphia, Pennsylvania. The parties will share the cost of the
arbitration equally, subject to any final apportionment by the arbitrators. The
arbitrators will apply Pennsylvania law, without reference to its choice of law
rules, in resolving the Disputed Matter. The decision of the arbitrators will be
final and conclusive on the parties, and each party consents that judgment upon
an award rendered by the arbitrators may be entered in any court of competent
jurisdiction.
(ii) Neither party shall institute any action or proceeding against
the other in any court concerning any Disputed Matter that is or could be the
subject of a claim or proceeding under this Section; provided, however, that if
a party believes in good faith that a temporary or preliminary injunction is
necessary to preserve the status quo or otherwise to avoid irreparable harm to
such party, such as in the event of a breach of Section 9. or Section 10., such
party shall not be precluded by this Section from seeking such injunctive relief
from a court of competent jurisdiction.
(iii) Pending the resolution of a Disputed Matter, to the extent
feasible, both parties shall continue their performance under this Agreement.
IN WITNESS WHEREOF and intending to be legally bound, the parties have
caused this Agreement to be signed by their authorized representatives as of
the date shown above.
INTELLIGROUP, INC. SAP AMERICA, INC.
(IGI) (SAP)
By: /s/ Robert Olanoff By: /s/ Signature Illegible
---------------------------- ----------------------------
Printed Printed
Name: Robert Olanoff Name:
------------------------ ------------------------
Title: CFO Title:
------------------------ ------------------------
Date: 5/16/97 Date: 5/27/97
------------------------ ------------------------
13
<PAGE> 1
EXHIBIT 10.24
AGREEMENT OF WAIVER AND CONSENT
This Agreement of Waiver and Consent (the "Agreement") is made as of
June 6, 1997, by and among Intelligroup, Inc., a New Jersey corporation (the
"Company" or "Intelligroup"). Ashok Pandey, Rajkumar Koneru and Nagarjun
Valluripalli (collectively, 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 Registration Rights Agreement dated as of April 10, 1996 (the
"Registration Rights Agreement"); and
WHEREAS, the Board of Directors of Intelligroup has approved a proposed
public offering of the Common Stock of Intelligroup (the "Offering"), in which
the Company proposes to issue and sell up to 1,150,000 shares of its authorized
but unissued Common Stock; and
WHEREAS, as a condition precedent to the consummation of the Offering,
certain waivers and amendments are necessary to the Registration Rights
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. WAIVER OF CERTAIN REGISTRATION RIGHTS.
Effective upon the date hereof, Summit hereby agrees to waive any and
all registration rights which they may have as to the Offering.
2. TERMINATION UPON CANCELLATION OF OFFERING; REVERSION.
In the event (i) the Company does not consummate the Offering by
August 31, 1997, (ii) the Offering is not consummated within ten days of its
effectiveness or (iii) upon an earlier determination by the Company to
terminate the Offering, this Agreement shall be terminated and deemed to be of
no further force and effect.
3. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.
4. 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.
<PAGE> 2
5. 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 to the addresses shown below, on the third business day after
the date postmarked.
If to the Company:
Intelligroup, Inc.
517 Route One South
Iselin, New Jersey 08830
Copy to:
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
If to Summit:
Summit Partners
600 Atlantic Avenue
Boston, Massachusetts 02210-2227
Copy to:
Hutchins, Wheeler & Dittmar, A Professional Corporation
100 Federal Street
Boston, Massachusetts 02110
Attention: James Westra, Esq.
6. 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.
-2-
<PAGE> 3
7. 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.
8. INTEGRATION AND ENTIRE AGREEMENT.
Except as provided in this Agreement, the Registration Rights Agreement
and documents and agreements contemplated thereby and all of their respective
terms and provisions, as amended by (i) that certain Agreement of Waiver and
Consent dated June 4, 1996, and (ii) that certain Amendment No. 1 to Agreement
of Waiver and Consent dated July 12, 1996, remain in full force and effect.
********
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTELLIGROUP, INC.
By: /s/
--------------------------------------
Ashok Pandey
President and Chief Executive Officer
SUMMIT VENTURES IV, L.P.
By: SUMMIT PARTNERS IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co., IV,
Its General Partner
By: /s/
--------------------------------------
Its General Partner
SUMMIT INVESTORS III, L.P.
By: /s/
--------------------------------------
Authorized Signatory
INDIVIDUALS
/s/
--------------------------------------
Ashok Pandey
/s/
--------------------------------------
Rajkumar Koneru
/s/
--------------------------------------
Nagarjun Valluripalli
-4-
<PAGE> 1
EXHIBIT 11
INTELLIGROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss)..................... $(1,059,000) $ 793,000 $ 227,000 $ 837,000
=========== =========== =========== ===========
Weighted average shares
outstanding......................... 12,203,000 9,729,000 12,203,000 10,736,000
Incremental shares considered
outstanding (1)..................... 1,534,000 1,260,000 1,534,000 153,000
----------- ----------- ----------- -----------
Shares used in per share
calculation......................... 13,737,000 10,989,000 13,737,000 10,889,000
=========== =========== =========== ===========
Net income (loss) per share........... $ (0.08) $ 0.07 $ 0.02 $ 0.08
=========== =========== =========== ===========
</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 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
June 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001016439
<NAME> INTELLIGROUP, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,479,000
<SECURITIES> 0
<RECEIVABLES> 8,538,000
<ALLOWANCES> 546,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,756,000
<PP&E> 1,524,000
<DEPRECIATION> 243,000
<TOTAL-ASSETS> 21,262,000
<CURRENT-LIABILITIES> 4,043,000
<BONDS> 0
0
0
<COMMON> 107,000
<OTHER-SE> 17,055,000
<TOTAL-LIABILITY-AND-EQUITY> 21,262
<SALES> 47,189,000
<TOTAL-REVENUES> 47,189,000
<CGS> 33,605,000
<TOTAL-COSTS> 33,605,000
<OTHER-EXPENSES> 9,908,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235,000
<INCOME-PRETAX> 2,441,000
<INCOME-TAX> 500,000
<INCOME-CONTINUING> 1,941,000
<DISCONTINUED> 0
<EXTRAORDINARY> 1,148,000
<CHANGES> 0
<NET-INCOME> 793,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001016439
<NAME> INTELLIGROUP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,330,000
<SECURITIES> 0
<RECEIVABLES> 6,891,000
<ALLOWANCES> 523,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,210,000
<PP&E> 2,571,000
<DEPRECIATION> 299,000
<TOTAL-ASSETS> 21,856,000
<CURRENT-LIABILITIES> 3,804,000
<BONDS> 0
0
0
<COMMON> 107,000
<OTHER-SE> 17,892,000
<TOTAL-LIABILITY-AND-EQUITY> 21,856,000
<SALES> 15,738,000
<TOTAL-REVENUES> 15,738,000
<CGS> 11,336,000
<TOTAL-COSTS> 11,336,000
<OTHER-EXPENSES> 3,086,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (79,000)
<INCOME-PRETAX> 1,395,000
<INCOME-TAX> 558,000
<INCOME-CONTINUING> 837,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 837,000
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
