<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1996
REGISTRATION NO. 333-12037
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO.1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INFORMATION MANAGEMENT RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 7371 59-2911475
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
--------------
SUITE 500
26750 U.S. HIGHWAY 19 NORTH
CLEARWATER, FLORIDA 34621
(813) 797-7080
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
SATISH K. SANAN
CHIEF EXECUTIVE OFFICER
INFORMATION MANAGEMENT RESOURCES, INC.
SUITE 500
26750 U.S. HIGHWAY 19 NORTH
CLEARWATER, FLORIDA 34621
(813) 797-7080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
OBY T. BREWER III, ESQ. MARY ELLEN KANOFF, ESQ.
JOHN C. YATES, ESQ. LATHAM & WATKINS
LAUREN Z. BURNHAM, ESQ. 633 WEST 5TH STREET
MORRIS, MANNING & MARTIN, L.L.P. SUITE 4000
1600 ATLANTA FINANCIAL CENTER LOS ANGELES, CALIFORNIA 90071
3343 PEACHTREE ROAD, N.E. (213) 485-1234
ATLANTA, GEORGIA 30326
(404) 233-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") please check the following box. [_]
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, please 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. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL 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 SECTION 8(A), MAY
DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 OCTOBER 21, 1996
3,500,000 SHARES
LOGO
COMMON STOCK
Of the 3,500,000 shares of Common Stock offered hereby, 2,950,000 shares are
being sold by Information Management Resources, Inc. ("IMR" or the "Company")
and 550,000 shares are being sold by the Selling Shareholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price of the Common Stock will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "IMRS,"
subject to official notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 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.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Shareholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total (3)...................... $ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $1,000,000.
(3) The Company and a Selling Shareholder have granted to the Underwriters a
30-day option to purchase up to 525,000 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $ , the Underwriting
Discount will total $ , the Proceeds to Company will total $ and the
Proceeds to Selling Shareholders will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their 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 , 1996.
-----------
Montgomery Securities Alex. Brown & Sons
Incorporated
, 1996
<PAGE>
[DIAGRAM]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus, including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto. Except as otherwise noted,
all information in this Prospectus: (i) assumes an initial public offering
price of $12.00 per share and no exercise of the Underwriters' over-allotment
option; and (ii) gives effect to the reclassification of the Company's Common
Stock in September 1996 whereby each share of the Company's outstanding voting
common stock and non-voting common stock (each having a par value of $.10 per
share) was converted into 10.0 shares of voting Common Stock, par value $.10
per share ("Common Stock"). See "Underwriting" and "Description of Capital
Stock."
THE COMPANY
Information Management Resources, Inc. ("IMR" or the "Company") provides
applications software outsourcing solutions for the information technology
("IT") departments of large businesses with intensive information processing
needs. The Company's services, which generally are offered on a fixed-price,
fixed-time frame basis, include software development, application maintenance,
Year 2000 conversion and migration and re-engineering services. In addition,
the Company offers programming and consulting services on a time-and-materials
basis in order to optimize employee utilization and provide a potential source
of future outsourcing contracts. The Company's services, which it terms
"transitional outsourcing," assist clients in the maintenance of mainframe-
based legacy applications and in the transition from legacy systems to open
architecture, client/server and other emerging technologies. IMR delivers many
of its transitional outsourcing services using its proprietary Total Software
Quality Management ("TSQM") software engineering process and its dedicated
offshore software development facility in Bangalore, India. This facility is
linked by satellite communications to both the Company's offices and the
offices of many of its clients. This allows IMR to offer its services on a 24-
hour basis through an on-site, off-site and offshore project team working
multiple shifts made possible by the time difference between North America and
India. The Company believes that its proprietary TSQM process, software
engineering methodologies and toolsets, and its offshore software development
center enable it to provide high quality, cost-effective IT solutions through
the utilization of global resources.
Faced with intense competition, deregulation, innovation and rapid
technological advancements, companies worldwide are seeking to enhance or
completely replace their IT systems in order to achieve greater productivity
and manage their operations more efficiently. Although client/server and other
emerging technologies offer the promise of faster, more functional and more
flexible software applications, the implementation of business solutions
encompassing these new technologies presents major challenges for companies
that lack highly skilled technical personnel and project management skills. As
a result, many large companies are pursuing ways to outsource their IT
projects, particularly on a fixed-price, fixed-time frame basis in order to
minimize the risks associated with such large scale technology projects.
Dataquest, a recognized market research firm, estimated that the market for
systems integration, consulting, applications development and outsourcing
services was approximately $91.0 billion worldwide in 1994 and estimated this
market to be growing by approximately 16.5% annually through 1999. In
particular, outsourcing represents a particularly cost-effective solution for
IT projects such as the fast approaching Year 2000 problem. Resolving a Year
2000 problem, which occurs because many existing computer systems run software
programs permitting only two-digit entries for years (e.g., 1996 is read as
"96") and therefore cannot properly process dates in the next century, is a
highly time- and labor-intensive project often requiring software development
professionals to analyze millions of lines of code. As a result, the Company
believes that most large Year 2000 conversion projects will be outsourced.
Although the size of the Year 2000 problem is difficult to estimate, the
Gartner Group, a recognized industry source, has estimated that the worldwide
costs (including in-house costs) to resolve the Year 2000 problem could range
from $300 billion to $600 billion.
3
<PAGE>
The IMR solution is a systematic and disciplined approach that the Company
employs in every outsourcing engagement. There are three critical components of
the IMR solution, which management believes differentiate the Company from
other IT providers. First, the Company has a two-phased TSQM software
engineering process that encompasses an extensive front-end project assessment
and a fixed-price, fixed-time frame implementation stage. Through the rigorous
adherence to its TSQM software engineering process, the Company is able to
identify, monitor and manage the risks associated with the cost, schedule,
performance, support and delivery of projects on a fixed-price, fixed-time
frame basis. Second, the Company's offshore software development facility
provides IMR with a significant cost advantage as well as the ability to create
a virtual "second shift" for its North American clients. Third, IMR's
proprietary toolsets are used to facilitate and streamline a Year 2000
conversion project as well as the migration from mainframe computing
environments to flexible open systems and relational database management
systems computing environments. Together, these elements of the Company's
service delivery model help to optimize cost savings, accelerate project
delivery and mitigate risk to both IMR and its clients.
The Company's clients are primarily Fortune 200 or comparably sized companies
with significant IT budgets and recurring needs for software development,
application maintenance, Year 2000 conversion services and IT staffing. IMR
serves clients in a variety of industries including financial services,
insurance, manufacturing, retail and utilities. In 1995 and the first six
months of 1996, the Company provided transitional outsourcing services to such
companies as Commercial Union Insurance Companies, Dayton Hudson Corporation,
John Hancock Financial Services, Michelin Tire Corporation, NOVUS Services,
Inc. (formerly known as Discover Card Services, Inc.), SPS Payment Systems and
Southern California Edison. Through a staff of more than 500 software
development professionals, the Company serves its clients from its headquarters
in Clearwater, Florida, its offshore software development center in Bangalore,
India, its branch offices located in Boston, Chicago, Dallas and Rochester and
its affiliate office in London, England.
The Company's objective is to be a leading provider of comprehensive
transitional IT outsourcing services and solutions. In order to achieve this
objective, the Company focuses on the following key business strategies: (i)
develop long-term strategic partner relationships with clients; (ii) develop
and enhance processes, methodologies and productivity-enhancing software tools;
(iii) focus on fixed-price, fixed-time frame projects; (iv) continue to expand
its offshore software development resources; (v) concentrate on key
technologies; and (vi) attract, train and retain highly skilled employees. The
Company plans to remain focused on these core business principles while
employing a rapid growth strategy. As a result of its expertise in the Year
2000 services market, the Company recently has obtained a significant number of
new contracts for Year 2000 projects and expects to derive a significantly
higher percentage of its total revenues from Year 2000 conversion services for
the next three years. As of the date of this Prospectus, the Company is engaged
to perform Year 2000 services for more than 20 clients, substantially all of
which represent new customers for the Company. A core element of the Company's
long-term growth strategy is to use the client relationships and the knowledge
of its clients' computer systems obtained in providing Year 2000 services to
generate additional IT projects from these clients.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,950,000 shares
Common Stock offered by the Selling Shareholders... 550,000 shares
Common Stock to be outstanding after the Offering.. 13,887,090 shares (1)
Use of proceeds.................................... For: (i) purchase of
minority interest in IMR-
India (as defined herein);
(ii) repayment of debt;
(iii) payment of
undistributed S
corporation earnings; and
(iv) general corporate
purposes and working
capital, which may include
future acquisitions.
Proposed Nasdaq National Market symbol............. IMRS
</TABLE>
- --------
(1) Includes options for the purchase of 4,500,500 shares of Common Stock which
are exercisable as of, or within 60 days of, November 1, 1996 at a weighted
average exercise price of $0.34 per share (of which options for the
purchase of 4,064,550 shares of Common Stock are held by Satish K. Sanan,
the Company's President, Chief Executive Officer and majority shareholder).
See "Certain Transactions--Options Issued to Mr. Sanan." Excludes: (i)
options for the purchase of 526,050 shares of Common Stock at a weighted
average exercise price of $2.88 per share which are outstanding as of the
date of this Prospectus but which will generally be exercisable over the
next five years; (ii) 386,860 shares of Common Stock reserved for issuance
under the Stock Option Plan (as defined herein) for which no options have
yet been granted (but of which 100,000 shares will be granted to Mr. Sanan
upon completion of the Offering at an exercise price equal to the initial
public offering price); and (iii) 150,000 shares reserved for issuance
under the Directors Stock Option Plan (as defined herein), of which options
to purchase 30,000 shares will be granted upon consummation of this
Offering. Also excludes 200,000 shares reserved for issuance under the
Stock Purchase Plan (as defined herein), which shares will be issued from
time to time after consummation of this Offering. See "Capitalization,"
"Management--Director Compensation," "--Executive Compensation," "--
Employee Benefit Plans," "Principal and Selling Shareholders" and Note 15
to Notes to Consolidated Financial Statements.
4
<PAGE>
AFFILIATE RELATIONSHIPS
As of June 30, 1996, the Company owned approximately 34.2% of the outstanding
equity of Information Management Resources (India) Limited ("IMR-India"), India
Magnum Fund N.V. ("India Magnum"), a private investment fund, owned 35.1%,
Second India Investment Fund, B.V. ("Second India"), a private investment fund,
owned 10.5%, Satish K. Sanan, the Company's President, Chief Executive Officer
and majority shareholder, owned 18.4% and the balance was owned by several
individual shareholders. In August 1996, the Company completed the acquisition
of Second India's entire 10.5% equity interest in IMR-India in exchange for
approximately $1.8 million in cash and in connection therewith, approximately
$527,000 of indebtedness owed by IMR-India to Second India was cancelled. In
July and September 1996, the Company entered into agreements pursuant to which
the Company will acquire: (i) Mr. Sanan's entire equity interest in IMR-India
for an aggregate price of approximately $3.1 million in cash; and (ii) India
Magnum's entire equity interest in IMR-India for an aggregate price of
approximately $5.1 million in cash. The acquisition from Mr. Sanan will be
closed upon consummation of this Offering and the acquisition from India Magnum
will be closed as soon thereafter as is possible. Upon the closing of these
transactions, the Company will own approximately 98.2% of IMR-India's
outstanding equity. The balance of approximately 1.8% will continue to be held
by individual shareholders. The acquistions of the equity interests of IMR-
India from Second India, Mr. Sanan and India Magnum are collectively referred
to herein as the "IMR-India Acquisitions." Additionally, IMR-India has granted
to certain of its employees options to acquire additional shares which, if
fully vested, would upon exercise represent 3.5% of IMR-India's equity and
would result in a corresponding decrease in the Company's equity interest. The
Company's financial statements have been consolidated with the financial
statements of IMR-India for all periods since September 1993, the date the
Company first acquired an equity interest in IMR-India. See "Certain
Transactions--IMR-India Transactions" and Note 2 to Notes to Consolidated
Financial Statements.
In 1993, the Company formed Information Management Resources (U.K.) Limited
("IMR-U.K.") for the purpose of providing IT services in the U.K. and certain
countries in western Europe. As of the date of this Prospectus, the Company
owns 39.5% of the outstanding equity of IMR-U.K., and Mr. Sanan and his spouse
together own 10.5% of such outstanding equity. The balance of IMR-U.K.'s
outstanding equity is owned by The Link Group of Companies Limited (the "Link
Group"), a U.K.-based computer services firm. The Link Group is owned by Philip
and Sheila Shipperlee. Mr. Shipperlee is a director of the Company. The
Company's investment in IMR-U.K. is accounted for under the equity method. See
"Certain Transactions--IMR-U.K. Transactions."
IMR is a Florida corporation organized in 1988. Unless the context otherwise
requires, references in this Prospectus to "IMR" or the "Company" refer to
Information Management Resources, Inc. and its consolidated subsidiary, IMR-
India. The Company's principal executive offices are located at 26750 U.S.
Highway 19 North, Suite 500, Clearwater, Florida 34621, and its telephone
number is (813) 797-7080.
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), that are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Forward-
looking statements can be identified by the use of forward-looking terminology
such as "may," "will," "should," "expect," "anticipate," "estimate,"
"continue," "plans," "intends" or other similar terminology. The Company faces
many risks and uncertainties, including those described in this Prospectus
under the caption "Risk Factors." Because of these many risks and
uncertainties, the Company's actual results may differ materially from any
results presented in or implied by the forward-looking statements included in
this Prospectus.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $5,630 $10,132 $12,429 $14,101 $22,700 $ 10,575 $ 12,397
Gross profit............ 1,968 3,724 2,298 5,439 8,991 3,821 5,175
Income (loss) from oper-
ations................. 469 701 (3,246) 829 3,508 1,353 2,082
Net income (loss)....... 463 656 (3,673) 814 2,517 981 1,509
Pro forma net income
(1)(2)................. $1,612 $944
======= ========
Pro forma net income per
share (1)(2)(3)........ $0.12 $0.08
======= ========
Pro forma weighted
average number of
common and common stock
equivalent shares
outstanding (3)(4)..... 13,669 11,274
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------
AS
ACTUAL ADJUSTED(5)
------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $1,685 $22,170
Total assets................................................. 9,840 34,373
Long-term debt, net of current portion....................... 969 0
Shareholders' equity......................................... 2,864 30,410
</TABLE>
- --------
(1) Pro forma net income and net income per share give effect to the Company's
conversion from an S corporation to a C corporation for U.S. federal and
state income tax purposes. As an S corporation, the Company was not subject
to income taxes but instead passed its tax attributes through to its
shareholders. As a C corporation, the Company will be subject to income
taxes at corporate income tax rates. The pro forma statements of operations
data above present net income and net income per share as if the Company
had been subject to corporate income taxes for the year ended December 31,
1995 and the six months ended June 30, 1996. See "Prior S Corporation
Status and Distributions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Net Charge Resulting from S
Corporation Termination" and Notes 13 and 20 to Notes to Consolidated
Financial Statements.
(2) Pro forma net income and net income per share do not give effect to the
IMR-India Acquisitions. Pro forma net income for the year ended December
31, 1995 and the six months ended June 30, 1996 would have been $1.8
million and $997,000, respectively, if the IMR-India Acqusitions had
occurred as of the beginning of each period presented. Acquisitions from
Second India and India Magnum will be accounted for as purchase
transactions, and resulting goodwill will be amortized using the straight-
line method over ten years. The acqusition from Satish K. Sanan will be
accounted for as a reduction of equity.
(3) Supplemental pro forma net income per share would have been $0.09 and $0.13
for the six months ended June 30, 1996 and the year ended December 31,
1995, respectively, giving effect to the use of a portion of the net
proceeds of this Offering to repay the Company's bank borrowings
outstanding at the beginning of periods presented and a corresponding
increase in the weighted average number of shares outstanding to 11,496,165
and 13,816,782 at June 30, 1996 and December 31, 1995, respectively.
(4) Weighted average number of shares outstanding for the six months ended June
30, 1996 reflects the repurchase by the Company of approximately 2,676,940
shares in January 1996 from certain shareholders which were held in
treasury and the subsequent issuance in February 1996 of options to acquire
approximately 2,643,340 shares granted to Mr. Sanan which shares are
retroactively treated as outstanding for such periods. See "Certain
Transactions--Options Issued to Mr. Sanan."
(5) Adjusted to give effect to: (i) the sale by the Company of 2,950,000 shares
of Common Stock offered hereby at an assumed initial public offering price
of $12.00 per share and the application of the estimated net proceeds
therefrom; (ii) the inclusion of a current deferred income tax liability of
$258,000 and noncurrent deferred income tax liabilities of $772,000 to
reflect temporary differences between the bases of assets and liabilities
for financial statement purposes and income tax purposes upon the
conversion from S corporation to C corporation income tax status; and (iii)
a distribution to the Company's shareholders of $220,000 which represents
undistributed taxable income through June 30, 1996 (the amount of such
distribution is estimated to be approximately $1.4 million at the time of
consummation of this Offering). See "Prior S Corporation Status and
Distributions," "Use of Proceeds," "Capitalization" and Notes 13 and 20 to
Notes to Consolidated Financial Statements.
6
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, in evaluating
the Company and its business before purchasing shares of Common Stock offered
hereby.
MANAGEMENT OF GROWTH. An important element of the Company's strategy is to
pursue continued rapid growth of its business. The Company's revenues
increased approximately 61.0% in 1995, from $14.1 million in 1994 to $22.7
million in 1995. Revenues for the first six months of 1995 and 1996 were $10.6
million and $12.3 million, respectively. Since January 1, 1995, the Company's
staff has increased from approximately 340 to approximately 500 software
development professionals as of September 1, 1996, and significant increases
are expected to continue during the remainder of 1996 and 1997. The Company's
growth will continue to place significant demands on its management and other
resources. In particular, the Company will have to continue to increase the
number of its personnel, particularly skilled technical, marketing and
management personnel, and continue to develop and improve its operational,
financial, communications and other internal systems, both in the U.S. and
offshore. The Company's inability to manage its growth effectively could have
a material adverse effect on the quality of the Company's services and
projects, its ability to attract and retain key personnel, its business
prospects and its results of operations and financial condition. In 1993, the
Company experienced a loss partly related to increased infrastructure expenses
incurred to support anticipated growth. Any future unexpected shortfall in
revenues without a corresponding and timely reduction in staffing and other
expenses, or a staffing increase that is unaccompanied by a corresponding
increase in revenues, could also have a material adverse effect on the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
DEPENDENCE ON KEY EXECUTIVE. The Company's success will depend in large part
upon the continued availability of the services of Satish K. Sanan, the
Company's President, Chief Executive Officer and majority shareholder. The
loss of the services of Mr. Sanan would have a material adverse effect on the
Company. See "Management--Executive Compensation." The Company does not intend
to maintain key man insurance on the life of Mr. Sanan.
CONTROL BY AND CONTINUING BENEFITS TO PRINCIPAL SHAREHOLDER. Upon completion
of the Offering, Mr. Sanan will beneficially own approximately 67.4% of the
outstanding shares of Common Stock (approximately 64.2% if the Underwriters'
over-allotment option is exercised in full). Accordingly, Mr. Sanan will be in
a position to control the Company through his ability to control any election
of members of the Board of Directors as well as any decision whether to merge
or sell the assets of the Company, adopt, amend or repeal the Company's
Amended and Restated Articles of Incorporation and Restated Bylaws, or take
other actions requiring the vote or consent of the Company's shareholders.
Such provisions could also discourage bids for the shares of Common Stock at a
premium as well as create a depressive effect on the market price of the
shares of Common Stock. Mr. Sanan will enjoy benefits from his continuing
employment relationship with the Company. Mr. Sanan's employment agreement,
which will become effective on October 31, 1996, provides for: (i)
compensation to Mr. Sanan of a base salary of $400,000 per year; (ii) an
annual bonus equal to two percent of the Company's net pre-tax income;
(iii) reimbursement of premiums for approximately $8.0 million of life
insurance policies with benefits payable to beneficiaries designated by Mr.
Sanan; and (iv) severance benefits, payable upon termination of employment
without cause, equal to three times the greater of Mr. Sanan's current base
salary or his W-2 compensation for the immediately preceding calendar year. In
addition, Mr. Sanan will receive an option to purchase 100,000 shares, at an
exercise price equal to the initial public offering price, on the effective
date of this Offering and will be eligible to receive stock options,
exercisable at fair market value on the grant date, in such amounts and
subject to such vesting provisions as determined by the Compensation Committee
of the Company's Board of Directors. See "Management--Executive Compensation,"
"Principal and Selling Shareholders" and "Description of Capital Stock."
VARIABILITY OF QUARTERLY OPERATIONS AND FINANCIAL RESULTS. The Company's
operations and related revenues and operating results historically have varied
substantially from quarter to quarter, and the Company expects these
variations to continue. Among the factors causing these variations have been
the number, timing and scope of IT projects in which the Company is engaged,
the contractual terms of such projects, delays incurred in the performance of
such projects, the accuracy of estimates of resources and time frames required
to
7
<PAGE>
complete ongoing projects, and general economic conditions. A high percentage
of the Company's operating expenses, particularly personnel and rent, are
relatively fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of the Company's projects or
in employee utilization rates may cause significant variations in operating
results in any particular quarter. An unanticipated termination of a major
project, a client's decision not to pursue a new project or proceed to
succeeding stages of a current project, or the completion during a quarter of
several major client projects could require the Company to continue to pay
underutilized employees and therefore have a material adverse effect on the
Company's results of operations and financial condition. As a result of the
foregoing factors, the Company's operating results for a future quarter may be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock likely will be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
HISTORICAL RELIANCE ON SIGNIFICANT CLIENTS. The Company has derived and
believes that it will continue to derive a significant portion of its revenues
from a limited number of large corporate clients. During the first six months
of 1996, the Company's five largest clients accounted for approximately 65.3%
of revenues. During the first six months in 1996, NOVUS Services, Inc.
("NOVUS") and SPS Payments Systems, Inc. ("SPS"), which are affiliated
companies, together accounted for approximately 35.5% of revenues and units of
Dayton Hudson Corporation accounted for approximately 8.8% of revenues. In
1995, the Company's five largest clients accounted for approximately 65.6% of
its revenues. NOVUS and SPS together accounted for 35.1% of 1995 revenues,
while Dayton Hudson Corporation accounted for 12.0% of 1995 revenues. The
volume of work performed for specific clients is likely to vary from year to
year, and a major client in one year may not provide the same level of
revenues in any subsequent year. The loss of any large client could have a
material adverse effect on the Company's results of operations and financial
condition. Because many of its contracted engagements involve projects that
are critical to the operations of its clients' businesses, IMR's failure to
meet a client's expectations could result in a cancellation or nonrenewal of
the contract and could damage the Company's reputation and adversely affect
its ability to attract new business. Furthermore, under substantially all of
its contracts, the Company is not the exclusive outside source for IT services
to the client. Accordingly, a client's dissatisfaction with IMR's performance
could lead the client to purchase these services from another competitor. See
"Business--Clients and Representative Projects."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL. The future success of the
Company's growth strategy will depend to a significant extent on its ability
to attract, train, motivate and retain highly skilled software development
professionals, particularly project managers, software engineers and other
senior technical personnel. The Company believes that in both the U.S. and
India there is a shortage of, and significant competition for, software
development professionals with the advanced technological skills necessary to
perform the services offered by the Company. The Company's ability to maintain
and renew existing engagements and obtain new business depends, in large part,
on its ability to hire and retain technical personnel with the IT skills that
keep pace with continuing changes in information processing technology,
evolving industry standards and changing client preferences. An inability to
hire such additional qualified personnel could impair the Company's ability to
manage and complete its existing projects and to bid for or obtain new
projects. Further, the Company must train and manage its growing employee
base, requiring an increase in the level of responsibility for both existing
and new management personnel. There can be no assurance that the management
skills and systems currently in place will be adequate or that the Company
will be able to assimilate new employees successfully. Accordingly, there can
be no assurance that the Company will be successful in retaining current or
future employees. In addition, a significant number of the Company's employees
reside in India. Historically, the Company's wage costs in India have been
significantly lower than its wage costs in the U.S. for comparably-skilled
employees, although wage costs in India are presently increasing at a faster
rate than in the U.S. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Effects of Inflation" and "Business--Human
Resources."
DEPENDENCE ON INDIA OFFSHORE SOFTWARE DEVELOPMENT CENTER. A significant
element of the Company's business strategy is to continue to leverage its
offshore software development center in Bangalore, India which provides IMR
with a cost advantage as well as the ability to provide 24-hour service to its
clients. In order to provide its service delivery model, the Company must
maintain active satellite communications between its
8
<PAGE>
offices, the offices of its clients in the U.S. and the Bangalore offshore
software development facility. Any loss of the Company's ability to transmit
voice and data through satellite communications to India could have a material
adverse effect on the Company's results of operation and financial condition.
In the past, India has experienced significant inflation, low growth in gross
domestic product and shortages of foreign exchange. India also has experienced
civil unrest and terrorism and, in the past, has been involved in conflict
with neighboring countries. No assurance can be given that the Company will
not be adversely affected by changes in inflation, interest rates, taxation,
social stability or other political, economic or diplomatic developments in or
affecting India in the future. In addition, the Indian government has
exercised and continues to exercise significant influence over many aspects of
the Indian economy, and Indian government actions concerning the economy could
have material adverse effect on private sector entities, including the
Company. During the past five years, India's government has provided
significant tax incentives and relaxed certain regulatory restrictions in
order to encourage foreign investment in specified sectors of the economy,
including the software development industry. Certain of those benefits which
directly affected the Company include, among others, tax holidays, liberalized
import and export duties and preferential rules on foreign investment and
repatriation. Notwithstanding these benefits, however, India's central and
state governments remain significantly involved in the Indian economy as
regulators. The elimination of any of the benefits realized by the Company
from its Indian operations could have a material adverse effect on the
Company's results of operations and financial condition.
FIXED-PRICE, FIXED-TIME FRAME CONTRACTS. As a core element of its business
philosophy, the Company's strategy is to offer many of its IT services on
fixed-price, fixed-time frame contracts, rather than contracts in which
payment to the Company is determined solely on a time-and-materials basis.
Although the Company uses its TSQM software engineering process and its past
project experience to reduce the risks associated with estimating, planning
and performing the fixed-price projects, the Company bears the risk of cost
over-runs and inflation in connection with these projects. The Company's
failure to estimate accurately the resources and time required for a project
or its failure to complete its contractual obligations within the time frame
committed could have a material adverse effect on the Company's results of
operations and financial condition.
POTENTIAL DECREASE IN SERVICES AFTER ADDRESSING THE YEAR 2000 PROBLEM. The
Company expects to derive a significantly higher percentage of its total
revenues from Year 2000 conversion services for at least the next three years.
Although the Company realized only 2.5% and 12.2% of total revenues from Year
2000 conversion services in 1995 and the first six months of 1996,
respectively, a majority of the Company's current project bookings are for
Year 2000 conversion projects. Further, the Company believes that demand for
Year 2000 conversion services will continue after the turn of the century;
however, this demand is expected to begin to diminish after the year 2000 as
many Year 2000 compliance solutions are implemented and tested. A core element
of the Company's growth strategy is to use the business relationships and the
knowledge of its clients' computer systems obtained in providing its Year 2000
services to generate additional IT projects for these clients. There can be no
assurance, however, that the Company will be successful in generating
additional business from its Year 2000 clients for other services. In
addition, by utilizing significant resources during the next several years to
solve its clients' Year 2000 problems, the Company's ability to continue to
deliver other IT services could be adversely affected. See "Business--
Services--Year 2000 Services."
COMPETITION. The IT services market is highly competitive and served by
numerous national, regional and local firms, all of which are either an
existing or potential competitor of the Company. Many of these competitors
have significantly greater financial, technical and marketing resources and
generate greater revenue than the Company, and there can be no assurance that
the Company will not lose existing clients to such competitors. The Company
believes that its ability to compete also depends in part on a number of
factors outside its control, including the ability of its competitors to hire
and retain professional and technical employees, the price at which others
offer comparable services and the extent of its competitors' responsiveness to
client needs. See "Business--Competition."
POTENTIAL LIABILITY TO CLIENTS. Many of the Company's engagements involve
projects that are critical to the operations of its clients' businesses and
provide benefits that may be difficult to quantify. Any failure in a client's
system could result in a claim for substantial damages against the Company,
regardless of the Company's responsibility for such failure. Although the
Company attempts to limit contractually its liability for damages
9
<PAGE>
arising from negligent acts, errors, mistakes or omissions in rendering its IT
services, there can be no assurance the limitations of liability set forth in
its service contracts will be enforceable in all instances or would otherwise
protect the Company from liability for damages. Although the Company maintains
general liability insurance coverage, including coverage for errors or
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against the Company that exceed available insurance coverage or changes in the
Company's insurance policies, including premium increases or the imposition of
large deductible or co-insurance requirements, could adversely affect the
Company's results of operations and financial condition.
IMMIGRATION ISSUES. The Company believes that its success in part has
resulted from its ability to attract and retain persons with technical and
project management skills from other countries, especially India. As of
September 1, 1996, approximately 150 of the Company's 245 U.S. employees were
working for the Company in the H-1B, non-immigrant work permitted visa
classification. There is a limit on the number of new H-1B petitions that the
INS may approve in any government fiscal year, and in years in which this
limit is reached, the Company may be unable to obtain H-1B visa's necessary to
bring critical foreign employees to the U.S. Compliance with existing U.S.
immigration laws, or changes in such laws making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain H-1B
employees in the U.S., could require the Company to incur additional
unexpected labor costs and expenses. Any such restrictions or limitations on
the Company's hiring practices could have a material adverse effect on the
Company's results of operations and financial condition. See "Business--Human
Resources."
POSSIBLE ACQUISITIONS. Given the highly fragmented nature of the IT services
market, together with significant barriers to entry in major accounts, the
Company believes that opportunities exist to expand through the selective
acquisition of smaller regional IT services firms with established customers.
As of the date of this Prospectus, the Company has no existing agreements or
commitments to effect any acquisition. Accordingly, there can be no assurance
that the Company will be able to identify suitable acquisition candidates
available for sale at reasonable prices, consummate any acquisition or
successfully integrate any acquired business into the Company's operations.
Further, acquisitions may involve a number of special risks, including
diversion of management's attention, failure to retain key acquired personnel,
unanticipated events or circumstances, legal liabilities and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's results of operations and financial condition. Client
satisfaction or performance problems at a single acquired firm could have a
material adverse impact on the reputation of the Company as a whole. The
Company expects to finance any future acquisitions with the proceeds of this
Offering as well as with possible debt financing, the issuance of equity
securities (common or preferred stock) or a combination of the foregoing.
There can be no assurance that the Company will be able to arrange adequate
financing on acceptable terms. See "Business--Strategies--Growth Strategies."
OFFERING TO BENEFIT PRINCIPAL SELLING SHAREHOLDER. A substantial portion of
the net proceeds from this Offering will benefit Satish K. Sanan, the
Company's President, Chief Executive Officer and majority shareholder. Of the
net proceeds to the Company from this Offering, approximately $3.1 million
will be paid to Mr. Sanan for the acquisition by the Company of Mr. Sanan's
18.4% equity interest in IMR-India, an estimated $1.2 million will be used to
pay a dividend to Mr. Sanan in connection with the Company's termination of
its S corporation election, which amount represents undistributed S
corporation earnings, and approximately $2.6 million will be used to repay
indebtedness of the Company that is personally guaranteed by Mr. Sanan. Also,
Mr. Sanan will receive net proceeds from this Offering, after deduction of
underwriting discounts, aggregating approximately $4.5 million in connection
with the sale by Mr. Sanan of 403,360 shares of the Company's Common Stock in
this Offering ($7.4 million if the Underwriters' over-allotment option is
exercised in full). The expenses of the Offering associated with the Common
Stock offered by the Selling Shareholders, other than underwriting discounts,
will be paid by the Company. See "Prior S Corporation Status and
Distributions," "Use of Proceeds," "Principal and Selling Shareholders" and
"Certain Transactions."
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. A substantial portion of
the net proceeds to be received by the Company in connection with this
Offering is allocated to working capital and general corporate
10
<PAGE>
purposes. Accordingly, management will have broad discretion with respect to
the expenditure of such proceeds. Purchasers of shares of Common Stock offered
hereby will be entrusting their funds to the Company's management, upon whose
judgment they must depend, with limited information concerning the specific
working capital requirements and general corporate purposes to which the funds
will ultimately be applied. See "Use of Proceeds."
INTELLECTUAL PROPERTY RIGHTS. In order to protect its proprietary rights in
its various intellectual properties, the Company relies upon a combination of
copyright and trade secret laws, nondisclosure and other contractual
arrangements, and technical measures. India is a member of the Berne
Convention, an international treaty. As a member of the Berne Convention, the
government of India has agreed to recognize protections on copyrights
conferred under the laws of foreign countries, including the laws of the U.S.
The Company believes that laws, rules, regulations and treaties in effect in
the U.S. and India are adequate to protect it from misappropriation or
unauthorized use of its copyrights. However, there can be no assurance that
such laws will not change and, in particular, that the laws of India will not
change in ways that may prevent or restrict the transfer of software
components, libraries and toolsets from India to the U.S. There can be no
assurance that the steps taken by the Company will be adequate to deter
misappropriation of its intellectual property, or that the Company will be
able to detect unauthorized use and take appropriate steps to enforce its
rights. Although the Company believes that its intellectual property rights 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, that assertion of such claims will not result in litigation or that
the Company would prevail in such litigation or be able to obtain a license
for the use of any infringed intellectual property from a third party on
commercially reasonable terms. Furthermore, litigation, regardless of its
outcome, could result in substantial cost to the Company and divert
management's attention from the Company's operations. Any infringement claim
or litigation against the Company could, therefore, have a material adverse
effect on the Company's results of operations and financial condition. See
"Business--Intellectual Property."
CERTAIN ANTI-TAKEOVER PROVISIONS. The Amended and Restated Articles of
Incorporation and Restated Bylaws provide for a classified Board of Directors,
and members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of the Company entitled to vote. In addition, the Board of Directors
will have the authority, without further action by the shareholders, to fix
the rights and preferences and issue shares of Preferred Stock. These
provisions, and other provisions of the Amended and Restated Articles of
Incorporation and Restated Bylaws, may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Company, including transactions in which shareholders might otherwise receive
a premium for their shares over then current market prices. In addition, these
provisions may limit the ability of shareholders to approve transactions that
they may deem to be in their best interests. See "Description of Capital
Stock--Preferred Stock" and "--Certain Articles of Incorporation and Bylaw
Provisions." Florida law also contains provisions that may have the effect of
delaying, deferring or preventing a non-negotiated merger or other business
combination involving the Company. These provisions are intended to encourage
any person interested in acquiring the Company to negotiate with and obtain
the approval of its Board of Directors in connection with the transaction.
Certain of these provisions may, however, discourage a future acquisition of
the Company not approved by the Board of Directors in which shareholders might
receive an attractive value for their shares or that a substantial number or
even a majority of the Company's shareholders might believe to be in their
best interest. As a result, shareholders who desire to participate in such a
transaction may not have the opportunity to do so. Such provisions could also
discourage bids for the shares of Common Stock at a premium as well as create
a depressive effect on the market price of the shares of Common Stock. See
"Description of Capital Stock--Certain Articles of Incorporation and Bylaw
Provisions" and "--Certain Provisions of Florida Law."
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Offering, the
Company will have outstanding 9,386,590 shares of Common Stock and will have
granted options for the purchase of 5,159,120 shares of Common Stock pursuant
to the Company's Stock Option Plan (as defined herein) at a weighted average
exercise price of $0.82 per share (assuming an initial public offering price
of $12.00 per share). Of such options granted pursuant to the Stock Option
Plan: (i) options for the purchase of 4,164,550 shares of Common Stock are
held by Mr. Sanan, the Company's President, Chief Executive Officer and
majority shareholder, of which 4,064,550
11
<PAGE>
are currently exercisable (at a weighted average exercise price of $0.36 per
share); and (ii) options for the purchase of 435,950 shares of Common Stock
(at a weighted average exercise price of $0.12 per share) are held by other
officers and employees of the Company and are exercisable as of, or within 60
days of, November 1, 1996. Of the 9,386,590 shares outstanding, the 3,500,000
shares sold in this Offering will be freely tradable without restriction or
further registration under the Securities Act, unless they are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 5,886,590 outstanding shares of Common Stock may
be sold in the public market only if registered or pursuant to an exemption
from registration such as Rule 144 or 144(k) promulgated under the Securities
Act. The holders of all remaining 5,886,590 shares (and holders of options for
the purchase of 4,451,020 shares of Common Stock which are exercisable as of,
or within 60 days of, November 1, 1996) have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of, or
agree to dispose of, any shares of Common Stock (other than gifts) until 180
days after the date of this Prospectus without prior written consent of
Montgomery Securities. See "Underwriting." Promptly following the consummation
of this Offering, the Company intends to file a Registration Statement on Form
S-8 under the Securities Act to register: (i) 5,413,410 shares of Common Stock
reserved for issuance under the Stock Option Plan; (ii) the 150,000 shares
reserved under the Directors Stock Option Plan, of which options for the
purchase of 30,000 shares will be granted upon consummation of the Offering;
and (iii) the 200,000 shares reserved under the Stock Purchase Plan. After the
date of such filing, except for shares held by "affiliates" of the Company as
defined in Rule 144 under the Securities Act, shares purchased pursuant to the
Stock Option Plan (if not otherwise subject to a lock-up agreement) generally
would be available for resale in the public market. See "Shares Eligible for
Future Sale."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has made application for the quotation of the
Common Stock on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or be sustained after the Offering. The
initial public offering price of the Common Stock offered hereby will be
determined through negotiations among the Company, the Selling Shareholders
and the Representatives of the Underwriters and may bear no relationship to
the market price of the Common Stock after the Offering. The market price of
the Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results and other factors. In addition, the
securities markets have experienced significant price and volume fluctuations
from time to time that have often been unrelated or disproportionate to the
operating performance of particular companies. These broad fluctuations may
adversely affect the market price of the Common Stock. See "Underwriting."
DILUTION. The purchasers of the Common Stock offered hereby will experience
immediate and significant dilution. See "Dilution."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Prospectus contains
certain forward-looking statements, including, among others: (i) the potential
extent of the Year 2000 problem and the anticipated growth in the Year 2000
services market; (ii) presently anticipated trends in the Company's results of
operations and financial condition; (iii) the ability of the Company to rely
on cash generated from operations and the proceeds of this Offering to finance
its working capital requirements; (iv) the Company's business strategy for
expanding its services; and (v) the Company's ability to distinguish itself
from its current and future competitors. These forward-looking statements are
based largely on the Company's current expectations and are subject to a
number of risks and uncertainties. Actual results could differ materially from
these forward-looking statements. In addition to the other risks described
elsewhere in this "Risk Factors" discussion, important factors to consider in
evaluating such forward-looking statements include: (i) the shortage of
reliable market data regarding the Year 2000 conversion services market; (ii)
changes in external competitive market factors or in the Company's internal
budgeting process which might impact trends in the Company's results of
operations; (iii) unanticipated working capital or other cash requirements;
(iv) changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the Year 2000 conversion services
market; (v) the Company's failure to perform Year 2000 conversion projects to
a client's satisfaction; and (vi) various competitive factors that may prevent
the Company from competing successfully in the marketplace. In light of these
risks and uncertainties, many of which are described in greater detail
elsewhere in this "Risk Factors" discussion, there can be no assurance that
the forward-looking statements contained in this Prospectus will in fact
transpire.
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<PAGE>
PRIOR S CORPORATION STATUS AND DISTRIBUTIONS
Since its inception, the Company has elected to operate under Subchapter S
of the Internal Revenue Code of 1986, as amended (the "Code"), and comparable
provisions of certain state income tax laws. An S corporation generally is not
subject to income tax at the corporate level (with certain exceptions under
state income tax laws). Instead, the S corporation's income generally passes
through to the shareholders and is taxed on their personal income tax returns.
Upon completion of the Offering, the Company will elect to terminate its S
corporation status. As a result, the Company's earnings through the date of
termination of the Company's S corporation status will be taxed for federal
and state income tax purposes, with certain exceptions, directly to
shareholders of the Company prior to the closing of this Offering (the "Pre-
Offering Shareholders"). Subsequent to the termination of its S corporation
status the Company will be subject to federal and state income taxes on its
earnings.
Prior to the Offering, the Company declared a distribution to the Pre-
Offering Shareholders in an amount equal to the Company's undistributed S
corporation earnings from October 27, 1988 through the date immediately
preceding the date of termination of the Company's S corporation status which
will occur one day prior to the consummation of the Offering. If the Company's
S corporation status had terminated as of June 30, 1996, the amount of the
additional distribution would have been approximately $220,000. The actual
amount of this distribution is estimated to be approximately $1.4 million,
reflecting undistributed earnings through the anticipated closing of the
Offering. This distribution will be made from the proceeds of this Offering.
See "Risk Factors--Offering to Benefit Principal Selling Shareholder," "Use of
Proceeds" and "Certain Transactions--Other Transactions."
Prior to the consummation of this Offering, it is currently anticipated that
the Company will enter into an S corporation termination, tax allocation and
indemnification agreement with the Pre-Offering Shareholders relating to the
distribution of undistributed S corporation earnings to such shareholders and
to the indemnification arrangements among such shareholders and the Company
for certain tax liabilities.
In connection with the termination of its S corporation status, the Company
is required by the Code to change its method of accounting for tax reporting
purposes from the cash method to the accrual method, resulting in a
significant net charge to earnings which will be recognized in the quarter
ending December 31, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Net Charge Resulting from S
Corporation Termination."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,950,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$31.9 million ($34.9 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $12.00 per
share and after deducting estimated underwriting discounts and estimated
expenses payable by the Company in connection with the Offering. The Company
will not receive any of the net proceeds from the sale of shares of Common
Stock by the Selling Shareholders in the Offering. See "Principal and Selling
Shareholders."
From the net proceeds of the Offering, the Company intends to: (i) pay
approximately $3.1 million to Satish K. Sanan, the Company's President, Chief
Executive Officer and majority shareholder and approximately $5.1 million to
India Magnum for the Company's acquisition of the outstanding equity interests
in IMR-India presently owned by each of them; (ii) repay outstanding
borrowings under the Company's revolving line of credit with Barnett Bank of
Pinellas County ("Barnett Bank"), which at September 1, 1996, were
approximately $1.1 million; (iii) distribute to the Pre-Offering Shareholders
an amount equal to the Company's undistributed S corporation earnings from
October 27, 1988 through the date of termination of the Company's S
corporation status which the Company estimates will be approximately $1.4
million; and (iv) repay outstanding borrowings under the Company's term loan
with Barnett Bank, which at September 1, 1996, were approximately $870,000.
See "Prior S Corporation Status and Distributions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Net
Charge Resulting from S Corporation Termination."
The borrowings under the Company's revolving line of credit to be repaid
with a portion of the proceeds of this Offering bear interest at 30-day LIBOR
plus 1.8% (7.2% as of June 30, 1996), are due on demand and are secured by the
personal guarantee of Mr. Sanan. A portion of the outstanding balance of this
debt was incurred to finance the Company's acquisition of Second India's 10.5%
equity interest in IMR-India. The borrowings under the Company's term loan to
be repaid with a portion of the proceeds of this Offering bear interest at 30-
day LIBOR plus 2.0% (7.4% as of June 30, 1996), are repayable monthly and are
secured by the personal guarantee of Mr. Sanan.
The remaining net proceeds of approximately $19.7 million (approximately
$22.7 million if the Underwriters' over-allotment option is exercised in full)
will be used for working capital and other general corporate purposes which
may include future acquisitions.
The Company may also use a portion of the net proceeds to fund possible
acquisitions of, or investments in, businesses and technologies that are
complementary to those of the Company. The Company has no specific agreements,
commitments or understandings with respect to any such acquisitions or
investments. The amounts actually expended for each purpose may vary
significantly and are subject to change at the Company's discretion depending
upon certain factors, including economic or industry conditions, changes in
the competitive environment and strategic opportunities that may arise. See
"Risk Factors--Broad Management Discretion as to Use of Proceeds" and
"Business--Strategies--Growth Strategies." Pending application of the net
proceeds as described above, the Company intends to invest the net proceeds of
the Offering in interest-bearing securities.
DIVIDEND POLICY
Other than the distribution to be made to the Company's Pre-Offering
Shareholders described under "Prior S Corporation Status and Distributions,"
the Company does not intend to declare or pay cash dividends in the
foreseeable future. Management anticipates that all earnings and other cash
resources of the Company, if any, will be retained by the Company for
investment in its business. The payment of dividends is subject to the
discretion of the Board of Directors of the Company and will depend on the
Company's results of operations, financial position and capital requirements,
general business conditions, restrictions imposed by financing arrangements,
if any, legal and regulatory restrictions on the payment of dividends, and
other factors the Company's Board of Directors deems relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1996: (i) the actual short-term
obligations and capitalization of the Company; (ii) the actual short-term
obligations and pro forma capitalization of the Company after giving effect to
the termination of the S corporation election and distribution to the
Company's shareholders in the amount of previously taxable income; and (iii)
the actual short-term obligations and pro forma capitalization of the Company
as adjusted to reflect the issuance and sale by the Company of 2,950,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share after deducting the estimated underwriting discounts
and commissions and offering expenses, and the application of the estimated
net proceeds of the Offering. See "Use of Proceeds." This table should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
PRO AS
ACTUAL FORMA (5) ADJUSTED (6)
------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt and note pay-
able--shareholder............................. $ 1,512 $1,512 $ 0
======= ====== =======
Long-term debt, net of current portion......... $ 969 $ 969 $ 0
Minority interest (1).......................... 1,607 1,607 45
Shareholders' equity:
Preferred stock, $.10 par value; no shares
authorized or outstanding (actual);
10,000,000 shares authorized, no shares
issued (as adjusted) (3).................... -- -- --
Common stock, $.10 par value; 10,000,000
shares authorized, 9,085,960 shares issued
(actual); 40,000,000 shares authorized,
9,386,590 shares issued
(as adjusted) (2)(3)(4)..................... 909 909 939
Additional paid-in capital................... 1,167 1,943 29,517
Retained earnings............................ 2,193 167 0
Cumulative foreign currency translation
adjustments................................. (46) (46) (46)
Treasury stock at cost; 2,681,940 shares
(actual) (2)................................ (1,359) (1,359) 0
------- ------ -------
Total shareholders' equity................. 2,864 1,614 30,410
------- ------ -------
Total capitalization..................... $ 5,440 $4,190 $30,455
======= ====== =======
</TABLE>
- --------
(1) Reflects the IMR-India Acquisitions. See "Use of Proceeds" and "Certain
Transactions."
(2) Includes 2,681,940 shares held in treasury which will be retired upon the
consummation of the Offering.
(3) In September 1996, the Company adopted its Amended and Restated Articles
of Incorporation which, among other things: (i) increased the number of
authorized shares of Common Stock to 40,000,000; (ii) reclassified each
existing share of voting common stock and non-voting common stock into ten
shares of Common Stock; and (iii) created a class of preferred stock and
authorized 10,000,000 shares of such class. See "Description of Capital
Stock" and Note 20 to Notes to Consolidated Financial Statements.
(4) Excludes: (i) 5,445,980 shares of Common Stock presently reserved for
issuance upon exercise of options granted under the Stock Option Plan, of
which options to purchase 5,159,120 will be outstanding upon consummation
of the Offering at a weighted average exercise price of $0.82 per share
(32,570 shares of which will be acquired by certain of the Selling
Shareholders, at a weighted average exercise price of $0.10 per share, and
will be sold in this Offering); (ii) 150,000 shares reserved for issuance
upon exercise of options granted under the Directors Stock Option Plan, of
which options to purchase 30,000 shares will be granted upon consummation
of this Offering; and (iii) 200,000 shares reserved for issuance under the
Stock Purchase Plan which shares will be issued from time to time after
consummation of this Offering. See "Management--Employee Benefit Plans"
and "--Director Compensation."
(5) Pro forma data give effect to: (i) deferred income taxes of $1.0 million
recorded as a result of the termination of the S corporation election; and
(ii) a distribution to the Company's shareholders in the amount of
previously taxable income, which was $220,000 as of June 30, 1996 (the
Company estimates that this distribution will actually be approximately
$1.4 million at the time of the Offering).
(6) As adjusted data give effect to: (i) the issuance and sale by the Company
of the 2,950,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share, after deducting
estimated underwriting discounts and commissions and offering expenses;
(ii) payment of approximately $3.1 million to Satish K. Sanan in
connection with the IMR-India Acquisitions resulting in a corresponding
reduction in equity; and (iii) reclassification of accumulated earnings
and profits of $776,000 to additional paid-in capital. See "Use of
Proceeds" and "Certain Transactions."
15
<PAGE>
DILUTION
As of June 30, 1996, the pro forma net tangible book value of the Company
would have been approximately $561,000 or $0.09 per share of Common Stock. Pro
forma net tangible book value per share represents the amount of the Company's
total tangible assets less total liabilities on a pro forma basis to give
effect to the termination of the S corporation election and distribution to
the Company's shareholders in the amount of previously taxable income, divided
by the number of shares of Common Stock outstanding. After giving effect to
the sale by the Company of the 2,950,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $12.00 per share, the
application of the estimated net proceeds therefrom after deducting the
underwriting discount and estimated offering expenses and the exercise by
certain Selling Shareholders of stock options covering an aggregate of 32,570
shares which were sold in the Offering, the adjusted pro forma net tangible
book value of the Company at June 30, 1996 would have been approximately $24.1
million, or $2.56 per share of Common Stock. This represents an immediate
increase in such pro forma net tangible book value of $2.47 per share to
existing shareholders and an immediate decrease in pro forma net tangible book
value of $9.44 per share to new investors. The following table illustrates
this unaudited per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of June 30,
1996....................................................... $0.09
Increase in pro forma net tangible book value per share
attributable to new investors.............................. 2.47
-----
Adjusted pro forma net tangible book value per share after the
Offering..................................................... 2.56
------
Dilution per share to new investors........................... $ 9.44
======
</TABLE>
The following table sets forth, on an unaudited basis as of June 30, 1996,
the number of shares of Common Stock previously issued by the Company, the
total consideration reflected in the accounts of the Company and the average
price per share to the existing shareholders and new investors, assuming the
sale by the Company of 2,950,000 shares of Common Stock at an assumed initial
public offering price of $12.00 per share, and before deducting the estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders
(1)(2)................... 6,404,020 68.5% $ 1,062,000 2.9% $ 0.17
New investors............. 2,950,000 31.5 35,400,000 97.1 $12.00
--------- ----- ----------- -----
Total (1)(2)............ 9,354,020 100.0% $36,462,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes 32,570 shares to be issued upon the exercise of options by
certain of the Selling Shareholders in this Offering, at a weighted
average exercise price of $0.10 per share.
(2) The foregoing computation excludes: (i) shares of Common Stock issuable
upon exercise of outstanding stock options, 4,500,500 of which are
exercisable as of, or within 60 days of, November 1, 1996 at a weighted
average exercise price of $0.34 per share; (ii) 150,000 shares reserved
for issuance under the Directors Stock Option Plan; and (iii) 200,000
shares reserved for issuance under the Stock Purchase Plan. Upon the
exercise of such options, there will be further dilution to new investors.
See "Certain Transactions," "Management--Employee Benefit Plans," "--
Director Compensation" and Note 15 to Notes to Consolidated Financial
Statements.
Sales by the Selling Shareholders in the Offering will cause the percentage
of shares held by the existing shareholders to be approximately 62.6% of the
shares of Common Stock to be outstanding after this Offering, and will
increase the number of shares to be purchased by new shareholders to 37.3% of
the total number of shares of Common Stock to be outstanding after the
Offering. Assuming full exercise of the Underwriters' over-allotment option,
the percentage of shares held by existing shareholders would be 58.3% of the
total number of shares of Common Stock to be outstanding after the Offering,
and the number of shares held by new shareholders would be increased to
4,025,000 shares, or 40.7% of the total number of shares of Common Stock to be
outstanding after the Offering. See "Risk Factors--Dilution," "Management" and
"Principal and Selling Shareholders."
The exercise of a material number of these options will have the effect of
increasing the net tangible book value dilution of new investors in this
Offering.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data of the Company set forth
below should be read in conjunction with the Consolidated Financial Statements
of the Company, including the Notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere
herein. The consolidated statements of operations data for the years ended
December 31, 1993, 1994 and 1995, and the consolidated balance sheet data as
of December 31, 1994 and 1995 are derived from, and are qualified by reference
to, the audited consolidated financial statements included elsewhere in this
Prospectus. The statements of operations data for the years ended December 31,
1991 and 1992 and the balance sheet data as of December 31, 1991, 1992 and
1993 are derived from audited financial statements not included herein. The
consolidated statements of operations data for the six months ended June 30,
1995 and 1996 and the consolidated balance sheet data at June 30, 1996 are
derived from unaudited consolidated financial statements included elsewhere in
this Prospectus. The unaudited consolidated financial statements have been
prepared by the Company on a basis consistent with the Company's audited
consolidated financial statements and, in the opinion of Management, include
all adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of the information. Historical results are not necessarily
indicative of results to be expected in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $5,630 $10,132 $12,429 $14,101 $22,700 $ 10,575 $ 12,397
Cost of revenues........ 3,662 6,408 10,131 8,662 13,709 6,754 7,222
------ ------- ------- ------- ------- -------- --------
Gross profit............ 1,968 3,724 2,298 5,439 8,991 3,821 5,175
Selling, general and
administrative
expenses............... 1,499 3,023 5,544 4,610 5,483 2,468 3,093
------ ------- ------- ------- ------- -------- --------
Income (loss) from
operations............ 469 701 (3,246) 829 3,508 1,353 2,082
------ ------- ------- ------- ------- -------- --------
Other (expense) income:
Loss in equity
investment............ 0 0 (159) (126) (110) (58) (1)
Interest expense....... (17) (61) (275) (473) (349) (197) (160)
Other income........... 11 16 0 1,097 473 436 32
------ ------- ------- ------- ------- -------- --------
Total other (expense)
income................ (6) (45) (434) 498 14 181 (129)
------ ------- ------- ------- ------- -------- --------
Income (loss) before
provision (benefit) for
income taxes and
minority interest...... 463 656 (3,680) 1,327 3,522 1,534 1,953
Provision (benefit) for
income taxes........... 0 0 (2) 450 293 198 114
------ ------- ------- ------- ------- -------- --------
Income (loss) before
minority interest...... 463 656 (3,678) 877 3,229 1,336 1,839
Minority interest in net
(income) loss.......... -- -- 5 (63) (712) (355) (330)
------ ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 463 $ 656 $(3,673) $ 814 $ 2,517 $ 981 $ 1,509
====== ======= ======= ======= ======= ======== ========
Pro forma net
income (1)(2).......... $1,612 $944
======= ========
Pro forma net income per
share (1)(2)(3)........ $0.12 $0.08
======= ========
Pro forma weighted
average number of
common and common
stock equivalent shares
outstanding (3)(4)..... 13,669 11,274
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------
DECEMBER 31,
------------------------------------- AS
1991 1992 1993 1994 1995 ACTUAL ADJUSTED(5)
------ ------ ------- ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 565 $1,065 $(2,504) $ (340) $2,346 $1,685 $22,170
Total assets............ 1,323 2,927 6,453 7,099 8,658 9,840 34,373
Long-term debt, net of
current portion........ 0 0 1,141 2,153 1,184 969 0
Total shareholders'
equity................. 816 1,321 (559) 264 2,708 2,864 30,410
</TABLE>
Footnotes to table appear on following page.
17
<PAGE>
Footnotes to table from previous page.
- --------
(1) Pro forma net income and net income per share give effect to the Company's
conversion from an S corporation to a C corporation for U.S. federal and
state income tax purposes. As an S corporation, the Company was not
subject to income taxes but instead passed its tax attributes through to
its shareholders. As a C corporation, the Company will be subject to
income taxes at corporate income tax rates. The pro forma statements of
operations data above present net income and net income per share as if
the Company had been subject to corporate income taxes for the year ended
December 31, 1995 and the six months ended June 30, 1996. See "Prior S
Corporation Status and Distributions," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Net Charge
Resulting from S Corporation Termination" and Notes 13 and 20 to Notes to
Consolidated Financial Statements.
(2) Pro forma net income and net income per share do not give effect to the
IMR-India Acquisitions. Pro forma net income for the year ended December
31, 1995 and the six months ended June 30, 1996 would have been $2.0
million and $1.0 million, respectively, if the IMR-India Acquisitions had
occurred as of the beginning of each period presented. Acquisitions from
Second India and India Magnum will be accounted for as purchase
transactions, and resulting goodwill will be amortized using the straight-
line method over ten years. The acquisition from Satish K. Sanan will be
accounted for as a reduction of equity.
(3) Supplemental pro forma net income per share would have been $0.09 and
$0.13 for the six months ended June 30, 1996 and the year ended December
31, 1995, respectively, giving effect to the use of a portion of the net
proceeds of this Offering to repay the Company's bank borrowings
outstanding at the beginning of periods presented and a corresponding
increase in the weighted average number of shares outstanding to
11,496,165 and 13,816,782 at June 30, 1996 and December 31, 1995,
respectively.
(4) Weighted average number of shares outstanding for the six months ended
June 30, 1996 reflects the repurchase by the Company of approximately
2,676,940 shares in January 1996 from certain shareholders which were held
in treasury and the subsequent issuance in February 1996 of options to
acquire approximately 2,643,340 shares granted to Mr. Sanan which shares
are retroactively treated as outstanding for such periods. See "Certain
Transactions--Options Issued to Mr. Sanan."
(5) Adjusted to give effect to: (i) the sale by the Company of 2,950,000
shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and the application of the estimated
net proceeds therefrom; (ii) the inclusion of a current deferred income
tax liability of $258,000 and noncurrent deferred income tax liabilities
of $772,000 to reflect temporary differences between the bases of assets
and liabilities for financial statement purposes and income tax purposes
upon the conversion from S corporation to C corporation income tax status;
and (iii) a distribution to the Company's shareholders of $220,000 which
represents undistributed taxable income through June 30, 1996 (the amount
of such distribution is estimated to be approximately $1.4 million at the
time of consummation of this Offering). See "Prior S Corporation Status
and Distributions," "Use of Proceeds," "Capitalization" and Notes 13 and
20 to Notes to Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
IMR provides application software outsourcing solutions for the IT
departments of large businesses with intensive information processing needs.
The Company's services, which generally are offered on a fixed-price, fixed-
time frame basis, include software development, application maintenance, Year
2000 conversion and migration and re-engineering services. In addition, the
Company offers programming and consulting services on a time-and-materials
basis. The Company has derived the majority of its revenues to date from the
Company's software development, application maintenance and programming and
consulting services. Recently, a substantial majority of the Company's new
business contracts have been for Year 2000 conversion services.
Revenues from services provided on a fixed-price basis are recognized using
the percentage of completion method. Revenues from services provided on a
time-and-materials basis are recognized in the period that services are
provided. The Company bears the risk of cost over-runs and inflation with
respect to its fixed-price projects. In order to mitigate these risks, the
Company subdivides its projects into smaller phases, and the Company and its
clients agree on a fixed-price and fixed-time frame prior to commencement of
each phase. These agreements may be revised, pending approval by the Company
and its clients, when a significant change in the scope or cost of a phase
arises that neither the Company nor the client had anticipated. Under the
percentage of completion method, the Company must estimate the percentage of
completion of each project at the end of each financial reporting period.
Estimates are subject to adjustment as a project progresses to reflect changes
in projected completion costs or dates. The cumulative impact of any revision
in estimates of the percentage of work completed is reflected in the financial
reporting period in which the change in the estimate becomes known. Since the
Company bears the risk of cost over-runs and inflation associated with fixed-
price, fixed-time frame projects, the Company's operating results may be
adversely affected by inaccurate estimates of contract completion costs and
dates. Although from time to time the Company has been required to make
revisions to its work completion estimate, to date none of such revisions has
had a material adverse effect on the Company's operating results or financial
condition. See "Risk Factors--Variability of Quarterly Operations and
Financial Results."
In early 1996, several conferences and market pronouncements increased
worldwide awareness of the impending problems associated with the inability of
software applications to effectively process programs that use the two-digit
data field format to represent a year. The Company has generated new contracts
for a significant number of Year 2000 conversion projects as a result of the
Company's Transform2000 toolset, TSQM methodology and successful completion of
Year 2000 projects. Accordingly, the Company anticipates that revenues from
Year 2000 services will continue to increase significantly as a percentage of
the Company's total revenues over the next three years. The Company recently
increased its staff of software development professionals from approximately
375 as of January 1, 1996 to approximately 500 as of September 1, 1996
principally to perform the significant additional services required by its new
Year 2000 contracts. The Company believes that demand for Year 2000 conversion
services will continue after the turn of the century, although this demand is
expected to diminish after the year 2000 as many Year 2000 compliance
solutions are implemented and tested. See "Risk Factors--Potential Decrease in
Services after Addressing the Year 2000 Problem" and "--Fixed-Price, Fixed-
Time Frame Contracts."
AFFILIATE RELATIONSHIPS
At June 30, 1996, the Company owned approximately 34.2% of the outstanding
equity of IMR-India. In August 1996, the Company completed the acquisition of
Second India's entire 10.5% equity interest in IMR-India in exchange for
approximately $1.8 million in cash and in connection therewith, approximately
$527,000 of indebtedness owed by IMR-India to Second India was cancelled. In
July and September 1996, the Company entered into agreements pursuant to which
the Company will acquire: (i) Mr. Sanan's entire 18.4% interest in IMR-India
for approximately $3.1 million in cash; and (ii) India Magnum's entire 35.1%
interest in IMR-India for approximately $5.1 million in cash.The acquisition
from Mr. Sanan will be closed upon consummation of this Offering and the
acquisition from India Magnum will be closed as soon thereafter as is
possible. Upon
19
<PAGE>
closing of these transactions, the Company will own approximately 98.2% of
IMR-India's outstanding equity capital and the balance will be held by
individual shareholders. Additionally, IMR-India has granted to certain of its
employees options to acquire additional shares which, if fully vested, would
upon exercise represent 3.5% of IMR-India's equity, and would cause the
Company's equity interest to decrease accordingly. The Company's financial
statements have been consolidated with the financial statements of IMR-India
for all periods since September 1993, the date the Company first acquired an
equity interest in IMR-India. As of the date of this Prospectus, the Company
owns a 39.5% equity interest in IMR-U.K. See "Certain Transactions--IMR India
Transactions" and "--IMR U.K. Transactions."
INCOME TAX MATTERS
Since its inception, the Company has elected to operate as an S corporation
under the Code. An S corporation generally is not subject to income tax at the
corporate level (with certain exceptions under state income tax laws). Upon
completion of this Offering, the Company will elect to terminate its S
corporation status and, thereafter, will be subject to federal and state
income taxes on its earnings. See "Prior S Corporation Status and
Distributions."
IMR-India is eligible for certain favorable tax provisions provided under
India law including: (i) an exemption from payment of corporate income taxes
for a period of five consecutive years in the first eight years of operation
(the "Tax Holiday"); or (ii) an exemption from income taxes on the profits
derived from exporting computer software or transmitting software from India
(the "Export Exemption"). The Export Exemption remains available after
expiration of the Tax Holiday. As a result of the availability of these
exemptions, the Company has not recorded deferred income taxes applicable to
the undistributed earnings of IMR-India, which aggregated approximately
$525,000 at June 30, 1996. The Company considers these earnings to be
permanently invested in India and does not anticipate repatriating any of
these earnings to the U.S. If the Company determines to repatriate any
earnings of IMR-India, it will be required to record a provision for income
taxes on such amounts and, upon repartriation of the funds, pay U.S. taxes
thereon. See Note 13 to Notes to Consolidated Financial Statements.
NET CHARGE RESULTING FROM S CORPORATION TERMINATION
In connection with the termination of its S corporation status, the Company
is required by the Code to change its method of accounting for tax reporting
purposes from the cash method to the accrual method. This change will result
in a net charge to earnings in the quarter in which this Offering closes
resulting from differences in the tax treatment of certain of the Company's
assets and liabilities under the cash and accrual methods of accounting and
will be reflected through an increase in current and deferred income tax
liabilities. The actual current and deferred income tax liabilities and the
offsetting related income tax provision will be recorded in the Company's
Consolidated Financial Statements as of the date of termination of the
Company's S corporation status. Based upon the Company's unaudited results of
operations and financial information as of and for the six months ended June
30, 1996 and assuming the Company ceased to operate as an S corporation as of
such date, the net charge to earnings as a provision for current and deferred
income taxes would have been approximately $1.0 million. This net charge is
based upon adjusting a taxable temporary difference of approximately $2.7
million (the tax effect of which is approximately $1.0 million), which would
be included in taxable income in four equal amounts for tax years beginning
with 1996. The actual net charge to earnings could be greater, depending upon
the Company's results of operations and financial condition as of the date of
termination of the Company's S corporation status. See "Prior S Corporation
Status and Distributions," "Use of Proceeds" and Notes to Consolidated
Financial Statements.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
gross revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............. 81.5 61.4 60.4 63.9 58.3
------- ------- ------- ------ ------
Gross profit................. 18.5 38.6 39.6 36.1 41.7
Selling, general and adminis-
trative expenses............ 44.6 32.7 24.2 23.3 24.9
------- ------- ------- ------ ------
Income (loss) from opera-
tions..................... (26.1) 5.9 15.4 12.8 16.8
Other (expense) income:
Loss in equity investment.. (1.3) (0.9) (0.5) (0.6) (0.0)
Interest expense........... (2.2) (3.4) (1.5) (2.0) (1.3)
Other income............... 0.0 7.8 2.1 4.1 0.3
------- ------- ------- ------ ------
Total other (expense) in-
come.................... (3.5) 3.5 0.1 1.7 (1.0)
------- ------- ------- ------ ------
Income (loss) before
provision (benefit) for
income taxes and minority
interest.................... (29.6) 9.4 15.5 14.5 15.8
Provision (benefit) for in-
come taxes.................. 0.0 3.2 1.3 1.9 0.9
------- ------- ------- ------ ------
Income (loss) before minor-
ity interest.............. (29.6) 6.2 14.2 12.6 14.9
Minority interest in net (in-
come) loss.................. 0.0 (0.4) (3.1) (3.3) (2.7)
------- ------- ------- ------ ------
Net income (loss).......... (29.6)% 5.8% 11.1% 9.3% 12.2%
======= ======= ======= ====== ======
Pro forma net income......... 7.1% 7.6%
======= ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenues. Revenues were $12.4 million during the first six months of 1996,
representing a 17.2% increase over revenues of $10.6 million in the first six
months of 1995. This increase principally reflected generally more favorable
project pricing in 1996 and significant increases in revenues from Year 2000,
application maintenance and software development projects, partially offset by
a reduction in revenues from programming and consulting projects. During the
first six months of 1996, the Company realized a 440.1%, 115.0% and 29.2%
increase in revenues from Year 2000, application maintenance and software
development projects, respectively. Revenues from Year 2000 conversion
projects represented 12.1% and 2.6% of total revenues during the first six
months of 1996 and 1995, respectively. Revenues from the Company's five
largest clients represented 65.3% of revenues in the first six months of 1996,
while revenues from the Company's five largest clients represented 64.8% of
revenues in the first six months in 1995.
Cost of Revenues. Cost of revenues were $7.2 million in the first six months
of 1996, representing an 6.9% increase over cost of revenues of $6.8 million
for the first six months of 1995. Cost of revenues consist primarily of
salaries and employee benefits for personnel dedicated to client projects as
well as amortization of capitalized software cost. Cost of revenues
represented 58.3% and 63.9% of revenues in the first six months of 1996 and
1995, respectively. This decrease in the percentage of revenues reflects: (i)
the Company's implementation of better controls over project pricing and
margins; (ii) generally more favorable pricing beginning in the second half of
1995; and (iii) improved utilization of software development personnel in
India in the first six months of 1996. This improved utilization reflected the
benefits associated with the completion of the Company's consolidation of its
India offshore development center from locations in Bombay and Trivandrum to a
single location in Bangalore. The decrease was partially offset by a high
margin software development contract that commenced in the second quarter of
1995 as well as an increase in higher margin fixed-price Year 2000 and
software development projects.
21
<PAGE>
Gross Profit. Gross profit was $5.2 million during the first six months of
1996, representing a 35.4% increase over gross profit of $3.8 million during
the first six months of 1995. As a percentage of revenues, gross profit
increased from 36.1% in the first six months of 1995 to 41.7% in the same
period for 1996 for the reasons stated above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the first six months of 1996 were $3.1 million
representing a 25.3% increase over selling, general and administrative
expenses of $2.5 million in the first six months of 1995. Selling, general and
administrative expenses consist primarily of salaries, employee benefits,
travel, promotion, telecommunications, management, finance, administrative and
occupancy costs. Selling, general and administrative costs were 24.9% of
revenues in the first six months of 1996 as compared to 23.3% of revenues in
the first six months of 1995. This increase reflected the establishment of a
new incentive program for project personnel which commenced in the second half
of 1995 and an increase in the bonus payable to Mr. Sanan (equal to 10% of the
Company's net pre-tax profits from U.S. operations) to $161,135 in the first
six months of 1996 from $97,388 in the first six months of 1995. In addition,
in the quarter ended June 1995, the Company experienced lower selling, general
and administrative expenses due to the temporary reduction in administrative
personnel costs and other expenses during the consolidation of the Company's
India offshore software development center from locations in Bombay and
Trivandrum to the present location in Bangalore.
Income (Loss) from Operations. Income from operations was $2.1 million
during the first six months of 1996, representing a 53.8% increase over income
from operations of $1.4 million during the first six months of 1995. As a
percentage of revenues, operating income increased from 12.8% in the first six
months of 1995 to 16.8% in the same period for 1996 for the reasons stated
above.
Other (Expense) Income. The Company incurred other expense of $129,000 in
the first six months of 1996 as compared to other income of $181,000 in the
first six months of 1995. Other income in 1995 included a non-recurring
$428,000 net gain realized from the sale by IMR-India of certain of its assets
and real property in Bombay and Trivandrum. The loss in equity investment
represents losses associated with the Company's 39.5% interest in IMR-U.K.
Results for IMR-U.K. improved from a loss in the first six months of 1995 to
approximately break-even in the same period in 1996.
Minority Interest in Net (Income) Loss. The minority interest in income
decreased from $355,000 in the first six months of 1995, to $330,000 in the
first six months of 1996. This represents the equity interest in IMR-India's
net income held by those stockholders of IMR-India other than the Company. The
reduction in the minority interest in net income from the first six months of
1995 to the first six months in 1996 reflects a slightly higher profit
realized by IMR-India in 1995 resulting from the $428,000 net gain referenced
above.
Provision for Income Taxes. The provision for income taxes reflects taxable
income derived by IMR-India related to sales of software products in India and
the gain realized from its asset sale. The favorable tax rates in India
reflect benefits in the Indian income and export taxation laws for companies
primarily engaged in exporting computer software and software-related
services. The tax provision for IMR-India's domestic operations was $114,000
in the first six months of 1996 as compared to $198,000 in the first six
months in 1995, which principally reflects the additional tax expense incurred
on the sale of certain assets and real property.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues were $22.7 million in 1995, representing a 61.0% increase
from revenues of $14.1 million in 1994. This increase reflected increases in
both the size and the number of client projects. In 1995, the Company realized
a significant increase in revenues from software development, application
maintenance and migration and re-engineering projects. Revenues from the
Company's five largest clients in 1995 represented 65.6% of 1995 revenues,
while revenues from the Company's five largest clients in 1994 represented
49.0% of 1994 revenues. In particular, the Company benefited from a large
migration contract that commenced in late 1994 and continued throughout 1995
as well as a large software development project that started in mid-1995.
22
<PAGE>
Cost of Revenues. Cost of revenues were $13.7 million in 1995, representing
a 58.3% increase over cost of revenues of $8.7 million in 1994. Cost of
revenues represented 60.4% and 61.4% of revenues in 1995 and 1994,
respectively. This decrease as a percentage of revenues reflects the Company's
implementation of tighter controls over project pricing and margins as well as
an increase in higher margin Year 2000 projects. This decrease would have been
larger except for the benefits of a number of higher margin contracts
completed in the first quarter of 1994. In addition, in 1995 the Company
incurred lower expenses due to the temporary reduction in personnel costs and
other expenses during the consolidation of the Company's India offshore
software development center from locations in Bombay and Trivandrum to the
present location in Bangalore.
Gross Profit. Gross profit was $9.0 million in 1995, representing a 65.3%
increase over gross profit of $5.4 million in 1994. As a percentage of
revenues, gross profit increased from 38.6% in 1994 to 39.6% in the same
period for 1995 for the reasons stated above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $5.4 million in 1995 representing an 18.9%
increase over selling, general and administrative expenses of $4.6 million in
1994. Selling, general and administrative expenses were 24.2% and 32.7% of
revenues in 1995 and 1994, respectively. The decrease as a percentage of
revenues was a result of the Company's ability to achieve significantly higher
revenues in 1995 without a corresponding increase in management, finance,
administrative and occupancy costs, a large portion of which are fixed in
nature. The annual bonus payable to Mr. Sanan (equal to 10% of the Company's
net pre-tax profits from U.S. operations) increased to $255,144 in 1995 from
$33,891 in 1994.
Income (Loss) from Operations. Income from operations was $3.5 million in
1995, representing a 323.2% increase over income from operations of $829,000
in 1994. As a percentage of revenues, income from operations increased from
5.9% in 1994 to 15.4% in the same period for 1995 for the reasons stated
above.
Other (Expense) Income. The Company realized other income of $14,000 in 1995
as compared to $498,000 in 1994. Other income in 1995 included a non-recurring
$428,000 net gain realized upon the sale of real estate and assets by IMR-
India, offset by interest expense of $349,000 and the Company's share of
losses in IMR-U.K. of $110,000. Other income in 1994 reflected non-recurring
income of $1.0 million derived from the Company's sale of a portion of its
equity interest in IMR-India to India Magnum plus $71,000 realized upon the
sale by IMR-India of certain assets and real property, partially offset by
interest expense of $473,000 and the Company's share of a loss in IMR-U.K. of
$126,000. At the beginning of 1994, the Company's interest in IMR-U.K. was
50.0%. The Company phased down the operations in IMR-U.K. in early 1994 and
recommenced operations after receiving a 50.0% investment by The Link Group of
Companies Limited in late 1994. The Company's interest in IMR-U.K.'s loss
decreased from $126,000 in 1994 to $110,000 in 1995, reflecting the decrease
in the Company's interest from 50.0% in 1994 to 39.5% in 1995.
Minority Interest in Net (Income) Loss. In 1995, the minority interest in
net income was $712,000 as compared to $63,000 in 1994. This substantial
increase reflects significantly increased profits realized by IMR-India in
1995, as well as the decrease in the Company's equity interest. In 1995, the
Company held a 34.2% equity interest in IMR-India, while the Company held a
69.3% equity interest in 1994.
Provision (Benefit) for Income Taxes. The tax provision was $293,000 in 1995
as compared to $451,000 in 1994. During 1994, the Company paid $365,000 of
India withholding taxes incurred in connection with the Company's sale of a
portion of its equity interest in IMR-India to India Magnum. The 1995 tax
provision includes taxes payable on the gain realized from the 1995 sale by
IMR-India of certain assets and real property as well as an increase in
taxable income for domestic operations of IMR-India in 1995.
23
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Revenues were $14.1 million in 1994, representing a 13.5% increase
from revenues of $12.4 million in 1993. This increase primarily reflected an
increase in the average size of projects provided for the Company's principal
clients. Revenues from the Company's five largest clients in 1994 represented
49.0% of 1994 revenues, while revenues from the Company's five largest clients
in 1993 represented 42.0% of 1993 revenues.
Cost of Revenues. Cost of revenues were $8.7 million in 1995, representing a
14.5% decrease from cost of revenues of $10.1 million in 1993. Cost of
revenues represented 61.4% and 81.5% of revenues in 1994 and 1993,
respectively. This decrease as a percentage of revenues reflects the
acquisition in September 1993 of the Company's 69.3% interest in IMR-India
(resulting in lower development costs to the Company), as well as the effect
in 1993 of lower margin projects taken on to validate the Company's software
development concept and to secure client relationships. In addition, the
Company incurred a significant non-reimbursed expense of approximately
$900,000 in 1993 to develop the software toolsets for client/server migration
and Year 2000 conversion services.
Gross Profit. Gross profit was $5.4 million in 1994, representing a 136.7%
increase over gross profit of $2.3 million in 1993. As a percentage of
revenues, gross profit increased from 18.5% in 1993 to 38.6% in the same
period for 1994 for the reasons stated above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $4.6 million in 1994, representing a 16.8%
decrease from selling, general and administrative expenses of $5.5 million in
1993. Selling, general and administrative expenses represented 32.7% and 44.6%
of revenues in 1994 and 1993, respectively. During 1993, the Company increased
its selling, general and administrative expenses significantly in anticipation
of increased revenues. In 1994, the Company acted to significantly reduce
selling, general and administrative expenses principally through significant
decreases in the costs for personnel and overhead. Selling, general and
administrative expenses as a percentage of revenues were also positively
affected by the September 1993 acquisition of the Company's 69.3% interest in
IMR-India. See "Risk Factors-- Management of Growth."
Income (Loss) from Operations. Income from operations was $829,000 in 1994,
as compared to a loss from operations of $3.2 million in 1993.
Other (Expense) Income. The Company realized other income of $498,000 in
1994 as compared to other expenses of $434,000 in 1993. This difference
principally reflected income of $1.0 million derived from the Company's 1994
sale to India Magnum of a portion of the Company's equity in IMR-India, plus
$71,000 realized upon the sale by IMR-India of certain assets and real
property. The Company had no corresponding other income for 1993. Interest
expense increased from $275,000 in 1993 to $473,000 in 1994 as a result of
substantially increased borrowings under the Company's lines of credit.
Minority Interest in Net (Income) Loss. In 1994, the minority interest in
net income was $63,000 compared to a $5,000 minority interest in net loss in
1993. This change reflects the profit realized by IMR-India during 1994 and a
slight loss realized by IMR-India during 1993.
Provision (Benefit) for Income Taxes. The Company recorded a provision for
income taxes of $451,000 in 1994, reflecting the Company's net income, as
compared to a benefit of $2,000 in 1993. The 1994 provision principally
reflects the $365,000 withholding taxes to be paid in connection with the
Company's sale of a portion of its equity interest in IMR-India.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
operations data for each of the 10 quarters beginning January 1, 1994 and
ending June 30, 1996. The information relating to the quarters beginning
January 1, 1994 and ending on December 31, 1995 is derived from and is
qualified by reference to the audited Consolidated Financial Statements
appearing elsewhere in this Prospectus and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of that information. The results of
operations for any quarter are not necessarily indicative of the results to be
expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
1994 1995 1996
---------------------------------- ---------------------------------- ----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $3,602 $3,608 $3,501 $3,390 $5,203 $5,372 $5,853 $6,272 $6,090 $6,307
Gross profit............ 1,795 1,256 1,040 1,349 2,144 1,678 2,247 2,923 2,556 2,619
Income from operations.. 512 29 (75) 364 806 547 790 1,365 1,010 1,073
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
1994 1995 1996
---------------------------------- ---------------------------------- ----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 49.8 34.8 29.7 39.8 41.2 31.2 38.4 46.6 42.0 41.5
Income from operations.. 14.2 0.8 (2.1) 10.7 15.5 10.2 13.5 21.7 16.6 17.0
</TABLE>
The Company's operations and related revenues and operating results
historically have varied substantially from quarter to quarter, and the
Company expects these variations to continue. Among the factors causing these
variations have been the number, timing and scope of IT projects in which the
Company is engaged, the contractual terms of such projects, delays incurred in
the performance of such projects, the accuracy of estimates of resources and
time frames required to complete ongoing projects, and general economic
conditions. A high percentage of the Company's operating expenses,
particularly personnel and rent, are relatively fixed in advance of any
particular quarter. As a result, unanticipated variations in the number and
timing of the Company's projects or in employee utilization rates may cause
significant variations in operating results in any particular quarter. An
unanticipated termination of a major project, a client's decision not to
pursue a new project or proceed to succeeding stages of a current project, or
the completion during a quarter of several major client projects could require
the Company to pay underutilized employees and therefore have a material
adverse effect on the Company's results of operations and financial condition.
See "Risk Factors--Variability of Quarterly Operations and Financial Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $1.6 million in 1993 and
$747,000 in 1994 and generated cash of $1.0 million in 1995 and $908,000 for
the six months ended June 30, 1996. The Company's use of cash in 1993 was due
primarily to the net loss generated in that period. The Company's use of cash
in 1994 was due primarily to an increase in accounts receivable and other
current assets as well as the Company's recognition of a $1.0 million gain on
the sale of a portion of its investment in IMR-India. The Company generated
cash in 1995 and in the first six months of 1996 due to a higher level of net
income in both periods which was partially offset in both periods by increases
in accounts receivable.
The Company's investing activities used cash of $418,000 in 1993, generated
cash of $1.3 million in 1994 and $503,000 in 1995, and used cash of $982,000
for the six months ended June 30, 1996. The Company's use of cash in 1993 was
due in large part to capital expenditures and investments in IMR-U.K. The
Company generated cash in 1994 and 1995 as a result of the sale of a portion
of its investment in IMR-India as well as IMR-India's sale of real property
and other assets in India. The cash generated in both of those period was
offset by capital expenditures. The Company's use of cash in the first six
months of 1996 was due in large part to capital expenditures and an additional
investment in IMR-U.K.
25
<PAGE>
The Company's financing activities provided cash of $2.5 million in 1993,
and used cash of $149,000 in 1994, $804,000 in 1995 and $621,000 for the six
months ended June 30, 1996. The Company generated cash in 1993 as a result of
borrowings under the Company's bank credit facilities as well as increasing
the amount payable to IMR-India prior to its acquisition by IMR-U.S in
September 1993. The Company's use of cash in 1994, 1995 and the six months
ended June 30, 1996 was due primarily to the repayment of bank borrowings and
payments made under capital lease obligations, which were partially offset by
additional borrowings under the Company's bank credit facilities.
As of June 30, 1996, the Company had working capital of $1.7 million. Cash
and cash equivalents were $939,000. Available bank lines of credit totaled
$2.5 million at June 30, 1996 ($3.25 million less $775,000 outstanding). As of
September 9, 1996, the outstanding borrowings under these facilities were $1.9
million. Borrowings in 1996 have been used primarily to finance the Company's
$1.8 million acquisition of Second India's equity interest in IMR-India. See
"Certain Transactions--IMR India Transactions."
The Company maintains a term note payable to Barnett Bank, which is
repayable monthly, together with interest thereon at 30-day LIBOR plus 2.0%
(7.4% as of June 30, 1996) in installments of $15,000 commencing June 1996
through May 2001. This term loan is collateralized by the Company's accounts
receivable and equipment, and is guaranteed by Mr. Sanan. The Company
maintains a line of credit with Barnett Bank which allows the Company to
borrow up to 80% of the book value of the Company's accounts receivable with
interest at 30-day LIBOR plus 1.8% (7.2% as of June 30, 1996). At June 30,
1996, there was no amount outstanding and payable under this line of credit
and $2.4 million was available for borrowing. Subsequent to June 30, 1996, the
Company borrowed $1.2 million from this line of credit in order to fund a
payment to Second India to purchase its equity interest in IMR-India. See
"Certain Transactions--IMR-India Transactions." At September 1, 1996, the
outstanding balance under this line of credit was $1.1 million. The Company
plans to repay the outstanding balance from this line of credit from the
proceeds of the Offering. See "Use of Proceeds." Provisions of this line of
credit and certain notes payable contain financial covenants, including
covenants which require the Company to maintain certain financial ratios. At
June 30, 1996, the Company was in compliance with these covenants.
The Company maintains an export sales accounts receivable discounting
facility with Canara Bank, an Indian government owned bank. Principal payments
on amounts borrowed are due within 90 days of their respective borrowings.
Interest is currently payable at 13.0%. At June 30, 1996, December 31, 1995
and December 31, 1994, approximately $775,000, $655,000 and $425,000,
respectively, were due under this facility. The maximum amount available under
this facility at June 30, 1996 was approximately $585,000; however, the bank
has permitted a temporary increase in the amount available under this
facility. During May 1996, IMR-India applied to the bank to increase the
credit facility to approximately $877,000. Pending action on the application,
the bank has temporarily allowed IMR-India to utilize the additional amount of
the facility. The facility is collateralized by IMR-India's export accounts
receivable, property and equipment, and is guaranteed by Mr. Sanan.
In connection with the Company's purchase in August 1996 of Second India's
entire interest in IMR-India, pursuant to the terms of agreements between the
Company and Second India, IMR-India's obligation to repay a loan from Second
India in the amount of $527,000 was cancelled. See "Certain Transactions--IMR-
India Transactions."
The Company estimates that it will incur capital expenditures in 1996 of
approximately $400,000 to complete improvements for additional space in the
IMR-India's office facilities in Bangalore, India. In August 1996, IMR-India
obtained a letter commitment for a total loan of $1.3 million from the Export-
Import Bank of India to finance the purchase of plant and equipment for
expansion of its facility at Bangalore. The completion of this loan will be
conditioned upon the negotiation and execution of final legal documents. The
loan will be repayable in eight equal bi-annual installments of $162,500
commencing one year from the loan date. Interest on the loan will be payable
at LIBOR plus 3.0% per annum, will be secured by a first lien on all of IMR-
India's property and equipment and will be guaranteed by Mr. Sanan.
26
<PAGE>
The Company believes that the net proceeds of this Offering, together with
its lines of credit and internally generated funds, will permit it to repay
all outstanding short-term debt, meet its working capital obligations and fund
the development of its business for the next 12 months.
EFFECTS OF INFLATION
The Company's most significant costs are the salaries and related benefits
for its consultants and other professionals. Competition in India and the U.S.
for IT professionals with the advanced technological skills necessary to
perform the services offered by the Company have caused wages to increase at a
rate greater than the general rate of inflation. As with other IT service
providers, the Company must adequately anticipate wage increases, particularly
on its fixed-price contracts. Further, India has in the past experienced
significant inflation. Historically, the Company's wage costs in India have
been significantly lower than its wage costs in the U.S. for comparably-
skilled employees, although wage costs in India are presently increasing at a
faster rate than in the U.S. There can be no assurance that the Company will
be able to recover cost increases through increases in the prices that it
charges for its services in the U.S. See "Risk Factors--Competitive Market for
Technical Personnel" and "--Fixed-Price, Fixed-Time Frame Contracts."
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 ("SFAS 123") which establishes a fair value based method for
accounting for stock-based compensation plans. With respect to stock options
granted to employees, SFAS 123 permits companies to continue using the
accounting method promulgated by the Accounting Principals Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees," to measure
compensation or, alternatively, to adopt the fair value based method
prescribed by SFAS 123. If the APB 25 method is continued, pro forma footnote
disclosures are required as if SFAS 123 accounting provisions were followed.
Management has determined not to adopt the SFAS 123 accounting recognition
provisions. Accordingly, SFAS 123 will not have any impact on the Company's
financial statements, except for the addition of the required footnote
disclosures.
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets for Long-
lived Assets to be Disposed Of" is effective for years beginning after
December 15, 1995. This statement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment.
This pronouncement is not expected to have a material impact on the financial
statements of the Company.
27
<PAGE>
BUSINESS
OVERVIEW
The Company provides applications software outsourcing solutions for the IT
departments of large businesses with intensive information processing needs.
The Company's services, which generally are offered on a fixed-price, fixed-
time frame basis, include software development, application maintenance, Year
2000 conversion, and migration and re-engineering services. In addition, the
Company offers programming and consulting services on a time-and-materials
basis in order to optimize employee utilization and provide a potential source
of future outsourcing contracts. The Company's services, which it terms
"transitional outsourcing," assist clients in the maintenance of mainframe-
based legacy applications and in the transition from legacy systems to open
architecture, client/server and other emerging technologies. IMR delivers many
of its transitional outsourcing services using its proprietary TSQM software
engineering process and its offshore software development facility in
Bangalore, India. This facility is linked by satellite communications to both
the Company's offices and the offices of many of its clients. This allows IMR
to offer its services on a 24-hour basis through an on-site, off-site and
offshore project team working multiple shifts made possible by the time
difference between North America and India. The Company believes that its
proprietary TSQM process, software engineering methodologies and toolsets, and
its offshore software development center enable it to provide high quality,
cost-effective IT solutions through the utilization of global resources.
The Company's clients are primarily Fortune 200 or comparably sized
companies with significant IT budgets and recurring needs for software
development, application maintenance, Year 2000 conversion and IT staffing
services. IMR serves clients in a variety of industries including financial
services, insurance, manufacturing, retail and utilities. In 1995 and the
first six months of 1996, the Company provided transitional outsourcing
services for such companies as Commercial Union Insurance Companies, Dayton
Hudson Corporation, John Hancock Financial Services, Michelin Tire
Corporation, SPS Payment Systems and Southern California Edison. Through a
staff of more than 500 software development professionals, the Company serves
its clients from its headquarters in Clearwater, Florida, its offshore
software development center in Bangalore, India, its branch offices located in
Boston, Chicago, Dallas and Rochester, and its affiliate office in London,
England.
INDUSTRY OVERVIEW
Intense competition, deregulation, innovation and rapid technological
advancements are forcing companies to make fundamental changes in their
business processes. These changes have compelled many businesses to downsize
staffs and reduce costs in order to achieve greater returns on investment.
While confronting these internal challenges, companies also face customer
demands to improve service levels, lower costs, reduce delivery times and
increase value. In this competitive environment, improving IT systems is one
critical way for businesses to achieve greater productivity and manage their
operations more efficiently. As a result, the ability of an organization to
integrate and deploy improved information technologies in a cost-effective
manner has become critical to its success.
Although client/server and other emerging technologies offer the promise of
faster, more functional and more flexible software applications, the
implementation of business solutions encompassing these new technologies
presents companies with major challenges. Designing, developing and employing
these solutions requires highly skilled individuals trained in many diverse
technologies and architectures. However, there is a shortage of these
individuals, and many large companies are reluctant to expand their IT
departments through additional staffing, particularly at a time when they are
attempting to minimize their fixed costs and reduce workforces. Moreover,
redeploying and retraining in-house resources to develop and implement new
technologies typically is impractical because the in-house IT staff must
continue to support existing legacy systems and dated technology. In addition,
implementing new systems also requires highly developed project management
skills so that projects are completed within budget and on time.
28
<PAGE>
As a result of the challenges presented by the technological transition to
client/server systems and the ongoing need to maintain legacy systems, many
large companies are seeking ways to outsource their IT projects, particularly
on a fixed-price, fixed-time frame basis in order to minimize the risks
associated with such large scale technology projects. Dataquest, a recognized
market research firm, estimated that the market for systems integration,
consulting, applications development and outsourcing services was
approximately $91.0 billion worldwide in 1994 and estimated this market to be
growing by approximately 16.5% annually through 1999. Outsourcing enables
organizations to focus on core-competencies, to reduce costs by converting in-
house fixed IT costs to variable costs and to reduce the time-to-completion of
significant IT projects.
Outsourcing represents a particularly cost-effective solution for labor-
intensive IT projects such as the fast approaching Year 2000 problem. Many
existing computer systems run software programs permitting only two- digit
entries for years (e.g., 1996 is read as "96") and therefore cannot properly
process dates in the next century. For decades, computer programmers have
encoded mainframe software applications using this two-digit format to
represent a year (e.g., "95" for "1995" in the "yymmdd" format). Programmers
engaged in this "short-cut" to free up valuable computer memory and disk
storage space during a time when availability of these resources was a
critical programming consideration. Many software programs that use the two-
digit year date field to perform computations or decision-making functions
will fail due to an inability to correctly interpret dates in the 21st
century. For example, many software systems will misinterpret "00" to mean the
year 1900 rather than 2000. Resolving a Year 2000 problem is a highly time-
and labor-intensive project often requiring software engineers to analyze
millions of lines of software code and millions of items of data. As a result,
the Company believes that most large Year 2000 conversion projects will be
outsourced. Although the size of the Year 2000 problem is difficult to
estimate, the Gartner Group, a recognized industry source, has estimated that
the worldwide costs (including in-house costs) to resolve the Year 2000
problem could range from $300 billion to $600 billion.
THE IMR SOLUTION
The Company employs a systematic and disciplined approach to every
outsourcing engagement. The three critical components of the IMR solution,
which management believes differentiate the Company from other IT service
providers, are: (i) its TSQM software engineering process; (ii) its offshore
software development capability; and (iii) its proprietary toolsets. Together,
these three key elements of the Company's service delivery model help ensure
that clients receive high quality, cost-effective solutions on time and within
budget.
The TSQM Software Engineering Process. TSQM is a set of defined software
development processes, techniques and tools that are implemented to maximize
quality in the Company's processes, deliverables and services, and to minimize
project risks. Continuously refined since the Company's inception, TSQM
represents the software engineering process through which the Company defines
and performs projects. For every project, the Company implements its two-
phased TSQM process that encompasses: (i) an extensive front-end assessment
that defines the scope and risks of the project; and (ii) a fixed-price
implementation stage that is further subdivided into smaller phases with
frequent deliverables and feedback from its clients. Through the rigorous
adherence to its TSQM process, the Company identifies, monitors and manages
the risks associated with the cost, schedule, performance, support and
delivery of projects on a fixed-price, fixed-time frame basis. This process
also allows the Company to detect, correct and mitigate quality defects and to
establish appropriate contingencies for each project.
Offshore Software Development. The Company's offshore software development
center in India provides IMR with a significant cost advantage as well as the
ability to provide 24-hour service to its clients. The Company's costs in
India have historically been significantly lower than costs incurred for
comparable resources in the U.S. Through satellite communications, many of the
Company's clients are linked to IMR's India facility where, on average,
approximately 70% of a project's work is performed. Due to the time difference
between India and the U.S., the Company can create a virtual "second shift"
for its North American clients allowing for more rapid completion of projects
and off-peak utilization of clients' technology resources. In addition, for
larger projects with critically short time frames, the offshore facility
allows the Company to parallel process many of its development phases to
accelerate delivery time.
29
<PAGE>
Proprietary Toolsets. The Company has made a significant investment to
design and develop a set of proprietary software tools which are used to
facilitate and streamline a Year 2000 conversion project as well as the
migration from mainframe computing environments to flexible open systems and
relational database management systems ("RDBMS") computing environments. These
tools, which are developed utilizing object-oriented technologies, allow the
Company to reduce both the cost and time required to successfully complete
large scale migration projects. The Company's TransformIMS, TransformVSAM and
TransformDB2 toolsets support the migration of mainframe-based legacy systems
(e.g., IMS and DB2) and their related applications to RDBMS environments
(e.g., Oracle, Sybase and Informix). Transform2000 supports full life cycle
conversion for Year 2000 projects. IMR uses Transform2000 to download
application source code and data to work-stations and to analyze this
information to identify two-digit year field codes. Transform2000
automatically transforms and converts much of this data to make it Year 2000
compliant.
STRATEGIES
The Company's objective is to be a leading provider of comprehensive
transitional IT outsourcing services and solutions to large businesses with
intensive information processing needs. The Company plans to pursue the
following strategies to achieve this objective:
BUSINESS STRATEGIES
Develop Long-Term Strategic Partner Relationships with Clients. The Company
strives to develop "strategic partner" relationships with its clients whereby
the Company shares both the risks and rewards associated with outsourcing
engagements. To establish these relationships with clients, the Company
endeavors to integrate its on-site personnel into the operations and employee
culture of its clients' IT departments and regularly makes significant
investments in technology to support the strategic technical direction of its
clients. For example, the Company recently acquired certain integrated
advanced client/server and computer assisted software engineering technologies
to support several large client projects. These investments helped the Company
secure the loyalty and trust of clients and provided it with the tools and
knowledge to perform similar projects for other clients. To ensure constant
communication, the Company uses several methods to obtain continuous client
feed-back, including client satisfaction surveys, consultant performance
surveys and regularly scheduled meetings with a client's senior management. A
substantial portion of the performance incentive for the senior executives,
sales executives and senior project managers of the Company is directly linked
to client satisfaction and on-time within budget delivery of quality IT
services.
Develop and Enhance Processes, Methodologies and Productivity-Enhancing
Software Tools. The Company is committed to improving and enhancing its TSQM
process as well as its proprietary software engineering methodologies and
toolsets. With the rapid evolution of technology, the Company believes it is
imperative to invest in research and development. The Company currently is
designing and developing new productivity software tools to automate testing
processes and improve project estimating and risk assessment techniques.
Moreover, the Company plans to add additional modules to its current software
tools which will allow the re-design, migration and conversion of additional
types of databases and programming languages. The Company believes that this
strategy is critical in differentiating the Company from its competitors.
Focus on Fixed-Price, Fixed-Time Frame Projects. As a core element of its
business philosophy, the Company offers many of its IT services on a fixed-
price, fixed-time frame basis. Management believes that effectively structured
fixed-price, fixed-time frame projects provide clients with significantly
reduced risks while offering the Company the potential benefit of enhanced
margins. In order to reduce the risks to the Company, the fixed-time frame
component of a project is divided into several phases with frequent
deliverables. The Company believes that discreet project phases make it easier
for the Company to commit to a fixed price for a project, meet client
expectations, maintain high quality and control costs. The Company strives to
reduce risks and achieve greater potential profits through shorter development
cycles, the implementation of a rigorous change-order management process and
the use of global resources. Furthermore, in order to monitor its financial
performance, IMR constantly reviews project data and adheres to strict
financial management practices.
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Continue to Expand Offshore Software Development Resources. The Company
believes that the availability of high quality technical resources at its
offshore development facility in Bangalore, India is one of its most
significant competitive advantages due to the lower cost structure and ability
to provide multiple work shifts. The Company's success will depend to a
significant extent on its ability to attract, train, motivate and retain
highly skilled employees in India, particularly project managers, software
engineers and other senior technical personnel. The Company intends to further
develop these resources by focusing on recruiting skilled technical personnel
in India and expanding its physical facilities. The Company is in the initial
stages of the design and development of new software development facilities in
Bangalore that would combine state-of-the-art computing and communications
facilities with quality living arrangements and amenities for the Company's
employees. These actions are designed to position the Company to attract and
retain the best technical personnel available in India to support its business
activities in the U.S. and elsewhere. From time to time, the Company
investigates the expansion of its offshore capabilities to other foreign
locations to match its present and projected business requirements with the
availability of qualified technical personnel.
Concentrate on Key Technologies. Through its transitional outsourcing
service delivery model, the Company maintains a high level of knowledge of
advanced technical areas such as IBM mainframe systems, advanced case tools,
client/server technologies, object-oriented technologies and rapid application
development. The Company conducts consistent personnel training to expand the
knowledge base of its employees in these key technological areas.
Attract, Train and Retain Highly Skilled Employees. The future success of
the Company's growth strategy will depend to a significant extent on its
ability to attract, train, motivate and retain highly skilled IT
professionals, particularly project managers, software engineers and other
senior technical personnel. To achieve this objective, the Company maintains
programs and personnel to seek and hire the best available IT professionals
and to train these professionals in both legacy systems and emerging
technologies. The Company believes, however, that in both the U.S. and India
there is a shortage of, and significant competition for, IT professionals with
the advanced technological skills necessary to perform the services offered by
the Company. In order to attract, motivate and retain its employees in the
face of these shortages, the Company focuses on its corporate culture,
incentive programs, compensation and benefits, and provides a career and
education management program to create an individualized structured career
growth plan for its employees.
GROWTH STRATEGIES
Convert Year 2000 Projects into Long-Term Application Maintenance
Outsourcing Business. As a result of its comprehensive Year 2000 services, the
Company has obtained a significant number of contracts to perform Year 2000
conversion projects. The demand for the Company's services in this area
provides the opportunity to select those accounts with the greatest long-term
potential to convert its Year 2000 business into long-term application
maintenance outsourcing engagements. A core element of the Company's growth
strategy is to use the client relationships and the knowledge of client
computer systems obtained in providing Year 2000 services to obtain additional
IT projects for these clients. In particular, the Company believes that the
detailed knowledge of its clients' systems gained during performance of its
Year 2000 services will serve as a competitive advantage in securing
application maintenance projects from these clients. Clients that choose to
outsource applications maintenance services can focus their internal resources
on new strategic application development. The Company believes maintenance
outsourcing engagements converted from Year 2000 projects can be a source of
low risk, long-term revenues. See "--Clients and Representative Projects."
Develop Expertise in Key Vertical Markets. Although the Company has a
diverse client base, the Company recently has completed projects for companies
in key vertical markets, including insurance, financial services,
manufacturing, retail and utilities. These industries generally are dominated
by large companies with intensive IT needs. As its business increases in these
targeted vertical markets, the Company believes it will gain a broader
knowledge and expertise of these industries. The Company seeks to leverage
this developing expertise and its existing accounts into a larger
concentration of clients in these targeted markets. Also, the Company plans to
design and develop re-usable object class software code libraries which have
specific application to clients in these targeted vertical markets.
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Expand Geographic Presence. IMR's business model integrates on-site, off-
site and offshore resources to enable the on-time delivery of high quality
cost-effective IT solutions. As the Company expands its customer base, it
intends to open additional small regional offices to enable the Company to
sell and support existing and new clients in these geographic areas. The
Company's business model does not require a significant number of remote
offices, and the Company seeks to maintain low overhead for each branch
office. In addition, the Company intends to pursue market opportunities in
eastern and central Europe and Southeast Asia through its facility in India,
its affiliate office in the U.K. and, if appropriate, the establishment of
additional offshore operations.
Pursue Selective Strategic Acquisitions. Given the highly fragmented nature
of the IT services market, together with significant barriers to entry in
major accounts, the Company believes that opportunities exist to expand
through the selective acquisition of smaller regional IT services firms with
established customers. The Company may also consider potential acquisition
candidates to expand its regional office network and augment its technical
expertise. While the Company has from time to time in the past considered
acquisition opportunities, it has never acquired a business and as of the date
of this Prospectus has no existing agreements or commitments to effect any
acquisition. See "Risk Factors--Possible Acquisitions."
THE IMR DELIVERY PROCESS
IMR applies its TSQM software engineering process across all of its services
to deliver high quality, cost-effective IT solutions to its clients. TSQM is a
set of defined software development processes, techniques and tools that are
implemented and enhanced to maximize quality in the Company's processes,
deliverables and services, and to minimize project risks. For every project,
the Company implements its two-phased TSQM software engineering process which
encompasses: (i) an extensive front-end assessment that defines the scope and
risks of the project; and (ii) the fixed-price implementation stage that is
further subdivided into smaller phases with frequent deliverables and feedback
from its clients. Continuously refined since the Company's inception, TSQM
represents the process through which the Company defines and performs
projects. Through the rigorous adherence to the TSQM process, the Company
identifies, monitors and manages the risks associated with the cost, schedule,
performance, support and delivery of projects on a fixed-price, fixed-time
frame basis. This process also allows the Company to detect, correct and
mitigate quality defects and to establish appropriate contingencies for each
project.
The TSQM process is based in part on the Institute of Electrical &
Electronics Engineers ("IEEE") based software engineering standards, Software
Engineering Institute ("SEI") software engineering process models and ISO 9001
quality processes. During each stage of a project, IMR monitors progress and
quality, including deviations from project plans, that could adversely affect
on-time delivery, compliance with project specifications and project financial
performance. The project team collects, analyzes and reports on key quality
metrics to verify compliance with quality standards used in project execution,
and the project team serves as a custodian of information regarding the
methods, techniques and tools that have been utilized to perform specified
tasks. Through this process of constant re-evaluation of the Company's
performance on each project, IMR continuously refines and enhances the TSQM
software engineering process as a means to leverage the benefit of the
Company's cumulative project experience.
The responsibilities for completion of each TSQM phase are allocated among
an on-site, off-site and offshore team to optimize cost savings and accelerate
project delivery. The actual tasks allocated to each team member are
determined principally by the amount of client interaction required at the
client site to complete the project successfully. The front-end phase, which
may include requirements analysis, high level design and technical
architecture, is completed by the on-site project manager and the project team
through interaction with the client. The fixed-price implementation phase,
which may include programming, unit testing and systems testing, is largely
performed offshore via satellite link. The off-site team at the Company's U.S.
headquarters coordinates the efforts of the on-site and offshore teams and
monitors and manages the quality of the overall project. Working regular
business hours, the on-site, off-site and offshore teams together use most
hours of the clock to deliver projects in fewer elapsed calendar days. Due to
the time difference between India and the U.S.,
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the Company can create a virtual "second shift" for its North American clients
allowing for more rapid completion of projects.
The Company's offshore software development center provides significant
opportunities to reduce costs and manage the risks of a project. The offshore
software development center often is able to use the excess capacity of a
client's existing computing facilities during off-peak hours. This allows
additional projects to be undertaken without substantial client investment in
new hardware and software. The costs of satellite communications and
infrastructure acquired by the Company at its offshore center are spread among
multiple clients and projects further reducing additional infrastructure
investment required to be made by the client. If the scope of a project is
unexpectedly expanded, the Company generally is able to draw upon its offshore
development center resources to increase project personnel. In addition, for
larger projects with critically short time frames, the offshore facility
allows the Company to parallel process various development phases to
accelerate delivery time.
SERVICES
IMR provides a broad range of IT services, including: (i) software
development; (ii) application maintenance; (iii) Year 2000 conversion; (iv)
migration and re-engineering; and (v) programming and consulting services. The
Company delivers each of these services independently or as a comprehensive
package.
Software Development Services. The Company offers two alternatives to assist
clients in developing new applications for selected client/server platforms,
other emerging technologies and IBM mainframe platforms:
. fixed-price software development in which the Company assumes total
responsibility and accountability for delivery of systems on-time and
within budget; or
. cooperative development in which the Company's consultants work side-by-
side and share responsibility for completion of a project with in-house
IT personnel to complete full life cycle development projects.
In both cases, the Company uses its TSQM software engineering process, its
on-site, off-site, offshore delivery model and satellite communications to
deliver these projects. For the year ended December 31, 1995 and the six
months ended June 30, 1996, revenues derived from software development
services were $7.5 million and $4.0 million, respectively, and represented
33.3% and 32.5% of IMR's total revenues for such periods.
Application Maintenance Services. By assuming the responsibility for
maintenance of selected legacy application systems, the Company is able to
introduce process enhancements that improve service levels to clients
requesting modifications and on-going support. By using a variation of the on-
site, off-site, offshore delivery model, the Company provides 24-hour, 7-day
production and emergency support. On-site team members provide application
maintenance services at the client's facility. These team members carry pagers
in the event of an emergency service request and utilize home personal
computers to dial into a client's system and resolve client problems from
remote locations. Routine application maintenance services, including
modifications, enhancements and documentation, are completed utilizing
satellite telecommunications and the resources of the Company's offshore
software development center.
The Company uses its proprietary application maintenance methodology which
involves the following phases:
. Maintenance Improvement Phase. The Maintenance Improvement Phase ("MIP"),
which generally requires six to eight weeks to complete, allows the
Company to utilize the existing support infrastructure, determine the
scope of a project, establish targeted service levels and performance
metrics to be reported, and design a detailed project plan for the
duration of the outsourcing assignment. The Company uses metrics
calculations to define productivity, quality, reliability and client
satisfaction. Productivity metrics define such items as the cost and time
to perform specified functions, the hours to define the time necessary to
identify and resolve a problem, and to perform each service request.
Quality and reliability metrics identify and define the number of defects
within a project, production failure rates, the mean time between
failures and statistics on problem reports such as mean time to respond
and resolve a problem.
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Client satisfaction metrics are identified through periodic client surveys
and establish specified client service level measurements. Through the use
of metrics, the Company believes that it is better able to identify the
costs to perform contracts on a fixed-price basis, thereby enhancing the
Company's ability to estimate the fees for these contracts.
. Assimilation. The assimilation phase generally lasts for three months
during which the Company's consultants assimilate knowledge of its
client's business and software applications. This knowledge is acquired
through contact with the client's IT personnel, review of client
documentation and hands-on experience. The Company's consultants create
project management and procedures manuals, implement appropriate metrics
programs and implement process changes. During this phase, first level
support is provided by client personnel and second level support and all
systems work is provided by the Company's consultants.
. Transition. During the transition phase, which is generally completed in
approximately three months, the Company's consultants assume full
responsibility for first level support and transition certain functions
to the Company's offshore software development center. The client is
transitioned from maintenance responsibilities to more strategic systems
functions, and the Company's offshore team assumes responsibility for
full life cycle maintenance support.
. Steady State. This is the normal state of applications support where
production and emergency support, analysis and acceptance testing are
conducted on-site. Remaining activities, including routine maintenance,
enhancements and documentation, are conducted offshore.
For the year ended December 31, 1995 and the six months ended June 30, 1996,
revenues derived from application maintenance services were $4.4 million and
$3.9 million, respectively, and represented 19.1% and 31.4% of IMR's total
revenues for such periods. This increase reflects the Company's success in
securing several significant application maintenance contracts in late 1995
and early 1996.
Year 2000 Services. The Company uses its Century Change-Planning Analysis
Conversion ("CC-PACSM") methodology to provide a cost-effective solution to
the Year 2000 problem. The CC-PAC methodology defines the methods for
performing Year 2000 conversion services through four separate phases:
analysis, planning, conversion and implementation. The CC-PAC methodology,
together with the Company's proprietary Year 2000 toolset, Transform2000, and
a rigorous process approach form the Company's "total solution" to resolving
millennium problems. The Company believes that the full life cycle solution
provided by the CC-PAC methodology and use of the Transform2000 toolset
differentiates IMR from other companies by reducing costs and providing
services for all phases of a Year 2000 solution. In 1995 and the six months
ended June 30, 1996, revenues derived from Year 2000 conversion services were
$557,000 and $1.5 million, respectively, and represented 2.5% and 12.1% of
IMR's total revenues for such periods. The Company expects to continue to
derive an increasingly larger percentage of its total revenue from these
services for each of the next three years. As of the date of this Prospectus,
the Company is engaged to perform Year 2000 services for more than 20 clients,
substantially all of whom are new customers for the Company. The Company
believes that the demand for Year 2000 services will continue after the turn
of the century, although this demand is expected to begin to diminish after
the year 2000 as many Year 2000 compliance solutions are tested and
implemented for many companies. See "Risk Factors--Potential Decrease in
Services after Addressing the Year 2000 Problem."
The four phases of the CC-PAC methodology are:
. Analysis Phase. During the analysis phase, the client's entire software
applications portfolio is downloaded and, using the Transform2000
toolset, a complete inventory of all applications is produced. Through
CC-PAC, the Company also identifies date dependent applications and
determines the "failure horizon" which is the earliest point in the
future that these applications are likely to fail. The Company also
identifies the impact of millennium conversion on system objects,
including programs, copybooks and job control languages. Based on this
inventory and analysis, the Company uses Transform2000 to determine
required design modifications, code revisions and other measures that are
necessary to eliminate Year 2000 failures. The Transform2000 toolset
allows the Company to capture and store data
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elements and information regarding a client's system in a central
repository. This data can then be used to provide project analysis,
planning, conversion and implementation. Through CC-PAC, the Company also
prepares an effort estimate and initial costing estimate for the full life
cycle Year 2000 project.
. Planning Phase. Planning represents the most critical phase of a Year
2000 project. During the planning phase, a detailed plan for each
application conversion is produced which serves as a timetable for
completion and a roadmap for activities to be performed and resources and
programs to be used in the conversion. Based on business priorities and
the estimated "failure horizon," the applications are sequenced for
conversion. Through CC-PAC, the Company identifies date dependent
functions and interfaces as well as the bridging strategy, the testing
strategy and replacement strategy, if any. During planning, the Company
also identifies a pilot conversion of the characteristics of a typical
client application as a proof of concept. The analysis and planning
phases generally are provided on a combined basis and result in the
production of a pilot project in which a small number of isolated Year
2000 problems are identified and resolved.
. Conversion Phase. Based on the conversion plan adopted during the
planning phase, the client's applications are then converted using the
Transform2000 toolset and any required manual programming. The
Transform2000 toolset automates many aspects of the software conversion
process and reduces the time required to complete the phases of a
millennium conversion. Large applications are generally divided into
small modules to minimize the time period during which applications are
converted and tested and to enable staged delivery of Year 2000 compliant
modules.
. Implementation Phase. This phase involves full testing of the converted
applications as well as synchronization and re-introduction of
applications in the client's system. Unit and system testing are
conducted offshore. Final acceptance and systems testing is conducted on-
site at the client's facility. Any changes which have been made by the
client's staff are then tested for century date compliance, retrofitted
into the system and converted by the Company before final testing is
conducted. The system is then placed into production. Conversion and
implementation generally are provided under a single contract to identify
and resolve all Year 2000 problems within a designated client software
system.
Migration and Re-engineering Services. The Company's migration and re-
engineering services allow a client to migrate its legacy computing
environments to open systems platforms and client/server architectures. The
Company's Transform series of re-engineering tools automate many of the
processes required to implement advanced client/server technologies, thereby
substantially reducing the time and cost to perform these services. These
tools enable the Company to perform a source code analysis and to re-design
target databases and convert certain programming languages. If necessary, the
Company's software engineers also re-design and convert user interfaces. For
the year ended December 31, 1995 and the six months ended June 30, 1996,
revenues derived from migration and re-engineering services were $1.4 million
and $276,000, respectively, and represented 6.2% and 2.2% of IMR's total
revenues for such periods. The Company believes it will realize only moderate
revenues in the next several years from migration and re-engineering services
as clients focus financial resources on Year 2000 conversion services.
Programming and Consulting Services. The Company's senior consultants
provide services including high level process analysis and strategic technical
consulting to assist clients in the development of successful outsourcing
strategies. These strategies may include outsourcing of legacy systems
maintenance and migration to advanced client/server technologies or company-
wide enterprise systems. The Company also provides programming services at
client sites on an "as-needed" basis. The Company's programming consultants
are typically engaged on a time-and-materials basis to assist on-site with the
analysis, design and development of software applications and to augment the
client's internal IT staff. In contrast to outsourcing services, professional
programming services typically involve the performance of discrete tasks at
the specific direction of the client. The Company's objectives in providing
professional staffing services include developing an understanding of the
client's business and IT systems needs and positioning the Company to provide
consulting and outsourcing services after the Company has established a
business relationship with the client through the consulting assignment. The
Company does not generally accept professional staffing services engagements
of
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less than six months. The Company has been awarded development or application
maintenance outsourcing projects from a majority of the clients for whom it
has performed consulting services. For the year ended December 31, 1995 and
the six months ended June 30, 1996, revenues derived from programming and
consulting services were $7.4 million and $1.9 million, respectively, and
represented 32.8% and 15.0%, respectively, of IMR's total revenues for such
periods. The Company expects that revenues from programming services will
decline in the near-term as the Company allocates personnel to higher margin
projects such as Year 2000 conversion services.
CLIENTS AND REPRESENTATIVE PROJECTS
IMR provides services to large businesses, primarily Fortune 200 and
comparably sized companies with intensive information processing needs. To
date, the Company's marketing efforts have been directed to clients on the
basis of IT needs rather than industry group. Companies and clients in the
insurance, financial services, manufacturing, retail and utilities industries
have historically provided the greatest source of business opportunities for
the Company.
SOFTWARE DEVELOPMENT APPLICATION MAINTENANCE YEAR 2000 CONVERSION
SERVICES: SERVICES: SERVICES:
EBSCO Industries, Inc. Dayton Hudson Commercial Union
Ford Motor Company Corporation Insurance Companies
NOVUS Services, Inc. Michelin Tire Consolidated Edison of
Southern California Corporation New York
Edison John Hancock Financial
Winn Dixie Stores, Inc. Philip Morris Services
International, Inc. Massachusetts Mutual
Life Insurance Company
SPS Payment Systems,
Inc. Reliastar Life Insurance
Target Stores Company
MIGRATION AND RE-ENGINEERING SERVICES: PROGRAMMING & CONSULTING SERVICES:
Fingerhut Corporation
American Airlines, Inc.
Detroit Edison Fleetwood Enterprises, Inc.
International Paper
Hogan Systems, Inc.
Southern California Edison Co. S2 Systems, Inc.
Zimmer Corporation Target Stores
During the first six months of 1996, the Company's top five clients
accounted for approximately 65.3% of revenues. NOVUS (formerly known as
Discover Card Services, Inc.) and SPS, which are affiliated companies,
together accounted for approximately 35.5% of revenues. During 1995, the
Company's top five clients accounted for approximately 65.6% of revenues.
NOVUS and SPS represented approximately 35.1% of revenues, while units of
Dayton Hudson Corporation represented approximately 12.0% of revenues. The
volume of work performed for specific clients is likely to vary from year to
year, and a significant client in one year may not use the Company's services
in a subsequent year. See "Risk Factors--Historical Reliance on Significant
Clients."
While each client engagement differs, the following examples illustrate the
types of business needs the Company has addressed:
Ford Motor Company--Vehicle Loss and Damage System. Ford Motor Company
engaged the Company to develop a vehicle loss and damage ("VLD") system for an
IBM mainframe. These services were performed from December 1995 to July 1996.
Formerly developed for the UNISYS platform, the VLD system was designed to
monitor and report damage rates occurring during rail and highway transport of
vehicles between Ford's assembly plants and its dealer network. In order to
complete this project, IMR modified its software development methodology to
mirror Ford's systems life cycle methodology. Ford awarded the IMR team its
"Excellence Award" and has since engaged the Company to perform additional
projects.
SPS Payment Systems--Electronic Marketing System. SPS Payment Systems, a
unit of Dean Witter Discover & Co., Inc. and a leading provider of private
label credit card services for retailers, retained IMR to
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assist in the creation of an electronic marketing system to capture and retain
transactions at the point of sale, analyze buyer behavior based on customer
demographics and store the information in a database. Working on-site in a
cooperative development environment, IMR was responsible for preparing the
detailed product definition, recommending relevant technology, developing high
level system architecture, functional specifications and technical design, and
performing systems testing, project management and implementation. These
services commenced in July 1995 and were completed in December 1995. The
Company's on-site personnel work together with, and report to, SPS' IT
management team. As a result of its successful completion of the electronic
marketing system, SPS engaged IMR on several additional projects, including
application maintenance outsourcing and re-design/re-engineering of their
strategic systems. The Company considers its strategic partner relationship
with SPS Payment Systems to be a model for future client relationships.
Target Stores--Year 2000 and Applications Maintenance Projects. Target
Stores, a division of Dayton Hudson Corporation, engaged IMR to perform
Target's System Limits project, a series of system enhancements involving data
field expansions and related modifications to system data, program logic,
reports and screens. The System Limits project involved 11 major computing
systems and over 3,000 programs, and was completed during an 11 month campaign
that ended in July 1995. Target Stores was engaged in an aggressive growth
campaign, and IMR's mandate was to successfully increase field sizes to
accommodate larger stores and a greater number of inventory identification
numbers. As a part of this project, the Company expanded date fields to
accommodate date entries for the Year 2000 and thereafter. Offshore project
team members accessed Target systems through the Company's dedicated satellite
communications link with approximately 75% of the total project programming
completed offshore. Following successful completion of the Systems Limits
project, Target awarded the Company a multi-year application maintenance
outsourcing engagement. This project commenced in May 1995 and is estimated to
be completed in April 1998. The project objectives include elimination of
current maintenance and enhancement backlogs, improvement of user satisfaction
levels, improvement of system reliability and quality, and redeployment of in-
house maintenance personnel to new development activities. IMR first performed
an on-site analysis of the current maintenance for Target's financial and
administrative systems. On-site IMR consultants presently provide 24-hour, 7-
days a week production support and perform emergency fixes. As a result of the
Company's successful relationship with Target, the Company also has been
awarded a client/server development project, Target's In Store Information
Systems project, and an application maintenance outsourcing engagement for
Dayton Hudson Corporation.
SALES AND MARKETING
The Company markets and sells its services directly through its professional
staff and senior management operating out of its Clearwater, Florida
headquarters and through direct sales persons located in Boston, Chicago,
Dallas and Rochester and its affiliate office in London. The Company focuses
its marketing efforts on large corporations with significant IT budgets and
recurring staffing or software development needs. Marketing personnel identify
prospects and opportunities and enter the prospects into a prospect/client
database consistently maintained and updated. Direct sales representatives
utilize the database records to initiate the sales cycle from prospect
qualification to close. As a result of this marketing system, the Company
prequalifies sales opportunities, and direct sales representatives are able to
minimize the time spent on prospect qualification. Marketing programs include
direct mail campaigns, seminars, conferences and other activities intended to
generate and maintain an interest in the Company's services. At June 30, 1996,
the Company had 15 account representatives and sales support personnel. The
sales executive and technical support team define the scope, deliverables,
assumptions and execution strategies for a proposed project, develop project
estimates, prepare pricing and margin analyses, and finalize sales proposals.
Management reviews and approves the proposal, and the sales staff presents the
proposal to the client. Sales personnel remain actively involved in the
project through the execution phase. Although the Company maintains a broad
and diverse client base, the Company intends to focus its future marketing
efforts principally toward prospective clients in the financial services,
insurance, manufacturing, retail and utilities industries.
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INTELLECTUAL PROPERTY
The Company's business includes the development of software applications and
other deliverables including written specifications and documentation in
connection with specific client engagements. Ownership of software and
associated deliverables created for clients is generally retained by or
assigned to the client, and the Company does not retain an interest in such
software or deliverables. The Company also develops object-oriented software
components and libraries that can be reused in application software
development, as well as certain software toolsets and proprietary
methodologies. Many of the Company's software components, libraries, toolsets
and methodologies are developed in India and used in both the U.S. and India.
The Company retains ownership of these components, libraries, toolsets and
methodologies. Finally, the Company maintains trademarks and service marks to
identify its various service offerings. In order to protect its proprietary
rights in these various intellectual properties, the Company relies upon a
combination of copyright and trade secret laws, nondisclosure and other
contractual arrangements, and technical measures. India is a member of the
Berne Convention, an international treaty. As a member of the Berne
Convention, the government of India has agreed to recognize protections on
copyrights conferred under the laws of foreign countries, including the laws
of the U.S. The Company believes that laws, rules, regulations and treaties in
effect in the U.S. and India are adequate to protect it from misappropriation
or unauthorized use of its copyrights. However, there can be no assurance that
such laws will not change and, in particular, that the laws of India will not
change in ways that may prevent or restrict the transfer of software
components, libraries and toolsets from India to the U.S. There can be no
assurance that the steps taken by the Company will be adequate to deter
misappropriation of its intellectual property or that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its rights.
As the number of competitors providing IT services increases, new and
overlapping processes and methodologies used in such services will become more
pervasive. Although the Company's intellectual property has never been the
subject of an infringement claim and the Company believes that its services
and products 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. Assertion of such claims against the Company could
result in litigation, and there is no assurance that the Company would prevail
in such litigation or be able to obtain a license for the use of any infringed
intellectual property from a third party on commercially reasonable terms.
Furthermore, litigation, regardless of its outcome, could result in
substantial cost to the Company and could divert management's attention from
the Company's operations. Any infringement claim or litigation against the
Company could, therefore have a material adverse effect on the Company's
results of operations and financial condition. See "Risk Factors--Intellectual
Property Rights."
COMPETITION
The IT services market is highly competitive and is served by numerous
national, regional and local firms. The Company's clients generally consist of
large corporations principally in the financial services, insurance,
manufacturing, retail and utilities industries, and many of the Company's
competitors are aggressively pursuing business from those entities. In
addition to in-house MIS departments, market participants include systems
consulting and integration firms, professional services companies,
applications software firms, temporary employment agencies, professional
services divisions of large integrated manufacturing and other companies (such
as IBM and MCI), facilities management and outsourcing companies and "Big Six"
accounting firms and related entities.
The Company competes with, among others, Andersen Consulting, "Big Six"
accounting firms, Cambridge Technology Partners, Inc., Cap Gemini America,
Inc., Computer Horizons Corp., Computer Task Group, ISSC (a subsidiary of
IBM), Keane, Inc., SHL Systemhouse (a division of MCI) and Whittman-Hart, Inc.
In addition, in offering its Year 2000 services, the Company competes with
Alydaar Corp., Computer Horizons Corp., Cap Gemini America, Inc., Data
Dimensions, Inc. and ISSC.
The Company believes that many of its principal competitors have
significantly greater financial, technical and marketing resources and
generate greater revenues than IMR. The Company competes by offering a
38
<PAGE>
successful services delivery model, excellent referral base and continued
focus on responsiveness to customer needs, quality of services, competitive
prices, project management capabilities and technical expertise. See "Risk
Factors--Competition."
HUMAN RESOURCES
At September 1, 1996, the Company employed approximately 245 persons in its
U.S. headquarters and branch offices (approximately 95 of whom are U.S.
citizens or permanent residents) and approximately 340 in its offshore
software development center in India. Additionally, IMR-U.K. employs
approximately 15 persons. None of the Company's employees is subject to a
collective bargaining arrangement.
At September 1, 1996, approximately 150 of the Company's U.S. employees were
working under the H-1B, non-immigrant work permitted visa classification,
which the Company processed for those employees through the U.S. Immigration
and Naturalization Service (the "INS"). The H-1B visa classification enables
U.S. employers to hire qualified foreign workers in positions which require an
education at least equal to a U.S. Baccalaureate Degree in specialty
occupations such as software systems engineering and systems analysis. The H-
1B visa usually permits an individual to work and live in the U.S. for a
period of up to six years. There is a limit on the number of new H-1B
petitions that the INS may approve in any government fiscal year.
Historically, this limit generally has not been reached. However, the Company
believes the limit was reached in 1995 and may be reached annually hereafter.
In years in which this limit is reached, the Company may be unable to obtain
H-1B visas necessary to bring critical foreign employees to the U.S. The
Company also processes immigrant visas for lawful permanent residency
(evidenced by a card commonly referred to as the "Green Card") for employees
to fill positions for which there are no able, willing and qualified U.S.
workers available to fill the position. Compliance with existing U.S.
immigration laws, or changes in such laws making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain H-1B
employees in the U.S., could require the Company to incur additional
unexpected labor costs and expenses. See "Risk Factors--Immigration Issues."
The Company believes that in both the U.S. and India there is a shortage of,
and significant competition for, IT professionals and that its future success
will depend in large part upon its ability to attract, train, motivate and
retain highly skilled employees with the advanced technical skills necessary
to perform the services offered by the Company. The Company has an active
recruitment program in the U.S., India and the U.K. and has developed a
recruiting system and database that facilitates the rapid identification of
skilled candidates. The Company also has adopted a career and education
management program working with employees to define their objectives and
career plans. Through an intensive orientation and training program, the
Company introduces new employees to the TSQM software engineering process and
the Company's services. See "Risk Factors--Competitive Market for Technical
Personnel" and "--Immigration Issues."
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
FACILITIES
The Company leases its corporate headquarters building (approximately 24,000
square feet) in Clearwater, Florida under a lease expiring in March 1998.
Approximately 11,000 square feet of this facility have been subleased to ABR
Information Services, Inc. The Company leases branch offices in Boston,
Chicago and Dallas which are used primarily for sales and marketing purposes.
The Company occupies a leased facility (approximately 50,000 square feet) in
Bangalore, India under a lease expiring in May 2005, with an option to extend
an additional five years. IMR-U.K. utilizes approximately 2,000 square feet of
office space in Chesham, England under a verbal agreement by which IMR-U.K.
pays Link Group for the use of a portion of their space. See "Certain
Transactions--IMR U.K. Transactions."
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------
<S> <C> <C>
Satish K. Sanan (1).................. 48 Chairman of the Board; President and
Chief Executive Officer
Ashutosh Gupta....................... 40 President and Director, IMR-India
Michael J. Dean...................... 36 Chief Financial Officer
Kasi V. Sridharan.................... 42 Vice President-Finance
Jeffery S. Slowgrove................. 39 Treasurer; Director
Dilip Patel.......................... 38 Vice President-General Counsel;
Secretary
Philip Shipperlee.................... 49 Director; Managing Director, IMR-U.K.
Charles C. Luthin (1)(2)(3).......... 54 Director
Vincent Addonisio (1)(2)(3).......... 41 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Satish K. Sanan founded the Company in 1988 together with Mr. Slowgrove and
has served as President, Chief Executive Officer and a director of the Company
since its inception. Mr. Sanan also has served as a director of IMR-U.K. since
1993 and as Chairman of the Board of Directors of IMR-India since 1990. Prior
to founding the Company, he was employed by SHL Systemhouse Limited from 1980
to 1988 where he was responsible for planning, directing and controlling the
achievement of sales and delivery objectives.
Ashutosh Gupta has served as President of IMR-India since August 1995 and as
a director of IMR-India since January 1996. Prior to joining the Company, Mr.
Gupta served in various positions for Citicorp Overseas Software Limited,
located in Bombay, India from January 1988 until August 1995, including Group
Head, International Marketing.
Michael J. Dean has served as Chief Financial Officer since July 1996.
Previously, he served as Controller of the Company since July 1994. Prior to
joining the Company, Mr. Dean served for ten years as a Manager for Harper,
Van Scoik & Company, a Certified Public Accounting firm in Clearwater,
Florida. Mr. Dean is a Certified Public Accountant.
Kasi V. Sridharan has served as Vice President-Finance of the Company since
October 1995. Mr. Sridharan also has served as a director of IMR-U.K. since
March 1996 and as a director of IMR-India since April 1994. He served as Vice
President-Finance of IMR-India from April 1992 until October 1995. From
November 1988 until March 1992, Mr. Sridharan served as Chief Financial
Officer for the Centre for Development of Advanced Computing in Pune, India.
Mr. Sridharan is a Chartered Accountant.
Jeffery S. Slowgrove founded the Company in 1988 together with Mr. Sanan and
has served as Treasurer and a director of the Company since its inception. Mr.
Slowgrove also has served as a director of IMR-India since 1990.
Dilip Patel has served as Vice President-General Counsel and Secretary of
the Company since March 1996. From August 1990 until March 1996, Mr. Patel was
an attorney in the International Department of the Tampa, Florida law firm
Fowler, White, Gillen, Boggs, Villareal & Banker, P.A. From 1983 until 1988 he
practiced law as a solicitor with Cartwright, Cunningham, Haselgrove & Co. in
London, England. Mr. Patel is a member of and is Board Certified in
Immigration and Nationality law by the Florida Bar. He is admitted as a
Solicitor of the Supreme Court of England and Wales.
40
<PAGE>
Philip Shipperlee has served as a director of the Company since August 1996
and has served as the Managing Director of IMR-U.K. since 1994. Mr. Shipperlee
also is the Managing Director of The Link Group, a computer services company,
where he has served since June 1980.
Charles C. Luthin has been a director of the Company since August 1995. From
October 1994 until July 1995, he served as Vice President-Finance of the
Company. Since 1995, Mr. Luthin has served as Vice President-Finance for
Eckerd Family Youth Alternatives, Inc. a not-for-profit entity located in
Clearwater, Florida. From 1993 until 1994, Mr. Luthin served as President of
Dow Sherwood Corporation, a corporation that owns and operates restaurants,
and he currently serves on that company's board of directors. From 1989 until
1993, Mr. Luthin served as Vice President-Finance and Chief Financial Officer
of Trans-marine Management Company, providing financial management and
analysis for business interests of George M. Steinbrenner. From 1980 until
1989, Mr. Luthin served in various capacities for Walt Disney World Company,
most recently as Vice President, Finance and Planning-Parks, where he was
responsible for financial analysis and long-term planning for that company's
theme park operations.
Vincent Addonisio has been a director of the Company since August 1996. Mr.
Addonisio is a Director, Executive Vice President, Chief Financial Officer and
Treasurer of ABR Information Services, Inc., a benefits administration
outsourcing company which he joined in July 1993. Mr. Addonisio served as
Chief Financial Officer of AER Energy Resources, Inc., a battery manufacturing
company, from October 1992 until June 1993. From April 1991 until September
1992, Mr. Addonisio served as Vice President and Chief Financial Officer of IQ
Software, Inc., a software development company. From 1983 to 1991, he served
as Chief Financial Officer and Director of Proto Systems, a high technology
company.
The Board of Directors is divided into three classes, each of whose members
will serve for a staggered three-year term. The Board is comprised of two
Class I directors (Messrs. Sanan and Addonisio), two Class II directors
(Messrs. Shipperlee and Luthin) and one Class III director (Mr. Slowgrove). At
each annual meeting of shareholders, a class of directors will be elected for
a three-year term to succeed the directors of the same class whose terms are
then expiring. The terms of the initial Class I directors, Class II directors
and Class III directors will expire upon the election and qualification of
successor directors at the annual meeting of shareholders held following the
end of calendar years 1997, 1998 and 1999, respectively. There are no family
relationships between any of the directors or executive officers of the
Company. See "--Agreements with Employees" and "Description of Capital Stock--
Certain Articles of Incorporation and Bylaw Provisions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee comprised of
Messrs. Sanan, Luthin and Addonisio. Messrs. Luthin and Addonisio currently
comprise the members of the Compensation Committee and Audit Committee of the
Board of Directors. The Executive Committee is empowered to exercise all
authority of the Board of Directors of the Company, except as limited by the
Florida Business Corporation Act. Under Florida law, an Executive Committee
may not, among other things, recommend to shareholders actions required to be
approved by shareholders, fill vacancies on the Board of Directors, amend the
bylaws or approve the reacquisition or issuance of shares of the Company's
capital stock. The Compensation Committee will be responsible for reviewing
and recommending salaries, bonuses and other compensation for the Company's
executive officers. The Compensation Committee also will be responsible for
administering the Company's stock option plans and for establishing the terms
and conditions of all stock options granted under these plans. The Audit
Committee will be responsible for recommending independent auditors, reviewing
with the independent auditors the scope and results of the audit engagement,
monitoring the Company's financial policies and control procedures, and
reviewing and monitoring the provisions of nonaudit services by the Company's
auditors.
DIRECTOR COMPENSATION
Prior to completion of the Offering, the nonemployee member of the Board of
Directors of the Company, Charles C. Luthin, received compensation of $200 per
meeting for his service on the Board. Additionally, in
41
<PAGE>
February 1994, Mr. Luthin was granted an option to purchase 20,000 shares of
Common Stock at an exercise price of $0.10 per share and in December 1995, Mr.
Luthin was granted an option to purchase 5,000 shares of Common Stock at an
exercise price of $0.50 per share. These grants were approved by the Company's
shareholders in September 1996. Following the consummation of the Offering,
the non-employee directors (including Mr. Shipperlee) will receive a retainer
of $5,000 per year for serving on the Board of Directors, plus fees of $1,000
for each board meeting attended and $500 for each committee meeting attended
which is held independently of a board meeting. From and after the
consummation of the Offering, the nonemployee directors will be eligible to
receive options pursuant to the Company's 1996 Directors Stock Option Plan
(the "Directors Stock Option Plan"). The Directors Stock Option Plan became
effective in September 1996. A total of 150,000 shares of Common Stock have
been reserved for issuance under the Directors Stock Option Plan. The purpose
of the Directors Stock Option Plan is to promote the interests of the Company
by strengthening the Company's ability to attract and retain the services of
experienced and knowledgeable nonemployee directors ("Nonemployee Directors")
and by encouraging such directors to acquire an increased proprietary interest
in the Company.
The terms of the options granted under the Directors Stock Option Plan,
including the exercise price, dates and number of shares subject to the
options are specified in the Directors Stock Option Plan. The Directors Stock
Option Plan provides for the automatic grant of non-qualified stock options to
Nonemployee Directors. Each Nonemployee Director receives an option to
purchase 5,000 shares of Common Stock on the date of, and at a time
immediately following, every other annual meeting of the Company's
shareholders ("Bi-Annual Grant"), beginning with an initial grant of 5,000
shares to each Nonemployee Director to be made upon completion of this
Offering. The next Bi-Annual Grant will be made at the 1998 Annual Meeting.
Each Nonemployee Director who is first appointed or elected to the Board at
any time other than at an annual meeting of the Company's shareholders at
which a Bi-Annual Grant is made, will be granted an option to purchase a
number of shares of Common Stock equal to the product of (i) 5,000 multiplied
by (ii) a fraction, the numerator of which is the number of days during the
period beginning on such date and ending on the date of the next Bi-Annual
Grant, and the denominator of which is 730 (the "Interim Grant"). In addition,
upon the effective date of the Directors Stock Option Plan, each of Messrs.
Addonisio, Luthin and Shipperlee will receive an option to purchase 5,000
shares (the "Initial Grant").
Bi-Annual Grants and Interim Grants vest 50% on the date the Nonemployee
Director completes 12 months of continuous service on the Board of Directors,
and 100% on the date the Nonemployee Director completes 24 months of
continuous service on the Board of Directors. The Initial Grant will vest 50%
on the date of the annual meeting of the Company's shareholders occurring in
1997, and 100% on the date of the annual meeting of the Company's shareholders
occurring in 1998. No option is transferable by the Nonemployee Director other
than by will or laws of descent and distribution, or pursuant to a qualified
domestic relations order ("QDRO") as defined in ERISA. Each option is
exercisable, during the lifetime of the optionee, only by such optionee or by
a spouse who receives the option pursuant to a QDRO. The exercise price of all
options is equal to the fair market value of the shares on the date of grant
as defined under the Directors Stock Option Plan, and the term of each option
is ten years. The Directors Stock Option Plan will continue in effect for a
period of ten years unless sooner terminated by the Board of Directors. As of
September 1, 1996, there were no options outstanding under the Directors Stock
Option Plan, and no shares have ever been issued pursuant to the exercise of
options granted under the Directors Stock Option Plan.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by the
Company in 1995 for its Chief Executive Officer and each executive officer of
the Company whose total annual salary and bonuses determined at December 31,
1995 exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) SALARY BONUS OPTIONS COMPENSATION(2)
- ------------------------------------ --------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Satish K. Sanan............... $ 253,285 $ 261,241 1,337,540 $58,368
Chairman of the Board;
President and
Chief Executive Officer
Jeffery W. Forsythe (2)(3).... 100,000 109,350 -- --
Former Vice President,
Operations
Andrew R. Etkind (2)(4)....... 95,000 42,500 -- --
Former Vice President--
General Counsel;
Secretary
</TABLE>
- --------
(1) Other than its Chief Executive Officer, the Company had only two executive
officers in 1995 whose salary and bonuses exceeded $100,000.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonus for the named executive officer for such year.
(3) Mr. Forsythe resigned effective December 31, 1995.
(4) Mr. Etkind resigned effective February 28, 1996.
Pursuant to an existing three-year employment agreement with the Company,
Mr. Sanan serves as Chief Executive Officer and President of the Company at a
base salary of $300,000 plus 10% of pre-tax net income for the Company's U.S.
operations. Mr. Sanan has entered into a new employment agreement with the
Company, effective October 31, 1996, that will supersede his existing
employment agreement. This new employment agreement is for a term expiring on
the fifth anniversary of the effective date, and is renewable by Mr. Sanan on
a year-by-year basis thereafter. The employment agreement may be terminated by
the Company only with cause. Cause is defined as including: (i) theft or
embezzlement with regard to material property of the Company; or (ii)
continued neglect by the employee in fulfilling his duties as Chief Executive
Officer of the Company as a result of alcoholism, drug addiction or excessive
unauthorized absenteeism, after written notification from the Board of
Directors of such neglect and the employee's failure to cure within a
reasonable time. Under the employment agreement, Mr. Sanan receives a base
salary of $400,000, which is subject to annual increases at the discretion of
the Compensation Committee. The employment agreement also provides for an
annual incentive bonus equal to 2% of pre-tax net income (determined without
regard to the charge resulting from this payment). In addition, on the
effective date of this Offering Mr. Sanan will receive a ten-year option to
purchase 100,000 shares at an exercise price equal to the initial public
offering price. Such option will vest one year from the date of grant. Mr.
Sanan will be eligible to receive additional stock options exercisable at fair
market value on the grant date, in such amounts and subject to such vesting
provisions as determined by the Compensation Committee. The Company also has
agreed to maintain and to pay the premiums for approximately $8.0 million of
life insurance policies with benefits payable to beneficiaries designated by
Mr. Sanan. The anticipated annual premium will be approximately $100,000 in
the first year of the initial term of the Employment Agreement. Mr. Sanan will
receive all standard benefits made available to other executive employees of
the Company. In the event that the Company terminates Mr. Sanan's employment
without cause, Mr. Sanan will receive a severance payment equal to three times
the greater of Mr. Sanan's current base salary or his W-2 compensation for the
immediately preceding calendar year. The employment agreement contains a
noncompetition covenant for a period of three years following termination of
employment by Mr. Sanan for any reason or by the Company for cause.
43
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options during
the year ended December 31, 1995 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR PER /SHARE DATE 5% 10%
- ------------------------ ----------- ------------ ---------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Satish K. Sanan......... 1,337,540 96.1% $0.10 January 1, 2005 $ 84,117 $ 213,169
</TABLE>
- --------
(1) This option was granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors. The option is a nonqualified stock option, is currently
exercisable and has a ten-year term. See "Certain Transactions--Options
Issued to Mr. Sanan."
(2) The potential realizable value is calculated based on the ten-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option. The actual
realizable value of the options based on the price to public in the
Offering will substantially exceed the potential realizable value shown in
the table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table summarizes the value of the outstanding options held by
the Named Executive Officers at December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-
OPTIONS AT FISCAL YEAR- MONEY OPTIONS AT
END FISCAL YEAR-END (1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Satish K. Sanan............. 1,421,210 -- $568,484 --
</TABLE>
- --------
(1) Based on the estimated fair market value of the Common Stock as of
December 31, 1995 of $0.50 per share, less the exercise price payable upon
exercise of such options. Such estimated fair market value as of December
31, 1995 is substantially lower than the price to public in the Offering.
See "Certain Transactions--Options Issued to Mr. Sanan."
EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK INCENTIVE PLAN
The Company's Stock Incentive Plan (the "Stock Option Plan") became
effective on July 15, 1996. The aggregate number of shares reserved for
issuance under the Stock Option Plan is 5,445,980 shares of which options to
acquire 5,159,120 shares will be outstanding upon consummation of the Offering
at a weighted average exercise price of $0.82 per share. Except for the
exercise by the Selling Shareholders of options for the purchase of 32,570
shares of Common Stock at a weighted average exercise price of $0.10 per
share, prior to the Offering no shares of Common Stock will have been issued
upon exercise of options granted under the Stock Option Plan. Options to
acquire 4,500,500 shares of Common Stock will be exercisable as of, or within
60 days of, November 1, 1996 at a weighted average exercise price of $0.34 per
share. The purpose of the Stock Option Plan is to provide incentives for
officers, directors, consultants and key employees to promote the success of
the Company, and to enhance the Company's ability to attract and retain the
services of such persons. Options granted under the Stock Option Plan may be
either: (i) options intended to qualify as "incentive stock options" under
Section 422 of the Code; or (ii) non-qualified stock options. The Stock Option
Plan also permits the grant of stock appreciation rights in connection with
the grant of stock options, and the grant of restricted stock awards. Stock
options and stock awards may be granted under the Stock Option Plan for all
employees and consultants of the Company, or of any present or future
subsidiary or parent of the Company, who are considered "key employees" or
"key consultants."
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<PAGE>
The Stock Option Plan is administered by the Board of Directors, which may,
and is expected to, delegate administrative responsibility for the Stock
Option Plan to the Compensation Committee. The Compensation Committee has the
authority to determine exercise prices applicable to the options, the eligible
officers, directors, consultants or employees to whom options may be granted,
the number of shares of the Company's Common Stock subject to each option and
the extent to which options may be exercisable. The Compensation Committee
also has the authority to determine the recipients and the terms of grants of
stock appreciation rights and restricted stock awards under the Stock Option
Plan. The Compensation Committee is empowered to interpret the Stock Option
Plan and to prescribe, amend and rescind the rules and regulations pertaining
to the Stock Option Plan. Options granted under the Stock Option Plan
generally vest over five years. No option is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable, during the lifetime of the optionee, only by such optionee. The
Compensation Committee may not require options.
Any incentive stock option that is granted under the Stock Option Plan may
not be granted at a price less than the fair market value of the Company's
Common Stock on the date of grant (or less than 110% of fair market value in
the case of holders of 10% or more of the total combined voting power of all
classes of stock of the Company or a subsidiary or parent of the Company).
Non-qualified stock options may be granted at the exercise price established
by the Compensation Committee, which may be less than the fair market value of
the Company's Common Stock on the date of grant. All grants to date have been,
and the policy of the Compensation Committee is that all future grants will be
at fair market value on the grant date.
Each option granted under the Stock Option Plan is exercisable for a period
not to exceed ten years from the date of grant (or five years in the case of a
holder of more than 10% of the total combined power of all classes of stock of
the Company or of a subsidiary or parent of the Company) and shall lapse upon
expiration of such period, or earlier upon termination of the recipient's
employment with the Company, or as determined by the Compensation Committee.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan")
became effective on October 1, 1996. A total of 200,000 shares of the
Company's Common Stock have been reserved for issuance under the Stock
Purchase Plan. The Stock Purchase Plan is intended to qualify under Section
423 of the Code. An employee electing to participate in the Stock Purchase
Plan must authorize a stated dollar amount or percentage of the employee's
regular pay to be deducted by the Company from the employee's pay for the
purpose of purchasing shares of Common Stock on a quarterly basis. The price
at which employees may purchase Common Stock is 85% of the closing price of
the Common Stock on the Nasdaq National Market on the first day of the quarter
or the last day of the quarter, whichever is lower. An employee may not sell
shares of Common Stock purchased under the Stock Purchase Plan until the later
of: (i) 180 days after the Offering; or (ii) the first day of the second
quarter following the quarter in which the right to purchase such shares was
granted. Employees of the Company who have completed six full months of
service with the Company and whose customary employment is at least 20 hours
per week for more than five months per calendar year are eligible to
participate in the Stock Purchase Plan. An employee may not be granted an
option under the Stock Purchase Plan if after the granting of the option such
employee would be deemed to own 5% or more of the combined voting power of
value of all classes of stock of the Company. As of September 1, 1996,
approximately 200 employees were eligible to participate in the Stock Purchase
Plan. The Stock Purchase Plan is administered by the Vice President-General
Counsel of the Company, or any such other persons so designated by the
Company's Board of Directors.
401(K) PROFIT SHARING PLAN
IMR maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") which is
intended to be a tax-qualified defined contribution plan under Section 401(k)
of the Code. In general, all employees of IMR who have
45
<PAGE>
completed one year of service and 1,000 hours of service are eligible to
participate. The 401(k) Plan includes a salary deferral arrangement pursuant
to which participants may contribute, subject to certain Code limitations, a
maximum of 15% of their first $15,000 in salary on a pre-tax basis. Subject to
certain Code limitations, the Company may make a matching contribution of up
to $1,000 of the salary deferral contributions of participants at a rate of
50% of the participant's contributions, up to 4% of the participant's salary.
The Company may also make an additional contribution to the 401(k) Plan each
year at the discretion of the Board of Directors. A separate account is
maintained for each participant in the 401(k) Plan. The portion of a
participant's account attributable to his or her own contributions is 100%
vested. The portion of the account attributable to Company contributions
(including matching contributions) vests after five years of service with the
Company. Distributions from the 401(k) Plan may be made in the form of a lump
sum cash payment or in installment payments. See Note 16 to Notes to
Consolidated Financial Statements.
IMR-INDIA BENEFIT PLANS
IMR-India's Employee Share Option Policy provides for grants of options to
employees to purchase common shares of IMR-India. The maximum number of shares
that may be covered by options granted under this policy are 51,900 common
shares. Under the policy, options granted to an employee will vest upon
completion of five years of continuous employment with IMR-India or its
affiliates. The vested options are valid for exercise during the employees'
employment with IMR-India or its affiliates and for a period of six months
thereafter. Options not exercised within six months of cessation of employment
expire. On September 1, 1996, options to acquire an aggregate 20,500 common
shares were outstanding under this policy at a weighted average exercise price
of $0.12 per share.
IMR-India maintains a statutory post-employment benefit plan that provides
defined lump sum benefits to employees on termination, whether prior to or
upon retirement, based on years of service and final average compensation.
IMR-India makes annual contributions to an employees' gratuity fund
established with a government-owned insurance corporation. The contributions
are based on actuarial valuations made by the insurance corporation as of
March 31 each year. IMR-India made contributions to this plan of $6,000 for
the year ended December 31, 1995.
IMR-India maintains an employees' provident fund and pension and family
pension plans, which are statutory defined contribution retirement benefit
plans. Under the plans, employees contribute 10% of base compensation, which
is matched by a 10% contribution by IMR-India. Contributions made to the plan
by IMR-India totaled approximately $32,000, $32,000, and $10,000 for the years
ended December 31, 1995 and 1994, and the four months ended December 31, 1993,
respectively.
AGREEMENTS WITH EMPLOYEES
The Company's software development professionals working in the U.S.,
including executive officers, are required to sign an agreement with the
Company restricting the ability of the employee to compete with the Company
during his or her employment and for a period of one year thereafter,
restricting solicitation of customers and employees following employment with
the Company, and providing for ownership and assignment of intellectual
property rights to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, compensation of executive officers of the Company was
determined by Mr. Sanan, President and Chief Executive Officer of the Company.
The Company's Compensation Committee reviews the performance of executive
officers, establish overall employee compensation policies and recommend to
the Board of Directors major compensation programs. No member of such
Compensation Committee will be an executive officer of the Company. The
Compensation Committee is comprised of Messrs. Luthin and Addonisio.
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<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide that the liability of the directors for monetary damages shall be
limited to the fullest extent permissible under Florida law. This limitation
of liability does not affect the availability of injunctive relief or other
equitable remedies.
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent possible under Florida law. These
indemnification provisions require the Company to indemnify such persons
against certain liabilities and expenses to which they may become subject by
reason of their service as a director or officer of the Company or any of its
affiliated enterprises. In addition, the Company has entered into
indemnification agreements with each of its directors providing
indemnification to the fullest extent permitted by applicable law and also
setting forth certain procedures, including the advancement of expenses, that
apply in the event of a claim for indemnification.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus and as adjusted to reflect the sale by the Company of the shares
offered hereby with respect to: (i) each director of the Company; (ii) each of
the Named Executive Officers; (iii) each shareholder known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock; (iv)
each Selling Shareholder; and (v) all executive officers and directors as a
group. Except as otherwise noted, the persons or entities named in the table
have sole voting and investment power with respect to all the shares of Common
Stock beneficially owned by them, subject to community property laws where
applicable. See "Risk Factors--Offering to Benefit Principal Selling
Shareholder" and "Use of Proceeds."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING NUMBER OF AFTER THE OFFERING
(1) SHARES TO BE (1)
NAME AND ADDRESS OF --------------------- SOLD IN THE --------------------
BENEFICIAL OWNER (2) SHARES PERCENTAGE OFFERING SHARES PERCENTAGE
- ------------------------ ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Satish K. Sanan (3)..... 9,474,780 90.5% 403,360 9,071,420 64.2%
Jeffery S. Slowgrove
(4).................... 756,770 11.8 75,000 681,770 7.3
Charles C. Luthin (5)... 25,000 * 2,000 23,000 *
Michael J. Dean (6)..... 10,000 * 1,000 9,000 *
Philip Shipperlee....... -- * -- -- *
Vincent Addonisio....... -- * -- -- *
All executive officers
and directors as a
group
(8 persons)............ 10,246,550 97.7 480,360 9,766,190 72.5
OTHER SELLING
SHAREHOLDERS:
Tom Spencer (7)......... 226,430 3.4 22,640 203,790 2.1
Donna M. Kapinos........ 194,590 3.0 19,460 175,130 1.9
D. P. Raju (8).......... 67,000 1.0 8,700 58,300 *
Sunil Singhal (9)....... 40,050 * 6,000 34,050 *
Aravamudhan Lakshmanan
(10)................... 35,860 * 4,600 31,260 *
Gopal Kalluri (11)...... 28,630 * 2,400 26,230 *
Anandbir Singh (12)..... 19,630 * 2,460 17,170 *
Dilip C. Kulkarni (13).. 14,250 * 1,450 12,800 *
Mark Ralls (14)......... 9,250 * 930 8,320 *
</TABLE>
- --------
* Less than 1%.
(1) Includes shares of Common Stock issuable upon the exercise of options
which are exercisable as of, or will become exercisable within 60 days
of, November 1, 1996.
(2) Except as otherwise indicated, each beneficial owner has the sole power
to vote and, as applicable, dispose of all shares of Common Stock owned
by such beneficial owner. The street address of each beneficial owner is
c/o Information Management Resources, Inc., Suite 500, 26750 U.S.
Highway 19 North, Clearwater, Florida 34621. Mr. Etkind and Mr.
Forsythe, who are Named Executive Officers, do not beneficially own any
shares of Common Stock, are no longer employed by the Company and are
not listed in the table.
(3) Includes: (i) 83,670 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 31, 2003; (ii)
1,337,540 shares issuable upon the exercise of options, exercisable at
$0.10 per share, expiring January 1, 2005; and (iii) 2,643,340 shares
issuable upon the exercise of options, at an exercise price of $0.50 per
share, expiring February 1, 2006. Also includes 720,000 shares held in
various trusts for the benefit of Mr. Sanan's children and 100,000
shares held by Mr. Sanan's spouse. Mr. Sanan disclaims beneficial
ownership of all shares held by such trusts and his spouse. Assumes no
exercise of the Underwriters' over-allotment option. In the event the
Underwriters' over-allotment option is exercised in full, Mr. Sanan will
sell an additional 262,500 shares of Common Stock in the Offering.
(4) Includes 3,570 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 31, 2003. Includes
5,000 shares held by Kenneth D. Slowgrove, the father of Jeffery S.
Slowgrove, with respect to which Mr. Jeffery Slowgrove disclaims
beneficial ownership.
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<PAGE>
(5) Includes: (i) 20,000 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring February 8, 2004; and (ii)
5,000 shares issuable upon the exercise of options, at an exercise price
of $0.50 per share, expiring December 31, 2005. Excludes 720,000 shares
held in various trusts for the benefit of Mr. Sanan's children for which
Mr. Luthin acts as trustee and with respect to which Mr. Luthin
disclaims beneficial ownership.
(6) Includes 10,000 shares currently issuable upon the exercise of options,
at an exercise price of $0.10 per share, expiring August 18, 2005.
(7) Includes: (i) 216,330 shares issuable upon the exercise of options, at
an exercise price of $0.10 per share, expiring November 8, 1999; and
(ii) 10,100 shares issuable upon the exercise of options, at an exercise
price of $0.10 per share, expiring December 31, 2003.
(8) Includes: (i) 15,290 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 31, 2003; (ii)
7,710 shares issuable upon the exercise of options, at an exercise price
of $0.10 per share, expiring December 20, 2001; and (iii) 30,000 shares
presently issuable upon the exercise of an option to acquire 50,000
shares, at an exercise price of $0.10 per share, expiring July 1, 2003.
(9) Includes: (i) 10,050 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 31, 2003; and (ii)
30,000 shares issuable upon the exercise of options to acquire 50,000
shares at an exercise price of $0.10 per share, expiring July 1, 2003.
(10) Includes: (i) 7,860 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 31, 2003; and (ii)
20,000 shares issuable upon the exercise of options to acquire 30,000
shares, at an exercise price of $0.10 per share, expiring July 15, 2004.
(11) Includes: (i) 4,630 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 20, 2001; and (ii)
10,000 shares issuable upon the exercise of options to acquire 15,000
shares, at an exercise price of $0.10 per share, expiring July 15, 2004.
(12) Includes: (i) 4,630 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 20, 2001; and (ii)
10,000 shares issuable upon the exercise of options to acquire 15,000
shares, at an exercise price of $0.10 per share, expiring July 14, 2004.
(13) Includes 9,250 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 20, 2001.
(14) Includes 9,250 shares issuable upon the exercise of options, at an
exercise price of $0.10 per share, expiring December 20, 2001.
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<PAGE>
CERTAIN TRANSACTIONS
IMR-INDIA TRANSACTIONS
IMR-India was formed in 1990 by Satish K. Sanan, the Company's President and
Chief Executive Officer, and Reesan, Inc., a U.S. corporation ("Reesan"). In
December 1992, IMR-India admitted Second India as an equity investor. In
September 1993, the Company acquired a 69.3% interest in IMR-India through a
merger with Reesan. In December 1994, the Company sold a portion of its equity
interest to India Magnum. As of June 30, 1996, the Company owned approximately
34.2% of IMR-India's outstanding equity, India Magnum owned 35.1%, Mr. Sanan
owned 18.4%, Second India owned 10.5%, and the balance of approximately 1.84%
was owned by several individual shareholders.
In August 1996, the Company acquired Second India's entire interest in IMR-
India for approximately $1.8 million. Upon completion of this purchase, IMR-
India's obligation to repay a $527,000 note to Second India was cancelled. In
July and September 1996, the Company entered into agreements pursuant to
which: (i) the Company will purchase Mr. Sanan's entire equity interest in
IMR-India upon completion of this Offering for approximately $3.1 million in
cash; and (ii) the Company will purchase India Magnum's entire equity interest
in IMR-India for approximately $5.1 million in cash. The purchase price for
these acquisitions will be paid from the proceeds of the Offering. Upon
completion of these acquisitions, the Company will own approximately 98.2% of
IMR-India's equity capital with the balance owned by individual investors.
Additionally, IMR-India has granted to certain of its employees options to
acquire additional shares which, if fully vested, would, upon exercise,
represent 3.5% of IMR-India's equity and would cause the Company's equity
interest to decrease accordingly.
Under a Master Services Agreement between the Company and IMR-India, the
Company engages IMR-India to provide computer software consultants and perform
offshore development projects. For the six months ended June 30, 1996 and the
years ended December 31, 1995 and 1994, the Company paid IMR-India
approximately $6.7 million, $12.4 million and $8.3 million, respectively, for
these services. In addition, the Company acts as a sales agent for IMR-India,
and IMR-India pays the Company a commission for net service fees generated
through referrals to IMR-India, including fees generated for services
performed by IMR-India for the Company and IMR-U.K. For the six months ended
June 30, 1996 and the year ended December 31, 1995, IMR-India paid the Company
approximately $294,000 and $505,000, respectively, as commissions for
referrals.
IMR-U.K. TRANSACTIONS
On October 17, 1994, the Company entered into a Joint Venture Agreement with
Mr. Sanan, Mr. Sanan's wife, and Link Group whereby Link Group acquired a
50.0% equity interest in IMR-U.K. Mr. Philip Shipperlee, a director of the
Company, serves as Managing Director of IMR-U.K. The Link Group is wholly
owned by Philip and Sheila Shipperlee. Mrs. Shipperlee also serves as Director
for Human Resources for IMR-U.K. Under the terms of this Joint Venture
Agreement, the Company owns a 39.5% interest and Mr. and Mrs. Sanan
collectively own a 10.5% interest. In October 1994, the Link Group loaned IMR-
U.K. (Pounds)107,545 ($167,000), interest-free, payable within three years of
the date of the Joint Venture Agreement. Prior to October 1994, the Company
made a series of loans to IMR-U.K. totalling an aggregate (Pounds)107,545
($167,000). These loans also were interest free and repayable within three
years of the date of the Joint Venture Agreement. Repayment of loans to either
party, in whole or in part, may be made only if an equal amount is paid
towards the loan of the other party. In addition, the Company agreed to write
off all debts due to it from IMR-U.K. other than the (Pounds)107,545 loan,
resulting in a write-off of $164,000. In March 1996, IMR-U.K. issued 25,000
equity shares each to the Company and Link Group in satisfaction of
(Pounds)25,000 ($39,000) of the unpaid loans owed by IMR-U.K. to each of them.
On March 4, 1996, the Company loaned Mr. Sanan the sum of $392,500 (the
"Sanan Loan"). The purpose of the Sanan Loan was to provide Mr. Sanan with
proceeds to make a loan in the same amount to IMR-U.K. (the "U.K. Loan").
These loans were structured to comply with bank loan covenants. In June 1996,
Mr. Sanan assigned to the Company his rights under the U.K. Loan as payment in
full of his liabilities under the Sanan
50
<PAGE>
Loan. The U.K. Loan is now payable by IMR-U.K. to the Company, and the Sanan
Loan is retired. A portion of the proceeds of the U.K. Loan was used by IMR-
U.K. to repay a short-term loan of (Pounds)188,000 made by Link Group. The
outstanding principal balance of the U.K. Loan bears interest at 10% per annum
and is payable in one installment of $75,000, which was due in August 1996 but
has been deferred indefinitely, and four equal installments of $79,375 payable
on June 2, 1997, December 1, 1997, June 1, 1998 and December 1, 1998,
respectively. Interest is payable quarterly. Under the terms of the U.K. Loan,
if the profit before interest or taxation of IMR-U.K. for the year ended
December 31, 1996 is less than (Pounds)197,940, then the Company will have the
option to convert a portion of the U.K. Loan into ordinary voting equity
shares of IMR-U.K. at the conversion rate of (Pounds)1 per share.
IMR-U.K. utilizes office space pursuant to an oral agreement between IMR-
U.K. and the Link Group. The annual rent paid to the Link Group by IMR-U.K. in
1995 was approximately $30,000. The Link Group provides technical services for
IMR-U.K., as well as marketing, recruiting and accounting services. IMR-U.K.
has paid to the Link Group approximately $449,000 for professional software
development services in the first six months of 1996, respectively. Payments
made for those services in 1995 were nominal. IMR-U.K. paid the Link Group
$33,000 in the first six months of 1996 for administrative services. Payments
for these services also were nominal in 1995.
OPTIONS ISSUED TO MR. SANAN
On February 1, 1996, the Company granted Mr. Sanan an option to purchase
2,643,340 shares of Common Stock at an exercise price of $0.50 per share. This
option was granted following the Company's repurchase of approximately
2,646,940 shares from former shareholders of the Company for a price of $0.50
per share. The option granted to Mr. Sanan has a ten-year term and is
currently exercisable. In January 1995, the Company granted Mr. Sanan a ten-
year option to acquire 1,337,540 shares of Common Stock at an exercise price
of $0.10 per share. This option is currently exercisable. Under the terms of
Mr. Sanan's new employment agreement, Mr. Sanan will be eligible to receive,
on the effective date of this Offering, a ten-year option to purchase 100,000
shares at an exercise price equal to the initial public offering price. Such
option will vest one year from the date of grant.
OTHER TRANSACTIONS
In October 1995, the Company entered a Sublease Agreement with ABR
Information Services, Inc. ("ABR") pursuant to which ABR subleases from the
Company 11,000 square feet of office space in the Company's Clearwater,
Florida offices through October 31, 1997. Since the commencement of the
sublease on November 1, 1995, ABR has paid to the Company approximately
$133,000 in rent plus applicable sales taxes pursuant to the sublease. Mr.
Vincent Addoniso, a director of the Company, serves as a director, Executive
Vice President, Chief Financial Officer and Treasurer of ABR.
The Company has purchased insurance on the lives of Messrs. Sanan and
Slowgrove. A portion of the proceeds from the insurance on the life of Mr.
Sanan will inure to the benefit of certain trusts and to Mr. Sanan's wife and
a portion is required to be used to purchase Mr. Sanan's stock following his
death. The annual payment by the Company for insurance policies on the life of
Mr. Sanan was approximately $44,000 in 1995. Following consummation of this
Offering, these policies will be transferred to Mr. Sanan and the Company will
pay Mr. Sanan additional compensation in the amount of the premiums payable on
these policies. The annual payment by the Company for an insurance policy on
the life of Mr. Slowgrove is approximately $452. See "Management--Executive
Compensation."
In 1994, Mr. Sanan made two unsecured loans to the Company, one totaling
$119,206 and bearing interest at 8% per annum and a second totaling $52,571
and bearing interest at 20% per annum. In January 1996, these loans were
consolidated into a single loan in the amount of $171,777, bearing interest at
8% per annum and payable in annual payments of $65,944. The first scheduled
payment of $65,944 was made in January 1996, and the balance of this loan,
totaling $105,000, was paid in full in September 1996. In 1995, Mr. Sanan made
an additional loan of $190,000 which was repaid, together with interest at the
rate of 8% per annum, in January 1996.
Mr. Sanan has personally guaranteed the Company's term loan and line of
credit payable to Barnett Bank and IMR-India's line of credit payable to
Canara Bank.
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<PAGE>
The Company and the shareholders of the Company immediately prior to this
Offering (the "Pre-Offering Shareholders") are parties to an agreement whereby
the Pre-Offering Shareholders have agreed to cause the Company to terminate
its S corporation election immediately upon consummation of this Offering. The
Company has agreed to indemnify the Pre-Offering Shareholders from the amount
of any increase in taxable income allocable to them in the event of any audit
of the Company's tax returns.
The Board of Directors of the Company has adopted a resolution whereby all
future transactions, including any loans from the Company to its officers,
directors, principal shareholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent
and disinterested members of the Board of Directors or, if required by law, a
majority of the disinterested shareholders, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.10 per share, and 10,000,000 shares of preferred
stock, par value $.10 per share. As of September 1, 1996, the Company had
issued and outstanding 6,404,020 shares of Common Stock and had granted
options to purchase 5,059,120 shares of Common Stock under the Stock Option
Plan at a weighted average exercise price per share of $0.60 per share (of
which options for the purchase of 4,500,500 shares of Common Stock will be
exercisable as of, or within 60 days of, November 1, 1996 at a weighted
average exercise price of $0.34 per share). No shares of preferred stock have
been designated or issued. The following description of the capital stock of
the Company is a summary and is qualified in its entirety by the provisions of
the Company's Amended and Restated Articles of Incorporation and the Restated
Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share for the
election of directors and all matters to be submitted to a vote of the
Company's shareholders. Subject to the rights of any holders of preferred
stock which may be issued in the future, the holders of shares of Common Stock
are entitled to share ratably in such dividends as may be declared by the
Board of Directors and paid by the Company out of funds legally available
therefor. In the event of a dissolution, liquidation or winding up of the
Company, holders of shares of Common Stock are entitled to share ratably in
all assets remaining after payment of all liabilities and liquidation
preferences, if any. Holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of
Common Stock are, and the shares of Common Stock to be issued by the Company
in connection with this Offering will be, duly authorized, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of preferred stock with such designations, rights and preferences as
may be determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without shareholder approval,
to issue preferred stock with dividends, liquidation, conversion, voting or
other rights that could adversely affect the voting power or other rights of
the holders of Common Stock. In the event of issuance, the preferred stock
could be used, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company. No shares of
preferred stock are issued or outstanding and the Company has no present plans
to issue any shares of preferred stock. See "Risk Factors--Certain Anti-
Takeover Provisions."
CERTAIN ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The Amended and Restated Articles of Incorporation provide that special
meetings of shareholders may be called only by the Chairman of the Board of
Directors (if one is so appointed), the President of the Company, the Board of
Directors or by the holders of not less than 50% of all votes entitled to be
cast on a matter. The Amended and Restated Articles of Incorporation provide
for a classified Board of Directors and permit removal of directors only for
cause upon the affirmative vote of holders of at least 66 2/3% of the shares
of capital stock of the Company entitled to vote at a meeting or special
meeting. See "Management--Directors and Executive Officers."
The Company's Amended and Restated Articles of Incorporation and Restated
Bylaws establish an advance notice procedure for the nomination of candidates
for election as directors, as well as for other shareholder proposals to be
considered at shareholders meetings. Notice of shareholder proposals and
directors nominations must be given timely in writing to the Secretary of the
Company before the meeting at which such matters are to be acted upon or
directors are to be elected. Such notice, to be timely, must be received at
the principal executive offices of the Company with respect to shareholder
proposals and elections to be held at the annual meeting, not less than 60
days before the date of the meeting at which the director(s) are to be
elected; however, if less than
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70 days notice or prior public disclosure of the date of the scheduled meeting
is given or made, notice by the shareholder, to be timely, must be delivered
or received not later than the close of business on the tenth day following
the earlier of the day on which notice of the date of the meeting is mailed to
shareholders or public disclosure of the date of such meeting is made.
Notice to the Company from a shareholder who intends to present a proposal
or to nominate a person for election as a director at a shareholders' meeting
must contain certain information about the shareholder giving such notice and,
in the case of director nominations, all information that would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee (including such person's written consent to serve as a
director if so elected). If the presiding officer at the meeting determines
that a shareholder's proposal or nomination is not made in accordance with the
procedures set forth in the Amended and Restated Articles of Incorporation and
Restated Bylaws, such proposal or nomination, at the direction of such
presiding officer, may be disregarded. The notice requirement for shareholder
proposals contained in the Amended and Restated Articles of Incorporation and
Restated Bylaws does not restrict a shareholder's right to include proposals
in the Company's annual proxy materials pursuant to rules promulgated under
the Securities Exchange Act of 1934, as amended.
The Amended and Restated Articles of Incorporation provide that directors
may be removed only for cause and only by the affirmative vote, at any annual
or special meeting of the shareholders, of not less than 66 2/3% of the total
number of votes of then outstanding shares of capital stock of the Company
that are entitled to vote generally in the election of directors, voting
together as a single class, but only if notice of such proposed removal was
contained in the notice of such meeting. "For cause" means: (i) misconduct as
a director of the Company or any subsidiary of the Company which involves
dishonesty with respect to a material corporate activity or material corporate
assets; or (ii) conviction of an offense punishable by one or more years of
imprisonment (other than minor regulatory infractions and traffic violations
which do not materially and adversely effect the Company). The Board of
Directors has the power to increase or decrease the authorized number of
directors, with or without shareholder approval. Newly created directorships
resulting from any increase in the number of directors or any vacancy of the
Board of Directors may be filled by the affirmative vote of a majority of the
remaining directors then in office or, if not filled by the directors, by the
shareholders. In discharging the duties of their respective positions and in
determining what is believed to be in the best interest of the Company, the
Board of Directors, and individual directors, in addition to considering the
effects of any action on the Company or its shareholders, may, to the extent
permitted by applicable Florida law, consider the interests of the employees,
customers, suppliers and creditors of the Company and its subsidiaries, the
communities in which offices or other establishments of the Company and its
subsidiaries are located, and all other factors such directors may consider
pertinent; provided, however, that this provision of the Company's Amended and
Restated Articles of Incorporation solely grants discretionary authority to
the directors and no constituency shall be deemed to have been given any right
to consideration thereby.
The preceding provisions of the Amended and Restated Articles of
Incorporation and any related provisions of the Restated Bylaw may be changed
only upon the affirmative vote of holders of at least a 66 2/3% of the
outstanding shares of Common Stock.
The provisions of the Amended and Restated Articles of Incorporation and the
Restated Bylaws summarized in the preceding five paragraphs and the provisions
of Florida's Business Corporation Act (the "FBCA") described under "--Certain
Provisions of Florida Law," contain provisions that may have the effect of
delaying, deferring or preventing a non-negotiated merger or other business
combination involving the Company. These provisions are intended to encourage
any person interested in acquiring the Company to negotiate with and obtain
the approval of the Board of Directors in connection with the transaction.
Certain of these provisions may, however, discourage a future acquisition of
the Company not approved by the Board of Directors in which shareholders might
receive an attractive value for their shares or that a substantial number or
even a majority of the Company's shareholders might believe to be in their
best interest. As a result, shareholders who desire to participate in such a
transaction may not have the opportunity to do so. Such provisions could also
discourage bids for the Common Stock at a premium, as well as create a
depressive effect on the market price of the Common Stock.
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CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida law
that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of the those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The FBCA prohibits the voting of shares in a publicly-held Florida
corporation that are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the
election of directors within each of the following ranges of voting power: (i)
one-fifth or more but less than one-third of such voting power; (ii) one-third
or more but less than a majority of such voting power; and (iii) more than a
majority of such voting power.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless: (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
LISTING
Application has been made to include the Company's Common Stock for
quotation on the Nasdaq National Market under the trading symbol "IMRS."
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Company's Common Stock is American Stock Transfer
& Trust Company.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the securities
of the Company.
Upon consummation of this Offering, the Company will have outstanding
9,386,590 shares of Common Stock and will have granted options for the
purchase of 5,159,120 shares of Common Stock pursuant to the Stock Option Plan
at a weighted average exercise price of $0.82 per share (assuming an initial
public offering price of $12.00 per share). Of such options granted pursuant
to the Stock Option Plan: (i) options to purchase 4,164,550 shares of Common
Stock are held by Satish K. Sanan, the Company's President, Chief Executive
Officer and majority shareholder, of which 4,064,550 are currently exercisable
(at a weighted average exercise price of $0.36 per share); and (ii) options to
purchase 435,950 shares of Common Stock (at a weighted average exercise price
of $0.12 per share) are held by other officers and employees of the Company
and are exercisable as of, or within 60 days of, November 1, 1996. Of the
9,386,590 shares outstanding upon completion of this Offering, the 3,500,000
shares sold in this Offering will be freely tradable without restriction or
further registration under the Securities Act, unless they are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (which sales would be subject to certain limitations and
restrictions described below). The remaining 5,886,590 outstanding shares of
Common Stock may be sold in the public market only if registered or pursuant
to an exemption from registration such as Rule 144 or 144(k) promulgated under
the Securities Act. The holders of all remaining 5,886,590 shares (and holders
of options for the purchase of 4,451,020 shares of Common Stock which are
exercisable as of, or within 60 days of, November 1, 1996) have agreed not to
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of, or agree to dispose of, any shares of Common Stock (other than
gifts) until 180 days after the date of this Prospectus without prior written
consent of Montgomery Securities. See "Underwriting." Montgomery Securities in
its sole discretion and without notice may earlier release for sale in the
public market all or any portion of the shares subject to the lock-up
agreement.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for a least two years (including the holding
period of any prior owner except an affiliate) is entitled to sell in
"brokers' transactions" or to market makers, within any three-month period a
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of Common Stock then outstanding (approximately 94,000 shares
immediately after this Offering); or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the required filing
of a Form 144 with respect to such sale. Sales under Rule 144 are subject to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least three years, is entitled to sell
such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144. Unless
otherwise restricted, "144(k) shares" may therefore be sold immediately upon
the completion of this Offering. Under Rule 701 under the Securities Act,
persons who purchase shares upon exercise of options granted prior to this
Offering are entitled to sell such shares 90 days after this Offering in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the volume limitation or notice filing provisions of Rule 144. In
addition, the Commission has published a notice of proposed rulemaking which,
if adopted, as proposed, would shorten the applicable holding period under
Rule 144(d) and 144(k) to one and two years, respectively (from current two
and three-year periods). The Company cannot predict whether such amendments
will be adopted or the effect thereof on the trading market for its Common
Stock.
After the expiration of the 180-day lock-up period, 5,886,590 shares, which
have been held for over three years, will be eligible for sale in the public
market subject to compliance with Rule 144. The Company is unable to estimate
accurately the number of "restricted" shares that will be sold under Rule 144
since this will depend in part on the market price for the Common Stock, the
personal circumstances of the seller and other factors. See "Risk Factors--
Shares Eligible for Future Sale."
56
<PAGE>
After the completion of this Offering, the Company intends to file a
Registration Statement on Form S-8 under the Securities Act to register: (i)
5,413,410 shares of Common Stock reserved for issuance under the Stock Option
Plan (the remaining 32,570 shares of Common Stock reserved for issuance under
the Stock Option Plan will be issued to the Selling Shareholders and sold in
this Offering); (ii) the 150,000 shares reserved under the Directors Stock
Option Plan, of which options for the purchase of 30,000 shares will be
granted upon consummation of the Offering; and (iii) the 200,000 shares
reserved under the Stock Purchase Plan. After the date of such filing, except
for shares held by "affiliates" of the Company as defined in Rule 144 under
the Securities Act (which are subject to the limitation and restrictions
described above), approximately 49,480 shares subject to outstanding options
will be immediately eligible for sale upon issuance. See "Management--Employee
Benefit Plans."
57
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters") represented by Montgomery
Securities and Alex. Brown & Sons Incorporated (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
underwriting agreement (the "Underwriting Agreement") by and among the
Company, the Selling Shareholders and the Underwriters, to purchase from the
Company and the Selling Shareholders the aggregate number of shares of Common
Stock indicated below opposite their respective names at the initial 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 Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities...........................................
Alex. Brown & Sons Incorporated.................................
---------
Total........................................................... 3,500,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters initially propose to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $ per
share, and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part.
The Company and Satish K. Sanan, a Selling Shareholder, have granted the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to a maximum of 525,000 additional shares of
Common Stock in the aggregate to cover over-allotments, if any, at the same
price per share as the initial shares to be purchased by the Underwriters. To
the extent the Underwriters exercise such over-allotment option, the
Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in
the above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with this Offering.
The Company, the Selling Shareholders and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the over-allotment option),
collectively will beneficially own approximately 5,886,590 shares of
outstanding Common Stock (and options for the purchase of 4,451,020 which will
be exercisable as of, or within 60 days of, November 1, 1996), have agreed
that for a period of 180 days after the date of this Prospectus they will not,
without the prior written consent of Montgomery Securities, directly or
indirectly, offer for sale, sell, solicit an offer to sell, contract or grant
an option to sell, pledge, transfer, establish an open put equivalent position
or otherwise dispose of any shares of Common Stock, options, warrants to
acquire shares or securities convertible into or exchangeable for equity
securities. In addition, the Company has agreed that for a period of 180 days
after the date of this Prospectus it will not, without the consent of
Montgomery Securities, directly or indirectly, issue, offer for sale, sell,
solicit an offer to sell, contract or grant an option to sell, pledge,
transfer or otherwise dispose of any shares of Common Stock, options, warrants
to acquire shares or securities convertible into or exchangeable for equity
securities, except for shares of Common Stock offered hereby and shares issued
and options granted pursuant to the Stock Option Plan, the Directors Stock
Option Plan or the Stock Purchase Plan. See "Management--Stock Option Plans,"
"--Stock Purchase Plan" and "Shares Eligible for Future Sale."
58
<PAGE>
The Underwriting Agreement provides that the Company and Mr. Sanan will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial offering price will be determined through
negotiations among the Company, the Selling Shareholders and the
Representatives. Among the factors to be considered in such negotiations are
the Company's historical results of operations and financial condition,
prospects for the Company and for the industry in which the Company competes,
an assessment of the Company management, its past and present operations and
financial performance, the prospects for future earnings of the Company, the
present state of the Company's development, the general condition of the
securities markets at the time of the Offering and the market prices of and
demand for publicly traded common stocks of comparable companies in recent
periods and other factors deemed relevant. See "Risk Factors--No Prior Public
Market for Common Stock; Possible Volatility of Stock Price."
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company and the Selling Shareholders by
Morris, Manning & Martin, L.L.P., Atlanta, Georgia. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California. Nishith Desai, International Legal
& Tax Counsellors, Bombay, India, will provide certain legal opinions with
respect to matters of Indian law.
EXPERTS
The Consolidated Financial Statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
such firm as experts in accounting and auditing. Coopers & Lybrand L.L.P. will
rely on the report of Arthur Andersen & Associates, Bombay, India, independent
public accountants with respect to their audit of IMR-India and in reliance
upon the authority of such firm as experts in accounting and auditing.
59
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement")
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement 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, each such
statement being qualified in all respects by such reference. The Registration
Statement and the exhibits and schedules thereto may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Seven World Trade Center, Room 1400, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.
W., Washington, D.C. 20549, Room 1024, at prescribed rates. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commissions Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web Site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish to its shareholders annual reports containing
Consolidated Financial Statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
----------------
CC-PAC (R), Solution 2000 (R) and Transform2000(R) are registered service
marks of the Company. TransformIMS SM, TransformVSAM SM and TransformDB2 SM
are service marks of the Company.
60
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ADJUSTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED):
Basis of Presentation................................................ F-2
Adjusted Pro Forma Condensed Consolidated Balance Sheet.............. F-3
Adjusted Pro Forma Condensed Consolidated Statements of Operations... F-4
Notes to Adjusted Pro Forma Condensed Consolidated Financial
Statements.......................................................... F-5
CONSOLIDATED FINANCIAL STATEMENTS:
Reports of Independent Accountants................................... F-6 - F-7
Consolidated Balance Sheets as of December 31, 1994, 1995 and June
30, 1996 (Unaudited)................................................ F-8
Consolidated Statements of Operations for the Years Ended December
31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1995
and 1996 (Unaudited)................................................ F-9
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1993, 1994 and 1995 and for the Six Months
Ended June 30, 1996 (Unaudited)..................................... F-10
Consolidated Statements of Cash Flows for the Years Ended December
31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1995
and 1996 (Unaudited)................................................ F-11
Notes to Consolidated Financial Statements........................... F-12
</TABLE>
F-1
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
ADJUSTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The following Adjusted Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1996 and the Adjusted Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995 and the six months ended June
30, 1996 give effect to the issuance and sale by the Company of 2,950,000
shares of Common Stock at an assumed initial public offering price of $12.00
per share after deducting the estimated underwriting discounts and commissions
and offering expenses, the application of estimated net proceeds including the
IMR-India Acquisitions and the Company's conversion from an S corporation to a
C corporation for U.S. federal and state income tax purposes. The Adjusted Pro
Forma Condensed Consolidated Balance Sheet as of June 30, 1996 is presented as
if the application of estimated net proceeds including the IMR-India
Acquisitions and the conversion from an S corporation to a C corporation for
U.S. federal and state income tax purposes had taken place on June 30, 1996.
The Adjusted Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1995 and the six months ended June 30, 1996 presents
the pro forma results of operations assuming all acquisitions occurred January
1, 1995.
The unaudited Adjusted Pro Forma Condensed Consolidated Financial Statements
have been prepared based upon the historical financial statements of the
Company for the periods stated above. Such pro forma statements may not be
indicative of the results that would have occurred if the IMR-India
Acquisitions and the conversion from an S corporation to a C corporation for
U.S. federal and state income tax purposes had been consummated on the dates
indicated, or of the operating results that may be achieved in the future. The
pro forma statements should be read in connection with the consolidated
financial statements and notes to consolidated financial statements contained
elsewhere herein.
F-2
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
ADJUSTED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------
PRO FORMA ADJUSTED
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....... $ 940 31,925 (A) $20,171
(220)(C)
(3,129)(D)
(6,864)(E)
(2,481)(K)
Accounts receivable............. 4,366 4,366
Other current assets............ 652 652
------ -------
Total current assets.......... 5,958 25,189
Property and equipment, net of
accumulated depreciation......... 2,070 2,070
Goodwill, net of accumulated
amortization..................... 422 6,864 (E) 5,724
(1,562)(G)
Other assets...................... 1,390 1,390
------ -------
Total assets.................. $9,840 $34,373
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit loans.......... $ 775 $ 775
Accounts payable and accrued
expenses....................... 1,334 1,334
Current portion of long-term
debt........................... 1,408 (1,408)(K) 0
Other current liabilities....... 756 (104)(K) 652
Deferred income taxes........... 0 258 (B) 258
------ -------
Total current liabilities..... 4,773 3,019
Long-term debt.................... 969 (969)(K) 0
Deferred income taxes........... 50 772 (B) 822
Other liabilities............... 77 77
------ -------
Total liabilities............. 5,369 3,918
------ -------
Minority interest................. 1,607 (1,562)(G) 45
------ -------
Shareholders Equity:
Preferred stock................. 0 0
Common stock.................... 909 298 (A) 939
(268)(H)
Additional paid-in capital...... 1,167 31,627 (A) 29,517
(2,962)(D)
776 (F)
(1,091)(H)
Retained earnings............... 2,193 (1,030)(B) 0
(220)(C)
(167)(D)
(776)(F)
Cumulative foreign currency
translation adjustment......... (46) (46)
Treasury stock.................. (1,359) 1,359 (H) 0
------ -------
Total shareholders equity..... 2,864 30,410
------ -------
Total liabilities and
shareholders equity.......... $9,840 $34,373
====== =======
</TABLE>
The accompanying notes are an integral part of these pro forma
condensed consolidated financial statements.
F-3
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
ADJUSTED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
------------------------------ ---------------------------------------
PRO FORMA ADJUSTED PRO FORMA ADJUSTED
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $22,700 $22,700 $ 12,397 $ 12,397
Cost of revenues........ 13,709 13,709 7,222 7,222
------- ------- ----------- -----------
Gross Profit............ 8,991 8,991 5,175 5,175
Selling, general and
administrative
expenses............... 5,483 534(I) 6,017 3,093 267(I) 3,360
------- -------
Income from operations.. 3,508 2,974 2,082 1,815
Other (expense) income.. 14 349(K) 363 (129) 160(K) 31
------- ------- ----------- -----------
Income before provision
for income taxes and
minority interest...... 3,522 3,337 1,953 1,846
Provision for income
taxes.................. 293 1,042(J) 1,335 114 624(J) 738
------- ------- ----------- -----------
Income before minority
interest............... 3,229 2,002 1,839 1,108
Minority interest in net
income................. (712) 692(G) (20) (330) 321(G) (9)
------- ------- ----------- -----------
Net income.............. $ 2,517 $ 1,982 $ 1,509 $ 1,099
======= ======= =========== ===========
Net income per share.... $0.15 $0.10
======= ===========
Weighted average number
of shares of common
stock and common stock
equivalents
outstanding............ 13,669 13,669 11,274 11,274
======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma
condensed consolidated financial statements.
F-4
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
NOTES TO ADJUSTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Reflects the issuance of approximately 2,950,000 shares of Common Stock at
an assumed initial public offering price of $12.00 per share, net of
transaction cost.
(B) Reflects deferred income taxes of $1.0 million recorded as a result of the
termination of the S corporation election.
(C) Reflects a distribution to the Company's shareholders in the amount of
previously taxable income of $220,000 at June 30, 1996.
(D) Reflects payment of approximately $3.1 million to Satish K. Sanan in
connection with the IMR-India Acquisitions resulting in a corresponding
reduction in equity.
(E) Reflects the IMR-India Acquisitions by the Company (other than the
acquisition from Mr. Sanan)
(F) Reflects reclassification of accumulated earnings and profits of $776,000
to additional paid-in capital. See "Use of Proceeds" and Notes 13, 20 and
21 of Notes to Consolidated Financial Statements.
(G) Reflects the decrease in minority interest resulting from the IMR-India
Acquisitions.
(H) Reflects the cancellation of treasury stock by the Board of Directors.
(I) Reflects the additional amortization of goodwill resulting from the IMR-
India Acquisitions. See "Use of Proceeds."
(J) Reflects the additional income taxes resulting from the Company's
conversion from an S corporation to a C corporation for U.S. federal and
state income tax purposes.
(K) Reflects the reduction in outstanding indebtedness resulting from
application of the net proceeds of the Offering.
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Information Management Resources, Inc.
Clearwater, Florida
We have audited the accompanying consolidated balance sheets of Information
Management Resources, Inc. and subsidiary (the Company) as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for the years ended December 31, 1995,
1994 and 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Information Management Resources (India) Limited, a consolidated
subsidiary, constituting approximately 31% and 38% of consolidated assets as
of December 31, 1995 and 1994, respectively, and approximately 81%, 86% and
23% of consolidated cost of revenues for the years ended December 31, 1995,
1994 and 1993 (see Note 2). Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Information Management Resources (India) Limited
is based solely on the report of the other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Information
Management Resources, Inc. and subsidiary as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for the years ended
December 31, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 6, 1996, except as to certain information
in Note 20, for which the date is September 12, 1996
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Information Management Resources (India) Limited
We have audited the accompanying balance sheets of Information Management
Resources (India) Limited (a company incorporated in India) as of December 31,
1995 and December 31, 1994, and the related statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1995 and
December 31, 1994 and the four months ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 Information Management
Resources (India) Limited as of December 31, 1995 and December 31, 1994, and
the results of its operations and its cash flows for the years ended December
31, 1995 and December 31, 1994 and the four months ended December 31, 1993 in
conformity with generally accepted accounting principles in the United States
of America.
ARTHUR ANDERSEN & ASSOCIATES
Bombay, India
September 6, 1996
F-7
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30, PRO FORMA
1994 1995 1996 JUNE 30, 1996
----------- ---------- ----------- -------------
(UNAUDITED) (UNAUDITED)
(SEE NOTE 20)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equiva-
lents................... $ 1,012,897 $1,620,968 $ 939,461 $ 939,461
Accounts receivable...... 1,975,953 3,614,014 4,366,408 4,366,408
Other current assets..... 417,098 459,995 652,087 652,087
----------- ---------- ----------- -----------
Total current assets... 3,405,948 5,694,977 5,957,956 5,957,956
Property and equipment, net
of accumulated
depreciation.............. 2,470,395 1,699,084 2,070,448 2,070,448
Capitalized software costs,
net of accumulated
amortization.............. 385,603 548,691 630,152 630,152
Deposits and other assets.. 327,105 263,382 759,264 759,264
Goodwill, net of accumu-
lated amortization........ 510,245 451,370 421,933 421,933
----------- ---------- ----------- -----------
Total assets........... $ 7,099,296 $8,657,504 $ 9,839,753 $ 9,839,753
=========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans... $ 425,239 $ 655,466 $ 775,064 $ 775,064
Accounts payable......... 1,206,911 490,317 383,907 383,907
Accrued expenses......... 1,174,977 1,484,443 949,533 1,169,533
Current portion of long-
term debt............... 521,755 326,640 1,407,686 1,407,686
Current maturities of
capital lease obliga-
tions................... 155,907 132,642 104,412 104,412
Notes payable-sharehold-
er...................... 0 242,457 103,541 103,541
Deferred revenue......... 260,814 17,270 549,228 549,228
Deferred income taxes.... 0 0 0 257,500
----------- ---------- ----------- -----------
Total current liabili-
ties.................. 3,745,603 3,349,235 4,273,371 4,750,871
Long-term debt............. 1,960,891 1,077,077 969,300 969,300
Notes payable-shareholder.. 192,332 107,054 0 0
Capital lease obligations.. 189,463 54,514 0 0
Deferred income taxes...... 24,614 37,739 50,154 822,654
Other liabilities.......... 67,686 82,507 76,736 76,736
----------- ---------- ----------- -----------
Total liabilities...... 6,180,589 4,708,126 5,369,561 6,619,561
----------- ---------- ----------- -----------
Minority interest.......... 654,411 1,241,266 1,606,619 1,606,619
----------- ---------- ----------- -----------
Commitments and contingen-
cies (Notes 12, 14 and 21)
Shareholders' equity:
Preferred stock, $.10 par
value, 10,000,000 shares
authorized no shares
issued and outstanding.. 0 0 0 0
Common stock, $.10 par
value per share,
40,000,000 shares
authorized, 9,055,960
shares issued and
outstanding at December
31, 1995 and 1994 and
9,085,960 shares issued
and outstanding at June
30, 1996................ 905,600 905,600 908,600 908,600
Additional paid-in capi-
tal..................... 1,167,244 1,167,244 1,167,244 1,942,898
Retained earnings (accu-
mulated deficit)........ (1,811,629) 705,956 2,192,741 167,087
Cumulative foreign
currency translation
adjustments............. 3,081 (61,938) (46,125) (46,125)
----------- ---------- ----------- -----------
264,296 2,716,862 4,222,460 2,972,460
Less treasury stock at
cost 5,000 at December
31, 1995 and 2,681,940
at June 30, 1996........ 0 (8,750) (1,358,887) (1,358,887)
----------- ---------- ----------- -----------
Total shareholders' eq-
uity.................. 264,296 2,708,112 2,863,573 1,613,573
----------- ---------- ----------- -----------
Total liabilities and
shareholders' equity.. $ 7,099,296 $8,657,504 $ 9,839,753 $ 9,839,753
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $12,428,924 $14,101,653 $22,700,170 $ 10,574,612 $ 12,397,261
Cost of revenues........ 10,130,493 8,662,244 13,708,782 6,753,209 7,222,099
----------- ----------- ----------- ------------ ------------
Gross profit............ 2,298,431 5,439,409 8,991,388 3,821,403 5,175,162
Selling, general and
administrative
expenses............... 5,544,729 4,610,481 5,482,982 2,467,967 3,093,104
----------- ----------- ----------- ------------ ------------
Income (loss) from
operations......... (3,246,298) 828,928 3,508,406 1,353,436 2,082,058
----------- ----------- ----------- ------------ ------------
Other (expense) income:
Loss in equity
investment........... (158,546) (125,842) (110,038) (58,645) (327)
Interest expense...... (275,517) (472,606) (348,652) (196,896) (159,915)
Other................. 0 1,097,015 472,609 436,171 31,705
----------- ----------- ----------- ------------ ------------
Total other
(expense) income... (434,063) 498,567 13,919 180,630 (128,537)
----------- ----------- ----------- ------------ ------------
Income (loss) before
provision (benefit) for
income taxes and
minority interest...... (3,680,361) 1,327,495 3,522,325 1,534,066 1,953,521
Provision (benefit) for
income taxes........... (2,365) 450,504 292,747 198,202 114,228
----------- ----------- ----------- ------------ ------------
Income (loss) before
minority interest.. (3,677,996) 876,991 3,229,578 1,335,864 1,839,293
Minority interest in net
(income) loss.......... 4,762 (62,587) (711,993) (354,849) (330,356)
----------- ----------- ----------- ------------ ------------
Net income (loss)... $(3,673,234) $ 814,404 $ 2,517,585 $ 981,015 $ 1,508,937
=========== =========== =========== ============ ============
Pro forma income data
(unaudited--see Note
20):
Income before income
taxes and minority
interest............... $ 3,522,325 $ 1,953,521
----------- ------------
Total pro forma
provision for income
taxes.................. 1,197,861 679,579
----------- ------------
Pro forma net income
before minority
interest............... 2,324,464 1,273,942
Minority interest in net
income ................ (711,993) (330,356)
----------- ------------
Pro forma net income.... $ 1,612,471 $ 943,586
=========== ============
Pro forma net income per
share.................. $0.12 $0.08
=========== ============
Pro forma weighted
average common and
common stock equivalent
shares outstanding..... 13,669,275 11,273,895
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
------------------- FOREIGN RETAINED
ADDITIONAL CURRENCY EARNINGS
PAID-IN TRANSLATION (ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) STOCK TOTAL
--------- -------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... 74,960 $ 75,000 $ 204,296 $ 0 $ 1,041,321 $ 0 $ 1,320,617
Retirement of common
stock previously issued
as compensation and
forfeited by
shareholder............ (3,000) (3,000) (10,500) 0 13,500 0 0
Issuance of common stock
issued in connection
with change in par
value.................. 648,000 0 0 0 0 0 0
Issuance of common stock
issued in connection
with business
combination............ 8,280,000 828,000 881,048 0 0 1,709,048
Issuance of common
stock.................. 56,000 5,600 92,400 0 0 0 98,000
Net loss................ 0 0 0 0 (3,673,234) 0 (3,673,234)
Translation
adjustments............ 0 0 0 (5,642) 0 0 (5,642)
Dividends declared ($1
per share)............. 0 0 0 0 (7,620) 0 (7,620)
--------- -------- ---------- -------- ----------- ----------- -----------
Balance, December 31,
1993................... 9,055,960 905,600 1,167,244 (5,642) (2,626,033) 0 (558,831)
Translation
adjustments............ 0 0 0 8,723 0 0 8,723
Net income.............. 0 0 0 0 814,404 0 814,404
--------- -------- ---------- -------- ----------- ----------- -----------
Balance, December 31,
1994................... 9,055,960 905,600 1,167,244 3,081 (1,811,629) 0 264,296
Repurchase of common
stock.................. 0 0 0 0 0 (8,750) (8,750)
Translation
adjustments............ 0 0 0 (65,019) 0 0 (65,019)
Net income.............. 0 0 0 0 2,517,585 0 2,517,585
--------- -------- ---------- -------- ----------- ----------- -----------
Balance, December 31,
1995................... 9,055,960 905,600 1,167,244 (61,938) 705,956 (8,750) 2,708,112
Net income for the six
months ended June 30,
1996 (unaudited)....... 0 0 0 0 1,508,937 0 1,508,937
Translation adjustment
(unaudited)............ 0 0 0 15,813 0 0 15,813
Issuance of common stock
(unaudited)............ 30,000 3,000 0 0 0 0 3,000
Repurchase of common
stock (unaudited)...... 0 0 0 0 0 (1,350,137) (1,350,137)
Dividends declared
(unaudited)............ 0 0 0 0 (22,152) 0 (22,152)
--------- -------- ---------- -------- ----------- ----------- -----------
Balance, June 30, 1996
(unaudited)............ 9,085,960 $908,600 $1,167,244 $(46,125) $ 2,192,741 $(1,358,887) $2,863,573
========= ======== ========== ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-10
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------
1993 1994 1995 1995 1996
----------- ---------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $(3,673,234) $ 814,404 $ 2,517,585 $ 981,015 $ 1,508,937
----------- ---------- ----------- ------------ ------------
Adjustments to
reconcile net income
(loss) to cash
provided by (used in)
operating activities:
Depreciation and amor-
tization.............. 268,663 545,696 491,085 240,868 233,453
Gain on sale of prop-
erty and equipment.... 0 (76,473) (520,672) (520,672) 0
Gain on sale of subsid-
iary.................. 0 (1,013,503) 0 0 0
Unrealized exchange
losses................ 0 4,938 62,862 0 (14,052)
Loss in equity invest-
ment.................. 158,546 125,842 110,038 58,645 327
Minority interest in
net income (loss)..... (4,762) 62,587 711,993 354,849 330,356
Deferred income taxes.. (2,365) 64,849 39,395 26,011 12,415
(Increase) decrease in
accounts receivable... 14,630 (568,910) (1,638,061) (1,357,699) (752,394)
(Increase) decrease in
other current assets.. 3,937 (160,708) (69,167) (285,070) (204,892)
Increase in deposits
and other assets...... (45,318) (65,528) (14,042) (40,111) (117,936)
(Decrease) increase in
accounts payable...... (51,130) 604,019 (716,594) (164,517) (106,409)
Increase (decrease) in
accrued expenses...... 1,295,756 (848,277) 282,439 98,393 (507,883)
Increase in other lia-
bilities.............. 3,677 45,629 14,821 (67,686) (5,771)
(Decrease) increase in
deferred revenue...... 457,787 (281,204) (243,544) 103,523 531,958
----------- ---------- ----------- ------------ ------------
Total adjustments..... 2,099,421 (1,561,043) (1,489,447) (1,553,466) (600,828)
----------- ---------- ----------- ------------ ------------
Net cash provided by
(used in) operating
activities........... (1,573,813) (746,639) 1,028,138 (572,451) 908,109
----------- ---------- ----------- ------------ ------------
Cash flows from invest-
ing activities:
Proceeds from sale of
investment in subsidi-
ary................... 0 1,883,012 2,500 2,500 0
Proceeds from sale of
property and equip-
ment.................. 0 284,004 1,388,478 1,388,478 0
Additions to capital-
ized software costs... 0 (385,603) (170,088) (170,088) (87,461)
Additions to property
and equipment......... (217,861) (312,282) (710,217) (239,986) (501,668)
Increase in equity in-
vestment.............. (200,251) (159,402) (7,746) (7,746) (392,500)
----------- ---------- ----------- ------------ ------------
Net cash provided by
(used in) investing
activities........... (418,112) 1,309,729 502,927 973,158 (981,629)
----------- ---------- ----------- ------------ ------------
Cash flows from financ-
ing activities:
Net (repayments)
borrowings from re-
volving credit line... 117,155 (138,421) 230,227 (128,577) 119,598
Proceeds from long-term
debt.................. 1,833,179 574,586 0 0 900,000
Proceeds from issuance
of common stock....... 275,653 0 0 0 3,000
Proceeds from notes
payable--shareholder.. 119,206 20,555 207,605 0 0
Proceeds from capital
lease obligation...... 0 15,107 0 0 0
Payments on long-term
debt.................. (854,460) (440,292) (1,024,881) (258,681) (1,215,865)
Payments on capital
lease obligations..... (96,487) (180,327) (157,954) (74,410) (82,744)
Payments on notes pay-
able--shareholder..... 0 0 (50,426) (13,666) (245,970)
Payment of dividends... 0 0 0 0 (22,152)
Purchase of for trea-
sury stock, at cost... 0 0 (8,750) 0 (76,667)
Increase in due to af-
filiates, net......... 1,155,711 0 0 0 0
----------- ---------- ----------- ------------ ------------
Net cash (used in)
provided by financing
activities........... 2,549,957 (148,792) (804,179) (475,334) (620,800)
----------- ---------- ----------- ------------ ------------
Effect of exchange rate
charges................ 0 (272) (118,815) 4,184 12,813
----------- ---------- ----------- ------------ ------------
Net increase in cash and
cash equivalents....... 558,032 414,026 608,071 (70,443) (681,507)
Cash and cash equiva-
lents at beginning of
year................... 40,839 598,871 1,012,897 1,012,897 1,620,968
----------- ---------- ----------- ------------ ------------
Cash and cash equiva-
lents at end of year... $ 598,871 $1,012,897 $ 1,620,968 $ 942,454 $ 939,461
=========== ========== =========== ============ ============
Supplemental disclosure
of cash flow informa-
tion:
Cash paid during the
year for interest..... $ 311,500 $ 438,100 $ 377,100 $ 196,100 $ 145,500
=========== ========== =========== ============ ============
Cash paid during the
year for income tax-
es.................... $ 31,800 $ 33,200 $ 229,500 $ 134,600 $ 60,600
=========== ========== =========== ============ ============
Supplemental schedule of
non-cash investing and
financing activities:
Net assets acquired in
connection with busi-
ness combination...... $ 1,531,395 $ 0 $ 0 $ 0 $ 0
=========== ========== =========== ============ ============
Capital lease obliga-
tions incurred for
property and equip-
ment.................. $ 226,256 $ 26,383 $ 0 $ 0 $ 0
=========== ========== =========== ============ ============
Reduction of dividends
payable from netting
receivable from
shareholder........... $ 45,028 $ 0 $ 0 $ 0 $ 0
=========== ========== =========== ============ ============
Increase in dividend
payable classified as
notes payable--share-
holder................ $ 52,571 $ 0 $ 0 $ 0 $ 0
=========== ========== =========== ============ ============
Dividends declared..... $ 7,620 $ 0 $ 0 $ 0 $ 0
=========== ========== =========== ============ ============
Retirement of common
stock previously
issued under a
stock option plan..... $ 13,500 $ 0 $ 0 $ 0 $ 0
=========== ========== =========== ============ ============
Long-term debt incurred
for repurchase of
treasury stock........ $ 0 $ 0 $ 0 $ 0 $ 1,273,470
=========== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
Information Management Resources, Inc. and subsidiary (the Company) provide
transitional software outsourcing solutions to the information technology
departments of large businesses. The Company's services are provided to a
variety of industries and customers located primarily in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation--The consolidated financial statements include
the accounts of Information Management Resources, Inc. (IMR) and its majority
owned or effectively controlled foreign subsidiary, Information Management
Resources (India) Limited, an Indian limited liability company (IMR-India).
The Company's investment in Information Management Resources (U.K.) Limited
(IMR-U.K.) is accounted for on the equity method. All significant inter-
company balances and transactions have been eliminated.
Effective September 1993, IMR acquired a 69.3% interest in IMR-India. IMR-
India was incorporated in India in June 1990. Throughout 1994, IMR had a
controlling financial interest in IMR-India. During December 1994, IMR sold a
portion of its ownership in IMR-India thereby reducing its investment from
69.3% to 34.2%. The sale resulted in net cash proceeds of approximately
$1,883,000 and resulted in a net gain of approximately $1,014,000, which is
included in other income for the year ended December 31,1994. IMR continues to
account for its investment in IMR-India utilizing the consolidation method
because effective control has been maintained through the continued direct
financial interest in IMR-India held by IMR's majority shareholder. At
December 31, 1995 and 1994, IMR's majority shareholder owned 18.4% of IMR-
India. IMR-India's financial statements are prepared in conformity with U.S.
generally accepted accounting principles.
IMR and IMR-India have an agreement under which IMR engages IMR-India to
provide computer software consultants and to perform offshore software
development services. For the years ended December 31, 1995, 1994 and the
period September 1, 1993 through December 31, 1993, approximately $12,413,000,
$8,274,000, and $2,585,000, respectively, were billed by IMR-India to IMR for
consultants and development services. IMR-India agrees to pay IMR a commission
on the net service fees, for which they invoice IMR under this agreement. For
the years ended December 31, 1995, 1994 and the period September 1, 1993
through December 31, 1993, approximately $505,000, $445,000, and $122,000 was
billed by IMR-India to IMR for commissions on net service fees and sale of
software products.
IMR also owns approximately 39.5% of IMR-U.K. Prior to November 1994, IMR
had effective control of IMR-U.K. through IMR's majority shareholder's
financial interest in IMR-U.K. Management believes that the effect of not
consolidating IMR-U.K. in the Company's financial statements for periods prior
to November 1994 is not material.
Interim Financial Information--The unaudited interim consolidated financial
statements as of June 30, 1996 and 1995 and for each of the six months then
ended include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position, results of operations, and cash flows.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturity dates of three months or less to be cash
equivalents. The Company maintains its investments at high quality financial
institutions.
Revenue Recognition--Fixed-price contract revenue is recognized using the
percentage of completion method of accounting, under which the sales value of
performance, including earnings thereon, is recognized on
F-12
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the basis of the percentage that each contract's cost to date bears to the
total estimated cost. Any anticipated losses upon contract completion would be
accrued currently.
Unbilled accounts receivable represent revenues on contracts to be billed in
subsequent periods as per the terms of the contract. Deferred revenue
represents amounts billed in excess of revenue earned. Service revenue from
time-and-materials services is recognized as the services are provided.
Software product sales are recorded as the products are shipped to the
customers
Goodwill--Goodwill originated from the acquisition of IMR-India in September
1993 and is being amortized utilizing the straight-line basis over a 10-year
period. The Company periodically reviews the value of its goodwill to
determine if an impairment has occurred. The Company measures the potential
impairment of recorded goodwill by the undiscounted value of expected future
operating cash flow in relation to the assets to which this goodwill applies.
Research and Development Costs--Research and development costs represent
costs incurred for new product development and are included in cost of sales
in the financial statements as incurred.
Software Products--Software products represent third-party purchases of
software held for resale and are stated at the lower of cost or market; cost
being determined on the first-in, first-out (FIFO) method. Software products
of approximately $84,000 and $17,000 at December 31, 1995 and 1994,
respectively, are included in other current assets.
Property and Equipment--Property and equipment, including property under
capital lease agreements, are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method and is charged to
income over the estimated useful lives of the respective assets. Maintenance
and repairs are expensed as incurred, while renewals and betterments are
capitalized.
Fully depreciated assets are retained in property and depreciation accounts
until they are removed from service. Cost and accumulated depreciation on
assets retired or disposed of are removed from the accounts and any gain and
losses resulting therefrom are credited or charged to operations.
Capitalized Software Costs--Capitalized software costs are recorded at cost
less accumulated amortization. Production costs for computer software that is
to be utilized as an integral part of a product or process is capitalized when
both (a) technological feasibility is established for the software and (b) all
research and development activities for the other components of the product or
process have been completed.
Amortization is charged to income based upon a revenue formula over the
shorter of the remaining estimated economic life of the product or estimated
lifetime revenue of the product.
Income Taxes--IMR elected to be taxed as a small business corporation (S
Corporation) for federal income tax purposes in the United States.
Accordingly, IMR's taxable income and tax credits, if applicable, are
generally reportable by the shareholders on their individual tax returns.
The Company utilizes the asset and liability method of accounting for income
taxes for IMR-India. Under this method, deferred income taxes are recorded to
reflect the tax consequences on future years differences between the tax basis
of assets and liabilities and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income. (See
Note 13.)
Foreign Currency Translation--The financial statements of IMR-India utilize
a functional currency which is other than the U.S. dollar and are translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation." Assets and
liabilities of IMR-India are translated at exchange rates in effect on the
reporting date. Income and expense items are translated at the
F-13
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
average exchange rate for the year. The resulting translation adjustments are
not included in determining net income but are accumulated as a separate
component of shareholders' equity. Foreign currency transaction gains and
losses are reported in net income but were not material to any period
presented.
Computation of Net Income per Share--Net income per common and common
equivalent shares for the year ended December 31, 1995 and for the six months
ended June 30, 1996 (unaudited) have been computed using the weighted average
number of common and common equivalent shares outstanding using the treasury
stock method, as adjusted for the common stock split described in Note 20, is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
Weighted average common stock outstanding................ 9,050,960 6,404,020
Weighted average common stock equivalents................ 4,618,315 4,869,875
---------- ----------
Shares used in net income per share calculation.......... 13,669,275 11,273,895
========== ==========
</TABLE>
Pursuant to the requirements of the Securities and Exchange Commission,
common stock and common stock options issued by the Company during the twelve
months immediately preceding the initial public offering date have been
included in the calculation of the weighted average shares outstanding using
the treasury stock method based on the estimated initial public offering
price.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock Based
Compensation." With respect to stock options granted to employees, SFAS 123
permits companies to continue using the accounting method promulgated by the
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees," to measure compensation or to adopt the fair value based
method prescribed by SFAS 123. If the APB 25 method is continued, pro forma
footnote disclosures are required as if SFAS 123 accounting provisions were
followed. Management has determined not to adopt the SFAS 123's accounting
recognition provisions. Accordingly, SFAS 123 will not have any impact on the
Company's financial statements, except for the addition of the required
footnote disclosures.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," is effective for years beginning after
December 15, 1995. This statement requires that long-lived
F-14
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assets and certain intangibles to be held and used by the Company be reviewed
for impairment. This pronouncement is not expected to have a material impact
on the financial statements of the Company.
3. ACCOUNTS RECEIVABLE:
The major classifications of accounts receivable at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accounts receivable, trade........................ $1,303,353 $2,320,252
Unbilled accounts receivable--fixed-price con-
tracts........................................... 63,654 708,094
Unbilled accounts receivable--time-and-materials
contracts........................................ 608,946 585,668
---------- ----------
$1,975,953 $3,614,014
========== ==========
</TABLE>
4. COSTS AND ESTIMATED EARNINGS ON COMPLETED AND UNCOMPLETED CONTRACTS:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Costs incurred on completed and uncompleted
contracts..................................... $ 504,502 $ 4,369,463
Estimated earnings............................. 180,836 1,443,266
--------- -----------
685,338 5,812,729
Less billings to date.......................... (882,498) (5,121,905)
--------- -----------
$(197,160) $ 690,824
========= ===========
</TABLE>
The following is included in the accompanying balance sheets:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Unbilled accounts receivable--fixed-price con-
tracts.......................................... $ 63,654 $ 708,094
Deferred revenue--time-and-materials contracts... (260,814) (17,270)
--------- ---------
$(197,160) $ 690,824
========= =========
</TABLE>
5. OTHER CURRENT ASSETS
Other current assets at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Employee advances....................................... $116,559 $141,044
Inventory............................................... 17,240 84,094
Prepaid expenses........................................ 257,029 234,857
Deferred income taxes................................... 26,270 0
-------- --------
$417,098 $459,995
======== ========
</TABLE>
F-15
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Land............................................. $ 482,081 $ 0
Building and improvements........................ 56,118 159,164
Computer equipment and software.................. 1,724,573 1,719,388
Office furniture and equipment................... 489,491 555,418
Equipment under capital leases................... 588,197 503,171
Construction in progress......................... 88,557 1,276
---------- -----------
3,429,017 2,938,417
Less accumulated depreciation.................... (958,622) (1,239,333)
---------- -----------
$2,470,395 $ 1,699,084
========== ===========
</TABLE>
The equipment under capital lease is pledged as collateral for the related
lease obligations.
The amounts expensed for maintenance and repairs for the years ended
December 31, 1995, 1994 and 1993 amounted to approximately $72,000, $62,000
and $69,000, respectively. Depreciation expense related to property and
equipment was approximately $425,000, $426,000 and $228,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. Accumulated amortization
on equipment under capital leases was approximately $313,000 and $250,000 at
December 31, 1995 and 1994, respectively.
7. CAPITALIZED SOFTWARE COSTS:
Capitalized software costs at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Capitalized software costs............................. $385,603 $555,691
Accumulated amortization............................... 0 (7,000)
-------- --------
$385,603 $548,691
======== ========
</TABLE>
Commencing October 1995, IMR began utilizing the software associated with
the capitalized software costs. Amortization expense related to capitalized
software costs was $7,000 in 1995. No adjustments were made during 1995, 1994
or 1993 to write down capitalized software costs to net realizable value.
8. GOODWILL:
Goodwill at December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Goodwill............................................. $588,745 $ 588,745
Accumulated amortization............................. (78,500) (137,375)
-------- ---------
$510,245 $ 451,370
======== =========
</TABLE>
Amortization expense related to goodwill was approximately $60,000, $120,000
and $40,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. Goodwill and related accumulated amortization attributable to
the portion of IMR's ownership in IMR-India that was sold in December 1994
(see Note 2) has been removed from the respective account balances as of
December 31, 1994.
F-16
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ACCRUED EXPENSES:
Accrued expenses at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accrued payroll..................................... $ 775,887 $ 925,489
Accrued vacation.................................... 123,958 306,433
Due to affiliate.................................... 0 27,027
Other............................................... 275,132 225,494
---------- ----------
$1,174,977 $1,484,443
========== ==========
</TABLE>
10. REVOLVING CREDIT LOANS:
IMR-India maintains an export sales accounts receivable discounting
facility. The loan may be denominated in India Rupees or U.S. dollars.
Principal payments on amounts borrowed are due within 90 days of their
respective borrowings. Interest is payable at a rate set by the Reserve Bank
of India (currently 13% for rupee denominated loans and 7.5% for dollar
denominated loans). At December 31, 1995 and 1994, approximately $655,000 and
$425,000, respectively, were due under this facility. The maximum amount
available under this facility at December 31, 1995 was approximately $567,000;
however, the bank has permitted a temporary increase in the facility borrowing
capacity for December 1995. During May 1996, IMR-India applied to the bank to
increase the credit facility to approximately $850,000. Pending action on the
application, the bank has temporarily allowed IMR-India to utilize the
additional amount of the facility. The facility is collateralized by IMR-
India's total export accounts receivable, property and equipment, and is
guaranteed by the Company's majority shareholder.
Provisions of the above credit agreement contain certain financial
covenants, the most restrictive of which are the maintenance of certain
financial ratios.
11. NOTES PAYABLE--SHAREHOLDER:
Notes payable--shareholder at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
8% unsecured note payable, annual principal pay-
ments of $65,944 with interest payments commenc-
ing January 1996................................. $ 0 $ 171,777
Two 8% unsecured notes payable with principal and
interest due January 1997 (these amounts were
paid in full during 1996)........................ 0 190,000
8% unsecured note payable, annual principal in-
stallments of $23,841 plus accumulated interest.. 119,206 0
20% unsecured note payable, due May 1995.......... 52,571 0
Accrued interest on above notes................... 20,555 17,604
--------- ---------
Total notes payable--shareholder................ 192,332 379,381
Less:Advances to shareholder...................... 0 (29,870)
Current portion of note payable--shareholder...... 0 (242,457)
--------- ---------
$ 192,332 $ 107,054
========= =========
</TABLE>
F-17
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense on notes payable--shareholder for the years ended December
31, 1995, 1994 and 1993 was approximately $18,000, $21,000 and $5,000,
respectively. The 1995 current portion of notes payable--shareholder includes
the prepayment in 1996 of the two notes due January 1997.
During 1995, the Company combined the two notes payable--shareholder at
December 31, 1994 into a single note payable in the amount of $171,777.
12. LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1994 and June 30, 1996 is summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Term note payable with interest payable
monthly at the financial institution's base
rate plus 1.25% per annum (9.75% as of De-
cember 31, 1995), principal payable in
monthly installments of $16,250, collateral-
ized by the Company's accounts receivable
and equipment, assignment of certain assets
owned by the majority shareholder and guar-
anteed by the Company's majority sharehold-
er.......................................... $ 0 $877,157 $ 0
Line of credit with interest payable monthly
at the financial institution's base rate
plus 1.00% per annum, collateralized by the
Company's accounts receivable and equipment,
assignment of certain assets owned by the
Company's majority shareholder and guaran-
teed by the Company's majority shareholder.. 974,657 0 0
9% to 11.2% per annum rupee denominated term
note payable, interest payable quarterly,
principal payable in semiannual installments
of $22,682, due September 1996 collateral-
ized by property and equipment, a $100,000
time deposit of the Company's majority
shareholder and guaranteed by the Company's
majority shareholder, prepaid in full during
1995........................................ 101,458 0 0
17.5% per annum rupee denominated term note
payable, monthly installments of $1,494, in-
cluding interest, due January 1998, collat-
eralized by real property, prepaid in full
during 1995................................. 45,237 0 0
13% per annum term notes payable, principal
payable in quarterly installments of
$187,500 plus interest payable semiannually
due October 1995, collateralized by property
and equipment and guaranteed by the
Company's majority shareholder.............. 375,000 0 0
17.5% per annum rupee denominated term note
payable, quarterly installments of $35,441
plus interest commencing May 1996 due Febru-
ary 1998, collateralized by all assets of
IMR-India excluding accounts receivable,
guaranteed by the Company's majority share-
holder, prepaid in full during 1995......... 459,734 0 0
</TABLE>
F-18
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
7% per annum uncollateralized convert-
ible note payable to a minority share-
holder of IMR-India, interest payable
semiannually, principal payable in
semiannual installments of $131,640
commencing September 1996 (under cir-
cumstances as defined in the agree-
ment).................................. $ 526,560 $ 526,560 $ 526,560
Term note payable with interest payable
monthly at LIBOR plus 2.0% (7.4% as of
June 30, 1996), principal payable in
monthly installments of $15,000, col-
lateralized by the Company's accounts
receivable and equipment and guaranteed
by the Company's majority stockholder.. 0 0 885,000
7% term note payable, principal and in-
terest payable quarterly through Janu-
ary 1, 1997, collateralized by
2,646,940 shares of the Company's stock
held in escrow (see Note 21)........... 0 0 965,426
---------- ---------- ----------
2,482,646 1,403,717 2,376,986
Less current portion.................... 521,755 326,640 1,407,686
---------- ---------- ----------
$1,960,891 $1,077,077 $ 969,300
========== ========== ==========
</TABLE>
Principal payments for the years subsequent to 1996 are as follows:
<TABLE>
<S> <C>
1997.............................. $ 458,280
1998.............................. 326,640
1999.............................. 195,000
2000.............................. 97,157
----------
$1,077,077
==========
</TABLE>
Provisions of the 7% uncollateralized convertible note payable required the
shares of IMR-India common stock to achieve a certain value as defined in the
agreement by June 30, 1996. In the event such shares of common stock did not
achieve this value, the Note would be repayable, or the lender had the option
to convert the outstanding loan balance into 70,000 shares of IMR-India common
stock by September 30, 1996. In June 1996, the value of IMR-India shares of
common stock was achieved under an agreement for the purchase of the stock of
the lender/minority shareholder (See Note 21). Upon completion of the purchase
during August 1996, IMR-India's obligation to repay the note and the lender's
option to convert this outstanding loan balance into 70,000 shares of IMR-
India common stock were canceled, and this note was converted into additional
paid-in capital of IMR-India.
IMR maintains a line of credit, interest payable monthly at the financial
institution's base rate plus 1%, principal payable by the 15th of each month,
due April 30, 1996 and subsequently extended to May 31, 1996. The line of
credit at December 31, 1995 was $250,000 and was subsequently increased to
$1,250,000 in January 1996. During May 1996 the line of credit was refinanced
to a balance equal to 80% of the outstanding accounts receivable balance (as
defined) of IMR at a rate of LIBOR plus 1.8%. At December 31, 1995, no amount
was outstanding on the line of credit. The line of credit is collateralized by
IMR's accounts receivable, property and
F-19
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
equipment, assignment of certain assets owned by the majority shareholder and
personal guarantee of the majority shareholder and is cross collateralized
with the term note payable.
Provisions of the line of credit and certain notes payable contain certain
financial covenants, the most restrictive of which is the maintenance of
certain financial ratios. At December 31, 1995, the Company was in compliance
with these covenants or has obtained the necessary waivers.
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value is defined as the price at which a financial
instrument could be liquidated in an orderly manner over a reasonable time
period under present market conditions. IMR's adjustable rate loans reprice
frequently at current market rates. The rates of IMR's fixed obligations (also
see Notes 10 and 11) approximate those rates of the adjustable loans.
Therefore, the fair value of these loans has been estimated to be
approximately equal to their carrying value.
The fair value of IMR-India's time deposits and short-term borrowings are
considered to approximate their carrying amounts because the interest rates on
these instruments are regulated by the Reserve Bank of India, the Indian
central bank, and are varied periodically to reflect market conditions.
The fair value of IMR-India's uncollateralized convertible note payable at
December 31, 1995 cannot be practicably determined due to certain unique
features including a clause (subsequently invoked) that provided for its
cancellation. Subsequent to December 31, 1994, IMR-India has extinguished all
its long term borrowings.
13. INCOME TAXES:
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Current--foreign............................... $ 0 $385,699 $250,598
Deferred--foreign.............................. (2,365) 64,805 42,149
------- -------- --------
$(2,365) $450,504 $292,747
======= ======== ========
</TABLE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current foreign:
Deferred tax asset:
India loss carryforward (included in other
current assets)................................ $ 26,270 $ 0
======== ========
Non-Current foreign:
Deferred tax asset:
Accrued expenses................................ $ 7,247 $ 8,945
Deferred tax liability:
Property and equipment.......................... (31,861) (46,684)
-------- --------
Net non-current deferred tax liability........ $(24,614) $(37,739)
======== ========
</TABLE>
IMR has elected to be taxed as a small business corporation (S Corporation)
for federal income tax purposes. Accordingly, the Company's taxable income and
tax credits are reported by the shareholders on their individual tax returns
and no provision for U.S. federal income taxes is recognized in IMR's
financial statements.
In conjunction with the initial public offering, the S Corporation election
will be terminated by the shareholders of the Company and it will change its
method of accounting for income taxes from the cash basis
F-20
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the accrual method. The corresponding adjustment will be included in
taxable income over a period not to exceed four years.
Under the Indian Income Tax Act of 1961, a substantial portion of IMR-
India's income is exempt from Indian Income Tax as profits attributable to
export operations. Accordingly, the effective tax rate imposed on IMR-India's
income is substantially less than the current statutory rate of 46%. IMR-India
also has the potential to take advantage of a tax holiday in India until 1998.
It historically has been more favorable for IMR-India to claim the tax
benefits of the export exemption incentives and as such the tax provisions
reflected for IMR-India are based upon the export exemption incentives and do
not reflect any effects of the tax holiday.
IMR has not recorded deferred income taxes applicable to undistributed
earnings of IMR-India. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for United States federal and state
income tax has been provided thereon. Undistributed earnings amounted to
approximately $525,000 at December 31, 1995, exclusive of amounts which, if
remitted, generally would not result in any additional U.S. income taxes
because of available foreign tax credits.
The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. Federal
income tax rate of 34% to the income (loss) before income taxes and minority
interest.
<TABLE>
<CAPTION>
1993 1994 1995
----------- --------- ----------
<S> <C> <C> <C>
Statutory tax provision (benefit)... $(1,251,000) $ 451,000 $1,198,000
U.S. S Corporation not subject to
federal and state income taxes..... 1,252,000 (449,000) (779,000)
Foreign withholding tax on gain
incurred by S Corporation.......... 0 365,000 0
Difference between federal and
foreign tax rates on permanently
reinvested income of foreign
subsidiary......................... 4,000 (13,000) (175,000)
Loss in foreign equity investment... 54,000 43,000 37,000
Other............................... (61,000) 54,000 12,000
----------- --------- ----------
Total provision for income taxes.. $ (2,000) $ 451,000 $ 293,000
=========== ========= ==========
</TABLE>
14. LEASES:
The Company leases certain equipment under capital leases. Future minimum
lease payments under capital leases as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996..................................... $148,000
1997..................................... 45,000
1998..................................... 13,000
--------
Total minimum payments................... 206,000
Less amount representing interest........ 19,000
--------
Present value of minimum payments........ 187,000
Less current portion..................... 133,000
--------
Long-term lease obligation............... $ 54,000
========
</TABLE>
F-21
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases office facilities and certain residential premises for
foreign employees under noncancelable operating lease agreements. Rental
expense under these leases was approximately $517,000, $406,000 and $247,000
during 1995, 1994 and 1993, respectively. Future minimum lease payments as of
December 31, 1995 for leases with noncancelable terms in excess of one year
are approximately as follows:
<TABLE>
<S> <C>
1996................................... $ 542,000
1997................................... 549,000
1998................................... 326,000
1999................................... 91,000
2000................................... 96,000
Thereafter............................. 556,000
----------
Total minimum payments............... $2,160,000
==========
</TABLE>
During November 1995, IMR entered into a noncancelable lease agreement to
sublease a portion of its office facilities. Rental income under this lease
was approximately $5,000 during 1995. Future minimum lease receipts as of
December 31, 1995 are approximately as follows:
<TABLE>
<S> <C>
1996..................................... $145,000
1997..................................... 140,000
--------
Total minimum receipts................. $285,000
========
</TABLE>
15. STOCK OPTIONS:
IMR has granted nonqualified stock options to certain key employees. These
options are to purchase common stock at an exercise price estimated by
management to be at least equal the fair value of the stock at the date of
grant.
A summary of the status of IMR's stock option grants is as follows:
<TABLE>
<CAPTION>
EXERCISE
SHARES PRICE RANGE
--------- -----------
<S> <C> <C>
Balance, January 1, 1993........................... 261,060 $.10
Granted............................................ 559,700 $.10
---------
Balance, December 31, 1993......................... 820,760
Granted............................................ 221,490 $.10
---------
Balance, December 31, 1994......................... 1,042,250
Granted............................................ 1,392,540 $.10
Canceled........................................... (229,340) $.10
---------
Balance, December 31, 1995......................... 2,205,450
Granted (unaudited)................................ 2,803,340 $.50
Canceled (unaudited)............................... (117,460) $.10
Exercised (unaudited).............................. (30,000) $.10
---------
Balance, June 30, 1996 (unaudited)................. 4,861,330 $.10--$.50
=========
</TABLE>
Of the options granted for the period January 1, 1996 through June 30, 1996,
2,643,340 vested immediately upon grant with the remaining 160,000 shares
vesting 20% per year for five years. During July 1996, IMR granted an
additional 277,330 options to various employees at an exercise price of $5.06
per share vesting 20% per year for five years.
F-22
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
IMR-India has adopted a separate Employee Share Option Policy which provides
for grants of options to employees to purchase common shares of IMR-India. The
maximum number of options that may be granted under the policy are 51,900
common shares. Under the policy, options granted to an employee will vest upon
completion of five years of continuous employment with IMR-India or its
affiliates. Vested options are valid for exercise during the employees'
employment with IMR-India or its affiliates and for a period of six months
thereafter. Options not exercised within six months of cessation of employment
expire.
A summary of the status of IMR-India's stock option plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ -----------
<S> <C> <C>
Balance, September 1, 1993............................ 12,000 $0.00
Granted............................................... 1,000 $0.00
------
Balance, December 31, 1993............................ 13,000
Granted............................................... 4,000 $0.00
------
Balance, December 31, 1994............................ 17,000
Granted............................................... 8,500 $0.28
------
Balance, December 31, 1995............................ 25,500
Canceled (unaudited).................................. (5,000) $0.00
------
Balance, June 30, 1996 (unaudited).................... 20,500 $0.00-$0.28
======
</TABLE>
At December 31, 1995 and 1994, vested options were 1,000 and 0,
respectively. There were no options exercisable at December 31, 1995, 1994 and
1993.
Compensation expense has been recognized on the difference between fair
value at the date of the grant and the exercise price. Compensation expense is
recognized over the life of the options. Compensation expense under this plan
for the years ended December 31, 1995 and 1994 and for the four months ended
December 31, 1993 approximated $23,600, $45,700 and $3,700, respectively.
Under IMR-India's policy, options to be granted subsequent to September 6,
1996 are to be granted at an exercise price equal to the fair market value of
the common shares of IMR-India at the time of the grant.
16. EMPLOYEE BENEFIT PLANS:
IMR implemented a 401(k) defined contribution pension plan (the Plan),
effective January 1, 1992, for employees meeting certain service requirements.
IMR will match 50% of employees' contributions, up to 4% of their pay, limited
to a maximum contribution of $1,000 per employee. Additional contributions may
be made at the discretion of management. Contributions made to the Plan by IMR
totaled approximately $19,000, $11,000 and $24,000 for the years ended
December 31,1995, 1994 and 1993, respectively.
IMR-India maintains employee benefit plans that cover substantially all
employees.
The employees' provident fund, pension and family pension plans are
statutory defined contribution retirement benefit plans. Under the plans,
employees contribute 10 percent of base compensation, which is matched by a 10
percent contribution by IMR-India. Contributions made to the plan by IMR-India
totaled approximately $32,000, $32,000, and $10,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The gratuity plan is a statutory postemployment benefit plan providing
defined lump sum benefits based on years of service and final average
compensation. IMR-India makes annual contributions to an employees'
F-23
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
gratuity fund established with a government-owned insurance corporation. The
contributions are based on actuarial valuations made by the insurance
corporation as of March 31 each year. Contributions made to this plan by IMR-
India were less than $6,000 for each of the years ended December 31, 1995,
1994 and 1993.
17. RELATED PARTIES:
IMR-India provides software development services to IMR-UK at market rates.
During the year ended December 31, 1995, the Company recognized approximately
$109,000 of revenue from IMR-UK.
18. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The Company maintains its cash and cash equivalents
with high credit quality financial institutions and, by policy, limits the
amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to accounts receivable is limited
due to the dispersion of the Company's customer base across different
industries and geographies. The Company's two largest customers accounted for
approximately 40%, 34% and 26% of revenue for the years ended December 31,
1995, 1994 and 1993, respectively, and 33% and 42% of accounts receivable as
of December 31, 1995 and 1994, respectively.
19. OTHER INCOME:
Other income is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Gain on disposition of property and equipment in con-
nection with relocation of IMR-India operations, net
of relocation cost of $102,058 in 1995.............. $ 71,209 $427,907
Gain on disposition of IMR-India stock............... 1,013,503 0
Interest income and other............................ 12,303 44,702
---------- --------
$1,097,015 $472,609
========== ========
</TABLE>
20. PRO FORMA DISCLOSURE (UNAUDITED):
On September 12, 1996, the Company filed Amended and Restated Articles of
Incorporation which: (i) effected a reclassification of each share of its
voting and nonvoting common stock into 10 shares of common stock, par value
$.10 per share, (ii) increased the Company's authorization of common stock to
40,00,000 shares; and (iii) created and authorized 10,000,000 shares of
preferred stock, par value $.10 per share, under terms that allow the Board of
Directors to designate one or more classes of preferred stock and to designate
the rights, privileges, preferences and limitations of each such class. All
applicable share and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect this reclassification.
The Company intends to file a registration statement with the Securities and
Exchange Commission for an initial public offering of 2,950,000 shares of its
authorized but unissued Common Stock, par value $0.10 per share.
Pro Forma Taxes--As described in Note 13, IMR had elected to be taxed as an
S Corporation under the provisions of the Internal Revenue Code. In connection
with the closing of the initial public offering, the S Corporation election
will be terminated by the shareholders and, accordingly, the S Corporation
will become subject to U.S. federal and state income taxes. Upon termination
of the S Corporation election, current and
F-24
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
deferred income taxes reflecting the tax effects of temporary differences
between the Company's financial statement and tax bases of certain assets and
liabilities will become liabilities of the Company. These liabilities will be
reflected on the consolidated balance sheet with a corresponding non-recurring
expense in the consolidated statement of operations at the completion of the
Company's offering.
Deferred income taxes relate primarily to accounts receivable, accounts
payable, accrued expenses and deferred income, primarily attributable to the
use of the cash method of accounting for income tax purposes. The amount of
the deferred income tax liability (asset) computed using the asset and
liability method of accounting for income taxes approximates $1,030,000 and
$780,000 at June 30, 1996 and December 31, 1995 respectively.
The following unaudited pro forma information reflects the reconciliation
between the total statutory provision for income taxes and the total actual
provision relating to the income tax expenses that would have been incurred if
the S Corporation was subject to U.S. federal and state income taxes:
<TABLE>
<CAPTION>
1995
----------
<S> <C> <C>
Total pro forma income taxes............................ $1,198,000
========== ===
Statutory tax provision (benefit)....................... $1,198,000
State taxes, net of federal benefit..................... 92,000
Divestment gain, net of foreign tax credit.............. 0
Nondeductible expenses.................................. 34,000
Difference between federal and foreign tax rates on per-
manently reinvested income of foreign subsidiary....... (175,000)
Loss in Foreign equity investment....................... 37,000
Other................................................... 12,000
----------
Total provision for income taxes...................... $1,198,000
========== ===
</TABLE>
The corporation has not recorded deferred income taxes applicable to
undistributed earnings of IMR-India. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for United States
income taxes has been provided thereon. Undistributed earnings amounted to
approximately $525,000 at December 31, 1995, excluding amounts which, if
remitted, generally would not result in any additional U.S. income taxes
because of available foreign tax credits. If the earnings of IMR-India were
not indefinitely reinvested, a deferred tax liability of approximately
$200,000 would have been required.
Prior to the consummation of this offering, it is currently anticipated that
IMR will enter into an S Corporation Tax Allocation and Indemnification
Agreements (the Tax Agreements) with their current shareholders relating to
their respective income tax liabilities. Because the S Corporation will be
fully subject to corporate income taxation after the consummation of this
offering, the reallocation of income and deductions between the periods during
which the entity was treated as an S Corporation and the periods during which
the entity will be subject to corporate income taxation may increase the
taxable income of one party while decreasing that of another party.
Accordingly, the Tax Agreements are intended to include provision such that
taxes are borne by the applicable entities, on the one hand, and the
stockholder, on the other, only to the extent that such parties were required
to report the related stockholder income for tax purposes.
Pro Forma Net Income (Loss) Per Share--Weighted average common shares
outstanding includes the common share equivalents pursuant to Note 2 applying
the treasury stock method for determining common stock equivalents. Such
shares were deemed outstanding for the periods presented.
Pro Forma Shareholders Equity--The Company's presentation of unaudited pro
forma shareholder's equity at June 30, 1996 reflect the effects on historical
retained earnings of a planned distribution to the Company's shareholders
currently estimated to be $220,000 attributable to previously taxed earnings
and the recording of
F-25
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the deferred tax liability of $1,030,000 referred to above as if the S
Corporation election had terminated immediately prior to that date.
Additionally retained earnings of the Company related to IMR after recording
tax estimated dividends and deferred income taxes referred to above, will be
classified to additional paid in capital in connection with the termination of
the Company's S Corporation election. The unaudited pro forma shareholders
equity at June 30, 1996 gives effect to these items, but does not give effect
to the proceeds from this offering.
21. SUBSEQUENT EVENTS:
During January 1996, IMR repurchased 29.2% (1,063,730 voting common shares
and 1,583,210 non-voting common shares) of its outstanding common stock from
certain minority stockholders for approximately $1,323,000 ($.50 per share).
The repurchase agreement required an immediate payment of $50,000 and the
execution of 7% notes payable in the aggregate amount of $1,273,000 payable in
four equal quarterly installments commencing April 1996.
During February 1996, IMR issued a stock option to its majority shareholder
for approximately 2,640,000 shares of common stock. The exercise price was
$.50 per share, which management determined was the fair market value based on
the January 1996 stock repurchase.
During August 1996, IMR purchased 10.5% (60,000 shares) of IMR-India's
outstanding common shares from an unrelated shareholder for approximately
$1,800,000 in cash. In September 1996, IMR entered into an agreement to
purchase an additional 35.1% (200,000 shares) of IMR-India from an unrelated
private investment fund. The purchase price is $5,064,000 and closing of this
transaction is contingent upon the IMR's successful completion of its initial
public offering and a receipt of approval from the Royal Bank of India. These
purchases will be accounted for as a purchase pursuant to the provisions of
APB No. 16, "Business Combinations" and resulting goodwill will be amortized
over a 10-year period. In addition, IMR has entered into an agreement to
acquire approximately 18.4% (104,800 shares) of IMR-India from its majority
shareholder for approximately $3,129,000. This amount is to be paid in cash.
Consummation of this repurchase transaction is contingent upon the successful
completion of an initial public offering by the IMR which must occur by
December 31, 1996. The Acquisition from IMR's majority shareholder will be
accounted for as a reduction of equity.
Upon completion of the acquitions noted above by IMR of equity interests in
IMR-India, IMR will own approximately 98.2% of the outstanding common shares
of IMR-India.
In August 1996, IMR-India obtained approval of a U.S. dollar denominated
term loan of $1,300,000 from a financial institution to finance the expansion
of their facility in Bangalore, India. The loan will be repayable in eight
equal semi-annual installments of $162,500 commencing one year from the loan
date. Interest on the loan will be payable semi-annually at the rate of LIBOR
plus 3% per annum. The loan will be collateralized by a first lien, on IMR-
India's property and equipment and a guarantee by the Company's majority
shareholder.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 au-
thorized by the Company or the Underwriters. This Prospectus does not consti-
tute an offer to sell or a solicitation of any 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 solici-
tation would be unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create implication that there
has been no change in the affairs of the Company or that the information con-
tained herein is correct as of any time subsequent to the date hereof.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Prior S Corporation Status and Distributions............................. 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 28
Management............................................................... 40
Principal and Selling Stockholders....................................... 48
Certain Transactions..................................................... 50
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 60
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Until , 1996, (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not partici-
pating in this distribution, may be required to deliver a Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus when acting
as Underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,500,000 SHARES
[LOGO OF INFORMATION MANAGEMENT RESOURCES]
COMMON STOCK
----------------
PROSPECTUS
----------------
Montgomery Securities
Alex. Brown & Sons
Incorporated
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
DESCRIPTION OF GRAPHICS AND PHOTOGRAPHS APPEARING IN PROSPECTUS:
[Inside Front Cover Page]
[A large red bracket appears to the left of the caption "A leading provider of
comprehensive, transitional IT outsourcing services and solutions."]
[A chart titled "IMR Delivery Model" appears in this space. On the left, three
circles appear, one below the other, representing the three teams assigned by
the Company to a client project. "On-Site Team (Client)" appears within the top
circle. "Off-Site Team (IMR-U.S.)" appears within the middle circle. "Offshore
Team (IMR-India)" appears within the bottom circle. The three circles are
linked by lines suggesting that the three teams work together to complete a
client project.]
Four three-dimensional rectangles appear to the immediate right of the top, "On-
Site Team (Client)" circle. The rectangles are aligned in a row and represent
the services performed for a client by the Company's on-site team. Each
rectangle is named for one of those services. The services are: "Consulting
and Planning," "Project Analysis," "System Testing" and
"Implementation/Production Support."
Two three-dimensional rectangles appear to the immediate right of the bottom,
"Offshore Team (IMR-India)" circle. The rectangles are aligned in a row and
represent the services performed for a client by the Company's offshore team.
Each rectangle is named for one of those services. The services are "Software
Development" and "Ongoing Maintenance and Support."
A horizontal line appears immediately to the right of the middle, "Off-Site Team
(IMR-U.S.)" circle. Red arrows above and below the line represent the knowledge
transfer that occurs between the on-site and the offshore teams through the
Company's off-site team in the U.S. The caption "Knowledge Transfer" appears
above the line. A drawing of a satellite appears in the bottom right quadrant
of the chart which provides a suggestion that knowledge transfer is effected
through satellite communication of information among members of the various
teams. The caption "Advanced Satellite Communications Infrastructure" appears
below the drawing.]
[A large red bracket appears to the right of the following text:
. Seamlessly managing the software development life cycle (SDLC) between on-
site and offshore project teams.
. Maximizing efficiency and cost savings while accelerating development time
frames.]
[Inside Back Cover Page]
[A large red bracket appears to the left of the following text:
IMR Services
. Software Development
. application Maintenance
. Year 2000 Conversion
. Migration and Re-engineering
. Programming and Consulting
[A photograph appears in this space. Depicted in the photograph is a software
development professional seated before a number of computers. He is working on
one of them.]
[A photograph appears in this space. It depicts a number of people seated at a
conference table engaged in a video conference. A video monitor appears at the
end of the conference table. The video monitor is projecting an image of a man
situated in front of a number of computers.]
[A large red bracket appears to the right of the caption "Application Software
Outsourcing Solutions"]
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $18,043
National Association of Securities Dealers, Inc. fee................... $ 5,733
Nasdaq National Market listing fee..................................... $41,966
Accountants' fees and expenses......................................... $ *
Legal fees and expenses................................................ $ *
Blue Sky fees and expenses............................................. $15,000
Transfer Agent's fees and expenses..................................... $ 5,000
Printing and engraving expenses........................................ $75,000
Miscellaneous.......................................................... $ *
-------
Total Expenses......................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporations Act, as amended (the "Florida Act"),
provides that, in general, a business Company may indemnify any person who is
or was a party to any proceeding (other than action by, or in the right of,
the Company) by reason of the fact that he or she is or was a director or
officer of the Company, against liability incurred in connection with such
proceeding, including any appeal thereof, provided certain standards are met,
including that such officer or director acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the Company, and provided further that, with respect to any criminal action or
proceeding, the officer or director had no reasonable cause to believe his or
her conduct was unlawful. In the case of proceedings by or in the right of the
Company, the Florida Act provides that, in general, a Company may indemnify
any person who was or is a party to any such proceeding by reason of the fact
that he or she is or was a director or officer of the Company against expenses
and amounts paid in settlement actually and reasonably incurred in connection
with the defense or settlement of such proceeding, including any appeal
thereof, provided that such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interest of the
Company, except that no indemnification shall be made in respect of any claim
as to which such person is adjudged liable unless a court of competent
jurisdiction determines upon application that such person is fairly and
reasonably entitled to indemnity. To the extent that any officers or directors
are successful on the merits or otherwise in the defense of any of the
proceedings described above, the Florida Act provides that the Company is
required to indemnify such officers or directors against expenses actually and
reasonably incurred in connection therewith. However, the Florida Act further
provides that, in general, indemnification or advancement of expenses shall
not be made to or on behalf of any officer or director if a judgment or other
final adjudication establishes that his or her actions, or omissions to act,
were material to the cause of action so adjudicated and constitute: (i) a
violation of the criminal law, unless the director or officer had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe it was unlawful; (ii) a transaction from which the director or officer
derived an improper personal benefit; (iii) in the case of a director, a
circumstances under which the director has voted for or assented to a
distribution made in violation of the Florida Act or the Company's Articles of
Incorporation or (iv) willful misconduct or a conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder. Article IX of the Company's Restated Bylaws provides that the
Company shall indemnify any director or officer or any former director or
officer to the fullest extent permitted by law.
Section 11 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued the securities set
forth below which were not registered under the Securities Act.
1. In October 1993, the Registrant issued an aggregate of 479,920 shares of
Common Stock for a purchase price of $1.75 per share to seven individual
investors.
2. In June 1996, the Registrant issued 257,100 shares of Common Stock for an
aggregate purchase price of $3,000 pursuant to the exercise of an option to
acquire such shares. The Registrant repurchased the 251,700 shares immediately
following the issuance thereof.
3. In July 1996, the Company issued an aggregate of 752,880 shares of Common
Stock for an aggregate purchase price of $8,785 pursuant to the exercise of
options to acquire such shares. The Registrant repurchased the 75,288 shares
immediately following the issuance thereof.
4. In September 1996, the Company issued 6,404,200 shares of its Common
Stock in connection with the completion of a stock reclassification whereby
each outstanding share of voting common stock and nonvoting common stock was
reclassified into ten shares of Common Stock.
5. During the past three years, the Company has issued options to acquire an
aggregate 4,698,070 shares of Common Stock at exercise prices which
represented the fair market value per share on the date of grant and which
ranged from $.10 to $5.06 per share.
The sale and issuance of shares listed above were exempt from registration
under the Securities Act by virtue of Sections 3(a), 3(b) and 4(a) of the
Securities Act and in reliance on Rule 701 and Regulation D promulgated
thereunder.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2* Restated Bylaws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Restated Bylaws of the Registrant
defining rights of the holders of Common Stock of the Registrant.
4.2** Specimen Stock Certificate.
5.1** Opinion of Morris, Manning & Martin, L.L.P., Counsel to the
Registrant, as to the legality of the shares being registered.
10.1* Memorandum and Articles of Association of IMR-India.
10.2* Articles of Association of IMR-U.K.
10.3* Joint Venture Agreement dated October 17, 1994 among the Registrant,
Satish K. Sanan, Anne Sanan and The Link Group; as amended pursuant to
Amendment to Joint Venture Agreement dated December 11, 1995 and
Second Amendment to Joint Venture Agreement dated February 29, 1996.
10.4*+ Master Services Agreement dated April 1, 1996 between the Registrant
and IMR-India.
10.5*+ Master Services Agreement dated April 1, 1996 between IMR-U.K. and
IMR-India.
10.6* Share Purchase Agreement dated July 22, 1996 between the Registrant
and Second India.
10.7* Share Purchase Agreement dated July 4, 1996 between the Registrant and
Satish K. Sanan.
10.8* Share Purchase Agreements dated September 12, 1996 between the
Registrant and India Magnum.
10.9*+ Master Services Agreement for Information Technology Professional and
related schedules between the Registrant and Dayton Hudson
Corporation.
10.10*+ Master Services Agreement and related schedules between the Registrant
and Dean Witter Discover & Co., Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11 [Reserved]
10.12*+ Master Agreement for Computer Consulting and Programming Services and
related schedules between the Registrant and Target Stores.
10.13* Revolving Line of Credit Business Loan Agreement dated June 5, 1996
between the Registrant and Barnett Bank of Pinellas County and related
Promissory Note, Commercial Security Agreement and Continuing
Unlimited Commercial Guaranty, each dated June 5, 1996.
10.14* Principal Plus Interest Business Loan Agreement dated June 5, 1996
between the Registrant and Barnett Bank of Pinellas County and related
Promissory Note, Commercial Security Agreement and Continuing
Unlimited Commercial Guaranty each dated June 5, 1996.
10.15** Form of Employment Agreement between Registrant and Satish K. Sanan.
10.16* Form of Employment Agreement for Executive Officers.
10.17* 401(k) Profit Sharing Plan effective January 1, 1992 and Amendment
thereto effective January 1, 1994.
10.18* Stock Incentive Plan effective July 15, 1996.
10.19* Form of Directors Stock Option Plan.
10.20* Form of Employee Stock Purchase Plan.
10.21* Lease Agreement dated March 22, 1993 between the Registrant and ABR
Plymouth Plaza, Ltd. regarding 22,578 square feet of office space
located at 26750 U.S. Highway 19 North, Clearwater, Florida; First
Amendment to Lease Agreement dated October 18, 1995 and Second
Amendment to Lease Agreement dated December 11, 1995.
10.22* Sub-Lease Agreement dated October 17, 1995 between the Registrant and
ABR Information Services, Inc. regarding 11,289 square feet of office
space located at 26750 U.S. Highway 19 North, Clearwater, Florida.
10.23* Stockholders' Agreement dated July 1, 1994.
10.24** Form of Termination of Stockholders' Agreement.
10.25* Form of Indemnification Agreement.
10.26** Form of S Corporation Termination, Tax Allocation and Indemnification
Agreement.
10.27* Loan Agreement between IMR-India and Canara Bank and related
documents.
10.28* Loan Agreement between IMR-India and Exim Bank of India and related
documents.
11.1** Computation of Pro Forma Net Income Per Share.
21.1* List of Subsidiaries.
23.1** Consent of Coopers & Lybrand, L.L.P.
23.2** Consent of Arthur Andersen & Associates.
23.3** Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1).
24.1* Powers of Attorney (included on signature page).
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** Filed with Amendment No. 1.
+ Confidential treatment has been requested with respect to portions of these
documents.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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
II-3
<PAGE>
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes 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 the 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 the
Registration Statement as of the time it was declared effective.
(ii) For purposes 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEARWATER, STATE OF
FLORIDA ON THE 19TH DAY OF OCTOBER, 1996.
Information Management Resources,
Inc.
By: /s/ Satish K. Sanan
---------------------------------
SATISH K. SANAN
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Satish K. Sanan President; Chief October 19, 1996
- ------------------------------------- Executive Officer
SATISH K. SANAN (Principal
Executive Officer)
and Director
/s/ Dilip Patel Treasurer; Director October 19, 1996
- -------------------------------------
DILIP PATEL AS ATTORNEY-IN-FACT FOR
JEFFERY S. SLOWGROVE
/s/ Dilip Patel Vice President-- October 19, 1996
- ------------------------------------- Finance (Principal
DILIP PATEL AS ATTORNEY-IN-FACT FOR Accounting Officer)
KASI V. SRIDHARAN
/s/ Dilip Patel Chief Financial October 19, 1996
- ------------------------------------- Officer (Principal
DILIP PATEL AS ATTORNEY-IN-FACT FOR Financial Officer)
MICHAEL J. DEAN
/s/ Dilip Patel Managing Director, October 19, 1996
- ------------------------------------- IMR-U.K.; Director
DILIP PATEL AS ATTORNEY-IN-FACT FOR
PHILIP SHIPPERLEE
/s/ Dilip Patel Director October 19, 1996
- -------------------------------------
DILIP PATEL AS ATTORNEY-IN-FACT FOR
CHARLES C. LUTHIN
/s/ Dilip Patel Director October 19, 1996
- -------------------------------------
DILIP PATEL AS ATTORNEY-IN-FACT FOR
VINCENT ADDONISIO
</TABLE>
II-5
<PAGE>
3,500,000 Shares
INFORMATION MANAGEMENT RESOURCES, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1996
MONTGOMERY SECURITIES
ALEX. BROWN & SONS, INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introduction. Information Management Resources,
------------
Inc., a Florida corporation (the "Company), proposes to issue and sell 2,950,000
shares of its authorized but unissued Common Stock, $.10 par value per share
(the "Common Stock"), and certain shareholders of the Company named in Schedule
B annexed hereto (the "Selling Shareholders") propose to sell an aggregate of
550,000 shares of the Company's issued and outstanding Common Stock to the
several underwriters named in Schedule A annexed hereto (the "Underwriters"),
for whom you are acting as Representatives. Said aggregate of 3,500,000 shares
are herein called the "Firm Common Shares." In addition, the Company and Satish
K. Sanan (the "Principal Shareholder") propose to grant to the Underwriters an
option to purchase up to 525,000 additional shares of Common Stock (the
"Optional Common Shares"), as provided in Section 5 hereof. The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."
You have advised the Company and the Selling Shareholders that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Shareholders hereby
confirm their respective agreements with respect to the purchase of the Common
Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company and
-------------------------------------------------
the Principal Shareholder. The Company and the Principal Shareholder represent
- -------------------------
and warrant to the several Underwriters that:
<PAGE>
(a) A registration statement on Form S-1 (File No. 333-12037)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
Company has prepared and has filed or proposes to file prior to the
effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form
of final prospectus or (ii) a final prospectus in accordance with Rules
430A and 424(b) of the Rules and Regulation. As filed, the final
prospectus shall include all Rule 430A Information and, except to the
extent that you shall agree in writing to a modification, shall be in
all substantive respects in the form furnished to you prior to the date
and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus) as the
Company shall have previously advised you in writing would be included
or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment
thereto becomes effective prior to the First Closing Date (as
hereinafter defined), shall also mean such registration statement as so
amended; provided, however, that such term shall also include (i) all
Rule 430A Information deemed to be included in such registration
statement at the time such registration statement becomes effective as
provided by Rule 430A of the Rules and Regulations and (ii) any
registration statement filed pursuant to 462(b) of the Rules and
Regulations relating to the Common Shares. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean (i) the prospectus relating to the Common Shares in the form in
which it is first filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations or (ii) if no filing pursuant to Rule 424(b)
of the Rules and Regulations is required, shall mean the form of final
prospectus included in the Registration Statement at the time such
registration statement becomes effective together with the Preliminary
Prospectus included in the Registration Statement at the time it
becomes effective. The term "Rule 430A Information" means information
with respect to the Common Shares and the offering thereof permitted to
be omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at
the time the Registration Statement becomes effective, and at all times
subsequent thereto up to and including each Closing Date hereinafter
mentioned, the Registration
2
<PAGE>
Statement and the Prospectus, and any amendments or supplements
thereto, will contain all material statements and information required
to be included therein by the Act and the Rules and Regulations and
will in all material respects conform to the requirements of the Act
and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, no representation
or warranty contained in this subsection 2(b) shall be applicable to
information contained in or omitted from any Preliminary Prospectus,
the Registration Statement, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, directly
or through the Representatives, specifically for use in the preparation
thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
Information Management Resources (India) Limited, a limited company
organized under the laws of India ("IMR-India"), and Information
Management Resources (U.K.) Limited, a company organized under the laws
of the United Kingdom ("IMR- UK" and, together with IMR-India, the "IMR
Affiliates"). The Company and each of the IMR Affiliates have been duly
incorporated and are validly existing under the laws of their
respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own and lease their properties and
conduct their respective businesses as described in the Prospectus. As
of the date hereof, the Company beneficially owns ________ shares of
[name of capital stock] (representing approximately 42.9% of the
outstanding equity of IMR-India), and the Principal Shareholder
beneficially owns ________ shares of [name of capital stock]
(representing approximately 18.4% of the outstanding equity of
IMR-India). After giving effect to the IMR- India Purchase (as defined
below), the Company will beneficially own ________ shares of [name of
capital stock] (representing approximately _____% of the outstanding
equity of IMR-India), and the Principal Shareholder will beneficially
own no shares of [name of capital stock]. The Company beneficially owns
________ shares of [name of capital stock] (representing approximately
39.5% of the outstanding equity of IMR-UK). All equity shares of
IMR-India or IMR-UK beneficially owned by the Company or the Principal
Shareholder are owned free and clear of all claims, liens, charges and
encumbrances, equities, claims, security interests, voting trusts,
restrictions or other defects of title.
(d) The condition (financial or otherwise), business,
properties, operations, assets, liabilities, results of operations,
prospects, business strategy and growth strategy of IMR-UK, either
individually or in the aggregate, are not material to the condition
(financial or otherwise), business, properties, operations, assets,
liabilities, results of operations, prospects, business strategy or
growth strategy of the Company. The Registration Statement and the
Prospectus contain all statements required to be stated therein
regarding IMR-UK, and neither the Registration Statement nor the
Prospectus includes any untrue statement of a material fact or omits to
state any material fact regarding IMR-UK that is required to be stated
therein or necessary to make the statements therein regarding the
Company and/or IMR-UK not misleading.
(e) The Company and IMR-India are in possession of and
operating in compliance with all authorizations, licenses, permits,
consents, certificates and orders material to the conduct of their
respective businesses, all of which are valid and in full force and
effect. The Company and IMR-India are duly qualified to do business and
in good standing as foreign corporations in each jurisdiction in which
the ownership or leasing of properties or the conduct of their
respective
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businesses requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect upon the Company or IMR-India. No proceeding has been instituted
in any such jurisdiction, revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification.
(f) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus. The issued and outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable,
have been issued in compliance with all federal and state securities
laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and
conform to the description thereof contained in the Prospectus. All
issued and outstanding shares of capital stock of IMR-India and all
issued and outstanding shares of capital stock of IMR-UK beneficially
owned by the Company have been duly authorized and validly issued and
are fully paid and nonassessable. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus,
neither the Company nor IMR-India has outstanding any options 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 stock option, stock bonus and other stock plans or
arrangements maintained by the Company and IMR-India, and of the
options or other rights granted and exercised thereunder, set forth in
the Prospectus accurately and fairly presents the information required
to be shown in respect of, such plans, arrangements, options and
rights.
(g) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and will conform to the description thereof
contained in the Prospectus. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale
of the Common Shares by the Company pursuant to this Agreement. No
shareholder of the Company has any right which has not been waived to
require the Company to register the sale of any shares owned by such
shareholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the shareholders or the
Board of Directors of the Company will be required for the transfer and
sale of the Common Shares to be sold by the Selling Shareholders or the
issuance and sale of the Common Shares to be sold by the Company as
contemplated herein.
(h) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. Each of this Agreement, the S Corporation Termination, Tax
Allocation and Indemnification Agreement, dated as of
_________________, 1996 (the "Tax Agreement"), and the respective
agreements between the Company and the Principal Shareholder and
between the Company and India Magnum Fund N.V. ("India Magnum") whereby
the Company has agreed to purchase (the "IMR-India Purchase") the
entire equity interests of the Principal Shareholder and India Magnum
in IMR-India (collectively, the "IMR-India Purchase Agreements" and,
together with the Tax Agreement, the "Ancillary Agreements") have been
duly authorized, executed and delivered by the Company and constitute
valid and binding obligations of the Company, enforceable against the
Company in accordance with the terms of such agreements, except as
enforceability may be limited by general principles of equity,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights. The execution and performance of this
Agreement and each of the Ancillary Agreements
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<PAGE>
by the Company and the consummation of the transactions contemplated
herein and therein (i) will not violate any provisions of the articles
of incorporation or bylaws, or other organizational documents, of the
Company or IMR-India, and will not conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the
passage of time or both, a default under any material agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or IMR-India is a party or by
which the Company or IMR-India or any of its respective properties may
be bound or affected, any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other United States or foreign governmental
body applicable to the Company or IMR-India or any of its respective
properties. No consent, approval, authorization or other order of any
United States or foreign court, regulatory body, administrative agency
or other governmental body is required for the execution and delivery
of this Agreement or any of the Ancillary Agreements or the
consummation of the transactions herein or therein contemplated, except
for compliance with the Act, the blue sky laws applicable to the public
offering of the Common Shares by the several Underwriters, the
clearance of such offering with the National Association of Securities
Dealers, Inc. (the "NASD") and, with respect to the IMR-India Purchase
Agreements, the approval of the Reserve Bank of India [(for which
application has been made)].
(i) Coopers & Lybrand L.L.P. and Arthur Andersen & Associates,
each of whom has expressed its opinion with respect to the financial
statements and schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the
Act and the Rules and Regulations.
(j) The consolidated financial statements and schedules of the
Company and IMR- India, and the related notes thereto, included in the
Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and IMR-India as of the
respective dates of such financial statements and schedules, and the
results of operations and changes in financial position of the Company
and IMR-India for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are
required to be included in the Registration Statement. The selected
financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Consolidated Financial Data" fairly
present the information set forth therein on the basis stated in the
Registration Statement.
(k) Except as to defaults which individually or in the
aggregate would not be material to the Company, neither the Company nor
IMR-India is in violation or default of any provision of its articles
of incorporation or bylaws, or other organizational documents, or is in
breach of or default with respect to any provision of any material
agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it
is a party or by which it or any of its properties are bound. There
does not exist any state of facts which constitutes an event of default
on the part of the Company or IMR-India as defined in such documents or
which, with notice or lapse of time or both, would constitute such an
event of default.
(l) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by
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<PAGE>
the Rules and Regulations which have not been described or filed as
required. The descriptions of contracts so described in the Prospectus
are accurate and complete. All such contracts are in full force and
effect on the date hereof. Neither the Company nor IMR-India, nor, to
the best of the Company's knowledge, any other party is in breach of or
default under any of such contracts.
(m) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge,
threatened to which the Company or IMR-India is or may be a party or of
which property owned or leased by the Company or IMR-India is or may be
the subject, or related to environmental, intellectual property or
discrimination matters, which actions, suits or proceedings might,
individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement and the Ancillary
Agreements or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations
or prospects of the Company and IMR-India. No labor disturbance by the
employees of the Company or IMR-India exists or is imminent which might
be expected to affect adversely such condition, properties, business,
results of operations or prospects. Neither the Company nor IMR-India
is a party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body, administrative
agency or other United States or foreign governmental body.
(n) The Company or IMR-India, as the case may be, has good and
marketable title to all the properties and assets reflected as owned in
the consolidated financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except (i) those, if any, reflected
in such financial statements (or elsewhere in the Prospectus), or (ii)
those which are not material in amount and do not adversely affect the
use made and proposed to be made of such property by the Company and
IMR-India. The Company and IMR-India hold their respective leased
properties under valid and binding leases, with such exceptions as are
not materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or
as proposed to be conducted.
(o) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i)
neither the Company nor IMR-India has incurred any material liabilities
or obligations, indirect, direct or contingent, or entered into any
material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company and IMR-India; (ii)
neither the Company nor IMR-India has sustained any material loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company
and IMR-India are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been
any change in the capital stock (other than upon the reclassification
of the Common Stock described in the Registration Statement, upon the
sale of the Common Shares hereunder and upon the exercise of options
described in the Registration Statement) or indebtedness material to
the Company and the IMR-India (other than in the ordinary course of
business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results
of operations or prospects of the Company and IMR-India.
6
<PAGE>
(p) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company and IMR-India have sufficient intellectual
property rights (including, without limitation, trademarks, trade
names, copyrights and licenses), approvals and governmental
authorizations to conduct their businesses as now conducted; (ii) the
expiration of any intellectual property rights (including, without
limitation, trademarks, trade names, copyrights and licenses),
approvals or governmental authorizations would not have a material
adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or IMR-India; and the
Company has no knowledge of any infringement by it or IMR-India of
intellectual property rights (including, without limitation,
trademarks, trade name rights, patent rights, mask works, copyrights or
licenses), trade secret or other similar rights of others, and there is
no claim being made against the Company or IMR-India regarding
trademark, trade name, patent, mask work, copyright, license, trade
secret or other infringement of intellectual property rights which
could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company
and IMR-India. Neither the Company nor IMR-India holds, owns or
licenses any patent rights or mask works.
(q) The Company has not been advised, and has no reason to
believe, that either it or IMR-India is not conducting their respective
businesses in compliance with all applicable laws, rules and
regulations of the jurisdictions in which either of them is conducting
business, including, without limitation, all applicable local, state,
(United States and foreign) and federal and foreign environmental,
intellectual property and anti-discrimination laws and regulations;
except where failure to be so in compliance would not materially
adversely affect the condition (financial or otherwise), business,
results of operations or prospects of the Company and IMR- India.
(r) The Company and IMR-India have filed all necessary
federal, state, local and foreign income and franchise tax returns and
have paid all taxes shown as due thereon. The Company has no knowledge
of any tax deficiency which has been or might be asserted or threatened
against the Company or IMR-India which could materially and adversely
affect the business, operations or properties of the Company and
IMR-India.
(s) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(t) The Company has not distributed and will not distribute
prior to the First Closing Date any offering material in connection
with the offering and sale of the Common Shares other than the
Preliminary Prospectus, the Prospectus, the Registration Statement and
the other materials permitted by the Act.
(u) Each of the Company and IMR-India maintains insurance of
the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering real and
personal property owned or leased by the Company and IMR-India against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against by other comparable companies, all of which
insurance is in full force and effect.
(v) The Company has filed a registration statement (the "1934
Act Registration Statement") pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to register the
Common Stock, which such 1934 Act Registration Statement has been
declared effective by the Commission. The Company has filed an
application form
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<PAGE>
quotation of the Common Shares on the Nasdaq National Market and has
received notification that the listing has been approved, subject only
to formal notice of issuance.
(w) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(x) To the best of the Company's and the Principal
Shareholder's knowledge after due inquiry, neither the Company nor
IMR-India has at any time during the last five years (i) made any
unlawful contribution to any candidate for United States or foreign
office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any United States or foreign
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or
permitted by the laws of the United States and any other applicable
jurisdiction.
(y) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected
to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Common Shares.
SECTION 3. Representations, Warranties and Covenants of the Selling
---------------------------------------------------------
Shareholders.
------------
(a) Each of the Selling Shareholders severally, and not
jointly, represents and warrants to, and agrees with, the several
Underwriters that:
(i) Such Selling Shareholder has, and on the First
Closing Date and the Second Closing Date hereinafter mentioned
will have, good and marketable title to the Common Shares
proposed to be sold by such Selling Shareholder hereunder on
such Closing Date and full right, power and authority to enter
into this Agreement and to sell, assign, transfer and deliver
such Common Shares hereunder, free and clear of all liens,
encumbrances, equities, security interests, voting trusts,
restrictions and other adverse claims whatsoever. Upon
delivery of and payment for such Common Shares hereunder, the
Underwriters will acquire good and marketable title thereto,
free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts, restrictions
or other defects of title whatsoever.
(ii) Such Selling Shareholder has executed and
delivered a Power of Attorney and caused to be executed and
delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Shareholders Agreement") and
in connection herewith such Selling Shareholder further
represents, warrants and agrees that such Selling Shareholder
has deposited in custody, under the Shareholders Agreement,
with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be
sold hereunder by such Selling Shareholder, for the purpose of
further delivery pursuant to this Agreement. Such Selling
Shareholder agrees that the Common Shares to be sold by such
Selling Shareholder on deposit with the Agent are subject to
the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling
Shareholder hereunder shall not be terminated, except as
provided in this Agreement or in the Shareholders Agreement,
by any act of such Selling Shareholder, by operation of law,
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<PAGE>
by the death or incapacity of such Selling Shareholder or by
the occurrence of any other event. If the Selling Shareholder
should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares
hereunder, the documents evidencing Common Shares then on
deposit with the Agent shall be delivered by the Agent in
accordance with the terms and conditions of this Agreement as
if such death, incapacity or other event had not occurred,
regardless of whether or not the Agent shall have received
notice thereof. This Agreement and the Shareholders Agreement
have been duly executed and delivered by or on behalf of such
Selling Shareholder and the form of such Shareholders
Agreement has been delivered to you.
(iii) The performance of this Agreement, the
Shareholders Agreement and the Ancillary Agreements to which
such Selling Shareholder is a party and the consummation of
the transactions contemplated herein and therein will not
result in a breach or violation by such Selling Shareholder of
any of the terms or provisions of, or constitute a default by
such Selling Shareholder under, any indenture, mortgage, deed
of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument to
which such Selling Shareholder is a party or by which such
Selling Shareholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of
any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties.
(iv) Such Selling Shareholder has not taken and will
not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or
resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus,
insofar as it has related to such Selling Shareholder has
conformed in all material respects to the requirements of the
Act and the Rules and Regulations and has not included any
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were
made. Neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, as it relates to such
Selling Shareholder, will include any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading.
(vi) Such Selling Shareholder is not aware that any
of the representations or warranties set forth in Section 2
above is untrue or inaccurate in any material respect.
(b) Each of the Selling Shareholders agrees with the Company
and the Underwriters not to offer to, directly or indirectly, sell,
sell or contract to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable for any shares of
Common Stock, for a period of 180 days after the first date that any of
the Common Shares are released by you for sale to the public, without
the prior written consent of Montgomery Securities, which consent may
be withheld at the sole discretion of Montgomery Securities.
SECTION 4. Representations and Warranties of the Underwriters. The
--------------------------------------------------
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Shareholders that the information set forth (i)
on the cover page of the Prospectus with respect to price, underwriting
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<PAGE>
discounts and commissions and terms of offering, (ii) with respect to
stabilization and overallotment set forth on the inside cover page of the
Prospectus, and (iii) under "Underwriting" in the Prospectus was furnished to
the Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and the Prospectus and is correct in
all material respects. The Representatives represent and warrant that they have
been authorized by each of the other Underwriters as the Representatives to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis
--------------------------------------------
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, (i) the Company agrees to issue
and sell to the Underwriters 2,950,000 of the Firm Common Shares, and (ii) the
Selling Shareholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B hereto, an
aggregate of 550,000 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Shareholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Selling Shareholders, respectively, shall be $___ per share.
The obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 2,950,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Shareholders shall be to purchase from the Selling
Shareholders that number of full shares which (as nearly as practicable, as
determined by you) bears to 550,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters 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 upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act after 4:30 P.M. Washington
D.C. time, the fourth) full business day following the first date that any of
the Common Shares are released by you for sale to the public, as you shall
designate by at least 24 hours prior notice to the Company (or at such other
time and date, not later than one week after such third or fourth full business
day, as the case may be, as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that any
of the Common Shares are released by you for sale to the public or the date that
is 48 hours after the date that the Prospectus has been so recirculated.
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<PAGE>
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Shareholders to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Shareholders against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by wire
transfer of immediately available funds to an account designated by the Company
and to an account designated by the Agent (each such wire transfer shall be in
proportion to the number of Firm Common Shares to be sold by the Company and the
Selling Shareholders, respectively). The certificate for the Firm Common Shares
shall be registered in such names and denominations as you shall have requested
at least two full business days prior to the First Closing Date, and shall be
made available for checking and packaging on the business day preceding the
First Closing Date at a location in New York, New York, as may be designated by
you. Time share be of the essence, and delivery at the time and place specified
in this Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Principal Shareholder hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
525,000 Optional Common Shares at the purchase price per share to be paid for
the Firm Common Shares, for use solely in covering any over-allotments made by
you for the account of the Underwriters in the sale and distribution of the Firm
Common Shares. If the Underwriters exercise such option, the Company and the
Principal Shareholder agree to sell to the Underwriters an aggregate of 525,00
Optional Common Shares in the respective amounts set forth in Schedule B
attached hereto. If the option granted hereby is exercised in part, the
respective number of Optional Common Shares to be sold by the Company and the
Principal Shareholder shall be determined on a pro rata basis in the same
proportion as (x) the number of Optional Common Shares that the Company or the
Principal Shareholder would have sold had the option been exercised in whole
bears to (y) the total number of Optional Common Shares that would have been
sold had the option been exercised in whole, with such adjustments made by you
as are necessary to avoid fractional shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the first
date that any of the Common Shares are released by you for sale to the public,
upon notice by you to the Company and the Principal Shareholder setting forth
the aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. The number of Optional Common
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Optional Common Shares to be sold by the Company and the Principal
Shareholder pursuant to such notice of exercise by a fraction, the numerator of
which is the number of Firm Common Shares to be purchased by such Underwriter as
set forth opposite its name in Schedule A and the denominator of which is the
total number of Firm Common Shares (subject to such adjustments to eliminate any
fractional share purchases as you in your discretion may make). Certificates for
the Optional Common Shares will be made available for checking and packaging on
the business day preceding the Second Closing Date at a location in New York,
New York, as may be designated by you. The manner of payment for and delivery of
the Optional Common Shares shall be the same as for the Firm Common Shares
purchased from the Company and the Selling Shareholders as specified in the two
preceding paragraphs. At any time before lapse of the option, you may cancel
such option by giving written notice of such cancellation to the Company and the
Principal Shareholder. If the option is cancelled or expires unexercised in
whole or in part, the Company will as soon as practicable deregister under the
Act the number of Option Shares as to which the option has not been exercised.
You have advised the Company and the Selling Shareholders that each Underwriter
has authorized you to accept delivery of its Common Shares, to make payment and
to receipt therefor. You, individually and not as the Representatives of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by you by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
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Subject to the terms and conditions hereof, the Underwriters propose to make a
public offering of their respective portions of the Common Shares as soon after
the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the final Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and agrees
------------------------
that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, to become effective. If the Registration Statement has
become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations, the Company will file
the Prospectus, properly completed, pursuant to the applicable
paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such
timely filing. The Company will promptly advise you in writing (i) of
the receipt of any written or oral comments of the Commission or its
staff, (ii) of any written or oral request of the Commission or its
staff for amendment of or supplement to the Registration Statement
(either before or after it becomes effective), any Preliminary
Prospectus or the Prospectus or for additional information, (iii) when
the Registration Statement shall have become effective, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose. 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 as soon as practicable. The Company
will not file any amendment or supplement to the Registration Statement
(either before or after it becomes effective), any Preliminary
Prospectus or the Prospectus of which you have not been furnished with
a copy a reasonable time prior to such filing or to which you
reasonably object or which is not in compliance with the Act and the
Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue
the distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible. The Company
will fully and completely comply with the provisions of Rule 430A of
the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) Within the time during which a prospectus relating to the
Common Shares is, in the opinion of counsel for the Underwriters or
counsel for the Company, required under the Act to be delivered in
connection with sales by an Underwriter or dealer, the Company will
comply with all requirements imposed upon it by the Act and by the
Rules and Regulations, as from time to time are in force, so far as
necessary to permit the continuance of sales of or dealings in the
Common Stock as contemplated by the provisions hereof and the
Prospectus. If during such period any event occurs as a result of which
the Prospectus, including any amendments or supplements, would include
an untrue statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances then existing, not misleading, or if during such period
it is necessary at any time to amend the Registration Statement,
including any amendments or supplements, to comply with the Act or the
Rules and Regulations, the Company will promptly notify you thereof and
will promptly prepare and file with the Commission, at its own expense,
an amendment or supplement to the Registration
12
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Statement which will correct such statement or omission or an amendment
or supplement which will effect such compliance and will use its best
efforts to cause the same to become effective as soon as possible; and,
in case any Underwriter is required to deliver a prospectus after such
nine-month period, the Company upon request, but at the expense of such
Underwriter, will promptly prepare such amendment or amendments to the
Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section
10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after
the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule
158(c) of the Rules and Regulations), the Company will make generally
available to its security holders an earnings statement (which need not
be audited) covering a period of 12 consecutive months beginning after
the effective date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to
in Section 10(a)(3) of the Act, will furnish to you and the Selling
Shareholders or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon
as available and in such quantities as you and the Selling Shareholders
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the blue sky laws of such
United States and Canadian jurisdictions as you designate, will comply
with such laws and will continue such qualifications, registrations and
exemptions in effect so long as reasonably required for the
distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to file a general consent to
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 you 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, with your
cooperation, will use its best efforts to obtain the withdrawal
thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the consolidated balance sheet of the
Company as of the close of such fiscal year and consolidated statements
of income, shareholders' equity and cash flows for the year then ended
and the opinion thereon of the Company's independent 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, 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 Common Stock.
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<PAGE>
(h) During the period of 180 days after the first date that
any of the Common Shares are released by you for sale to the public,
without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of the Montgomery
Securities), the Company will not other than pursuant to the exercise
of outstanding stock options or the grant or the issuance of options or
shares pursuant to stock option plans (which vest or become exercisable
after the expiration of such 180-day period) disclosed in the
Prospectus, issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock or
other equity security.
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under (or
obtain exemptions from the application of) the blue sky laws of the
State of California (and thereby permit market making transactions and
secondary trading in the Company's Common Stock in California), will
comply with such blue sky laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years after
the date hereof.
(k) The Company will use its best efforts to cause the Common
Stock to be admitted for quotation on the Nasdaq National Market.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Shareholders agree to pay in such proportions as they may agree upon among
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (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 Underwriters, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the blue sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the preliminary and final Underwriters 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 United States
and foreign blue sky laws designated by your pursuant to Section 6(f), (vii) the
filing fee of the NASD and the related fees and expenses of counsel to the
Underwriters in connection with the NASD's review of the Underwriting
arrangements contemplated hereby, and (viii) all other fees, costs and expenses
referred to in Item 13 of the
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<PAGE>
Registration Statement. The Underwriters may deem the Company to be the primary
obligor with respect to all costs, fees and expenses to be paid by the Company
and by the Selling Shareholders. Except as provided in this Section 7, Section 9
and Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the blue sky laws, the blue
sky memorandum and the NASD's review of underwriting arrangements referred to
above). This Section 7 shall not affect any agreements relating to the payment
of expenses between the Company and the Selling Shareholders.
The Company will pay (directly or by reimbursement) all fees and expenses
incident to the performance of their obligations under this Agreement which are
not otherwise specifically provided for herein, including but not limited to (i)
any fees and expenses of counsel for such Selling Shareholders; (ii) any fees
and expenses of the Agent; and (iii) all expenses and taxes incident to the sale
and delivery of the Common Shares to be sold by such Selling Shareholders to the
Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date, if any, shall be subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Shareholders herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Shareholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Shareholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., (or, in the case of a registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations relating to
the Common Shares, not later than 10 P.M.), Washington, D.C. Time, on
the date of this Agreement, or at such later time as shall have been
consented to by you; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and
Regulations, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or shall
be pending or, to the knowledge of the Company, the Selling
Shareholders or you, shall be contemplated by the Commission, and any
request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied with
to your satisfaction.
(b) You shall be satisfied that since the respective dates as
of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital
stock of the Company or IMR-India (other than pursuant to the exercise
of outstanding options disclosed in the Prospectus or the issuance of
options or shares pursuant to stock option plans (which vest or become
exercisable after the expiration of the 180-day "lock-up" period
described in Section 6(h))) or any material change in the indebtedness
(other than in the ordinary course of business) of the Company or
IMR-India, (ii) except as set forth or contemplated by the Registration
Statement or the Prospectus, no material verbal or written agreement or
other transaction shall have been entered into by the Company or
IMR-India, which is not in the ordinary course of business or which
could result in a material reduction in the future earnings of the
Company and IMR-India, (iii) no loss or damage (whether or not insured)
to the property of the Company or IMR-India shall have been sustained
which materially and adversely affects the condition (financial or
otherwise), business, results of operations or prospects of the Company
15
<PAGE>
and IMR-India, (iv) no legal or governmental action, suit or proceeding
affecting the Company or IMR-India which is material to the Company and
IMR-India or which affects or may affect the transactions contemplated
by this Agreement shall have been instituted or threatened, and (v)
there shall not have been any material change in the condition
(financial or otherwise), business, management, results of operations
or prospects of the Company and IMR-India which makes it impractical or
inadvisable in the judgment of the Representatives to proceed with the
public offering or purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives
of the Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Morris, Manning & Martin L.L.P.,
counsel for the Company and the Selling Shareholders,
addressed to the Underwriters and dated the First Closing
Date, or the Second Closing Date, as the case may be, in the
form of Schedule C hereto, to the effect that:
(1) The Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the State of Florida, is
duly qualified to do business as a foreign
corporation and is in good standing in all other
jurisdictions where the ownership or leasing of
properties or the conduct of its business requires
such qualification, except for jurisdictions in which
the failure to so qualify would not have a material
adverse effect on the Company, and has full corporate
power and authority to own its properties and conduct
its business as described in the Registration
Statement;
(2) The authorized, issued and outstanding
capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus; all
necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized
Common Stock; all outstanding shares of Common Stock
(including the Firm Common Shares and any Optional
Common Shares) have been duly and validly issued, are
fully paid and nonassessable, have been issued in
compliance with federal and state securities laws,
were not issued in violation of or subject to any
preemptive rights or, to the best of such counsel's
knowledge, other rights to subscribe for or purchase
any securities and conform to the description thereof
contained in the Prospectus; without limiting the
foregoing, there are no preemptive or other rights to
subscribe for or purchase any of the Common Shares to
be sold by the Company hereunder;
(3) The Company beneficially owns ________
shares of [name of capital stock] (representing
approximately 42.9% of the outstanding equity of
IMR-India), and the Principal Shareholder
beneficially owns ________ shares of [name of capital
stock] (representing approximately 18.4% of the
outstanding equity of IMR-India); the Company
beneficially owns ________ shares of [name of capital
stock] (representing approximately 39.5% of the
outstanding equity of IMR-UK); all such equity shares
of IMR-India and IMR-UK are owned free and clear of
all liens, encumbrances, equities, claims, security
interests, voting trusts, restrictions or other
defects of title whatsoever;
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<PAGE>
(4) The certificates evidencing the Common
Shares to be delivered hereunder are in due and
proper form under Florida law, and when duly
countersigned by the Company's transfer agent and
registrar and delivered to you or upon your order
against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement,
the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and
nonassessable and will conform in all material
respects to the description thereof contained in the
Prospectus;
(5) Except as disclosed in or specifically
contemplated by the Prospectus, to the best of such
counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the
issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of
the Company or any security convertible into or
exchangeable for capital stock of the Company;
(6) The Registration Statement has become
effective under the Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued
and no proceedings for that purpose have been
instituted or are pending or contemplated by the
Commission; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the
Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
(7) The 1934 Act Registration Statement has
become effective under the Exchange Act.
(8) The Registration Statement as of its
effective date, the Prospectus and each amendment or
supplement thereto at the time it became effective
(except for the consolidated financial statements,
schedules, pro forma and other financial and
statistical data included therein and in the exhibits
to the Registration Statement as to which such
counsel need express no opinion) comply as to form in
all material respects with the requirements of the
Act and the Rules and Regulations;
(9) To the best of such counsel's knowledge,
there are no franchises, leases, contracts,
agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as
required;
(10) To the best of such counsel's
knowledge, there are no legal or governmental
actions, suits or proceedings pending or threatened
against the Company or IMR-India which are required
to be described in the Prospectus which are not
described as required;
(11) The statements set forth in the
Prospectus under the headings "Risk
Factors--Immigration Issues; --Benefits to Principal
Selling Shareholder; --Control by Principal
Shareholder; --Intellectual Property Rights;
--Certain Anti-Takeover Provisions; --Shares Eligible
for Future Sale," "Prior S
17
<PAGE>
Corporation Status and Distributions," "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Overview; --Affiliate
Relationships; --Income Tax Matters; --Net Charge
Resulting from S Corporation Termination; --Liquidity
and Capital Resources," "Business--Intellectual
Property; --Human Resources; --Legal Proceedings;
--Facilities," "Management," "Principal and Selling
Shareholders," "Certain Transactions," "Description
of Capital Stock," "Shares Eligible for Future Sale,"
and "Underwriting", and Items 14 and 15 of the
Registration Statement, insofar as such statements
constitute a summary of the terms of legal matters,
documents, agreements or other instruments or
governmental, regulatory or other legal proceedings,
are fair and accurate in all material respects;
(12) The Company has full right, power and
authority to enter into this Agreement and each of
the Ancillary Agreements and to sell and deliver the
Common Shares to be sold by it to the several
Underwriters; each of this Agreement and the
Ancillary Agreements has been duly and validly
authorized by all necessary corporate action by the
Company, has been duly and validly executed and
delivered by and on behalf of the Company, and is a
valid and binding agreement of the Company
enforceable in accordance with its terms, except as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except as to those provisions of this
Agreement relating to indemnity or contribution for
liabilities arising under the Act, as to which no
opinion need be expressed; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any
court, regulatory, administrative or other
governmental body is required for the execution and
delivery of this Agreement and the Ancillary
Agreements by the Company or the consummation of the
transactions contemplated herein or therein, except
such as have been obtained and are in full force and
effect under the Act and such as may be required
under applicable blue sky laws in connection with the
purchase and distribution of the Common Shares by the
Underwriters, and the clearance of such offering with
the NASD;
(13) The execution and performance of this
Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated herein
and therein will not conflict with, result in the
breach of, or constitute, either by itself or upon
notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other
instrument known to such counsel to which the Company
or IMR-India is a party or by which the Company or
IMR-India may be bound or affected which is material
to the Company or violate any of the provisions of
the articles of incorporation or bylaws, or other
organizational documents, of the Company or, so far
as is known to such counsel, violate any statute,
judgment, decree, order, rule or regulation of any
court or governmental body having jurisdiction over
the Company or any of its property;
(14) The Company is not in violation or
default of any provision of its articles of
incorporation or bylaws, or other organizational
documents, or to the best of such counsel's
knowledge, in breach of or default with respect to
any
18
<PAGE>
provision of any agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company
is a party or by which it or any of its properties
may be bound or affected and which is material to the
Company, except where such default would not
materially adversely affect the Company; and, to the
best of such counsel's knowledge, the Company is in
compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court
or jurisdiction to which they are subject, except
where noncompliance would not materially adversely
affect the Company;
(15) To the best of such counsel's
knowledge, no holders of securities of the Company
have rights to the registration of shares of Common
Stock or other securities, because of the filing of
the Registration Statement by the Company or the
offering contemplated hereby, except for rights fully
satisfied or effectively waived;
(16) To the best of such counsel's
knowledge, this Agreement, the Ancillary Agreements
and the Shareholders Agreement have been duly
authorized, executed and delivered by or on behalf of
each of the Selling Shareholders party thereto; the
Agent has been duly and validly authorized to act as
the custodian of the Common Shares to be sold by each
such Selling Shareholder; and the performance of this
Agreement and the Shareholders Agreement and the
consummation of the transactions herein contemplated
by the Selling Shareholders will not result in a
breach of, or constitute a default under, any
indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument
known to such counsel to which any of the Selling
Shareholders is a party or by which any of the
Selling Shareholders or any of their properties may
be bound, or violate any statute, judgment, decree,
order, rule or regulation known to such counsel of
any court or governmental body having jurisdiction
over any of the Selling Shareholders or any of their
properties; and, to the best of such counsel's
knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative
agency or other governmental body is required for the
execution and delivery of this Agreement, the
Ancillary Agreements or the Shareholders Agreement or
the consummation by the Selling Shareholders party
thereto of the transactions contemplated by this
Agreement, except such as have been obtained and are
in full force and effect under the Act and such as
may be required under the rules of the NASD and
applicable blue sky laws;
(17) To the best of such counsel's
knowledge, the Selling Shareholders have full right,
power and authority to enter into this Agreement and
the Shareholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing
Date by such Selling Shareholders hereunder and good
and marketable title to such Common Shares so sold,
free and clear of all liens, encumbrances, equities,
claims, security interests, voting trusts,
restrictions or other defects of title whatsoever,
has been transferred to the Underwriters (whom
counsel may assume to be bona fide purchasers) who
have purchased such Common Shares hereunder; and
19
<PAGE>
(18) To the best of such counsel's
knowledge, this Agreement, the Ancillary Agreements
and the Shareholders Agreement are valid and binding
agreements of each of the Selling Shareholders in
accordance with their respective terms, except as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions
of this Agreement relating to indemnities or
contributions for liabilities under the Act, as to
which no opinion need be expressed.
(19) Except for the payment of Florida
___________________, no transfer taxes are required
to be paid in connection with the sale and delivery
of the Common Shares to the Underwriters hereunder.
In rendering such opinion, such counsel may rely as to matters of local
law, on opinions of local counsel, and as to matters of fact, on
certificates of the Selling Shareholders and of officers of the Company
and of governmental officials, in which case their opinion is to state
that they are so doing and that the Underwriters are justified in
relying on such opinions or certificates and copies of said opinions or
certificates are to be attached to the opinion. Such counsel shall also
include a statement to the effect that although such counsel has not
independently verified the accuracy or completeness of the information
in the Registration Statement and Prospectus, they have participated in
conferences with representatives of the Company and its counsel and
independent accountants, at which the contents of the Registration
Statement and Prospectus were discussed at length, nothing has come to
such counsel's attention that would lead such counsel to believe that
either at the effective date of the Registration Statement or at the
applicable Closing Date the Registration Statement or the Prospectus,
or any such amendment or supplement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading
(excluding consolidated financial statements, schedules, pro forma and
other financial and statistical data and exhibits contained therein).
(ii) An opinion of Nesmith Desai, counsel for
IMR-India, addressed to the Underwriters and dated the First
Closing Date, or the Second Closing Date, as the case may be,
in the form of Schedule D hereto, to the effect that:
(1) IMR-India has been duly organized and is
validly existing as a limited company in good
standing under the laws of India;
(2) IMR-India has ________ [shares] of [type
of] stock authorized, ________ of which are issued
and outstanding; all necessary and proper corporate
proceedings have been taken in order to authorize
validly such authorized stock; all outstanding shares
of [type of] stock have been duly and validly issued,
are fully paid and nonassessable, have been issued in
compliance with Indian law, were not issued in
violation of or subject to any preemptive rights or
other rights to subscribe for or purchase any
securities;
(3) As of the date of this Agreement, the
Company beneficially owns _______ shares of [name of
capital stock] (representing approximately 42.9% of
the outstanding equity of IMR-India), free and clear
of all liens, encumbrances,
20
<PAGE>
equities, claims, security interests, voting trusts,
restrictions or other defects of title whatsoever;
(4) Each of IMR-India and India Magnum has
full right, power and authority to enter into the
Ancillary Agreements to which it is a party; each
Ancillary Agreement has been duly and validly
authorized by all necessary corporate action by
IMR-India and India Magnum, as the case may be, has
been duly and validly executed and delivered by and
on behalf of the IMR-India and India Magnum, as the
case may be, and is a valid and binding agreement of
IMR-India and India Magnum, as the case may be,
enforceable in accordance with its terms; the
execution, delivery and performance of each of the
Ancillary Agreements and the consummation of the
transactions contemplated thereby will not result in
a breach of, or constitute a default under, any
indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument
known to such counsel to which IMR- India or India
Magnum is a party or by which any of its properties
may be bound, or violate any statute, judgment,
decree, order, rule or regulation known to such
counsel of any court or governmental body having
jurisdiction over IMR- India or India Magnum or any
of its properties; and, to the best of such counsel's
knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative
agency or other governmental body is required for the
execution and delivery of the Ancillary Agreements to
which it is a party, except for the approval of the
Reserve Bank of India [(application of which has
made)][(which has been obtained)];
(5) IMR-India has such approvals,
authorizations, orders, consents, qualifications,
licenses and permits as are necessary to own, lease
and operate its respective properties and to conduct
its businesses; IMR-India has fulfilled and performed
all of its material obligations with respect to such
approvals, authorizations, orders, consents,
qualifications, licenses and permits and no event has
occurred which allows, or after notice or lapse of
time would allow, for revocation or termination
thereof or results, or would result, in any other
material impairment of the rights of the holder of
any such approval, authorization, order, consent,
qualification, license or permit.
(6) The statements set forth in the
Prospectus under the headings "Risk
Factors--Dependence on India Offshore Software
Development Center; --Intellectual Property Rights,"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations--Affiliate
Relationships; --Income Tax Matters; --Liquidity and
Capital Resources," "Business--Human Resources;
--Intellectual Property Rights,"
"Management--Employee Benefit Plans--IMR- India
Benefit Plans," "Certain Transactions--IMR-India
Transactions," insofar as such statements constitute
a summary of the terms of legal matters, documents,
agreements or other instruments or governmental,
regulatory or other legal proceedings, are fair and
accurate in all material respects.
In rendering such opinion, such counsel may rely as to matters of fact,
on certificates of the officers of the Company and of governmental
officials, in which case their opinion is to state that
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they are so doing and that the Underwriters are justified in relying on
such opinions or certificates and copies of said opinions or
certificates are to be attached to the opinion.
(iii) An opinion of ____________________, counsel for
the Company, addressed to the Underwriters and dated the First
Closing Date, or the Second Closing Date, as the case may be,
in the form of Schedule E hereto, to the effect that:
(1) IMR-UK has been duly organized and is
validly existing as a [__________] in good standing
under the laws of the United Kingdom.
(iv) Such opinion or opinions of Latham & Watkins,
counsel for the Underwriters, dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to
such legal matters relating to this Agreement, the
Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company and the
Selling Shareholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with
such opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.
(v) A certificate of the Company executed by the
chief executive officer and the chief financial or accounting
officer of the Company, dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that,
to the best of such officers' knowledge:
(1) The representations and warranties of
the Company set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the conditions on its part to be performed or
satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or
any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and to the
best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or contemplated under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; in his opinion and to
the best of his knowledge, the Registration Statement
and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated
therein regarding the Company and the IMR-Affiliates;
and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading;
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(4) Since the initial date on which the
Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, there has not been
any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company and IMR-India; and no legal or governmental
action, suit or proceeding is pending or threatened
against the Company or IMR-India which is material to
the Company and IMR-India whether or not arising from
transactions in the ordinary course of business, or
which may adversely affect the transactions
contemplated by this Agreement; since such dates and
except as so disclosed, neither the Company nor
IMR-India has entered into any verbal or written
agreement or other transaction which is not in the
ordinary course of business or which could result in
a material reduction in the future earnings of the
Company or incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to shareholders of
record on a date prior to the First Closing Date or
Second Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company and
IMR-India have not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or
other calamity (whether or not insured).
(vi) On the First Closing Date or the Second Closing
Date, as the case may be, a certificate, dated such Closing
Date and addressed to you, signed by or on behalf of each of
the Selling Shareholders to the effect that the
representations and warranties of such Selling Shareholder in
this Agreement are true and correct, as if made at and as of
the First Closing Date or the Second Closing Date, as the case
may be, and such Selling Shareholder has complied with all the
agreements and satisfied all the conditions on his part to be
performed or satisfied prior to the First Closing Date or the
Second Closing Date, as the case may be.
(vii) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date
a letter addressed to you, as Representatives of the
Underwriters, from each of Coopers & Lybrand L.L.P. and Arthur
Andersen & Associates, the first one to be dated the day
before the date of this Agreement, the second one to be dated
the First Closing Date and the third one (in the event of a
Second Closing) to be dated the Second Closing Date, in form
and substance satisfactory to you.
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(viii) The Ancillary Agreements shall have been
executed by all parties thereto and shall be effective.
(ix) Pursuant to the IMR-India Purchase, the Company
shall have purchased all of the Principal Shareholder's equity
interest in IMR-India. The only remaining closing condition to
the Company's purchase of all of India Magnum's equity
interest in IMR-India shall be the approval of the Reserve
Bank of India (application of which has been made); and
neither the Company nor India Magnum shall have any right to
terminate, discharge or prevent the consummation of the
IMR-India Purchase.
(x) On or before the First Closing Date, letters from
each of the Selling Shareholders, each holder of one percent
or more of the Company's Common Stock and each director and
officer of the Company, in form and substance satisfactory to
you, confirming that for a period of 180 days after the first
date that any of the Common Shares are released by you for
sale to the public, such person will not directly or
indirectly sell or offer to sell or otherwise dispose of any
shares of Common Stock (or any right to acquire such shares,
including options, warrants or any other securities
convertible into or exchangeable for Common Stock), without
the prior written consent of Montgomery Securities, which
consent may be withheld at the sole discretion of Montgomery
Securities.
All such opinions, certificates, letters and documents shall be in compliance
with the provisions hereof only if they are satisfactory to you and to Latham &
Watkins, counsel for the Underwriters. The Company shall furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
documents as you request. Any certificate signed by any officer of the Company
and delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives, to the
Company and the Selling Shareholders without liability on the part of any
Underwriter, the Company or the Selling Shareholders, except for the expenses to
be paid or reimbursed by the Company and by the Selling Shareholders pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding any
---------------------------------------
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Shareholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by you and them in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating to the offering
contemplated by the Prospectus. Any such termination shall be without liability
of any party to any other party except that the provisions of this Section 9,
Section 7 and Section 11 shall at all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company
---------------------------------------
and the Selling Shareholders will use your, its and their respective best
efforts to cause the Registration Statement to
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<PAGE>
become effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification.
---------------
(a) The Company and the Principal Shareholder,
jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Underwriter or
such controlling person may become subject, under the 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 and
the Principal Shareholder), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to
be stated therein or necessary to make the statements in any of them
not misleading (in the case of a Preliminary Prospectus or the
Prospectus, in light of the circumstances in which they are made), or
arise out of or are based in whole or in part on any inaccuracy in the
representations and warranties of the Company or the Selling
Shareholders contained herein or any failure of the Company or the
Selling Shareholders to perform their respective obligations hereunder
or under law; and will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses
are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling (only with the
indemnifying party's written approval, as provided above), compromising
or paying any such loss, claim, damage, liability, expense or action;
provided, however, that neither the Company nor the Principal
Shareholder will be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto (i)
in reliance upon and in conformity with the information furnished to
the Company pursuant to Section 4 hereof or (ii) with respect to the
Underwriter from whom the person asserting the loss, claim, damage or
liability purchased securities, made in any Preliminary Prospectus if a
copy of the Prospectus (as amended or supplemented, if the Company
shall have furnished the Underwriters with such amendments or
supplements thereto on a timely basis) was not delivered by or on
behalf of any of the Underwriters seeking indemnification, at or prior
to the written confirmation of the sale of the Common Shares, and if
the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage or liability; and
provided further that, under this Agreement, the liability of the
Principal Shareholder shall not exceed the sum of the aggregate gross
proceeds received by the Company and by the Principal Shareholder upon
the sale of the Common Shares by the Company and the Principal
Shareholder, respectively, to the Underwriters. The Company and the
Principal Shareholder may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be
responsible. Notwithstanding the foregoing provisions of this Section
11(a), the Underwriters shall not be entitled to indemnity or
contribution from the Principal Selling Stockholder except, until and
to the extent that, either: (x) at the time indemnity is sought from
the Principal Shareholder, the Company is subject to proceedings
pending under Title 11 of the United States Code, or (y) after
providing written demand to the Company for indemnity or
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<PAGE>
reimbursement with respect to such losses, claims, damages or
liabilities pursuant to this Section 11, the Company fails to provide
such indemnification or reimbursement or has provided such
indemnification or reimbursement in an amount less than the total
indemnity or reimbursement sought.
In addition to their other obligations under this Section 11(a), the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, or any inaccuracy
in the representations and warranties of the Company or the Selling Shareholders
herein or failure to perform its obligations hereunder, all as described in this
Section 11(a), it will reimburse in the manner set forth above each Underwriter
on a quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Principal Shareholder's obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company or the Principal Shareholder may otherwise have.
(b) Each Underwriter will severally indemnify and
hold harmless the Company, each of its directors, each of its officers
who signed the Registration Statement, the Selling Shareholders and
each person, if any, who controls the Company or any Selling
Shareholder within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses to which the Company, or any such
director, officer, Selling Shareholder or controlling person may become
subject, under the 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 losses,
claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or arise out of or are 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 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, (i) in reliance upon and in conformity with the
information furnished to the Company by the Underwriters pursuant to
Section 4 hereof or (ii) with respect to the Underwriter from whom the
person asserting the loss, claim, damage or liability purchased
securities, made in any Preliminary Prospectus if a copy of the
Prospectus (as amended or supplemented, if the Company shall have
furnished the Underwriters with such amendments or supplements thereto
on a timely basis) was not delivered by or on behalf of any of the
Underwriters to the person asserting the claim or action, if required
by law to have been so delivered by the Underwriter seeking
indemnification, at or prior to the written confirmation of the sale of
the Common Shares and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such
26
<PAGE>
loss, claim, damage or liability; and will reimburse the Company, or
any such director, officer, Selling Shareholder or controlling person
for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Shareholder or controlling person
in connection with investigating, defending, settling (only with the
indemnifying party's written approval, as provided above), compromising
or paying any such loss, claim, damage, liability, expense or action.
In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 11(b)
which relates to information furnished to the Company by the
Underwriters pursuant to Section 4 hereof, it will reimburse the
Company (and, to the extent applicable, each officer, director,
controlling person or Selling Shareholder) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Shareholder) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment
is so held to have been improper, the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Shareholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the
Company within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 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, 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 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 may wish, jointly with all
other indemnifying parties similarly notified, 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 there may be a conflict
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 its 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 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the
provison
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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, approved by the Representatives in the case of
paragraph (a) and approved by the indemnified parties in the case of
paragraph (b), representing the indemnified parties who are parties to
such action) or (ii) the indemnifying party shall not have employed
counsel reasonably 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) If the indemnification provided for in this Section 11 is
required by its terms but is for any reason held to be unavailable to
or otherwise insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any losses, claims, damages,
liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company,
the Selling Shareholders and the Underwriters from the offering of the
Common Shares 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, the Selling
Shareholders and the Underwriters in connection with the statements or
omissions or inaccuracies in the representations and warranties herein
which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company, the Selling
Shareholders and the Underwriters shall be deemed to be in the same
proportion, (x) in the case of the Company and the Selling Shareholders
(other than the Principal Shareholder), as the total price paid to the
Company and to the Selling Shareholders (other than the Principal
Shareholder), respectively, for the Common Shares sold by them to the
Underwriters (net of underwriting commissions but before deducting
expenses) bears to the total price to the public set forth on the cover
page of the Prospectus, (y) in the case of the Principal Shareholder,
as the total price paid to the Company and to the Principal Shareholder
for the Common Shares sold by them to the Underwriters (net of
underwriting commissions but before deducting expenses) bears to the
total price to the public set forth on the cover page of the
Prospectus, and (z) in the case of the Underwriters as the underwriting
commissions received by them bears to the total price to the public set
forth on the cover page of the Prospectus. The relative fault of the
Company, the Selling Shareholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information
supplied by the Company, the Selling Shareholders or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
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 subparagraph (c) of
this Section 11, 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 subparagraph (c) of
this Section 11 with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be
required with respect to any action for which notice has been given
under subparagraph (c) for purposes of indemnification. The Company,
the Selling Shareholders and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 11 were
determined solely by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or
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by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 11, no
Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such
Underwriter in connection with the Common Shares underwritten by it and
distributed to the public. The Principal Shareholder shall not be
required to contribute any amount in excess of the aggregate gross
proceeds received by the Company and the Principal Shareholder upon the
sale of the Common Shares to the Underwriters. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in
proportion to their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 11(a) and 11(b) hereof, including the amounts of any requested
reimbursement payments and the method of determining such amounts,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the
NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said
demand or notice is authorized to do so. Such an arbitration would be
limited to the operation of the interim reimbursement provisions
contained in Sections 11(a) and 11(b) hereof and would not resolve the
ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of such Sections 11(a) and
11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition
-----------------------
to this Agreement and the obligation of the Company and the Selling Shareholders
to sell and deliver the Common Shares hereunder, and of each Underwriter to
purchase the Common Shares in the manner as described herein, that, except as
hereinafter in this paragraph provided, each of the Underwriters shall purchase
and pay for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase on such Closing Date
does not exceed 10% of the total number of Common Shares which the Underwriters
are obligated to purchase on such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Common Shares which such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of Common Shares with respect
to which such default occurs is more than the above percentage and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Common Shares by other persons are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Shareholders, except
for the expenses to be paid by the Company and the Selling Shareholders pursuant
to Section 7 hereof and except to the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be purchased
by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
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order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate this
-----------
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you and the Selling Shareholders or by you by notice to the Company
and the Selling Shareholders at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company or
the Selling Shareholders to any Underwriter (except for the expenses to
be paid or reimbursed by the Company and the Selling Shareholders
pursuant to Sections 7 and 9 hereof and except to the extent provided
in Section 11 hereof) or of any Underwriter to the Company or the
Selling Shareholders (except to the extent provided in Section 11
hereof).
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall
have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or California authorities, (ii) if an
outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to
affect adversely the marketability of the Common Shares, (iii) if any
adverse event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or which is not
reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information
contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or
there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or IMR-India or the
30
<PAGE>
transactions contemplated by this Agreement, which in any case, in the
reasonable judgment of the Representatives, may materially and
adversely affect the Company's business or earnings and makes it
impracticable or inadvisable to offer or sell the Common Shares. Any
termination pursuant to this subsection (b) shall without liability on
the part of any Underwriter to the Company or the Selling Shareholders
or on the part of the Company or the Selling Shareholders to any
Underwriter (except for expenses to be paid or reimbursed by the
Company and the Selling Shareholders pursuant to Sections 7 and 9
hereof and except to the extent provided in Section 11 hereof.
SECTION 15. Failure of the Selling Shareholders to Sell and Deliver. If
-------------------------------------------------------
one or more of the Selling Shareholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Shareholders at the First Closing Date under the terms of this Agreement and if
the Company is unable to arrange for an equal number of shares to be sold by
another Selling Shareholder, then the Underwriters may at their option, by
written notice from you to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 7, 9 and 11 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. In the event of a failure by one or more of the Selling
Shareholders to sell and deliver as referred to in this Section, either you or
the Company shall have the right to postpone the Closing Date for a period not
exceeding seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters 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 any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, 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 17. Notices. All communications hereunder shall be in writing
-------
and, if sent to the Representatives shall be mailed, delivered or telegraphed
and confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: __________, with a copy to Latham & Watkins, 633 West Fifth Street,
Suite 4000, Los Angeles, California 90071, Attention:
__________________________; and if sent to the Company or the Selling
Shareholders shall be mailed, delivered or telegraphed and confirmed to the
Company at Information Management Resources, Inc., 26750 U.S. Highway 19 North,
Suite 500, Clearwater, Florida 34621, Attention: Satish K. Sanan, with a copy to
Morris, Manning & Martin L.L.P., 1600 Atlanta Financial Center, 3343 Peachtree
Road, N.W., Atlanta, Georgia 30326, Attention: Oby T. Brewer III. The Company,
the Selling Shareholders or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and
----------
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
31
<PAGE>
SECTION 19. Representation of Underwriters. You will act as
------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. 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.
SECTION 21. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement of
-------
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the singular
and the plural include one another. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified, and
the observance of any term of this Agreement may be waived, only by a writing
signed by the Company, the Selling Shareholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for the
Selling Shareholders represents by so doing that he has been duly appointed as
Attorney-in-fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-fact to take such
action. Any action taken under this Agreement by any of the Attorneys-in-fact
will be binding on all the Selling Shareholders.
* * * *
32
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Shareholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
Information Management Resources, Inc.
By:__________________________
Satish K. Sanan
President and
Chief Executive Officer
Selling Shareholders
By:__________________________
(Attorney-in-fact)
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by us in
San Francisco, California as of the date first above written.
MONTGOMERY SECURITIES
ALEX. BROWN & SONS, INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A
By: MONTGOMERY SECURITIES
By:______________________________
Partner
33
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
Montgomery Securities ...............
Alex. Brown & Sons, Inc..............
TOTAL .....................
34
<PAGE>
SCHEDULE B
Name of Selling Shareholder Number of Firm Number of Optional
Common Shares to Common Shares to
be Sold by Selling be sold by
Selling Shareholders Selling Shareholders
TOTAL ..........
35
<PAGE>
SCHEDULE C
Form of Opinion of
Morris, Manning & Martin L.L.P.
U.S. Counsel to the Company
[To be attached prior to
execution of this Agreement]
36
<PAGE>
SCHEDULE D
Form of Opinion of
Nesmith Desai
India Counsel to the Company
[To be attached prior to
execution of this Agreement]
37
<PAGE>
SCHEDULE E
Form of Opinion of
---------------------------
U.K. Counsel to the Company
[To be attached prior to
execution of this Agreement]
38
<PAGE>
EXHIBIT 4.2
NUMBER SHARES
INFORMATION MANAGEMENT RESOURCES, INC.
(Incorporated under the laws of Florida)
Authorized To Issue 40,000,000 Shares of Common Stock - $.10 Par Value
10,000,000 Shares of Preferred Stock - $.10 Par Value
THIS CERTIFIES THAT SPECIMEN is the
----------------------------------------------
registered holder of Shares
------------------------------------------------
of the authorized common stock of Information Management Resources, Inc. which
are fully paid and non-assessable and which are transferable only on the books
of the Corporation by the holder hereof in person or by Attorney upon surrender
of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this day of A.D., 19
------- ----------------- ---
- ------------------- -------------------
Secretary President
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- Custodian
-------------------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
---------------------------------
(State)
Additional abbreviations may also be used thought not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
+------------------------------------+
| |
+------------------------------------+-----------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
--------------------------------------------------------------------
- -------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
--------------------------
--------------------------------------------
In presence of
--------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MORRIS, MANNING & MARTIN]
Information Management Resources, Inc.
Suite 500
26750 U.S. Highway 19 North
Clearwater, Florida 34621
Re: Registration Statement on Form S-1
Registration No. 333-12037
Ladies and Gentlemen:
We have served as counsel for Information Management Resources, Inc., a
Florida corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended, pursuant to the Company's Registration
Statement on Form S-1 (No. 333-12037) (the "Registration Statement"), of a
proposed public offering of 3,500,000 shares (the "Shares") of the Company's
authorized common stock, $.10 par value (the "Common Stock"), of which 2,950,000
Shares are to be sold by the Company and 550,000 Shares are to be sold by the
selling shareholders (the "Selling Shareholders") named in the Registration
Statement. In addition, the Company and Selling Shareholder have granted to the
underwriters an option to purchase 525,000 shares of Common Stock to cover over-
allotments, if any (the "Over-Allotment Shares").
We have examined and are familiar with originals or copies (certified or
otherwise identified to our satisfaction) of such documents, corporate records
and other instruments relating to the incorporation of the Company and to the
authorization and issuance of the outstanding shares of Common Stock, the Shares
and the Over-Allotment Shares to be sold by the Company and the Selling
Shareholder, as appropriate, as we have deemed necessary and advisable.
Based upon the foregoing and having regard for such legal considerations
that we have deemed relevant, it is our opinion that:
1. Of 550,000 Shares to be sold by the Selling Shareholders 517,430
are legally and validly issued, fully paid and nonassessable and 32,570
will be legally and validly issued, fully paid and nonassessable upon the
exercise of options to acquire such shares. The 2,950,000 Shares to be
issued and sold by the Company will be, upon issuance, sale and delivery as
<PAGE>
MORRIS, MANNING & MARTIN
Information Management Resources, Inc.
October 18, 1996
Page 2
contemplated in the Registration Statement, legally and validly issued,
full paid and nonassessable.
2. The Over-Allotment Shares to be sold by the Selling Shareholder
upon the exercise of the over-allotment option by the Underwriters are
legally and validly issued, fully paid and nonassessable, and the Over-
Allotment Shares to be issued and sold by the Company will be, upon
issuance, sale and delivery as contemplated in the Registration Statement,
legally and validly issued, full paid and nonassessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus contained in the Registration Statement and to the
filing of this Opinion as Exhibit 5.1 thereto.
Respectfully,
MORRIS, MANNING & MARTIN, L.L.P.
<PAGE>
EXHIBIT 10.15
================================================================================
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
INFORMATION MANAGEMENT RESOURCES, INC.
AND
SATISH K. SANAN
DATED
October 31, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
EXECUTIVE EMPLOYMENT AGREEMENT
PARAGRAPH PAGE NO.
- --------- --------
1.BACKGROUND.......................................................... 1
2.DEFINITIONS......................................................... 1
3.EMPLOYMENT.......................................................... 4
4.RESPONSIBILITIES.................................................... 4
5.COMPENSATION AND REIMBURSEMENTS..................................... 5
6.TERMINATION......................................................... 8
7.PROPRIETARY INFORMATION............................................. 9
8.NON-COMPETE.........................................................10
9.SEVERABILITY........................................................10
10.ATTORNEYS' FEES....................................................10
11.HEADINGS...........................................................11
12.NOTICES............................................................11
13.GENERAL PROVISIONS.................................................11
14.ENTIRE AGREEMENT...................................................11
<PAGE>
Executive Employment Agreement
This EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into
as of the 31st day of October, 1996 by and between Information Management
Resources, Inc., a Florida corporation with its principal offices at 26750 U.S.
Highway 19 North, Suite 500, Clearwater, Florida 30071 (the "Company") and
Satish K. Sanan ("Employee"), an individual.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties hereto, the parties do hereby covenant
and agree as follows:
1. Background.
A. The Company is engaged in the business of providing applications
software outsourcing solutions for the Information Technology departments of
large businesses with intensive information processing needs.
B. The Company desires to secure and retain the services of Employee
in the office of President and Chief Executive Officer, and such services are
considered by the Company to be valuable with regard to the Company's business.
C. Employee has been serving as President and Chief Executive Officer
of the Company, and Employee desires to continue in the full and active employ
of the Company in accordance with the terms and conditions herein set forth, and
the Company desires to retain Employee's valuable skills and services for the
benefit of the Company.
D. This Agreement supersedes and cancels the existing Employment
Agreement between the Company and the Employee dated February 15, 1996 ("Prior
Employment Agreement").
2. Definitions. As used in this Agreement and the Exhibits, the following
terms shall have the meaning as set forth below, and the parties hereto agree to
be bound by the provisions hereof:
A. Area means the geographic area of the forty-eight (48) contiguous
continental states of the United States which is the area in which operations
are performed, supervised, or assisted in by Employee on behalf of the Company,
both as of the date hereof and as are anticipated to be conducted throughout the
Term.
B. Board of Directors means the Board of Directors of the Company.
C. Company means Information Management Resources, Inc., a Florida
corporation, and its successors.
D. Company Business means the business engaged in by the Company of
providing applications software outsourcing solutions for the Information
Technology
<PAGE>
departments of large businesses with intensive information processing needs, and
all ancillary activities relating to such services.
E. Constructive Termination means a termination of this Agreement
resulting from any material failure by the Company to fulfill its obligations
under this Agreement which is not cured within twenty (20) days after receipt of
written notice by the Company from Employee specifying the nature of the
failure, which failure shall include, but shall not be limited to, (a) removal
of Employee, other than removal as a result of a Termination With Cause or a
Voluntary Termination, as Chief Executive Officer of the Company or any material
change by the Company in the functions, duties or responsibilities of Employee
from those in which Employee was engaged as Chief Executive Officer of the
Company on the Effective Date, without the consent of Employee, or (b) a
material, nonvoluntary reduction in Employee's Base Salary or any of Employee's
benefits as set forth in Section 5.E.; or (c) the elimination of Employee's
eligibility for bonus payments, or (d) any relocation of Employee by the
Company, not agreed to by Employee, to a location other than Tampa, Florida.
Constructive Termination shall occur only (A) after receipt by the Company of
written notice from Employee specifying Employee's reasonable belief that an
event of Constructive Termination has occurred, as defined herein, and the basis
for such belief, and (B) if Employee provides such notice to the Company and the
Board of Directors within sixty (60) days after the date of such event. The
effective date of Employee's termination of employment shall be the date
specified by the Employee which date must be not later than sixty (60) days
after the giving of the notice specified in the immediately preceding sentence.
Notice by Employee of Constructive Termination shall not constitute a Voluntary
Termination for purposes of this Agreement.
F. Effective Date means the date first written above.
G. Employee's Current Salary means, with respect to any payment
obligation pursuant to this Agreement, an amount equal to the greater of (i)
Employee's current base salary as of the date of any determination of Employee's
Current Salary hereunder, plus an amount equal to the bonus compensation paid to
the Employee for the most recent fiscal year, plus an amount equal to the
annualized value of any and all benefits currently paid to or for the benefit of
the Employee as set forth in Section 5.E.; or (ii) Employee's gross income as
reported cumulatively on Employee's Form W-2 and any Form 1099 issued for the
previous calendar year.
H. Initial Term means the basic term of this Agreement, which shall
be five (5) years, beginning on the Effective Date and ending on the date which
is the fifth anniversary of the Effective Date.
I. Permanent Disability means a physical or mental condition which
renders Employee incapable of performing his regular duties hereunder for a
period of one hundred twenty (120) consecutive days. In the event of any
disagreement between Employee and the Company as to whether Employee is
suffering from Permanent Disability, the determination of Employee's Permanent
Disability shall be made by one or more board certified licensed physicians
practicing the specialty of medicine applicable to Employee's disorder in the
-2-
<PAGE>
Tampa, Florida metropolitan area in accordance with the provisions of this
Subsection I. If either the Company or Employee desires to initiate the
procedure provided in this Section, such party (the "Initiating Party") shall
deliver written notice to the other party (the "Responding Party") in accordance
with the provisions of this Agreement specifying that the Initiating Party
desires to proceed with a medical examination and the procedures specified in
this Subsection. Such notice shall include the name, address and telephone
number of the physician selected by the Initiating Party (the "Disability
Examination Notice"). If the Responding Party fails within thirty (30) days
after the receipt of the Disability Examination Notice to designate a physician
meeting the standards specified herein, the physician designated by the
Initiating Party in the Disability Examination Notice shall make the
determination of Permanent Disability as provided in this Section. If the
Responding Party notifies the Initiating Party within thirty (30) days of the
receipt by the Responding Party of the Disability Examination Notice by written
notice specifying the physician selected by the Responding Party for purposes of
this Subsection, then each of the two physicians as so designated by the
respective parties shall each examine Employee. Examinations shall be made by
each such physician within thirty (30) days of such physician's respective
designation. Each physician shall render a written report as to whether
Employee is in such physician's opinion suffering Permanent Disability. If the
two physicians agree on the status of Employee for purposes of this Subsection,
such determination shall be conclusive and dispositive for all purposes of this
Subsection. If the two physicians cannot agree, the two physicians shall
jointly select a third physician meeting the standards specified in this
Subsection within thirty (30) days after the later report of the two physicians
is submitted. The third physician shall render a written report on the status
of Employee within thirty (30) days of selection and such report shall be
dispositive for purposes of this Subsection. For purposes of this Subsection,
Employee agrees that he shall promptly submit to such examinations and tests as
such physicians shall reasonably request for purposes of making a determination
of Permanent Disability as provided herein. Failure or refusal of the Company
to designate a licensed physician to make a determination of Permanent
Disability as required in accordance with this Subsection shall constitute a
conclusive admission by the Company that Employee is not suffering from a
Permanent Disability as provided herein. Failure or refusal of Employee to
submit to the examination as required by this Subsection shall constitute a
conclusive admission by Employee that Employee is suffering from a Permanent
Disability as provided herein.
J. Renewal Terms means the period, if any, following the Initial Term
during which the Agreement is extended as set forth in Section 6.B.
K. Severance Amount shall have the meaning as set forth in
Section 5.C.
L. Term means the Initial Term and any Renewal Term.
M. Termination Date means the following: (w) with respect to
Termination With Cause, the date the Company notifies Employee in writing of the
actions described in Subsection 2.N.(i) and the termination of this Agreement
based thereon, or the date which is twenty (20) days after written notice of
violation to Employee pursuant to Subsection 2.N.(ii) which violation is not
cured by Employee; (x) with respect to the death of Employee, the date of his
death; (y) with respect to Termination Without Cause, the date on which the
Company gives
-3-
<PAGE>
Employee notice of Termination Without Cause; and (z) with respect to Voluntary
Termination, the date on which Employee unilaterally terminates his employment
relationship with the Company.
N. Termination With Cause means the termination of this Agreement and
the employment relationship of Employee with the Company, only for the
following:
(i) Theft or embezzlement with regard to material property of the
Company; or
(ii) Continued neglect by Employee in fulfilling his duties as
Chief Executive Officer of the Company as a result of alcoholism, drug
addiction, or excessive unauthorized absenteeism, after written notification
from the Board of Directors of such neglect, setting forth in detail the matters
involved and Employee's failure to cure the problem resulting in such neglect
within a reasonable time.
O. Termination Without Cause means a termination by the Company of
this Agreement and the employment relationship of Employee with the Company
which is not a Termination With Cause, a Voluntary Termination or a Constructive
Termination, including the expiration of the Term as a result of the decision of
the Company at the end of the Initial Term or any Renewal Term not to renew this
Agreement.
P. Triggering Event means a termination of Employee's employment as a
result of (i) a Termination Without Cause, or (ii) a Constructive Termination.
Q. Voluntary Termination means (i) unilateral termination by Employee
of his employment with the Company prior to or at the end of the Term and in the
absence of a Triggering Event; (ii) termination occurring by reason of the
Employee's death; or (iii) termination occurring by reason of the Employee's
Permanent Disability. Notice by Employee to the Company of a failure by the
Company to fulfill its obligations under the Agreement pursuant to Section 2.E.
shall not constitute a Voluntary Termination for purposes of this Agreement.
3. Employment. The Company, through its Board of Directors, agrees to employ
Employee in the office of President and Chief Executive Officer of the Company
for the Term, and Employee agrees to accept such employment and office upon the
terms and conditions set forth herein.
4. Responsibilities. Pursuant to this Agreement, Employee shall assume the
responsibilities, perform the duties, and exercise the powers as President and
Chief Executive Officer of the Company, as set forth in the Bylaws of the
Company and consistent with the responsibilities, duties and powers exercised by
Employee as Chief Executive Officer of the Company as of the Effective Date and
such other duties as may be assigned from time to time by the Board of
Directors.
-4-
<PAGE>
5. Compensation and Reimbursements. The Company shall pay, and Employee
agrees to accept, as partial compensation for services to be rendered hereunder
during the Term, the remuneration described below.
A. Annual Salary. The Company shall pay Employee a base annual
salary as of the Effective Date of four hundred thousand dollars ($400,000) per
year ("Base Salary"), subject to annual increases which, if granted, shall be
effective on the first day of the Company's fiscal year, as the Board of
Directors in its sole discretion deems appropriate in accordance with the
Company's customary procedures regarding the salaries of its executive officers.
Base Salary shall be payable according to the customary payroll practices of the
Company, but in no event less frequently than monthly. Commencing on January 1,
1998, and on January 1 of each year ("Adjustment Date") during the Term of this
Agreement, the Base Salary shall be increased by an amount equal to (a) the Base
Salary then in effect multiplied by (b) a percentage, which percentage shall be
----------
the year-to-year annual percentage increase in the CPI (Consumer Price Index For
All Urban Consumers - All Cities - All Items, 1982 - 1984 = 100), as published
by the Bureau of Labor Statistics of the United States Department of Labor
(hereinafter, the "CPI"), for the calendar year immediately preceding the
Adjustment Date, as compared to the prior calendar year. If, during the Term of
this Agreement, the CPI is terminated for any reason, then a substantially
equivalent successor index shall be designated by the Employee and shall be used
to determine increases in the Base Salary under this Section 5.A. If the CPI
declines, the Base Salary shall not be decreased. The Board of Directors of the
Company, in their sole discretion, may increase the amount of compensation
provided in Section 5.A. (in an amount in excess of the CPI adjustment provided
in Section 5.A. hereof) without the necessity of amending this Agreement, but
the Company shall not decrease the Base Salary at any time during the Term of
this Agreement. Any increase in the Base Salary shall not affect any of the
other terms and conditions of this Agreement other than determination of
severance allowance payable hereunder.
B. Financial Performance Bonus. In addition to the Base Salary,
Employee shall be eligible to receive a financial performance bonus (the
"Financial Performance Bonus"), as described herein.
(i) Financial Performance Bonus. Commencing on the Effective
Date, and continuing in each fiscal year during the Term of this Agreement,
Employee will receive an annual Financial Performance Bonus in an amount equal
to 2% of the Company's consolidated pre-tax net income for the current year, to
be determined without consideration for any bonus amounts under this Agreement.
The Board of Directors of the Company, in their sole discretion, may increase
the amount of the Financial Performance Bonus provided in Section 5.B. without
the necessity of amending this Agreement, but the Company shall not decrease the
Financial Performance Bonus at any time during the Term of this Agreement.
(ii) Timing of Payments. The Financial Performance Bonus
described under Section 5.B.(i) above will be determined and calculated by the
accounting department of the Company and will be approved by the Board of
Directors and paid by the Company to Employee within fifteen (15) days following
the filing by the Company of its
-5-
<PAGE>
quarterly and annual reports on Forms 10-Q and 10-K (and in no event more than
fifteen (15) days following the due date for such report).
(iii) Draws and Reconciliations. Employee will be allowed to
draw quarterly up to fifty percent (50%) of the estimated Financial Performance
Bonus based on the budget for consolidated pre-tax net income adopted as part of
the Company's business plan approved by its Board of Directors. All draws
hereunder will be reconciled quarterly at the time of payment of the Financial
Performance Bonus and will be fully reconciled at year-end; provided, however,
that all draws hereunder will be non-interest bearing.
(iv) Deductions and Withholdings. Employee shall be subject to
such tax deductions and withholdings as are required by federal, state and local
laws.
C. Severance Payments and Agreements.
(i) Upon the occurrence of a Triggering Event, Employee shall be
deemed to have earned the Severance Amount, as defined below, on the effective
date of the Triggering Event. The obligation of the Company under this
Subsection 5.C.(i) shall take the place of any other obligations of the Company
under this Section 5 to pay to Employee the Employee's then Base Salary for the
balance of the Term pursuant to Subsection 5.A.
(ii) The Severance Amount shall be an amount equal to three (3)
multiplied times Employee's Current Salary.
(iii) Any Severance Amount payable pursuant to this Section shall
be paid as follows: (a) fifty percent (50%) of such amount shall be payable
immediately as of the date of the Triggering Event, and (b) the remaining fifty
percent (50%) of such amount shall be paid over the twelve (12) month period
thereafter according to the Company's payroll practices and procedures in effect
at the time of the Triggering Event
(iv) In addition to receiving payment of the Severance Amount,
upon the occurrence of a Triggering Event, any and all stock options to purchase
shares of the Company's stock which are held by Employee shall become one
hundred percent (100%) vested and immediately exercisable as of the date of such
Triggering Event, and shall be exercisable by Employee over the balance of the
remaining stated term of any such stock options (which term shall be the term
applicable to the Employee in the absence of termination of employment),
notwithstanding any provision contained in the stock option agreement to the
contrary.
(v) Any controversy or claim arising out of or relating to
whether termination of Employee's employment is due to a Triggering Event, or is
a Termination With Cause, a Termination Without Cause, a Constructive
Termination or a Voluntary Termination as provided herein, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules ("Rules") of the
American Arbitration Association ("AAA"). Arbitration shall be initiated by a
party by giving notice in the manner set forth herein to the other party of its
intention to arbitrate, which notice shall contain a statement setting forth the
nature of the dispute, the amount claimed, if any, and the remedy sought. The
initiating party shall then file a copy or
-6-
<PAGE>
copies of the notice as set forth under the Rules. Tampa, Florida shall be the
location where the arbitration is held. The parties shall agree upon and appoint
three (3) arbitrators in accordance with the Rules within twenty (20) days of
the effective date of notice of arbitration; however, if the parties fail to
make such designation within twenty (20) days, the AAA shall make the
appointment. The determinations of such arbitrators will be final and binding
upon the parties to the arbitration, and judgment upon the award rendered by the
arbitrators may be entered in any such court having jurisdiction, or application
may be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The arbitrators shall apply the laws of the
State of Florida as to both substantive and procedural questions.
D. Car Allowance. The Company shall pay a monthly car allowance on
behalf of Employee payable monthly in accordance with customary practices of the
Company of an amount to be mutually determined by Employee and the Board of
Directors commensurate with Employee's executive office with the Company.
E. Insurance and Benefits.
(i) The Company shall allow Employee to participate in or
receive benefits under all employee and executive benefit plans or arrangements
and perquisites of employment, including, without limitation, plans or
arrangements providing for health and disability insurance coverage, life
insurance for the benefit of Employee's beneficiaries, deferred compensation and
pension benefits, and personal financial, investment, legal or tax advice, all
at the highest level that is available through the Company to other senior
officers of the Company subject to the same terms and conditions as apply to
such other senior officers.
(ii) Employee shall be entitled to all holidays recognized by
the Company and vacation time for not less than four (4) weeks per year (plus
such additional time as is available under the vacation policy of the Company in
effect for senior officers) with continuing payment of all compensation as set
forth herein. Employee shall be reimbursed by the Company for all expenses
incurred on behalf of the Company in accordance with the then current
reimbursement policies of the Company. Nothing paid to Employee under any plan,
arrangement or perquisite presently in effect or made available in the future
shall be deemed to be in lieu of the salary and other compensation or payments
paid or payable to Employee under this Agreement.
(iii) In the event of a termination of Employee's employment with
the Company as a result of or in connection with a Triggering Event, Employee
shall be entitled to continue to receive the insurance benefits set forth above
(at the highest level of insurance benefits within the twelve (12) month period
prior to such event and subject to the same terms and conditions as such
insurance benefits were made available to Employee during this period, for a
twenty-four (24) month period following the Triggering Event; provided, however,
that in the event the Company is legally prohibited from providing a specified
insurance benefit after termination of employment, it shall provide Employee the
economic equivalent thereof.
(iv) During the term of this Agreement, the Company shall
reimburse Employee for all life insurance premiums paid by Employee for
currently existing life insurance
-7-
<PAGE>
policies with an aggregate death benefit of approximately $8,000,000. The
Employee shall be considered the owner of such policies and shall have the right
to designate the beneficiaries thereof.
F. Options. Employee shall be eligible to receive options (the
"Options") to acquire shares of the Company's common stock. The exercise price
of the Options shall be the fair market value (as such term is defined in the
Company's then current Incentive Stock Option Plan) of the shares subject to
such Option, as of the date of the grant of the Option. The terms of the
Options, including the number of Options granted (if any) and the vesting
provisions for the Options (if any), shall be determined by the Compensation
Committee of the Board of Directors in its sole and absolute discretion. Upon
the declaration of effectiveness by the Securities and Exchange Commission with
respect to an initial public offering of the Company's common stock (the
"Initial Public Offering"), Employee shall be granted options to acquire One
Hundred Thousand (100,000) shares of the Company's common stock (the "1996
Options") at an exercise price equal to the price to the public in the Initial
Public Offering. All of the 1996 Options shall vest on the first anniversary of
the Effective Date, and shall be exercisable by Employee for a period of ten
(10) years after the date of the Initial Public Offering.
6. Termination.
A. This Agreement will commence on the Effective Date and shall
continue during the Initial Term.
B. In addition to the Initial Term, this Agreement shall be renewed
automatically without the affirmative action of either party for additional
periods of one (1) year each (each a "Renewal Term"), ad infinitum, unless
either party gives written notice of non-renewal at least one hundred and eighty
(180) days prior to the expiration of the Initial Term or the then current
Renewal Term.
C. During the Term, the Company or Employee may terminate this
Agreement, subject to the terms, conditions and obligations hereof, by any of
the following events:
(i) Mutual written agreement expressed in a single document
signed by both the Company and Employee;
(ii) Voluntary Termination by Employee upon not less than 180
days notice to the Company;
(iii) Termination Without Cause;
(iv) Termination With Cause; or
(v) Constructive Termination.
-8-
<PAGE>
Upon termination for any of the foregoing reasons, Employee shall
continue to render services and shall be paid his Base Salary, Financial
Performance Bonus and benefits up to the Termination Date. Any Severance Amount
payable to Employee is in addition to the regular Base Salary, Financial
Performance Bonus, and benefits which Employee shall receive up to the
Termination Date. In the event of such termination, this Agreement shall be
deemed terminated for all purposes except to the extent otherwise herein
provided.
D. The obligations of Employee under Section 7 and Section 8 shall
survive termination or expiration of this Agreement. The obligations of the
Company under Section 10, and those obligations under Section 5 that by their
terms are to be paid or to continue after termination of this Agreement, shall
also survive such termination.
7. Proprietary Information.
A. In performance of services under this Agreement, Employee may have
access to:
(i) information which derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy (hereinafter "Trade Secret" or
"Trade Secrets"); or
(ii) information which does not rise to the level of a Trade
Secret, but is valuable to the Company and provided in confidence to Employee
(hereinafter "Confidential Information").
B. Employee acknowledges and agrees with respect to Trade Secrets and
Confidential Information provided to or obtained by Employee (hereinafter
collectively the "Proprietary Information"):
(i) that the Proprietary Information is and shall remain the
exclusive property of the Company;
(ii) to use the Proprietary Information exclusively for the
purpose of fulfilling Employee's obligations under this Agreement;
(iii) to return the Proprietary Information, and any copies
thereof, in his possession or under his control, to the Company upon request of
the Company, or expiration or termination of this Agreement for any reason; and
(iv) to hold the Proprietary Information in confidence and not
to copy, publish, or disclose to others or allow any other party to copy,
publish, or disclose to others, in any form, any Proprietary Information without
the prior written approval of an authorized representative of the Company.
-9-
<PAGE>
C. The obligations and restrictions set forth in this Section 7 shall
survive expiration or termination of this Agreement, for any reason, and shall
remain in full force and effect as follows:
(i) as to Trade Secrets, for so long as such information
remains subject to protection under applicable law;
(ii) as to Confidential Information, for a period of two (2)
years after expiration or termination of this Agreement for any reason.
D. The obligations set forth in this section 7 shall not apply or
shall terminate with respect to any particular portion of the Proprietary
Information which:
(i) was in Employee's possession, free of any obligation of
confidence, prior to his receipt of the Confidential Information from the
Company;
(ii) is in the public domain at the time the Company
communicates it to Employee, or becomes available to the public through no
breach of this Agreement by Employee; or
(iii) is received by Employee independently and in good faith
from a third party lawfully in possession thereof under circumstances which do
not give rise to an obligation on the part of Employee to keep such information
confidential.
8. Non-Compete. Employee agrees that in the event of Voluntary Termination by
Employee or Termination With Cause, during the period commencing on the date of
termination of employment and ending on the third anniversary of such date,
Employee shall not, within the Area, on Employee's own behalf or on behalf of
any person, firm, partnership, association, corporation or business
organization, entity or enterprise: (a) perform services substantially similar
to those performed by the Employee hereunder for any company or other entity
that provides one or more services that compete with the Company Business, or
(b) call upon, solicit, recruit, or assist others in calling upon, recruiting or
soliciting any person who is or was an employee of the Company, for the purpose
of having such person work in any other corporation, association, entity, or
business.
9. Severability. If any provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, such holdings shall not
affect the enforceability of any other provision of this Agreement, and all
other provisions shall continue in full force and effect.
10. Attorneys' Fees. If a dispute between the parties arises in connection
with this Agreement, the prevailing party as determined through arbitration or
final judgment of a court of competent jurisdiction (which arbitration or
judgment is not subject to further appeal due to the passage of time or
otherwise) shall be entitled to reimbursement from the other party for
reasonable attorneys' fees and expenses incurred by the prevailing party in
connection with the resolution of the dispute.
-10-
<PAGE>
11. Headings. The headings of the several paragraphs in this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
12. Notices. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if (i) delivered personally; (ii) mailed by certified mail, return
receipt requested, with proper postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
acknowledgment to:
(a) To the Company:
Information Management Resources, Inc.
26750 U.S. Highway 19 North
Suite 500
Clearwater, Florida 30071
Attention: President
(b) To Employee:
Satish K. Sanan
163 Woodcreek Drive
Safety Harbor, Florida 34695
or at such other address as the parties hereto may have last designated by
written notice to the other parties. Any item delivered personally or by
recognized courier contracting for same day or next day delivery shall be deemed
delivered on the date of delivery. Any item mailed shall be deemed to have been
delivered on the date evidenced on the return receipt.
13. General Provisions. This Agreement shall be governed by and construed
under the laws of the State of Florida, without giving effect to its conflict of
law principles. The terms of this Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns. Neither party may
assign his or its rights and obligations under this Agreement to any other
party.
14. Entire Agreement. This contains the entire agreement between the parties
hereto, and except as otherwise provided in this Agreement, supersedes and
cancels all previous and contemporaneous written and oral agreements, including
all prior employment agreements between the Company and Employee and amendments
thereto. No amendment or modification of this Agreement shall be valid or
binding unless in writing and signed by the party to be bound.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Agreement effective as of the date first above written.
INFORMATION MANAGEMENT RESOURCES, INC.
By:
-----------------------------------------------
Dilip Patel, Vice President and General Counsel
Date:
--------------------------
EMPLOYEE:
(SEAL)
--------------------------------------
Satish K. Sanan, Individually
Date:
--------------------------
-12-
<PAGE>
EXHIBIT 10.24
TERMINATION AGREEMENT
This TERMINATION AGREEMENT is made this --- day of November, 1996 by and
among INFORMATION MANAGEMENT RESOURCES, INC., a Florida corporation (the
"Company"), and the individuals named on the signature page hereto.
W I T N E S S E T H:
WHEREAS, each individual listed on the signature page hereto is a
shareholder of the Company (a "Shareholder" and collectively, "Shareholders");
WHEREAS, the Company and the Shareholders have heretofore entered into
that certain Stockholders' Agreement dated July 1, 1994 (the "Shareholders'
Agreement");
WHEREAS, the Company has filed a registration statement with the
Securities and Exchange Commission for the purpose of an initial public offering
of the Company's common stock; and
WHEREAS, the parties now desire to terminate the Shareholders Agreement
upon consummation of the initial public offering.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions contained herein, it is agreed by and between the
parties hereto as follows:
1. Termination of Shareholders' Agreement. As provided in Section 6
of the Shareholders' Agreement, all of the parties hereto hereby terminate the
Shareholders' Agreement and any rights or obligations granted therein, effective
on such date as the Company consummates the initial public offering.
2. Representations. Each of the Shareholders represents and warrants
that he or she has the right to terminate the Shareholders' Agreement as set
forth herein and that this Termination Agreement does not conflict with or
violate the rights of any other party or the terms of any other agreements
binding upon the respective Shareholder. The Company represents and warrants
that it has the right to terminate the Shareholders' Agreement as set forth
herein and that this Termination Agreement does not conflict with or violate the
rights of any other party or the terms of any other agreements binding upon the
Company.
3. Governing Law. This Termination Agreement shall be governed by
and construed in accordance with the laws of the State of Florida.
4. Execution and Counterparts. This Termination Agreement may be
executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts taken together shall
constitute but one and the same instrument.
5. Notice. All notices, requests and demands to or upon a party
hereto shall be in writing and sent by certified mail, return receipt requested,
to the address of the respective parties hereto and shall be deemed to have been
validly served, given or delivered at the time of deposit in the mail, postage
pre-paid.
<PAGE>
6. Entire Agreement. This Termination Agreement embodies the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements, understandings and
inducements, whether express or implied, oral or written.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
day and year first above written.
INFORMATION MANAGEMENT RESOURCES, INC. SHAREHOLDERS:
26750 U.S. Highway 19 North
Suite 500
Clearwater, Florida
By:
-------------------------------
Satish K. Sanan ------------------------------
President SATISH K. SANAN
------------------------------
JEFFREY S. SLOWGROVE
------------------------------
DONNA M. KAPINOS
------------------------------
D.P. RAJU
------------------------------
GOPAL KALLURI
------------------------------
ARAVAMUDHAN LAKSHMANAN
------------------------------
ANANDBIR SINGH
------------------------------
DILIP C. KULKARNI
------------------------------
KENNETH D. SLOWGROVE
-2-
<PAGE>
EXHIBIT 10.26
S CORPORATION TERMINATION, TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
This Tax Allocation and Indemnification Agreement, dated as of
September , 1996 (the "Agreement"), is made by and between Information
----------
Management Resources, Inc., a Florida corporation (the "Company"), and the
---------
persons identified on the signature pages hereto who constitute all of the
shareholders of the Company on the date hereof (each individually, a
"Shareholder," and collectively, the "Shareholders").
- -------------- --------------
RECITALS:
A. The Company is an S corporation, within the meaning of section 1361 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the Shareholders
----
are its only shareholders as of the date of this Agreement.
B. The Company intends to enter into an underwriting agreement to sell
shares of its common stock to the public in an initial public offering
registered under the Securities Act of 1933, as amended (the "Public Offering").
------- -------
C. The Shareholders are currently the only shareholders of the Company and
will continue to be so until immediately before the Closing (as defined below)
of the Public Offering.
D. In connection with the Public Offering, and in order to induce the
investment by the public in the Company, the Company and the Shareholders desire
to provide for an S corporation termination, tax allocation and indemnification
agreement in connection with tax periods prior to and following the Termination
Date (as defined below).
1
<PAGE>
AGREEMENT:
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Shareholders do hereby
covenant and agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Accumulated Adjustments Account" shall have the meaning assigned to that
-------------------------------
term by section 1368(e)(1) of the Code.
"Closing" shall mean the closing and completion of the offering by the
-------
Company of shares of its stock, as described in the Form S-1 registration
statement initially filed by the Company with the Securities and Exchange
Commission on September 13, 1996.
"Code" shall have the meaning set forth in Recital A.
----
"C Short Year" shall have the meaning set forth in Section 1362(e)(1)(B) of
------------
the Code.
"Public Offering" shall have the meaning set forth in Recital B.
---------------
"S corporation" shall have the meaning set forth in Section 1361 of the
-------------
Code.
"S corporation Taxable Income" shall mean, for periods beginning on or
----------------------------
after the date the Company became an S corporation and ending with the close of
the last day of the S Short Year, the sum of (i) the Company's items of
separately stated income and gain (within the meaning of Section 1366(a)(1)(A)
of the Code) reduced, to the extent applicable, by the Company's separately
stated items of deduction and loss (within the meaning of Section 1366(a)(1)(A)
of the Code) and (ii) the Company's nonseparately computed net income (within
the meaning of Section 1366(a)(1)(B) of the Code).
2
<PAGE>
"S Short Year" shall have the meaning set forth in Section 1362(e)(1)(A)
------------
of the Code.
"Termination Date" shall mean the date on which the Company's status as
----------------
an S corporation is terminated by reason of revocation of the election for the
Company to be an S corporation pursuant to Section 1362(d)(1) of the Code, which
date shall be not earlier than the date the registration statement related to
the Public Offering is declared effective by the Securities and Exchange
Commission and not later than two days prior to the date of the Closing, as
designated by the Company.
ARTICLE II
THE TERMINATION; TERMINATION PAYMENTS
2.1 Termination of S Corporation Status. The Company shall terminate
-----------------------------------
its status as an S corporation pursuant to an election, as permitted pursuant to
Section 1362(d)(1) of the Code, which election shall be made by the Company and
the Shareholders and shall be effective on the Termination Date.
2.2 Termination Payments to Shareholders. Immediately prior to the
------------------------------------
Termination Date, the Company shall distribute to the Shareholders (pro rata in
accordance with the relative number of shares of stock of the Company held by
each Shareholder) an amount equal to the "accumulated adjustments account" of
the Company as of the Termination Date. Such distribution shall take the form
of a promissory note of the Company in the form set forth as Exhibit A. For
---------
purposes of this Section 2.2, the term "accumulated adjustments account" shall
have the meaning set forth in Section 1368(e) of the Code as determined by the
Chief Financial Officer of the Company in accordance with the Company's books
and records and without regard to any future adjustments to the Company's
taxable income as described in Section 2.3.
3
<PAGE>
2.3 Future Adjustments. In the event that any future examination of
------------------
any tax return by any taxing authority results in a final determination
increasing the taxable income of the Company for the S Short Year, or for any
period ending prior to the Termination Date, the Company shall distribute to the
Shareholders (pro rata in accordance with the relative number of shares of stock
of the Company held by each Shareholder) within 30 days of such final
determination, cash in an amount equal to the product of (i) the amount of such
increase in the taxable income of the Company resulting from such final
determination, multiplied by (ii) the highest marginal federal income tax rate
applicable to individuals for the taxable year to which such adjustment relates.
2.4 Short Taxable Years. The parties acknowledge that the taxable
-------------------
year in which the S corporation status of the Company is terminated will be an S
Termination Year for tax purposes, as defined in Section 1362(e)(4) of the Code.
Pursuant to Section 1361(e)(1) of the Code, the S Termination Year of the
Company shall be divided into two short taxable years: an "S Short Year" and a
"C Short Year." As defined in Section 1362(e)(1)(A) of the Code, the S Short
Year shall be that portion of the Company's S Termination Year ending on the day
immediately preceding the Termination Date. Pursuant to Section 1362(e)(1)(B)
of the Code, that portion of the S Termination Year beginning on the Termination
Date and ending on the last day of the taxable year shall be the C Short Year of
the Company.
4
<PAGE>
ARTICLE III
ALLOCATION OF INCOME
The Company and the Shareholders agree that for tax purposes
(including for purposes of determining the Company's S corporation Taxable
Income for its fiscal year ending December 31, 1996) the Company shall allocate
its items of income, gain, loss, deduction and credit for its fiscal year ending
December 31, 1996 between the S Short Year and the C Short Year in accordance
with normal tax accounting rules (the so-called "closing of the books method"),
as permitted by Section 1362(e)(3) of the Code. The Company will make the
election permitted by Section 1362(e)(3) in a timely manner. The Shareholders
agree to consent to such election and to provide the Company with the statement
of consent of all shareholders described in Section 1.1362-6(b) of the Treasury
Regulations. The Company and the Shareholders agree to make, and to provide
such information and obtain such consents as are necessary to make, any
comparable election required under applicable state and local income tax laws.
ARTICLE IV
TAXES
4.1 Liability for Taxes Incurred During the S Short Year and for Tax
----------------------------------------------------------------
Periods Ending Prior to the Termination Date. The Shareholders, severally and
- --------------------------------------------
not jointly, each covenant and agree that: (i) the Shareholders have duly
included, or will duly include, in their own federal, state, and local income
tax returns their respective allocable shares of all items of income, gain,
loss, deduction, or credit attributable to the S Short Year of the Company or to
any prior period (or that portion of any period) during which the Company was an
S corporation to the extent required by applicable law; (ii) such returns shall,
to the extent required by applicable law, include their allocable share of S
corporation Taxable Income of the Company from all sources through and including
the close of business on the last day of the S Short Year of the Company, and
(iii) the Shareholders shall, to the extent required by applicable law, pay any
and all taxes they are required to pay, as a result of being a shareholder of
the Company, for all taxable periods (or that portion of any period) during
which the Company was an S corporation.
5
<PAGE>
4.2 Shareholder Indemnification for Tax Liabilities. The
-----------------------------------------------
Shareholders, severally (according to the relative percentage of the outstanding
shares of Company common stock owned by each Shareholder on the last day of any
applicable period to which a liability described below relates) and not jointly,
each hereby indemnify and hold the Company harmless from, against and in respect
of any unpaid income tax liabilities of the Company (including interest and
penalties imposed thereon) (i) which are attributable to the S Short Year or any
period ending prior to the Termination Date, or (ii) which are incurred by the
Company as a result of a final determination of an adjustment (by reason of an
amended return, claim for refund, audit, judicial decision or otherwise) to the
taxable income of the Shareholders for any period (including, without
limitation, the S Short Year) which (in the case of this clause (ii)) results in
a decrease for any period in the Shareholders' taxable income and a
corresponding increase for any period in the taxable income of the Company.
4.3 Company Indemnification for Tax Liabilities. The Company hereby
-------------------------------------------
indemnifies and agrees to hold the Shareholders harmless from, against and in
respect of income tax liabilities (including interest and penalties imposed
thereof), if any, incurred by the Shareholders as a result of a final
determination of an adjustment (by reasons of an amended return, claim for
refund, audit, judicial decision or otherwise) to the taxable income of the
Company for any period ending after the Termination Date (including, without
limitation, the C Short Year) which results in a decrease for any period in the
Company's taxable income and a corresponding increase for any period in the
taxable income of the Shareholders.
6
<PAGE>
4.4 Payments. The Shareholders or the Company, as the case may be,
--------
shall make any payment required under Section 4.3 of this Agreement within 30
days after receipt of notice from the other party that a final determination has
occurred and a payment is due by such party to the appropriate taxing authority.
4.5 Refunds. If the Company receives a refund of any income tax
-------
(including penalties and interest) for any period prior to the Termination Date,
or as to which it has previously been indemnified by the Shareholders, it shall
pay an amount equal to such refund, within 30 days after receipt thereof, to the
Shareholders in accordance with the percentage of the outstanding shares of
Company common stock owned by each such Shareholder on the last day of any
applicable period which the refund relates. If the Shareholders receive a
refund of any income tax (including penalties and interest) as to which they
have previously been indemnified by the Company, they shall, within 30 days
after receipt thereof, remit an amount equal to such refund to the Company.
4.6 Notice and Control of Proceedings. Each of the Company and the
---------------------------------
Shareholders agree that (i) within 10 days of receiving written notice of any
income tax examinations, claims, settlements, proposed adjustments or related
matters that may affect in any way the income tax liability of a party under
this Agreement, such person shall provide written notice thereof to such each
other party hereto, and (ii) the party or parties who would be responsible for
the payment of the applicable taxes if the matter in question were to be
resolved adversely shall be entitled, in his or its reasonable discretion and at
his or its sole expense, to handle, control and compromise or settle the defense
thereof, so long as such party or parties are acting diligently and in good
faith. Such party or parties shall keep the other party(ies) apprised of the
7
<PAGE>
status thereof and shall consult with such other party(ies) concerning the
conduct of the defense thereof. Notwithstanding the foregoing, however, the
party handling such matters shall not compromise or settle any matter which
could adversely affect the tax liability of another party without such other
party's prior written consent, which shall not be unreasonably withheld. The
parties hereto shall execute all instruments required to effectuate the
provisions of this Section 4.6.
4.7 Cooperation. The parties will make available to one another, as
-----------
reasonably requested, and to any taxing authority, all information, records or
documents relating to the liability for taxes covered by this Agreement and will
preserve any such information, records or documents until the expiration of the
applicable statute of limitations or extensions thereof. The party requesting
such information shall reimburse the other party for all reasonable out-of-
pocket costs incurred in producing such information.
4.8 Costs. Except as otherwise provided herein, each party shall
-----
bear his or its own costs in administering this Agreement.
4.9 Conduct of the Company in the Ordinary Course of Business. From
---------------------------------------------------------
the date hereof until the Termination Date, the Company will be conducted in the
ordinary course of business, consistent with past practices (including, without
limitation, its receivables collection and expense payment practices).
8
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1 Counterparts. This Agreement may be executed in counterparts,
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each of which shall be deemed an original, but all of which counterparts
collectively shall constitute an instrument representing the Agreement between
the parties hereto.
5.2 Construction of Terms. Nothing herein expressed or implied is
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intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors, any
rights or remedies under or by reason of this Agreement.
5.3 Intent of Parties. It is the parties' intent that the liability
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for income taxes arising from the operations of the Company will be borne by the
Shareholders for all periods through and including the S Short Year and by the
Company for periods beginning with the C Short Year, and this Agreement shall be
construed so as most equitably to achieve such intent.
5.4 Governing Law. This Agreement between the parties hereto shall
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be governed by and construed in accordance with the substantive laws of the
State of Florida without regard to its choice of law rules.
5.5 Severability. In the event that any one or more of the
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provisions of this Agreement shall be held to be illegal, invalid or
unenforceable in any respect, the same shall not in any respect affect the
validity, legality or enforceability of the remainder of this Agreement, and the
parties shall use their best efforts to replace such illegal, invalid or
unenforceable provisions with an enforceable provision approximating, to the
extent possible, the original intent of the parties.
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5.6 Notices. Unless otherwise provided, any notice required or
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permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or telecopy (receipt confirmed, with a
copy to be sent by reputable overnight courier as set forth herein) to the party
to be notified, or one business day after delivery to a reputable overnight
courier, postage prepaid, and addressed to the party to be notified at the
address indicated for such party on the signature pages hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
5.7 Amendments and Waivers. Any term of this Agreement may be
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amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of each of the parties hereto;
provided, however, that no consent of the Company shall be effective unless
approved by a majority of the disinterested members of its Board of Directors.
5.8 Full Understanding. Each Shareholder represents and agrees that
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such Shareholder fully understands his or her right to discuss all aspects of
this Agreement with such Shareholder's private attorney, and that to the extent,
if any, that the Shareholder desired, has availed himself or herself of such
right. Each Shareholder further represents that he or she has carefully read
and fully understands all of the provisions of this Agreement, that such
Shareholder is competent to execute this Agreement, that the Shareholder's
agreement to execute this Agreement has not been obtained by any duress and that
he or she freely and voluntarily enters into it, and that he or she has read
this document in its entirety and fully understands the meaning, intent and
consequences of this document.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of this
first date set forth above.
INFORMATION MANAGEMENT RESOURCES, INC.
By:
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Satish K. Sanan
Chief Executive Officer
Address for Notice:
Suite 500
26750 US Highway 19 North
Clearwater, Florida 34621
Telecopy: 813/791-8152
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Satish K. Sanan
Address for Notice:
c/o Information Management Resources, Inc.
Suite 500
26750 US Highway 19 North
Clearwater, Florida 34621
Telecopy: 813/791-8152
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Jeffrey S. Slowgrove
Address for Notice:
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D.P. Raju
Address for Notice:
S-1
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Gopal Kalluri
Address for Notice:
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Aravamudhan Lakshmann
Address for Notice:
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Anandbir Singh
Address for Notice:
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Dilip C. Kulkarni
Address for Notice:
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Kenneth D. Slowgrove
Address for Notice:
S-2
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Satish K. Sanan and Anne Sanan
(Tenants by the Entirety)
Address for Notice:
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Donna M. Kapinos
Address for Notice:
S-3
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EXHIBIT A
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DEMAND PROMISSORY NOTE
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Executed at Clearwater, Florida
October , 1996
FOR VALUE RECEIVED, INFORMATION MANAGEMENT RESOURCES, INC., a Florida
corporation ("Maker"), promises to pay the persons identified on Exhibit 1
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hereto (each a "Payee" and, collectively, the "Payees"), the Principal (as
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defined herein), with interest on the balance of the Principal outstanding from
time to time at a rate per annum equal to the Interest Rate (as defined herein),
compounded annually, on the following terms and conditions:
1. Definitions. For purposes of this Demand Promissory Note, the
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following capitalized terms shall have the meaning ascribed thereto:
(a) "Agreement" shall mean that certain S Corporation Termination,
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Tax Allocation and Indemnification Agreement, dated as of September ,
1996 by and among Maker and Payees, a copy of which is attached hereto as
Exhibit 2 and is incorporated herein by this reference.
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(b) "Interest Rate" shall mean the prime rate of interest as
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published by the Wall Street Journal under the caption "Money Rates" on the
Termination Date (as defined in the Agreement).
(c) "Principal" shall mean a dollar amount not previously paid to
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Payees equal to the amount payable by Maker to Payees pursuant to Section
2.2 of the Agreement.
2. Payment . The entire Principal balance (together with all accrued
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and unpaid interest) shall be due and payable immediately upon the presentment
of written demand therefore by Payees to Maker; provided, however, that no such
demand may be made prior to _________________, 1996 (45 days after issuance of
the Note). Principal and interest accrued hereunder shall be payable in lawful
money of the United States of America to Payees, at Suite 500, 26750 U.S.
Highway 19 North, Clearwater, FL 34621, or at such other address as Payees may
designate in writing from time to time to Maker. All payments to Payees
hereunder shall be made pro rata to each Payee in proportion to the number of
shares of stock of the Company held by each Payee on the Termination Date as set
forth on Exhibit 1.
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3. Prepayments. The indebtedness evidenced by this Demand Promissory
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Note may be prepaid in full or in part without penalty at the option of Maker at
any time.
A-1
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4. Events of Default. The occurrence of any of the following shall
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constitute an Event of Default under this Note:
(a) Failure by Maker to pay Principal or interest under this Demand
Promissory Note when and as the same becomes due and payable and the
continuation of such failure for a period of five (5) days thereafter; or
(b) Maker shall: (i) be generally unable or admit in writing the
inability to pay Maker's debts as they become due; (ii) have an order for
relief entered in any case commenced by Maker under the federal bankruptcy
laws, as now or thereafter in effect; (iii) commence a proceeding under any
federal or state bankruptcy, insolvency, reorganization or similar law, or
have such a proceeding commenced against Maker and either have an order of
insolvency or reorganization entered against Maker or have the proceeding
remain undismissed and unstayed for ninety (90) days; (iv) make an
assignment for the benefit of creditors; or (v) have a receiver, trustee or
custodian appointed for Maker for the whole or any substantial party of
Maker's properties.
5. Penalty Interest. Upon the occurrence of an Event of Default, and
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to the extent permitted by applicable law, interest shall accrue on the amount
of unpaid Principal and interest at a rate per annum equal to the Interest Rate,
plus two percent (2%), until said Principal and interest is paid in full to
Payees.
6. Waiver. Maker agrees (i) that the failure of Payees to exercise any
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rights or remedies granted hereunder shall not constitute a waiver of such
rights or remedies or any other rights or remedies, or preclude the exercise of
such rights or remedies or any other rights or remedies at any time, and (ii)
that failure of Payees to exercise any rights or remedies granted hereunder, in
the event of a breach thereof or an Event of Default hereunder, shall not be
deemed a waiver of such breach or Event of Default or of any other or further
breaches of Events of Default. In addition, Maker hereby waives demand,
presentment for payment, notice of dishonor, protest and notice of protest, and
diligence in collection and bringing suit and agrees that Payee may extend the
time for payment, accept partial payment, or take, exchange, or release security
without discharging or releasing Maker.
7. Governing Law. This Note shall be construed and enforced in
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accordance with the laws of the State of Florida, without giving effect to
principles of conflicts of law.
8. Rights and Remedies. The rights and remedies set forth herein shall
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be cumulative and in addition to any other or further rights and remedies
available at law or in equity. The invalidity or unenforceability of any term
or provision of this Demand Promissory Note, or the application of such term or
provision to any person or circumstance, shall not impair or affect the
remainder of this Demand Promissory Note and its application to other persons
and circumstances and the remaining terms and provisions hereof shall not be
invalid, but shall remain in full force and effect.
A-2
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9. Assignment by Maker. Assignment by Maker and the assumption by any
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third party of Maker's obligations hereunder shall be made only with the written
consent of Payees.
IN WITNESS WHEREOF, this Demand Promissory Note has been executed by
Maker as of the day and year first above written.
MAKER:
INFORMATION MANAGEMENT RESOURCES, INC.
By:
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Satish K. Sanan, President
A-3
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EXHIBIT 11.1
Consolidated Financial Statements
Information Management Resources, Inc. and Subsidiary
Computation of Pro Forma Net Income Per Share
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1995 June 30, 1996
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<S> <C> <C>
Pro Forma Net Income $ 1,612,471 $ 943,586
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PRIMARY:
Common Shares 9,050,960 6,404,020
Stock Option Plans
Shares under option at year end 5,294,445 5,146,975
Treasury Shares which could be
purchased (676,130) (277,100)
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Pro forma weighted average common and
common equivalent shares outstanding 13,669,275 11,273,895
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Pro forma net income per share $ 0.12 $ 0.08
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FULLY DILUTED:
Common Shares 9,050,960 6,404,020
Stock Option Plans
Shares under option at year end 5,294,445 5,146,975
Treasury Shares which could be
purchased (676,130) (277,100)
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Pro forma weighted average common and
common equivalent shares outstanding 13,669,275 11,273,895
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Pro forma net income per share $ 0.12 $ 0.08
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</TABLE>
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1(File No.
333-12037) of our report dated September 6, 1996, except as to certain
information in Note 20, for which the date is September 12, 1996, on our audits
of the consolidated financial statements of Information Management Resources,
Inc. and subsidiary. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Tampa, Florida
October 21, 1996
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Exhibit 23.2
Consent Of Independent Public Accountants
We hereby consent, as independent public accountants, to the use of our audit
report of September 6, 1996, on the financial statements of Information
Management Resources (India) Limited (and to all references to our Firm)
included in or made a part of this United States Securities and Exchange
Commission Form S-1 Registration Statement under the Securities Act of 1933 File
No. 333-12037 (in connection with the offering of 4,025,000 shares of common
stock) of Information Management Resources, Inc.
ARTHUR ANDERSEN & ASSOCIATES
Bombay, India
October 21, 1996
