<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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 33761
(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 33761
(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.
LAUREN Z. BURNHAM, ESQ. ANTHONY J. RICHMOND, ESQ.
MORRIS, MANNING & MARTIN, L.L.P. LATHAM & WATKINS
1600 ATLANTA FINANCIAL CENTER SUITE 4000
3343 PEACHTREE ROAD, N.E. 633 WEST FIFTH STREET
ATLANTA, GEORGIA 30326 LOS ANGELES, CALIFORNIA 90071
(404) 233-7000 (213) 485-1234
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. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE OFFERING REGISTRATION
SECURITIES REGISTERED REGISTERED (1)(3) PER SHARE (2)(3) PRICE (2)(3) FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value ................ 3,450,000 Shares $29.46 $101,637,000 $30,799.09
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 450,000 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) The number of shares registered and the proposed maximum offering price
per share give effect to a three-for-two stock split payable on July 10,
1997 to shareholders of record as of June 26, 1997.
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 3, 1997
3,000,000 SHARES
[LOGO OF INFORMATION MANAGEMENT RESOURCES, INC. APPEARS HERE]
COMMON STOCK
Of the 3,000,000 shares of Common Stock offered hereby, 1,500,000 shares are
being sold by Information Management Resources, Inc. ("IMR" or the "Company")
and 1,500,000 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."
The Common Stock is traded on the Nasdaq National Market under the symbol
"IMRS." Except as indicated to the contrary, all information in this Prospectus
has been restated to reflect a three-for-two stock split in the form of a stock
dividend payable on July 10, 1997 to shareholders of record as of June 26,
1997. The last reported sale price of the Common Stock on July 2, 1997, as
reported on the Nasdaq National Market, was $29.46 per share. See "Price Range
of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Shareholders
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total (3)....................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $600,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters
a 30-day option to purchase up to 450,000 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 when, as and if delivered to and accepted by the Underwriters 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 ,
1997.
------------
Montgomery Securities
Alex. Brown & Sons
Incorporated
Furman Selz
Raymond James & Associates, Inc.
, 1997
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.
<PAGE>
[DIAGRAM]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
----------------
CC-PAC(R), Solution 2000(R), TransformVSAM(R) and Transform2000(R)are
registered service marks of the Company. TransformIMSSM and TransformDB2SM are
service marks of the Company.
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 a public offering price of
$29.46 per share and no exercise of the Underwriters' over-allotment option;
and (ii) gives effect to the three-for-two stock split, in the form of a stock
dividend, payable on July 10, 1997 to shareholders of record as of June 26,
1997. 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 through an integrated network of global
resources. The Company's services, which generally are offered on a fixed-
price, fixed-time frame basis, include software development, application
maintenance, migration and re-engineering services, and Year 2000 conversion
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 offshore software development facilities in Bangalore and
Mumbai (formerly Bombay), India. The Company plans to establish additional
offshore software development facilities in Belfast, Northern Ireland and New
Delhi, India. The Company links offshore software development facilities by
satellite communications to both the Company's offices and the offices of many
of its clients. A global network of offices 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 differences between a client's office
and the Company's offshore software development facilities. The Company
believes that its proprietary TSQM process, software engineering methodologies
and toolsets, and its offshore software development centers enable it to
provide high quality, cost-effective IT solutions.
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 $107.0 billion worldwide in 1995 and estimated this
market to be growing by approximately 17.3% annually through 2000. Outsourcing
represents a particularly cost-effective solution for IT projects such as the
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., 1997 is read as "97") 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. Although the size of the Year 2000 problem is difficult to
estimate, the Gartner Group, a recognized industry source,
3
<PAGE>
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
Company believes that outsourcing of Year 2000 projects has been, and will
increasingly become, a catalyst that encourages many companies to outsource
additional IT projects.
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 facilities provide IMR with a
significant cost advantage compared to costs in the United States, as well as
the ability to create a virtual "second shift" for its 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 500 or comparably sized companies
with significant IT budgets and recurring needs for software development,
application maintenance, migration and re-engineering, Year 2000 conversion and
IT programming and consulting services. IMR serves clients in a variety of
industries including financial services, insurance, manufacturing, retail and
utilities. The Company has provided transitional outsourcing services for such
companies as Commercial Union Insurance Companies, Dayton Hudson Corporation,
John Hancock Financial Services, Michelin North America, Inc. ("Michelin"), SPS
Payment Systems and Xerox Corporation. Through a staff of approximately 800
software development professionals, the Company serves its clients from its
U.S. headquarters in Clearwater, Florida, its office in London, England, its
offshore software development centers in Bangalore and Mumbai, India, and its
branch sales offices located in Boston, Chicago and Dallas. The Company plans
to establish additional offshore software development facilities in Belfast,
Northern Ireland and New Delhi, India and is considering other locations in
Europe and southeast Asia to expand the Company's global presence.
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) concentrate on key
technologies; and (v) attract, train and retain highly skilled employees.
A key element of the Company's long-term growth strategy is to expand the
scope of IT services it provides to each client. The Company believes that as a
result of the detailed work required to analyze and convert legacy
applications, many of its Year 2000 clients may look to IMR as an outsourcing
partner for future application maintenance, migration and development services.
The current demand for the Company's Year 2000 services provides the
opportunity to select those accounts with the greatest potential for long-term
client relationships. To date, the Company has successfully leveraged the
systems knowledge gained through IT services to cross-sell additional services
to such diverse customers as SPS Payment Systems, Dayton Hudson and Michelin.
4
<PAGE>
IMR is a Florida corporation organized in 1988. The Company's principal
executive offices are located at 26750 U.S. Highway 19 North, Suite 500,
Clearwater, Florida 33761, and its telephone number is (813) 797-7080.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and such statements are intended to be covered by the safe harbors
created thereunder. Forward-looking statements include statements relating to
the anticipated growth in the application maintenance outsourcing and Year 2000
conversion services markets, the ability of the Company to leverage current
client contracts into additional contracts, the Company's strategy for
expanding its services and for expanding its geographic presence and the
Company's ability to distinguish itself from its current and future
competitors. Other forward-looking statements can be identified by the use of
forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate," "continue," "plans," and "intends." Prospective
purchasers are cautioned that all forward-looking statements are subject to
risks and uncertainties, including but not limited to the risks set forth
herein under the caption "Risk Factors."
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............. 1,500,000 shares
Common Stock offered by the Selling
Shareholders................................... 1,500,000 shares
Common Stock to be outstanding after the
Offering....................................... 23,166,855 shares (1)
Use of proceeds................................. The net proceeds of the
Offering will be used for the
establishment of new offshore
software development
facilities, and for working
capital and other general
corporate purposes, including
capital expenditures and
possible acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol................... IMRS
</TABLE>
- --------
(1) Determined with respect to shares outstanding on June 27, 1997. Includes
options for the purchase of 6,403,167 shares of Common Stock which are
exercisable as of, or within 60 days of, June 30, 1997 at a weighted
average exercise price of $0.31 per share (of which options for the
purchase of 6,096,825 shares of Common Stock are held by Satish K. Sanan,
the Company's Chief Executive Officer and principal shareholder). See
"Certain Transactions--Options Issued to Mr. Sanan." Excludes: (i) options
for the purchase of 832,284 shares of Common Stock at a weighted average
exercise price of $4.22 per share which are outstanding as of the date of
this Prospectus but which will generally be exercisable over the next five
years; (ii) 347,019 shares of Common Stock reserved for issuance under the
Stock Option Plan (as defined herein); (iii) 180,000 shares reserved for
issuance under the Directors Stock Option Plan (as defined herein); and
(iv) 235,761 shares reserved for issuance under the Stock Purchase Plan (as
defined herein). See "Capitalization," "Management--Director Compensation,"
"--Executive Compensation," "--Employee Benefit Plans," "Principal and
Selling Shareholders" and Note 16 of Notes to Consolidated Financial
Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $10,132 $12,429 $14,102 $22,700 $27,948 $6,090 $14,347
Gross profit............ 3,724 2,298 5,439 9,229 12,290 2,600 6,305
Income (loss) from
operations............. 701 (3,246) 829 3,508 4,684 1,010 2,113
Net income (loss)....... 656 (3,673) 814 2,518 2,588 702 1,432
Pro forma net income
(1).................... $ 1,612 $ 2,545 $ 423 $ 1,432
======= ======= ====== =======
Pro forma net income per
share (1).............. $0.08 $0.14 $0.03 $0.07
======= ======= ====== =======
Weighted average number
of common and common
stock equivalent shares
outstanding (2)........ 20,554 17,581 16,763 21,944
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
AS
ACTUAL ADJUSTED (3)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $25,939 $67,275
Total assets............................................... 55,989 97,326
Long-term debt, net of current portion..................... 698 698
Total shareholders' equity................................. 43,262 84,598
</TABLE>
- --------
(1) Net income and net income per share for 1995 and 1996 and the three months
ended March 31, 1996 give pro forma effect to the Company's conversion on
November 7, 1996 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 is subject to income
taxes at corporate income tax rates. The statements of operations data
above present pro forma net income and pro forma net income per share as if
the Company had been subject to corporate income taxes for the full year in
each of the years ended December 31, 1995 and 1996 and for the full three
months for the quarter ended March 31, 1996. See Notes 2 and 14 of Notes to
Consolidated Financial Statements.
(2) Weighted average number of shares outstanding for the year ended December
31, 1996 reflects the repurchase by the Company of approximately 4,015,410
shares in January 1996 from certain shareholders and the subsequent grant
to Mr. Sanan in February 1996 of options to acquire approximately 3,965,010
shares, which shares are retroactively treated as outstanding for such
periods. See "Certain Transactions--Options Issued to Mr. Sanan."
(3) Adjusted to reflect the sale by the Company of 1,500,000 shares of Common
Stock offered hereby at an assumed offering price of $29.46 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers should carefully review
the following risk factors, as well as the other information set forth in this
Prospectus.
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 135.6% in the first quarter of 1997 as compared to the
first quarter of 1996. As of June 30, 1997, the Company employed approximately
800 software development professionals as compared to approximately 500 as of
September 1, 1996 and 340 as of January 1, 1995. 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, in both 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. Any 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 its financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
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 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 to keep pace with continuing changes in
information processing technology, evolving industry standards and changing
client preferences. An inability to hire such additional qualified personnel
will 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 majority
of the Company's present 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
Operations--Effects of Inflation" and "Business--Human Resources."
VOLATILITY OF STOCK PRICE. The Common Stock has experienced a significant
increase in its market price since the Company's initial public offering in
November 1996. The trading price of the Company's Common Stock also has been
highly volatile since the Company's initial public offering and has been, and
is likely to continue to be, subject to wide fluctuations in response to a
variety of factors, including quarterly variations in operating results,
changing industry perception of valuations of companies that provide Year 2000
conversion services, the announcement of new Year 2000 conversion services
contracts, new customers, technological innovations or new products by the
Company or its competitors, general conditions in the IT services industry,
revised earnings estimates, comments or
7
<PAGE>
recommendations issued by analysts who follow the Company, its competitors or
the IT services industry and general economic and market conditions.
Additionally, the stock market in general, and the market for technology
stocks in particular, have experienced extreme price volatility in recent
years. Volatility in price and volume has had a substantial effect on the
market prices of many technology companies for reasons unrelated or
disproportionate to the operating performance of such companies. These broad
market fluctuations could have a significant impact on the market price of the
Common Stock.
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 Chairman of the Board, President, Chief Executive Officer and
principal 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.
POTENTIAL DECREASE IN DEMAND FOR YEAR 2000 SERVICES. The Company realized
26.9% and 43.3% of total revenues from Year 2000 conversion services in 1996
and the first three months of 1997, respectively, and the Company expects this
trend to continue in the near-term. The Company believes that demand for Year
2000 conversion services will begin to diminish rapidly 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
conversion 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.
The Company currently is engaged in extensive efforts to increase its
infrastructure of personnel, facilities, equipment and other resources to meet
anticipated growth in the demand for Year 2000 conversion and other IT
services. A rapid near-term decline in the demand for Year 2000 conversion
services would have a material adverse financial effect on the Company. The
Company faces various risks that may cause the demand for its Year 2000
services to decline such as the risk that a competitor may introduce automated
software processes or tools that would enable companies more easily to perform
their own Year 2000 conversion services, and the risk that the Company will
fail to perform Year 2000 conversion services correctly for a specific client
under circumstances which might result in negative publicity and possible
litigation. See "Business--Services--Year 2000 Conversion Services."
DEPENDENCE ON OFFSHORE SOFTWARE DEVELOPMENT CENTERS. A significant element
of the Company's business strategy is to continue to leverage its offshore
software development centers in Bangalore and Mumbai, India, as well as new
offshore centers planned for Belfast, Northern Ireland and New Delhi, India.
The Company believes that the use of a strategically located network of
offshore software development centers will provide IMR with potential cost
advantages 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 offices, the offices of its
clients in the U.S. and elsewhere and its offshore software development
facilities. Any loss of the Company's ability to transmit voice and data
through satellite communications could have a material adverse effect on the
Company's results of operations and financial condition. In the past, India
has experienced significant inflation, low growth in gross domestic product
and shortages of foreign exchange. Furthermore, both India and Northern
Ireland have experienced civil unrest and terrorism and, from time to time,
have been involved in regional conflicts. No assurance can be given that the
Company will not be adversely affected by future changes in inflation,
interest rates, taxation, social stability or other political, economic or
diplomatic developments in or affecting countries in which the Company
establishes offshore software development facilities. 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
8
<PAGE>
have a 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
have directly affected the Company include, among others, tax holidays,
liberalized import and export duties, and preferential rules concerning
foreign investment and repatriation. Notwithstanding these benefits, however,
India's central and state governments remain significantly involved in the
Indian economy as regulators. Provided that the Company meets specified
requirements, including investments in facilities and the employment and
training of a minimum number of personnel, the government of Northern Ireland
has committed to provide monetary grants to the Company to encourage
employment in its offshore development center planned for Belfast, Northern
Ireland. The elimination of any of these benefits could have a material
adverse effect on the Company's results of operations and financial condition.
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS. The Company expects that
international revenues will account for an increasingly significant percentage
of the Company's revenues. As a result, the Company is subject to a number of
risks, including, among other things, difficulties relating to administering
its business globally, managing foreign operations, currency fluctuations,
restrictions against the repatriation of earnings, export requirements and
restrictions, and multiple and possibly overlapping tax structures. These
risks could have a material adverse effect on the Company's business, results
of operations and financial condition. Any earnings generated in countries
other than the United States may be permanently invested or may be subject to
considerable taxation if repatriated to the United States. The Company
presently incurs a significant amount of its costs in local currency in India
and expects to establish additional offshore software centers in other
countries. In contrast, the Company presently generates most of its revenue in
U.S. dollars. Accordingly, the Company is subject to risks that, as a result
of currency fluctuations, the translation of foreign currencies into U.S.
dollars for accounting purposes will adversely affect its results of
operations. Historically, the Company has not hedged any meaningful portion of
its foreign exchange transactions.
POTENTIAL LIABILITY TO CLIENTS. Many of the Company's contracted 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
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.
POSSIBLE ACQUISITIONS. The Company may make selective acquisitions of IT
services firms with established customers. To date, the Company has made no
material acquisition of an unaffiliated company. Consequently, 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.
Acquisitions may involve difficulties related to the integration of acquired
businesses, some of which may have different cultures, operating
methodologies, margins or business risks. The failure to timely integrate the
Company's business with that of an acquired entity may result in a material
adverse effect on the Company's results of operations and financial condition.
Further, acquisitions may involve a number of special risks, including
diversion of management's attention, failure to retain key acquired personnel
and clients, unanticipated events
9
<PAGE>
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.
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 fixed-price, fixed-time frame 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, future rates of inflation and currency translations, 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.
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 1996 and the first quarter
of 1997, the Company's five largest clients accounted for approximately 59.0%
and 32.8% of revenues, respectively. NOVUS Services, Inc. and SPS Payment
Systems, which are affiliated companies, together accounted for approximately
31.0% of revenues in 1996 and 14.0% of revenues in the first quarter of 1997.
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 a
contract and could damage the Company's reputation and adversely affect its
ability to attract new business. Furthermore, the Company generally is not the
exclusive outside source for IT services to its clients. Accordingly, a
client's dissatisfaction with IMR's performance could lead the client to
purchase these services from a competitor. See "Business--Clients and
Representative Projects."
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 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."
COMPETITION. The IT services market is highly competitive and served by
numerous national, regional and local firms, all of which are either existing
or potential competitors of the Company. In
10
<PAGE>
addition, a significant and increasing number of companies have recently
announced that they offer Year 2000 conversion services or automated Year 2000
conversion software products. Many of the Company's 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."
IMMIGRATION ISSUES. The Company believes that its success has resulted in
part from its ability to attract and retain persons with technical and project
management skills from other countries, especially India. As of June 30, 1997,
approximately 180 of the Company's 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 U.S. Immigration and
Naturalization Service may approve in any government fiscal year. 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. 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."
CONTROL BY PRINCIPAL SHAREHOLDER. Upon completion of the Offering, Mr. Sanan
will beneficially own approximately 51.7% of the outstanding shares of Common
Stock (approximately 50.8% 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 have a
negative impact on the market price of the shares of Common Stock.
OFFERING TO BENEFIT PRINCIPAL SELLING SHAREHOLDER. In connection with the
sale of 1,350,000 shares of the Common Stock in this Offering, entities
controlled by Satish K. Sanan will receive net proceeds from this Offering,
after deduction of the underwriting discount, aggregating approximately $37.7
million ($43.4 million if the Underwriters' over-allotment option is exercised
in full). All material significant expenses of the Offering associated with
the Common Stock offered by the Selling Shareholders, other than the
underwriting discount, will be paid by the Company. See "Principal and Selling
Shareholders."
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 not allocated for any specific purpose, but will be allocated to
working capital and general corporate purposes. A portion or all of the net
proceeds of this Offering may also be used for strategic acquisitions of
businesses, products or technologies complementary to those of the Company;
however, the Company is not currently a party to any commitments or agreements
and is not currently involved in any negotiations with respect to any material
acquisitions. 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
11
<PAGE>
and other contractual arrangements, and technical measures. India and the U.K.
are members of the Berne Convention, an international treaty. As members of
the Berne Convention, the governments of India and the U.K. have 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 or the U.K. will not change in ways that
may prevent or restrict the transfer of software components, libraries and
toolsets from India to the U.S or the U.K. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate
to deter misappropriation of its Year 2000 proprietary rights or any of its
other intellectual property, or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its rights. The Company
presently holds no patents or registered copyrights. 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.
Additionally, the Company anticipates that in the future it will license
certain technologies to its customers. There can be no assurance that the
Company will be able to successfully license these technologies, protect them
from infringement or misuse, or prevent infringement claims against the
Company in connection with its licensing efforts. The Company expects that the
risk of infringement claims against the Company will increase if more of the
Company's competitors are able to successfully obtain patents for software
products and processes. Any such claims, regardless of their 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. 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 16,763,688 shares of Common Stock and will have
granted options for the purchase of 7,235,451 shares of Common Stock pursuant
to the Company's stock option plans at a weighted average
12
<PAGE>
exercise price of $0.76 per share. Of the 7,190,451 options granted pursuant
to the Stock Option Plan (as defined herein): (i) options for the purchase of
6,246,825 shares of Common Stock are held by Mr. Sanan, the Company's
President, Chief Executive Officer and principal shareholder, of which
6,096,825 are currently exercisable (at a weighted average exercise price of
$0.24 per share); and (ii) options for the purchase of 306,342 shares of
Common Stock (at a weighted average exercise price of $1.66 per share) are
held by other officers and employees of the Company and are exercisable as of,
or within 60 days of, June 30, 1997. Of the 16,763,688 shares outstanding
after this Offering, 10,134,824 shares (including the 3,000,000 shares sold in
this Offering) (the "Freely Tradable Shares") 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 6,628,864 outstanding shares of Common
Stock (the "Restricted Shares") 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 346,980 of the
Freely Tradable Shares and the holders of all of the Restricted Shares (and
holders of options for the purchase of 6,258,570 shares of Common Stock which
are exercisable as of, or within 60 days of, June 30, 1997) 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 90 days after the date of this Prospectus without prior written
consent of Montgomery Securities. See "Underwriting." Upon expiration of the
lock-up agreements, the Restricted Shares will be eligible for sale subject to
the volume and other restrictions of Rule 144. The Company has filed a
Registration Statement on Form S-8 under the Securities Act for the purpose of
registering the potential sale of: (i) 8,120,115 shares of Common Stock
reserved for issuance under the Stock Option Plan of which 582,645 shares have
been issued as of the date of this Prospectus; (ii) the 225,000 shares
reserved for issuance under the Directors Stock Option Plan; and (iii) the
300,000 shares reserved for issuance under the Stock Purchase Plan of which
64,239 shares have been issued as of the date of this Prospectus. After the
date of such filing, except for shares held by affiliates of the Company,
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."
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
conversion services market; (ii) anticipated growth in the application
maintenance outsourcing industry; (iii) presently anticipated trends in the
Company's results of operations and financial condition; (iv) the ability of
the Company to leverage its current Year 2000 conversion projects into
additional contracts; (v) the Company's business strategy for expanding its
services and for expanding its geographic presence; and (vi) 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, and other application maintenance services,
markets; (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.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$29.46 per share will be approximately $41.3 million ($47.6 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
estimated underwriting discount 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."
The net proceeds to the Company will be used to fund the establishment of
new software development and sales facilities and for working capital and
other general corporate purposes, including capital expenditures and possible
acquisitions. 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. The
Company has no specific agreements, commitments or understandings with respect
to any material acquisition. See "Risk Factors--Broad Management Discretion as
to Use of Proceeds," "--Possible Acquisitions" and "Business--Strategies--
Growth Strategies." Pending use of the net proceeds as described above, the
Company intends to invest the net proceeds of the Offering in interest-bearing
securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"IMRS." The following table sets forth, for the periods indicated, the high
and low last sales prices per share of Common Stock as reported by the Nasdaq
National Market. The prices have been adjusted to reflect the Company's three-
for-two stock split in the form of a stock dividend payable on July 10, 1997
to shareholders of record as of June 26, 1997.
<TABLE>
<CAPTION>
LOW HIGH
----- ------
<S> <C> <C>
1996
Fourth Quarter Ended December 31, 1996 (from November 8, 1996).... $9.25 $14.08
1997
First Quarter Ended March 31, 1997................................ 7.58 17.42
Second Quarter Ended June 30, 1997................................ 10.17 30.33
Third Quarter (through July 2, 1997).............................. 29.42 29.46
</TABLE>
On July 2, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $29.46 per share. As of June 27, 1997, the Company
had approximately 35 holders of record of the Common Stock.
DIVIDEND POLICY
Immediately prior to the closing of the Company's initial public offering,
it made distributions to its pre-offering shareholders totaling $1.6 million,
an amount equal to the Company's previously taxed but undistributed S
Corporation earnings from October 27, 1988 through November 7, 1996. See Notes
2 and 14 of Notes to Consolidated Financial Statements. Since the termination
of the Company's S Corporation status, the Company has applied and currently
intends to continue to apply, its retained and current earnings toward the
development of its business and to finance the growth of the Company.
Consequently, the Company currently does not anticipate paying cash dividends
in the foreseeable future. The payment of dividends, if any, is subject to the
discretion of the Board of Directors of the Company. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the short-term obligations and capitalization
of the Company as of March 31, 1997 and as adjusted to reflect the issuance
and sale by the Company of 1,500,000 shares of Common Stock offered hereby at
an assumed public offering price of $29.46 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds." This table should
be read in conjunction with the Company's Consolidated Financial Statements
and Notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------
AS
ACTUAL ADJUSTED (1)
------- ------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................ $ 233 $ 233
======= =======
Long-term debt, net of current portion................... $ 698 $ 698
Minority interest........................................ 74 74
Shareholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares
authorized, no shares issued.......................... -- --
Common stock, $.10 par value; 40,000,000 shares
authorized, 14,630,598 shares issued and outstanding;
16,130,598 shares issued and outstanding, as adjusted
(1)................................................... 1,463 1,613
Additional paid-in capital............................. 39,824 81,010
Retained earnings...................................... 2,101 2,101
Cumulative foreign currency translation adjustments.... (126) (126)
------- -------
Total shareholders' equity........................... 43,262 84,598
------- -------
Total capitalization............................... $44,034 $85,370
======= =======
</TABLE>
- --------
(1) Excludes: (i) 8,168,970 shares of Common Stock presently reserved for
issuance upon exercise of options granted under the Stock Option Plan, of
which options to purchase 7,190,451 shares are outstanding as of the date
of this Prospectus at a weighted average exercise price of $0.70 per
share; (ii) 225,000 shares reserved for issuance upon exercise of options
granted under the Directors Stock Option Plan, of which options to
purchase 45,000 shares are outstanding as of the date of this Prospectus
at an exercise price of $9.33 per share; and (iii) 300,000 shares reserved
for issuance under the Stock Purchase Plan, of which 64,239 shares have
been issued as of June 30, 1997. See "Management--Employee Benefit Plans"
and "--Director Compensation."
15
<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, 1994, 1995 and 1996, and the consolidated balance sheet data as of
December 31, 1995 and 1996 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,
1992 and 1993 and the balance sheet data as of December 31, 1992, 1993 and 1994
are derived from audited financial statements not included herein. The
consolidated statements of operations data for the three months ended March 31,
1996 and 1997 and the consolidated balance sheet data at March 31, 1997 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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $10,132 $12,429 $14,102 $22,700 $27,948 $6,090 $14,347
Cost of revenues........ 6,408 10,131 8,662 13,471 15,658 3,489 8,042
------- ------- ------- ------- ------- ------ -------
Gross profit............ 3,724 2,298 5,439 9,229 12,290 2,600 6,305
Selling, general and
administrative
expenses............... 3,023 5,504 4,491 5,662 7,506 1,576 3,920
Goodwill amortization... -- 40 119 59 100 15 272
------- ------- ------- ------- ------- ------ -------
3,023 5,544 4,610 5,721 7,607 1,591 4,192
------- ------- ------- ------- ------- ------ -------
Income (loss) from
operations............ 701 (3,246) 829 3,508 4,684 1,010 2,113
Other income (expense):
Interest expense....... (61) (275) (473) (349) (301) (63) (67)
Interest income and
other ................ 16 0 1,097 473 253 1 244
Income (loss) in equity
investment............ 0 (159) (126) (110) 83 (16) --
------- ------- ------- ------- ------- ------ -------
Total other (expense)
income................ (45) (434) 499 14 36 (78) 177
------- ------- ------- ------- ------- ------ -------
Income (loss) before
provision (benefit) for
income taxes and
minority interest...... 656 (3,680) 1,327 3,522 4,719 931 2,291
Provision (benefit) for
income taxes........... 0 (2) 450 293 1,401 75 852
------- ------- ------- ------- ------- ------ -------
Income (loss) before
minority interest...... 656 (3,678) 877 3,230 3,318 856 1,438
Minority interest in net
(income) loss.......... -- 5 (63) (712) (730) (154) (7)
------- ------- ------- ------- ------- ------ -------
Net income (loss)....... $ 656 $(3,673) $ 814 $ 2,518 $ 2,588 $ 702 $ 1,432
======= ======= ======= ======= ======= ====== =======
Pro forma net income
(1).................... $ 1,612 $ 2,545 $ 423 $ 1,432
======= ======= ====== =======
Pro forma net income per
share (1).............. $0.08 $0.14 $0.03 $0.07
======= ======= ====== =======
Weighted average number
of common and common
stock equivalent shares
outstanding (2)........ 20,554 17,581 16,763 21,944
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1997
-------------------------------------- -------------------
AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(3)
------ ------- ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $1,065 $(2,504) $ (340) $2,355 $30,729 $25,939 $67,275
Total assets............ 2,927 6,453 7,099 8,666 48,953 55,989 97,326
Long-term debt, net of
current portion........ 0 1,141 2,153 1,184 -- 698 698
Total shareholders'
equity................. 1,321 (559) 264 2,708 40,356 43,262 84,598
</TABLE>
Footnotes to table appear on following page.
16
<PAGE>
Footnotes to table from previous page.
- --------
(1) Net income and net income per share for 1995, 1996 and the three months
ended March 31, 1996 give pro forma effect to the Company's conversion on
November 7, 1996, 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 is 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 full year
in each of the years ended December 31, 1995 and 1996 and for the full
three months ended March 31, 1996. See Notes 2 and 14 to Notes to
Consolidated Financial Statements.
(2) Weighted average number of shares outstanding for the year ended December
31, 1996 reflects the repurchase by the Company of approximately 4,015,410
shares in January 1996 from certain shareholders and the subsequent
issuance in February 1996 of options to acquire approximately 3,965,010
shares granted to Mr. Sanan, which shares are retroactively treated as
outstanding for such periods. See "Certain Transactions--Options Issued to
Mr. Sanan."
(3) Adjusted to reflect the sale by the Company of 1,500,000 shares of Common
Stock offered hereby at an assumed offering price of $29.46 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
17
<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 core transitional outsourcing services (software
development, application maintenance, and migration and re-engineering) and
Year 2000 conversion services. In addition, the Company offers programming and
consulting services on a time-and-materials basis. The Company's revenue
growth in 1996 and during the first quarter of 1997 primarily reflected an
increased demand for the Company's Year 2000 conversion services. A majority
of the 1996 growth occurred in the second half of 1996, as the Company's Year
2000 strategy and sales efforts produced several significant client
engagements.
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 generally
reserves the right to renegotiate fixed-price and fixed-time frame commitments
in the event of any change in scope. 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, in the aggregate, has had
a material adverse effect on the Company's operating results or financial
condition in any reporting period. See "Risk Factors--Variability of Quarterly
Operations and Financial Results."
The Company continues to increase its staff of software development
professionals principally to perform Year 2000 conversion services. The
Company anticipates that revenues from Year 2000 services will continue to
increase significantly as a percentage of the Company's total revenues in the
near-term. The Company believes that demand for Year 2000 conversion services
will begin to diminish rapidly after the year 2000 as many Year 2000
compliance solutions are implemented and tested. See "Risk Factors--Potential
Decrease in Demand for Year 2000 Services."
In November 1996, the Company completed its initial public offering in which
it realized net proceeds of $40.7 million. A portion of the net proceeds were
utilized to acquire an additional interest in Information Management Resources
(India) Limited ("IMR-India"), repay debt and pay an S Corporation
distribution to pre-offering shareholders. In addition, a portion of the
proceeds of the initial public offering were used in the first quarter of 1997
to acquire Link Group Holdings Limited ("Link") and the remaining interest in
Information Management Resources (U.K.) Limited ("IMR-UK") and to fund the
expansion of the Company's India operation.
AFFILIATE RELATIONSHIPS
From December 1994 until August 1996, the Company owned approximately 34.2%
of the outstanding equity of IMR-India. In August 1996, the Company completed
the acquisition of a 10.5% equity interest from Second India Investment Fund,
B.V. In November 1996, the Company acquired an
18
<PAGE>
additional 18.4% of IMR-India from Satish K. Sanan, the Company's President,
Chief Executive Officer and principal shareholder. In December 1996, the
Company completed the acquisition of an additional 35.1% of IMR-India from
India Magnum Fund N.V., thereby increasing the Company's total ownership of
IMR-India to 98.2%. The remaining 1.8% is owned by five individuals.
Additionally, IMR-India has granted to certain of its employees options to
acquire additional shares which, if fully vested, would upon exercise
represent approximately 3.2% of IMR-India's equity, and would cause the
Company's equity interest to decrease. 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 December 31, 1996, the Company owned 39.5% of the outstanding equity
of IMR-UK and Mr. Sanan and his spouse together owned 10.5% of such
outstanding equity. The balance of IMR-U.K.'s outstanding equity was owned by
Link. Effective January 8, 1997, the Company acquired 100% of the outstanding
shares of Link from its two owners, Philip and Sheila Shipperlee. Philip
Shipperlee serves as a Director of the Company. See "Certain Transactions--
IMR-U.K. and the Link Transactions." Under the terms of the acquisition
agreement, at closing the Company paid the Shipperlees $2.1 million in cash
and 107,562 shares of the Company's Common Stock. The Company is obligated to
pay the Shipperlees an additional $1.6 million in cash one year from the
closing date of the Link acquisition. Concurrently with the Link acquisition,
the Company acquired the 10.5% of IMR-U.K. held by Mr. and Mrs. Sanan for
$520,000 in cash. The purchase price was approved by the independent members
of the Company's Board of Directors. Upon completion of the Link acquisition
and this acquisition from Mr. and Mrs. Sanan, the Company now owns 100% of
both Link and IMR-U.K. Prior to January 8, 1997, the Company's investment in
IMR-U.K. was accounted for using the equity method. Beginning January 8, 1997,
the financial operations of IMR-U.K. and Link have been included in the
Company's financial statements on a consolidated basis.
INCOME TAX MATTERS
Prior to the consummation of the Company's initial public offering of its
Common Stock in November 1996, the Company had elected S Corporation treatment
under federal income tax laws and the income tax laws of certain states. As a
result, for such tax periods, the Company's earnings were taxed directly to
the Company's then current shareholders. The historical financial statements
for the years 1992 through 1995 do not include a provision for federal and
state income taxes for such periods, except for certain state income taxes
imposed at the corporate level. Accordingly, for such periods and for the
period January 1 through November 7, 1996 (the date on which the Company
terminated its S Corporation status and became subject to federal and state
income taxes at applicable C Corporation income tax rates) pro forma
adjustments for income taxes were calculated as if the Company had been fully
subject to federal and state income taxes based on the tax laws in effect for
the respective periods using the criteria established under Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." See
Notes 2 and 14 of Notes to Consolidated Financial Statements.
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. 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 repatriation of the funds, pay U.S. taxes
thereon. See Note 14 of Notes to Consolidated Financial Statements.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
gross revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................... 61.4 59.3 56.0 57.3 56.1
------- ------- ------- ------ ------
Gross profit...................... 38.6 40.7 44.0 42.7 43.9
Selling, general and administrative
expenses.......................... 31.9 24.9 26.8 25.9 27.3
Goodwill amortization.............. 0.8 0.3 0.4 0.2 1.9
------- ------- ------- ------ ------
32.7 25.2 27.2 26.1 29.2
------- ------- ------- ------ ------
Income from operations........... 5.9 15.5 16.8 16.6 14.7
Other income (expense):
Interest expense................. (3.4) (1.5) (1.1) (1.0) (0.5)
Interest income and other........ 7.8 2.1 0.9 0.0 1.7
Income (loss) in equity
investment...................... (0.9) (0.5) 0.3 (0.3) --
------- ------- ------- ------ ------
Total other income (expense)... 3.5 0.1 0.1 (1.3) 1.2
------- ------- ------- ------ ------
Income before provision for income
taxes and minority interest....... 9.4 15.6 16.9 15.3 15.9
Provision for income taxes......... 3.2 1.3 5.0 1.2 5.9
------- ------- ------- ------ ------
Income before minority interest.... 6.2 14.2 11.9 14.1 10.0
Minority interest in net (income)
loss.............................. (0.4) (3.1) (2.6) (2.6) (0.0)
------- ------- ------- ------ ------
Net income....................... 5.8% 11.1% 9.3% 11.5% 10.0%
======= ======= ======= ====== ======
Pro forma net income............... 7.1% 9.1% 6.9% 10.0%
======= ======= ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues. For the three months ended March 31, 1997, revenues increased to
$14.3 million, representing a 135.6% increase over revenues of $6.1 million for
the three months ended March 31, 1996. Consolidation of revenues from IMR-U.K.
accounted for $3.9 million of this increase in revenues. The remaining $4.4
million of this increase in revenues was primarily attributable to the
continued expansion of Year 2000 conversion services for U.S.-based companies.
Revenues from the Company's Year 2000 conversion services increased to $6.2
million during the first quarter of 1997 (including revenues of $755,000
realized by IMR-U.K.) as compared to revenues of less than $500,000 for the
first quarter of 1996. Revenues from the Company's core transitional
outsourcing services (software development, application maintenance, and
migration and re-engineering services) were $5.7 million during the first
quarter of 1997 (including $1.9 million of revenues realized by IMR-U.K.) as
compared to $4.1 million for the first quarter of 1996. Revenues from
professional services were $2.3 million for the first quarter of 1997
(including $1.2 million of revenues realized for IMR-U.K.) as compared to
revenues of $1.0 million for the first quarter of 1996.
Cost of Revenues. Cost of revenues was $8.0 million, or 56.1% of revenues,
for the first three months of 1997, as compared to $3.5 million, or 57.3% of
revenues, for the first three months of 1996. Cost of revenues consists
primarily of salaries and employee benefits for personnel dedicated to client
projects as well as amortization of capitalized software costs. The decrease in
cost of revenues as a percentage of revenues reflects: (i) the Company's
implementation of better controls over project pricing and
20
<PAGE>
margins; (ii) a higher percentage of Year 2000 conversion services projects in
1997, as compared to 1996, which carry slightly higher margins than contracts
for the Company's core transitional outsourcing services; and (iii) improved
utilization of software development personnel in India. This improved
utilization reflected the benefits associated with expansion and training of
the Company's India-based personnel.
Gross Profit. Gross profit increased to $6.3 million in the first quarter of
1997 compared to $2.6 million in the prior comparable period. As a percentage
of revenues, gross profit increased to 43.9% in the first quarter of 1997 as
compared to 42.7% in the first quarter of 1996. The Company's gross profit
margin increased for both its U.S. and its India operations. However,
operations for IMR-U.K. partially offset this increase. IMR-U.K. derived a
substantial portion of its revenues during the first quarter of 1997 from
professional services which generally result in lower profit margins.
Selling, General and Administrative Expenses. For the three months ended
March 31, 1997, selling, general and administrative expenses increased to $3.9
million, as compared to $1.6 million for the first three months of 1996.
Selling, general and administrative expenses consist primarily of salaries,
employee benefits, travel, promotion, telecommunications, management, finance,
administrative and occupancy costs. As a percentage of revenues, selling,
general and administrative expenses increased to 27.3% in the first three
months of 1997 as compared to 25.9% for the same period in 1996. This increase
was attributable primarily to selling, general and administrative expenses
incurred by IMR-U.K., expansion of domestic offices, additional costs
associated with reporting and accounting responsibilities as a public company,
and increases in costs related to expanding the Company's administrative
support staff. The Company will continue to increase its fixed costs for
general and administrative expenses in anticipation of potential increases in
the Company's services.
Goodwill Amortization. Goodwill amortization increased to approximately
$272,000 for the three months ended March 31, 1997 from approximately $15,000
for the three months ended March 31, 1996. This increase reflects the goodwill
resulting from the Company's acquisition of certain interests in IMR-India in
the second half of 1996 and the acquisition of Link in January 1997.
Income from Operations. Operating income for the first quarter of 1997 was
$2.1 million compared to $1.0 million in the comparable period in 1996,
representing a 109.3% increase. As a percentage of revenues, income from
operations for the three months ended March 31, 1997 decreased to 14.7% from
16.6% in the comparable period in 1996.
Other Income (Expense). The Company realized net other income of
approximately $177,000 in the first quarter of 1997 as compared to net other
expense of approximately $78,000 in the comparable period of 1996. Other
expense in the first quarter of 1996 included a loss related to the Company's
equity investment in IMR-U.K. of approximately $16,000 and interest expense of
approximately $63,000. During the first quarter of 1997, the Company
recognized approximately $244,000 in investment income from the investment of
the remaining net proceeds from its initial public offering and incurred
approximately $67,000 of interest expense related primarily to credit
facilities in India and the U.K.
Provision (Benefit) for Income Taxes. The provision for income taxes
increased to approximately $852,000 at March 31, 1997. This increase reflected
the Company's termination of its S Corporation tax status in conjunction with
its initial public offering in November 1996. The provision for income taxes
of approximately $75,000 at March 31, 1996 reflects only taxes related to the
operations of IMR-India. On a pro forma basis, giving effect to the Company's
termination of its S Corporation tax status as of November 7, 1996, the income
tax provision for the first quarter of 1996 would have been approximately
$355,000. This represents an effective pro forma tax rate of 38.1% for the
three months ended March 31, 1996 as compared to an effective tax rate of
37.2% for the three months ended March 31, 1997. This moderate decrease in the
effective tax rate reflects a greater portion of profits generated by the
operations of IMR-India which is taxed at more favorable tax rates. IMR has
not recorded deferred income taxes applicable to undistributed earnings for
IMR-India. Those earnings are considered to be permanently invested and,
accordingly, no provision for U.S. federal or state income tax has been
provided thereon.
21
<PAGE>
Minority Interest in Net (Income) Loss. Minority interest in net income
decreased to approximately $7,000 for the three months ended March 31, 1997
from approximately $154,000 in the comparable period in 1996. This represents
the portion of IMR-India's net income which is allocated to the minority
shareholders of IMR-India. The interest of the minority shareholders in IMR-
India declined substantially, to approximately 1.8%, as a result of the
Company's acquisition of a 64.0% interest in IMR-India in late 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased to $27.9 million, representing a 23.1% increase
over prior year revenues of $22.7 million. Revenue growth for the year
reflects management's decision in 1995 to aggressively pursue contracts to
perform Year 2000 conversion services. Revenues from Year 2000 conversion
services increased to $7.5 million in 1996 from $557,000 in 1995. Of these
revenues, $6.0 million was realized in the last two quarters. Core
transitional outsourcing services (software development, application
maintenance and migration and re-engineering) increased to $14.8 million in
1996 from $13.3 million in 1995. The Company considers this increase to be
significant because it reflects the Company's continuing effort to generate
growth through increased revenues from both Year 2000 and its core
transitional outsourcing services. Programming and consulting services
revenues declined to $4.1 million in 1996 from $7.4 million in 1995 due to the
reallocation of personnel and sales efforts to higher margin core transitional
outsourcing and Year 2000 projects.
Cost of Revenues. Cost of revenues increased to $15.7 million in 1996
compared to $13.5 million in 1995, reflecting primarily the increases in
business volume and wages payable to technical personnel.
Gross Profit. Gross profit increased to $12.3 million in 1996 from $9.2
million in 1995. As a percentage of revenue, gross profit increased to 44.0%
from 40.7%. This increase reflected higher pricing achieved for the Company's
services and a shift of personnel resources from programming and consulting to
more profitable core transitional outsourcing services and Year 2000
conversion service offerings. The increase was partially offset by increased
wages paid to technical personnel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32.6% to $7.5 million in 1996 from $5.7
million in 1995. Selling, general and administrative costs were 26.8% of
revenues in 1996 as compared to 24.9% of revenues in 1995. This increase
reflected additional costs to establish a new incentive program for project
personnel which commenced in the second half of 1995 as well as additional
general and administrative expenses to expand the Company's infrastructure of
administrative support personnel and equipment. In particular, the Company
upgraded satellite links, expanded IMR-India's facilities, and added
additional personnel and equipment in the U.S. and India to service potential
increases in service contracts.
Goodwill Amortization. Amortization of goodwill increased to $100,000 in
1996 compared to $59,000 in 1995. This increase reflects the acquisition of an
additional 64.0% of IMR-India in the second half of 1996.
Income from Operations. Income from operations was $4.7 million in 1996
compared to $3.5 million in 1995, representing an increase of 33.5%.
Other Income (Expense). The Company realized net other income of $36,000 in
1996 compared to $14,000 in 1995. Other income in 1995 included a $428,000 net
gain realized from the sale by IMR-India of certain of its assets and real
property in Mumbai and Trivandrum. This 1995 gain was partially offset by a
$110,000 loss in the Company's 39.5% equity investment in IMR-U.K. During
1996, the Company realized an $83,000 gain on its equity investment in IMR-
U.K. In addition, the Company recognized approximately $132,000 of investment
income from the investment of the net proceeds of its initial public offering.
Interest expense for 1996 and 1995 was $301,000 and $349,000, respectively.
However, the Company repaid most of its long-term debt at the end of 1996.
22
<PAGE>
Minority Interest in Net (Income) Loss. The minority interest in net income
increased slightly to $730,000 in 1996 from $712,000 in 1995. This represents
the equity investment in IMR-India's net income held by shareholders of IMR-
India other than the Company. The increase represents higher profitability in
IMR-India in 1996. However, this increase was offset by an increase in the
percentage of IMR-India owned by the Company.
Provision (Benefit) for Income Taxes. The provision for income taxes
increased from $293,000 in 1995 to $1.4 million in 1996. In November 1996, IMR
terminated its S Corporation tax status and recognized a nonrecurring tax
charge of $1.1 million. (See Note 14 of Notes to Consolidated Financial
Statements.) Prior to this termination, the 1995 provision for income taxes
reflected only those taxes related to IMR-India. IMR has not recorded deferred
income taxes applicable to undistributed earnings of IMR-India. Those earnings
are considered to be permanently invested and, accordingly, no provision for
U.S. federal or state income tax has been provided thereon. To provide more
meaningful information, the Company's financial statements also reflect the
pro forma effect as if the Company has been a C Corporation for all periods
presented. The pro forma provision for income taxes increased to $1.4 million
in 1996, or 30.6% of net income before provision for income taxes and minority
interest, from $1.2 million in 1995, or 34.0% of net income before provision
for income taxes and minority interest. The decrease in the pro forma
effective tax as a percentage of net income reflects the larger portion of the
net income being contributed by IMR-India, which enjoys a lower tax rate than
IMR. IMR has not recorded deferred income taxes applicable to undistributed
earnings for IMR-India. Those earnings are considered to be permanently
invested and, accordingly, no provision for U.S. federal or state income tax
has been provided thereon.
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. 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.
Cost of Revenues. Cost of revenues was $13.5 million in 1995, representing a
55.5% increase over cost of revenues of $8.7 million in 1994. Cost of revenues
represented 59.3% 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 conversion services 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 centers from locations in Mumbai and Trivandrum to the
present location in Bangalore.
Gross Profit. Gross profit was $9.2 million in 1995, representing a 69.7%
increase over gross profit of $5.4 million in 1994. As a percentage of
revenues, gross profit increased from 38.6% in 1994 to 40.7% in the same
period for 1995 for the reasons stated above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $5.7 million in 1995 representing a 26.1%
increase over selling, general and administrative expenses of $4.5 million in
1994. Selling, general and administrative expenses were 24.9% and 31.9% 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 prior to amendment in 1996) increased
to $255,000 in 1995 from $34,000 in 1994.
23
<PAGE>
Goodwill Amortization. Goodwill amortization is related to the Company's
interest in IMR-India. Goodwill amortization decreased in 1995 due to the sale
in 1994 of a portion of the Company's equity in IMR-India.
Income 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 15.5% in the same period for 1995 for the reasons stated above.
Other Income (Expense). The Company realized other income of $14,000 in 1995
as compared to $499,000 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 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 Link 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 $450,000 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. 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.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
operations data for each of the nine quarters from January 1, 1995 to March
31, 1997. The information relating to the quarters from January 1, 1995 to
December 31, 1996 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 adjustment, 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
-------------------------------------------------------------------------
1995 1996 1997
-------------------------------- -------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $5,203 $5,372 $5,853 $6,272 $6,090 $6,307 $7,048 $8,503 $14,347
Gross profit............ 2,204 1,746 2,339 2,940 2,600 2,785 3,130 3,775 6,305
Income from operations.. 806 547 790 1,365 1,010 1,073 1,125 1,476 2,113
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
1995 1996 1997
-------------------------------- -------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <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%
Gross profit............ 42.4 32.5 40.0 46.9 42.7 44.2 44.4 44.4 43.9
Income from operations.. 15.5 10.2 13.5 21.8 16.6 17.0 16.0 17.4 14.7
</TABLE>
24
<PAGE>
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
At March 31, 1997, the Company had $25.9 million of working capital as
compared to working capital of $30.7 million at December 31, 1996 and $2.4
million at December 31, 1995. This increase at December 31, 1996 primarily
resulted from the Company's receipt of net proceeds of $40.7 million from the
completion of its initial public offering in November 1996. At March 31, 1997,
the Company held $24.6 million in cash, cash equivalents and interest-bearing
securities.
Net cash (used in) provided by operations in the first quarter of 1997 and
the years ended December 31, 1996 and 1995 was ($182,000), $5.2 million and
$1.0 million, respectively. Net cash (used in) provided by operations during
the first quarter of 1997 primarily reflects increased accounts receivable of
$1.3 million, reflecting increases in services performed, and increases in
accrued expenses of $1.0 million.
Net cash (used in) provided by investing activities in the first quarter of
1997 and the years ended December 31, 1996 and 1995 was ($11.7 million),
($19.1 million) and $503,000, respectively. In the first quarter of 1997, the
Company acquired marketable securities of $6.1 million, property and equipment
of $2.7 million and interest in acquired entities of $2.7 million. In 1996,
the Company acquired a majority interest in IMR-India for $10.0 million,
invested in marketable securities of $5.5 million and purchased property and
equipment for $2.6 million. Future plans call for the continued expansion of
the India facilities throughout 1997 of which over $2.0 million has been
expended in the first quarter of 1997, and the development of a facility in
Belfast, Northern Ireland.
Subsequent to the initial public offering, the Company repaid its
outstanding long-term debt of approximately $900,000 and remitted
approximately 50% of the final S Corporation distribution (See Note 16 of
Notes to the Consolidated Financial Statements). The remaining 50% was
classified as notes payable to shareholders at December 31, 1996, and was paid
in full by the Company during March 1997.
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 a rate not exceeding 13.0% per annum. At
March 31, 1997, December 31, 1996 and December 31, 1995, approximately $0, $0
and $655,000, respectively, were due under this facility. The maximum amount
available under this facility at March 31, 1997 was approximately $838,000.
The facility is collateralized by IMR-India's export accounts receivable and
property and equipment.
IMR-U.K. maintains an accounts receivable discounting facility. Principal
payments on accounts borrowed are due within ninety days of the borrowing.
Interest is payable at the rate of 2% over Midland Bank's prime rate (6.5% at
March 31, 1997). In addition IMR-U.K. is charged an administrative fee on
25
<PAGE>
all accounts receivable discounted. The maximum amount available under this
facility is based upon a computation of accounts receivable as defined. At
March 31, 1997 approximately $945,000 was due under this facility. The
facility is collateralized by accounts receivable and expires July 31, 1997.
ASSET MANAGEMENT
The Company's accounts receivable were $8.2 million, $5.7 million and $2.9
million at March 31, 1997, December 31, 1996 and December 31, 1995,
respectively. These increases were partially offset by increases in deferred
revenues from $17,000 at December 31, 1995 to $1.9 million at December 31,
1996 and $2.6 million at March 31, 1997. A significant portion of the
Company's business is executed on a fixed-price, fixed-time frame basis.
Revenues on fixed-price contracts do not necessarily correlate to actual
billings. Accordingly, accounts receivable may increase significantly in
periods where there is a significant increase in deferred revenues (i.e.,
billings issued in advance of revenue recognition).
A common financial measure is the calculation of days sales outstanding
(DSO) in accounts receivable. Management believes that the calculation of the
Company's DSO should factor in: (i) rapidly increasing revenues (revenues were
$14.3 million for the first quarter of 1997, $8.5 million for the fourth
quarter of 1996 and $6.3 million for the fourth quarter of 1995), and (ii) the
net increases in deferred revenues. When these factors are considered, DSO was
57 days, 57 days and 46 days at March 31, 1997, December 31, 1996 and December
31, 1995, respectively.
EFFECTS OF INFLATION
The Company's most significant costs are the salaries and related benefits
for its consultants and other professionals. Competition 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 experienced significant inflation in the past.
Historically, the Company's wage costs in India have been significantly lower
than its wage costs in the U.S. and the U.K. for comparably-skilled employees,
although wage costs in India are presently increasing at a faster rate than in
the U.S. and the U.K. 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. and elsewhere. See "Risk Factors--Competitive Market
for Technical Personnel" and "--Fixed-Price, Fixed-Time Frame Contracts."
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued. SFAS 128 is designed to modify
the earnings per share information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data on
an international basis. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The Company will adopt SFAS 128 on its effective
date. Management is currently assessing the impact of SFAS No. 128 on the
Company's presentation of earnings per share data in future periods.
26
<PAGE>
BUSINESS
OVERVIEW
The Company provides applications software outsourcing solutions for the IT
departments of large businesses through an integrated network of global
resources. The Company's services, which generally are offered on a fixed-
price, fixed-time frame basis, include software development, application
maintenance, migration and re-engineering services and Year 2000 conversion
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 facilities in Bangalore and Mumbai, India. The Company plans to
establish additional offshore software facilities in Belfast, Northern Ireland
and New Delhi, India. The Company links its offshore software development
facilities by satellite communications to both the Company's offices and the
offices of many of its clients. A global network of offices 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
differences between a client's office and the Company's offshore software
development facilities. The Company believes that its proprietary TSQM
process, software engineering methodologies and toolsets, and its offshore
software development centers enable it to provide high quality, cost-effective
IT solutions.
The Company's clients are primarily Fortune 500 or comparably sized
companies with significant IT budgets and recurring needs for software
development, application maintenance, migration and re-engineering, Year 2000
conversion and IT programming and consulting services. IMR serves clients in a
variety of industries including financial services, insurance, manufacturing,
retail and utilities. The Company has 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 Xerox Corporation. Through a staff of
approximately 800 software development professionals, the Company serves its
clients from its U.S. headquarters in Clearwater, Florida, its office in
London, England, its offshore software development centers in Bangalore and
Mumbai, India, and its branch sales offices located in Boston, Chicago and
Dallas. Additionally, the Company plans to establish offshore software
development facilities in Belfast, Northern Ireland and New Delhi, India and
is considering other locations in Europe and southeast Asia to expand the
Company's global presence.
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
27
<PAGE>
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.
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 $107.0 billion worldwide in 1995 and estimated this market to be
growing by approximately 17.3% annually through 1999. Outsourcing enables
organizations to focus on core-competencies, reduce costs by converting in-
house fixed IT costs to variable costs and 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., 1997 is read as "97") 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., "97" for "1997" 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. 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. 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) an 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, generally on a fixed-price,
fixed-time frame basis. This process also allows the
28
<PAGE>
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
centers in Bangalore and Mumbai, India provide IMR with a significant cost
advantage as well as the ability to provide 24-hour service to its clients.
The Company's costs for offshore software development personnel 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 an IMR offshore software development center where a
substantial majority of a project's work is performed. Due to the time
differences between the diverse geographical locations of the Company's
offices and the offices of its customers, the Company can create a virtual
"second shift" for its 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, an offshore software
development center strategy allows the Company to parallel process many of its
development phases to accelerate delivery time.
Proprietary Toolsets. The Company has made a significant investment to
design and develop a set of proprietary software tools and methodologies to
support three key services: (i) re-engineering; (ii) migration; and (iii) re-
hosting of legacy systems to emerging technologies, such as client/server
systems. These tools were developed utilizing object-oriented technologies to
allow the Company to reduce both the cost and time required to successfully
complete large scale projects. The Company's TransformIMS, TransformVSAM and
TransformDB2 toolsets support the migration of mainframe-based legacy systems
and their related applications to relational database management systems
environments (e.g., Oracle, Sybase and Informix). With rapidly increasing
demand for Year 2000 conversion services, the Company modified one of its
existing toolsets to address the Year 2000 problem. Transform2000 supports
full life cycle conversion for Year 2000 projects and automates many of the
tasks involved in resolving Year 2000 problems. Since 1994, IMR has used its
Century Change-Planning Analysis and Conversion ("CC-PAC") methodology and the
Transform2000 toolset together to provide full life cycle Year 2000 compliance
services. To leverage its success, the Company has announced that it plans to
selectively license Transform2000 along with CC-PAC to potential end users,
service providers and system integration companies. As part of its proposed
licensing program, the Company plans to provide an experienced on-site tool
specialist to ensure successful implementation of both the toolset and the IMR
methodology. In the future, the Company also may choose to selectively license
other proprietary toolsets for specific service offerings. To date the Company
has not generated any revenues from licensing activities, and no assurance can
be given that the Company will be able to successfully license any of its
existing or proposed software products.
STRATEGIES
The Company's objective is to be a leading provider of comprehensive
transitional IT outsourcing services and solutions to the IT departments of
large businesses. 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 risk 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. These investments help the Company secure the loyalty and trust of
clients and provide 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 feedback, including client
satisfaction surveys, consultant performance surveys and regularly scheduled
meetings with a
29
<PAGE>
client's senior management. A substantial portion of the performance incentive
for the Company's senior executives, sales executives and senior project
managers 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 discrete 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 increase 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.
Concentrate on Key Technologies. The Company continues to focus on obtaining
advanced software development and deployment technologies to support its
transitional outsourcing service model. By using software provided by
companies such as Texas Instruments (IEF Composer) and Forte Software, Inc.,
and using its own proprietary toolsets, IMR offers a "best of breed"
technology solution to clients in several key areas. These areas include
object-oriented client/server development and the use of "web enabling"
technologies which support the rapid integration of mainframe systems with
newly developed client/server systems using Internet/intranet development
tools. This broad-based technology strategy reinforces the Company's focus on
the successful transition of legacy mainframe systems to new technical
environments. The Company conducts 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 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 Transitional Outsourcing Business. As a
result of its comprehensive Year 2000 conversion services, the Company has
obtained a significant number of contracts to perform Year
30
<PAGE>
2000 conversion projects. The current demand for the Company's Year 2000
services provides the opportunity to select those accounts with the greatest
potential for long-term client relationships. A key element of the Company's
long-term growth strategy is to expand the scope of the IT services it
provides to each client. In particular, the Company believes that the detailed
knowledge of its clients' systems gained during performance of its Year 2000
conversion services will serve as a competitive advantage in securing other
transitional outsourcing projects from these clients. The Company believes
that clients who choose to outsource a specific IT service are more likely to
consider outsourcing additional future IT services. 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.
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 sales offices to enable the Company
to sell and support existing and new clients in these geographic areas. In
addition, the Company intends to establish a global network of offshore
software development centers that will benefit from lower personnel costs and
available infrastructures of equipment and facilities. In furtherance of this
strategy, the Company has recently acquired an expansion facility in Mumbai,
India (which is under renovation) and currently is negotiating to secure
locations and equipment for the creation of offshore software development
facilities in Belfast, Northern Ireland and New Delhi, India. Additional
facilities are contemplated for eastern Europe and southeast Asia, although no
assurance can be given that the Company ultimately will select these locations
for future expansion.
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 IT services firms with established
customers and technical expertise.
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. 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) an 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, generally 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.
TSQM is based in part on software standards published by the Institute of
Electrical & Electronics Engineers ("IEEE"), Software Engineering Institute
("SEI") software engineering process models and
31
<PAGE>
ISO 9001 quality processes. To position itself for future business from
companies in the European Community, as well as from international affiliates
of its North American customers, IMR's facility in Bangalore, India and its
facility acquired as a part of the acquisition from Link have achieved ISO
9001 certification. IMR is pursuing company-wide ISO and SEI certification.
During each stage of a project, IMR utilizes TSQM to monitor 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 implementation phase, which may
include programming, unit testing and systems testing, is largely performed
offshore via satellite link. The off-site teams at the Company's U.S. and
European offices coordinate the efforts of the on-site and offshore teams and
monitor and manage 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 differences between India, the U.K. and the U.S., the Company can
create a virtual "second shift" for its clients allowing for more rapid
completion of projects.
The Company's offshore software development center strategy provides
significant opportunities to reduce costs and manage the risks of a project.
An offshore software development center may be able to use the excess capacity
of a client's existing computing facilities during off-peak hours. This should
allow additional projects to be undertaken without substantial client
investment in new hardware and software. The costs of satellite communications
and infrastructure installed by the Company at an offshore center will be
spread among multiple clients and projects. 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 resources available of
an 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) core transitional
outsourcing services which encompass software development, application
maintenance, and migration and re-engineering services; (ii) Year 2000
conversion services; and (iii) programming and consulting services. The
Company delivers each of these services independently or as a comprehensive
package.
CORE TRANSITIONAL OUTSOURCING SERVICES
IMR's core transitional outsourcing services assist clients in the
development and maintenance of mainframe-based legacy applications and in the
transition from legacy systems to open architecture, client/server and other
emerging technologies. The Company's core transitional outsourcing services
include: software development, application maintenance, and migration and re-
engineering services.
32
<PAGE>
Software Development Services. The Company offers three alternatives to
assist clients in developing new applications for IBM mainframe platforms,
selected client/server platforms and other emerging technologies:
. 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; or
. system evolution services, in which mainframe legacy systems are re-
developed into new systems using object-oriented technologies and the
Company's proprietary ISEM (Information Systems Evolution Methodology).
In each case, the Company uses its TSQM software engineering process, its
on-site, off-site, offshore delivery model and satellite communications to
deliver these projects.
Application Maintenance Services. The Company has four distinct processes
for its application maintenance services: Corrective, Adaptive, Perfective and
Preventive. Corrective maintenance requires software failures to be diagnosed
and fixed as they occur. These failures can directly affect business
operations and require the highest level of support. Quick fixes and poor
documentation result in increased code complexity and increased future
maintenance costs. Adaptive maintenance requires modification of software code
to operate in changing operating environments, such as new mainframe hardware
or a new release of a mainframe operating system. Perfective maintenance is
the modification of legacy code to provide new functionality to meet changing
business requirements. Perfective maintenance backlogs are the biggest source
of concern for IT management. Preventive maintenance is a proactive approach
to modifying legacy software code to ensure successful operation in the
future. Year 2000 compliance services are a form of preventive maintenance.
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.
Migration and Re-engineering Services. The Company has developed its
proprietary ISEM methodology, a broad-based strategy for deploying new
technologies and managing the successful integration of legacy mainframe
systems with new client/server systems. Alternatives include: legacy systems
re-development using object-oriented technologies; mainframe integration with
new client/server systems using "web enabling" Internet/intranet technologies;
and tool-enabled re-engineering of legacy systems, in which these systems are
migrated 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
"productivity tools" enable the Company to perform source code analyses, re-
design target databases and convert certain programming languages.
YEAR 2000 CONVERSION SERVICES
The Company uses its CC-PAC methodology to provide cost-effective services
related to the Year 2000 problem. The CC-PAC methodology defines the methods
for performing Year 2000 conversion
33
<PAGE>
services through five separate phases: analysis, planning, conversion, testing
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 strategy 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 Year 2000 services.
The Company also believes the ability of Transform2000 to address many of the
Year 2000 problems across a broad array of computing environments and
operating platforms to be a source of significant competitive advantage.
As of the date of this Prospectus, the Company is engaged to perform Year
2000 conversion services for more than 50 clients, substantially all of whom
are new customers for the Company. The Company anticipates that revenues from
Year 2000 services will continue to increase significantly as a percentage of
the Company's total revenues in the near-term. The Company believes that the
demand for Year 2000 conversion services will continue after the turn of the
century, although this demand is expected to begin to diminish rapidly after
the year 2000 as many Year 2000 compliance solutions are tested and
implemented. See "Risk Factors--Potential Decrease in Demand for Year 2000
Services."
Programming and Consulting Services
The Company also provides programming and consulting 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 its core transitional 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 less than six months.
CLIENTS AND REPRESENTATIVE PROJECTS
IMR provides services to large businesses, primarily Fortune 500 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 MIGRATION AND RE-
SERVICES: SERVICES: ENGINEERING SERVICES:
Dun & Bradstreet Dayton Hudson Fingerhut
EBSCO Industries, Inc. Corporation General Reinsurance
Ford Motor Company Michelin North America Michelin Tire Corporation
NOVUS Services, Inc. Southern California Reliastar Life Insurance
Whitbread Plc Edison Company
Winn Dixie Stores, Inc. SPS Payment Systems, SPS Payment Systems, Inc.
Inc.
Whitbread Plc
YEAR 2000 CONVERSION SERVICES: PROGRAMMING & CONSULTING SERVICES:
American Greetings Corp. Dayton Hudson Corporation
AON/Combined Insurance NOVUS Services, Inc.
Commercial Union Insurance Company J.C. Penney
John Hancock Financial Services John Hancock Financial Services
Mutual of Omaha Insurance Company Xerox Corporation
PACCAR Inc.
Reliastar Life Insurance Company
34
<PAGE>
During the first quarter of 1997 and the years ended December 31, 1996 and
1995, the Company's top five clients accounted for approximately 32.8%, 59.0%
and 65.6% of revenues, respectively. NOVUS (formerly known as Discover Card
Services, Inc.) and SPS Payment Systems, Inc. ("SPS"), which are affiliated
companies, together accounted for approximately 14.0% of revenues in the first
quarter of 1997 and 31.0% of revenues during the year ended December 31, 1996.
In 1995, 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--Reliance on
Significant Clients."
SPS Payment Systems. SPS Payment Systems, a leading provider of private
label credit card services for retailers, retained IMR to assist in the
creation of an electronic marketing system. 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. As a result
of its successful completion of the electronic marketing system, SPS engaged
IMR on several additional projects, including re-design/re-engineering of its
strategic systems, application maintenance outsourcing and Year 2000 services.
The Company considers its strategic relationship with SPS Payment Systems to
be a model for future client relationships.
Target Stores. Target Stores, a division of Dayton Hudson Corporation,
engaged IMR to perform Target's System Limits project, a series of system
enhancements to 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. 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. 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
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 parent company Dayton
Hudson Corporation.
Michelin. As part of the centralization of its North American operations,
Michelin contracted IMR to develop the mainframe-based Sales Commission
Calculation and Reporting System ("SCCRS") for two major subsidiaries
operating across the U.S., Canada and Mexico. The SCCRS maintains information
about sales personnel, their sales history and commissions earned. IMR was
then awarded a maintenance outsourcing contract for Michelin's Corporate
Financial Systems, which was rolled into a large, multi-year maintenance
outsourcing contract involving Michelin's Corporate Systems. Michelin also
awarded IMR a Year 2000 services contract, as well as a large-scale database
migration project.
SALES AND MARKETING
The Company markets and sells its services directly through its professional
staff and senior management operating out of its U.S. headquarters in
Clearwater, Florida, its office in London, its sales branch office in India,
and its domestic sales branch offices located in Boston, Chicago and Dallas.
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
35
<PAGE>
enter the prospects into a prospect/client database, which is 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. 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 person 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.
As IMR pursues expansion in other areas of Europe and southeast Asia to
expand its global presence, the Company will consider establishing branch
sales offices to pursue business opportunities in those regions, although no
assurance can be given that the Company will select these locations for future
expansion.
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 the U.S., the U.K. and
India. Under an agreement between the Company and IMR-India, the Company owns
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. The U.K. and India are members of the Berne Convention, an
international treaty. As members of the Berne Convention, the governments of
the U.K. and India have 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., the U.K. 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 the U.K. and
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 to protect its proprietary
rights will be adequate to deter misappropriation of its Year 2000 proprietary
rights or any of its other intellectual property or that the Company will be
able to detect unauthorized use and take appropriate steps to enforce its
rights. The Company presently holds no patents or registered copyrights. The
Company expects that the risk of infringement claims against the Company will
increase if more of the Company's competitors are able to successfully obtain
patents for software products and processes.
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
36
<PAGE>
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 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
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
As of June 30, 1997, the Company had approximately 1,005 employees,
including approximately 320 persons in its U.S. headquarters and branch
offices, approximately 600 in its offshore software development centers in
India and approximately 85 persons in its offices in the U.K. Additionally, as
of June 30, 1997, the Company had approximately 55 independent contractors
performing various services. None of the Company's employees is subject to a
collective bargaining arrangement.
As of June 30, 1997, approximately 180 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. 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."
37
<PAGE>
The Company believes that 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., the U.K. and India 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 following table sets forth a description of the Company's principal
facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET (APPROX.) LEASE EXPIRATION DATE FUNCTION
- ----------- --------------------- --------------------- ------------------------------
<S> <C> <C> <C>
Clearwater, 22,500 sq. ft. July 1998 Corporate headquarters
Florida
Bangalore, 50,000 sq. ft. June 2000(1) IMR-India headquarters;
India principal development facility
Chesham, 12,500 sq. ft. March 25, 2013 IMR-U.K. headquarters
England
</TABLE>
- --------
(1) This lease contains an option to extend for an additional five years
through May 2005.
In addition, the Company leases branch offices in Boston, Chicago and Dallas
which are used primarily for sales and marketing purposes.
In March 1997, the Company acquired a building located in Mumbai to develop
a new offshore software development center. The building is located in an area
designated for certain tax incentives and relaxed regulatory restrictions
similar to those applicable to IMR's Bangalore operations. Currently, the
Company is in the process of renovating this facility and expects it to be
operational by the third quarter of 1997. While under construction, the
Company has commenced operations in Mumbai in termporary facilities. No
assurance can be given that renovations of the Mumbai facility will be
completed on time or that the Indian government will continue to provide tax
and other incentives to the software industry or in the area in which this
facility is located.
The Company is currently in the process of negotiating to obtain facilities,
personnel and equipment to establish offshore software development centers in
Belfast, Northern Ireland and New Delhi, India.
38
<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)................... 49 Chairman of the Board; President and
Chief Executive Officer
John R. Hindman...................... 48 Chief Financial Officer
Jeffery S. Slowgrove................. 40 Treasurer; Director
Kasi V. Sridharan.................... 43 Executive Vice President
Dilip Patel.......................... 39 Vice President--General Counsel;
Secretary
Ashutosh Gupta....................... 41 President and Director, IMR-India
Philip Shipperlee.................... 50 Managing Director, IMR-U.K.; Director
Michael J. Dean...................... 37 Vice President--Finance; Controller
Charles C. Luthin(1)(2)(3)........... 55 Director
Vincent Addonisio(1)(2)(3)........... 42 Director
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Satish K. Sanan co-founded the Company in 1988 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.
John R. Hindman has served as Chief Financial Officer since March 1997. From
November 1993 to September 1996, Mr. Hindman served as Chief Operating Officer
and Chief Financial Officer of Precision Systems, Inc. ("PSI"), a software
systems provider to the telecommunications industry. From September 1996 until
February 1997, Mr. Hindman served as a financial consultant to PSI. From July
1988 until October 1993, Mr. Hindman served as Chief Financial Officer of
Kimmins Environmental, a specialty contracting firm.
Jeffery S. Slowgrove co-founded the Company in 1988 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.
Kasi V. Sridharan has served as Executive Vice President of the Company
since March 1997. Mr. Sridharan served as Vice President--Finance of the
Company from October 1995 until March 1997. 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.
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.
39
<PAGE>
Ashutosh Gupta has served as President of IMR-India since August 1995 and as
a Director of IMR-India since January 1996. From January 1988 until August
1995, Mr. Gupta served in various positions for Citicorp Overseas Software
Limited, located in Mumbai, India, including Group Head, International
Marketing.
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
served as the Managing Director of Link from June 1980 until its acquisition
by the Company.
Michael J. Dean has served as Vice President--Finance since March 1997. Mr.
Dean served as Chief Financial Officer of the Company from July 1996 until
March 1997 and as Controller of the Company from July 1994 to June 1996. 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.
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 has served as President of Parker Communications Network, Inc., a
point of sale marketing network company, since January 1997. From July 1993
until November 1996, Mr. Addonisio served as a Director, Executive Vice
President, Chief Financial Officer and Treasurer of ABR Information Services,
Inc., a benefits administration outsourcing Company. 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.
The Board of Directors consists of five directors. The Board of Directors is
divided into three classes, each of whose members 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). In accordance with Section 6.1 of the
Company's First Amended and Restated Articles of Incorporation, 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 Class I directors were re-elected to the Board of Directors at the Annual
Meeting of Shareholders held on May 30, 1997. The terms of the initial Class
II directors and Class III directors, and the re-elected Class I directors,
will expire upon the election and qualification of successor directors at the
annual meeting of shareholders held in 1998, 1999 and 2000, respectively.
There are no family relationships between any of the directors or executive
officers of the Company. See "Description of Capital Stock--Certain Articles
of Incorporation and Bylaw Provisions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Executive Committee, a
Compensation Committee and an Audit Committee. The Executive Committee is
comprised of Messrs. Sanan, Luthin
40
<PAGE>
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 is responsible for reviewing and
recommending salaries, bonuses and other compensation for the Company's
executive officers. The Compensation Committee also is 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 is 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
Compensation of the Company's directors who are not also employees of the
Company ("Nonemployee Directors") currently consists of an annual fee of
$5,000, plus $1,000 for each meeting of the Board of Directors attended and
$500 for each committee meeting attended which is held independently of a
board meeting. Each director receives reimbursement of out-of-pocket expenses
incurred to attend meetings of the Board of Directors. Nonemployee Directors
also are eligible to receive options under the Company's 1996 Directors Stock
Option Plan (the "Directors Stock Option Plan"). Directors who are officers or
employees of the Company do not receive any additional compensation for their
services as directors.
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 15,000 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"). The next Bi-Annual Grant will be made at the
Annual Meeting to be held in 1998. 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) 15,000 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"). On the consummation of the Company's initial public
offering, each of Messrs. Addonisio, Luthin and Shipperlee received an option
to purchase 15,000 shares of the Company's Common Stock (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 vested 50% on
the date of the annual meeting of the Company's shareholders held on May 30,
1997, and will vest 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. 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.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
the compensation earned for services rendered by the Company's Chief Executive
Officer (the "Named Executive Officer") for the years ended December 31, 1996,
1995 and 1994. No other executive officer of the Company received a combined
annual salary and bonus exceeding $100,000 as determined at December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ---- ------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Satish K. Sanan.......... 1996 $ 316,667 $ 320,018 3,965,010 $59,327(2)
Chairman of the Board; 1995 253,285 261,241 2,006,310 58,368(3)
President and Chief Ex-
ecutive Officer
</TABLE>
- --------
(1) 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.
(2) Includes: (i) $58,327 representing premiums paid for life insurance
policies with benefits payable to beneficiaries designated by Mr. Sanan;
and (ii) a $1,000 contribution on behalf of Mr. Sanan to the Company's
401(k) Plan.
(3) Includes: (i) $57,368 representing premiums paid for life insurance
policies with benefits payable to beneficiaries designated by Mr. Sanan;
and (ii) a $1,000 contribution on behalf of Mr. Sanan to the Company's
401(k) Plan.
Mr. Sanan entered into an employment agreement with the Company, effective
October 31, 1996, that superseded his former employment agreement. The
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 November 14, 1996, Mr. Sanan received a ten-
year option to purchase 150,000 shares at an exercise price of $9.33 per
share. 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 $10.6 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 (i) Mr. Sanan's then current base salary plus the amount of
42
<PAGE>
his prior year bonus and the annualized value of any current benefits; or (ii)
his compensation as reported for tax purposes 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.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to the
Named Executive Officer during the year ended December 31, 1996 and gives
effect to the three-for-two stock split:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Satish K. Sanan......... 3,965,010(3) 81.9% $0.33 01/01/06 $ 822,879 $ 2,085,338
150,000(4) 3.1 9.33 11/14/06 880,138 2,230,443
</TABLE>
- --------
(1) These options were 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.
(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 this
Offering substantially exceeds the potential realizable value shown in the
table.
(3) The option is a nonqualified stock option and is currently exercisable.
(4) The option is a nonqualified stock option and vests one year from the date
of grant.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held, on December 31,
1996, by the Named Executive Officer, giving effect to the three-for-two stock
split:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Satish K. Sanan............. 6,096,825 150,000 $84,385,613 $712,500
</TABLE>
- --------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on December 31, 1996 was $14.08. Value is calculated on
the basis of the difference between the option exercise price and $14.08,
multiplied by the number of shares of Common Stock underlying the option.
EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK INCENTIVE PLAN
The Company's Stock Incentive Plan (the "Stock Option Plan") became
effective on July 15, 1996. Prior to the consummation of the Company's initial
public offering of its Common Stock in November 1996, the Company had 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. As a
result, the
43
<PAGE>
net income of the Company for federal and certain state income tax purposes
was reported by, and taxed directly to, the Company's then current
shareholders. 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."
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. 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.
An 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
at fair market value on the date of grant. The policy of the Compensation
Committee is that all future grants will be at fair market value on the grant
date.
Each incentive stock 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.
The number of shares of the Company's Common Stock reserved for issuance
under the Stock Option Plan is 8,168,970 shares. As of June 30, 1997, options
to purchase 7,190,451 shares of Common Stock were outstanding under the Stock
Option Plan and 631,500 shares of Common Stock had been issued upon exercise
of options granted under the Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan")
became effective on October 1, 1996. A total of 300,000 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 last business day prior
to the first day of the quarter or on the last
44
<PAGE>
business day of the quarter, whichever is lower. An employee may not sell
shares of Common Stock purchased under the Stock Purchase Plan until 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 June 30, 1997, 64,239
shares of Common Stock had been issued pursuant to 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Luthin, a member of the Compensation Committee, served as Vice
President-Finance of the Company from October 1994 until July 1995. He was not
an officer or employee of the Company, or of any subsidiary of the Company, at
any time during 1996. Prior to the appointment of the Compensation Committee
by the Company's Board of Directors, compensation of executive officers was
determined by Mr. Sanan, President and Chief Executive Officer of the Company.
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 Restated 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.
45
<PAGE>
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) the
Named Executive Officer; (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, to the Company's knowledge, 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 the shareholder, subject to
community property laws where applicable. See "Risk Factors--Offering to
Benefit Principal Selling Shareholder" and "Use of Proceeds."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING (1) SHARES TO BE AFTER THE OFFERING (1)
NAME AND ADDRESS OF ------------------------------SOLD IN THE ----------------------------
BENEFICIAL OWNER (1) SHARES PERCENTAGE OFFERING SHARES PERCENTAGE
-------------------- --------------- -------------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Satish K. Sanan (2)..... 13,175,212 61.7% 1,350,000 11,825,212 51.7%
Jeffery S. Slowgrove
(3).................... 1,015,155 6.7 150,000 865,155 5.2
Charles C. Luthin (4)... 7,650 * -- 7,650 *
Philip Shipperlee (5)... 119,862 * -- 119,862 *
Vincent Addonisio(6).... 12,000 * -- 12,000 *
Michael J. Dean (7)..... 21,000 * -- 21,000 *
Dilip Patel (8)......... 3,000 * -- 3,000 *
Kasi V. Sridharan (9)... 7,500 * -- 7,500 *
All executive officers
and directors as a
group (10 persons)..... 14,361,379 67.0% 1,500,000 12,861,379 56.1%
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Percentage of beneficial
ownership is based on 15,263,688 shares of Common Stock outstanding as of
June 27, 1997. The street address of each beneficial owner is c/o
Information Management Resources, Inc., Suite 500, 26750 U.S. Highway 19
North, Clearwater, Florida 33761.
(2) Includes: (i) 125,505 shares issuable upon the exercise of options, at an
exercise price of $0.07 per share, expiring December 31, 2003; (ii)
2,006,310 shares issuable upon the exercise of options, at an exercise
price of $0.07 per share, expiring January 1, 2005; and (iii) 3,965,010
shares issuable upon the exercise of options, at an exercise price of
$0.33 per share, expiring February 1, 2006. Also includes: (i) 7,002,052
shares held in the A&S Family Limited Partnership (the "Sanan
Partnership"), the sole general partner of which is a corporation
controlled by Mr. Sanan; and (ii) 76,335 shares held by a charitable
foundation with respect to which Mr. Sanan disclaims beneficial ownership.
The 1,350,000 shares to be sold in the Offering will be sold by Mr. Sanan
and various entities under his control. Assumes no exercise of the
Underwriters' over-allotment option. In the event the Underwriters' over-
allotment option is exercised in full, Mr. Sanan and various entities
under his control will sell an additional 202,500 shares of Common Stock
in the Offering.
(3) Includes 5,355 shares issuable upon the exercise of options, at an
exercise price of $0.07 per share, expiring December 31, 2003. Also
includes 112,500 shares held in various trusts for the benefit of Mr.
Slowgrove's child, with respect to which Mr. Slowgrove disclaims
beneficial ownership. Assumes no exercise of the Underwriters' over-
allotment option. In the event the Underwriters' over-allotment option is
exercised in full, Mr. Slowgrove will sell an additional 22,500 shares of
Common Stock in the Offering.
(4) Includes: (i) 7,500 shares issuable upon the exercise of options, at an
exercise price of $0.07 per share, expiring November 14, 2006.
46
<PAGE>
(5) Includes: (i) 53,781 of restricted shares issued in exchange for his
interest in Link Group Holdings, Ltd.; and (ii) 7,500 shares issuable upon
the exercise of options, at an exercise price of $0.07 per share, expiring
November 14, 2006. Also includes 53,781 of restricted shares acquired by
Sheila Shipperlee, Mr. Shipperlee's wife, in exchange for her interest in
Link Group Holdings, Ltd. and an additional 3,000 shares held by Mrs.
Shipperlee, with respect to which Mr. Shipperlee disclaims beneficial
ownership.
(6) Includes 7,500 shares issuable upon the exercise of options, at an exercise
price of $0.07 per share, expiring November 14, 2006.
(7) Includes 21,000 shares issuable upon the exercise of options, at an
exercise price of $0.70 per share, expiring August 18, 2005.
(8) Includes 3,000 shares issuable upon the exercise of options, at an exercise
price of $0.50 per share, expiring March 18, 2006.
(9) Includes 7,500 shares issuable upon the exercise options, at an exercise
price of $0.50 per share, expiring January 1, 2006.
47
<PAGE>
CERTAIN TRANSACTIONS
IMR-INDIA TRANSACTIONS
In November 1996, the Company purchased from Satish K. Sanan, the Company's
President and Chief Executive Officer, his entire equity interest in IMR-India
for approximately $3.1 million in cash. In December 1996, the Company
purchased from the India Magnum Fund, N.V. (an unaffiliated entity) its entire
equity interest in IMR-India for approximately $5.1 million in cash. As a
result of these acquisitions, the Company owns approximately 98.2% of IMR-
India's outstanding stock as of the date of this Prospectus with the balance
owned by individual investors.
IMR-U.K. AND LINK TRANSACTIONS
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 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. 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.
In March 1996, IMR-U.K. issued 19,750 and 25,000 equity shares to the
Company and Link, respectively, and an aggregate 5,250 equity shares to the
Sanans in satisfaction of certain other unpaid loans owed by IMR-U.K. to them.
The Company made a further advance of $300,000 to IMR-U.K. during December
1996.
Pursuant to an agreement effective January 8, 1997, the Company acquired
100% of the outstanding shares of Link from its two owners, Philip and Sheila
Shipperlee. Philip Shipperlee is a member of the Company's Board of Directors.
Under the terms of the agreement, at closing the Company paid the Shipperlees
$2.1 million in cash and 107,562 shares of the Company's Common Stock. The
Company is obligated to pay to the Shipperlees an additional $1.6 million in
January 1998.
Concurrently with the Link acquisition, the Company acquired from Mr. Sanan
and his spouse 10.5% of the capital stock of IMR-U.K. for $520,000 in cash.
The acquisition was approved by the disinterested members of the Board of
Directors. Prior to this acquisition, and prior to the acquisition by the
Company of Link, the Company owned 39.5% of IMR-U.K., Link owned 50.0% of IMR-
U.K. and Mr. and Mrs. Sanan together owned 10.5% of IMR-U.K. As a result of
the acquisition of Link and this acquisition from the Sanans, the Company owns
100% of both Link and IMR-U.K.
Prior to the Company's acquisition of Link, IMR-U.K. utilized office space
pursuant to an oral agreement between IMR-U.K. and Link. The annual rent paid
to Link by IMR-U.K. in 1996 was approximately $86,000. Prior to its
acquisition, Link provided technical services for IMR-U.K., as well as
marketing, recruiting and accounting services. IMR-U.K. paid Link
approximately $1.2 million for professional software development services in
1996. IMR-U.K. paid Link approximately $116,000 in 1996 for administrative
services. The Company now owns 100% of IMR-U.K. and Link and has integrated
the operations of IMR-U.K. and Link.
OPTIONS ISSUED TO MR. SANAN
On February 1, 1996, the Company granted Mr. Sanan an option to purchase
3,965,010 shares of Common Stock at an exercise price of $0.33 per share. This
option was granted following the Company's
48
<PAGE>
repurchase of approximately 3,970,410 shares from former shareholders of the
Company for a price of $0.33 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. On November 14, 1996, pursuant to Mr. Sanan's employment
agreement, the Company granted Mr. Sanan an option to purchase 150,000 shares
at an exercise price of $9.33 per share. This option vests one year from the
date of grant.
OTHER TRANSACTIONS
In October 1995, the Company entered into a Sublease Agreement with ABR
Information Services, Inc. ("ABR") pursuant to which ABR subleased from the
Company 11,000 square feet of office space in the Company's Clearwater,
Florida offices through October 31, 1997. This sublease was terminated by
mutual agreement of the parties on June 30, 1997. In 1996, ABR paid to the
Company approximately $145,000 in rent pursuant to the sublease. Mr. Vincent
Addonisio, a director of the Company served as Executive Vice President, Chief
Financial Officer, Treasurer and a director of ABR from July 1993 until
November 1996.
During 1996, the Company maintained insurance on the lives of Messrs. Sanan
and Slowgrove. The proceeds from the insurance policies on the life of Mr.
Sanan will be payable to beneficiaries designated by Mr. Sanan. The annual
payment by the Company for insurance policies on the life of Mr. Sanan was
approximately $100,000 in 1996. 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.
Until December 1996, Mr. Sanan personally guaranteed the Company's term loan
and line of credit payable to Barnett Bank. Mr. Sanan has personally
guaranteed IMR-India's line of credit payable to Canara Bank.
The Company and the shareholders of the Company immediately prior to the
completion of the Company's initial public offering (the "Pre-Offering
Shareholders") are parties to an agreement whereby the Pre-Offering
Shareholders caused the Company to terminate its S Corporation election in
November 1996. 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.
49
<PAGE>
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 the consummation of this Offering, the
Company will have outstanding 16,763,688 shares of Common Stock and will have
granted options to purchase 7,235,451 shares of Common Stock under its stock
option plans at a weighted average exercise price per share of $0.76 per share
(of which options for the purchase of 6,403,167 shares of Common Stock will be
exercisable as of, or within 60 days of, June 30, 1997 at a weighted average
exercise price of $0.31 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, if any, 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--Executive Officers and Directors."
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
50
<PAGE>
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 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 Exchange Act.
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 grants discretionary authority solely 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
51
<PAGE>
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 have an adverse
effect on the market price of the Common Stock.
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
The Common Stock is traded 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.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have outstanding
16,763,688 shares of Common Stock and will have granted options for the
purchase of 7,235,451 shares of Common Stock pursuant to its stock option
plans at a weighted average exercise price of $0.76 per share. Of the
7,190,451 options outstanding under the Stock Option Plan: (i) options to
purchase 6,246,825 shares of Common Stock are held by Satish K. Sanan, the
Company's President, Chief Executive Officer and principal shareholder, of
which 6,096,825 are currently exercisable (at a weighted average exercise
price of $0.24 per share); and (ii) options to purchase 306,342 shares of
Common Stock (at a weighted average exercise price of $1.66 per share) are
held by other officers and employees of the Company and are exercisable as of,
or within 60 days of, June 30, 1997. Of the 16,763,688 shares outstanding upon
completion of this Offering, the 3,000,000 shares sold in this Offering, the
6,037,500 shares offered and sold pursuant to the Company's initial public
offering of Common Stock completed in November 1996, and an aggregate of
1,097,324 shares of Common Stock issued upon the exercise of vested stock
options and resold in reliance on Rules 144 and 701 under the Securities Act
and an effective registration statement on Form S-8 filed by the Company, 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 6,628,864 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 6,628,864 shares and the holders of 270,645 freely tradable
shares (and holders of options for the purchase of 6,281,070 shares of Common
Stock which are exercisable as of, or within 60 days of, June 30, 1997) 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 certain gifts) until 90 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 any lock-up agreement.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for a least one
year (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
167,637 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 has not been an affiliate of the
Company during the prior 90 days, and who has beneficially owned the shares
proposed to be sold for at least two 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, "Rule 144(k) shares" may therefore be sold immediately upon the
completion of this Offering. Under Rule 701 under the Securities Act, persons
who purchased shares upon exercise of options granted prior to the Company's
initial public offering are entitled to sell such shares 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.
After the expiration of the 90-day lock-up period, 6,511,852 shares, which
have been held for more than one year, 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."
53
<PAGE>
The Company has filed a Registration Statement on Form S-8 under the
Securities Act which registers: (i) 8,120,115 shares of Common Stock reserved
for issuance under the Stock Option Plan of which 582,645 shares have been
issued as of the date of this Prospectus; (ii) the 225,000 shares reserved
under the Directors Stock Option Plan, of which options for the purchase of
45,000 shares have been granted at an exercise price of $9.33 per share; and
(iii) the 300,000 shares reserved under the Stock Purchase Plan of which
64,239 shares have been issued as of the date of this Prospectus. See
"Management--Employee Benefit Plans."
The Common Stock has been traded on the Nasdaq National Market since
November 8, 1996. Nevertheless, sales of a substantial amount of the Common
Stock in the public market, or the perception that such sales could occur,
could adversely affect the market price of shares of the Company's Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities. See "Risk Factors--Shares Eligible for
Future Sale."
54
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters") 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 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 they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities.............................................
Alex. Brown & Sons Incorporated...................................
Furman Selz LLC...................................................
Raymond James & Associates, Inc. .................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriters 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 public offering, the
offering price and other selling terms may be changed by the Underwriters. 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 the Selling Shareholders 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 450,000 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, the officers and directors of the
Company and certain other shareholders who, immediately following the Offering
(assuming no exercise of the over-allotment option), collectively will
beneficially own approximately 6,899,509 shares of outstanding Common Stock
(and options for the purchase of 6,258,570 additional shares which will be
exercisable as of, or within 60 days of, June 30, 1997), have agreed that for
a period of 90 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, except for
gifts of shares pursuant to which the transferee agrees to the lock-up. In
addition, the Company has agreed that for a period of 90 days after the date
of this Prospectus it will not, without the consent of Montgomery Securities,
directly or indirectly, issue, offer for sale, sell, solicit an offer to sell,
contract or grant an option to purchase, 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, shares issued and options granted
pursuant to the
55
<PAGE>
Stock Option Plan, the Directors Stock Option Plan or the Stock Purchase Plan,
and shares issued pursuant to any acquisition, provided that such shares may
not be resold within such 90-day period. See "Management--Employee Benefit
Plans" and "Shares Eligible for Future Sale."
The Underwriting Agreement provides that the Company and the Selling
Shareholders 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.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock. If the Underwriters create a
short position in the Common Stock in connection with the Offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Underwriters may reduce that short position by purchasing
Common Stock in the open market. The Underwriters may also elect to reduce any
short position by exercising all or part of the over-allotment option
described above. The Underwriters may also impose a penalty bid on certain
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or
to stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security. The Underwriters make no
representation or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common
Stock. In addition, the Underwriters make no representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The public offering price of the Common Stock will be determined by
negotiations among the Underwriters, the Selling Shareholders and the Company,
and will be based largely upon the market price for the Common Stock as
reported on the Nasdaq National Market. See "Risk Factors--Possible Volatility
of Stock Price."
The Common Stock is traded on the Nasdaq National Market under the symbol
"IMRS."
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. Attorneys with Morris,
Manning & Martin, L.L.P. own 18,511 shares of the Company's Common Stock.
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, Mumbai, India, will provide certain
legal opinions with respect to matters of Indian law.
56
<PAGE>
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, Mumbai, India, independent
public accountants with respect to their audit of IMR-India as of December 31,
1995 and for the years ended December 31, 1994 and 1995, and in reliance upon
the authority of such firm as experts in accounting and auditing.
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 Common Stock of the Company is quoted on the Nasdaq National
Market under the symbol "IMRS," and such reports, proxy statements and other
information concerning the Company also can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
57
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Report of Independent Public Accountants................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996, and March
31, 1997 (Unaudited).................................................... F-4
Consolidated Statements of Income for the Years Ended December 31, 1994,
1995 and 1996 and for the Three Months Ended March 31, 1996 and 1997
(Unaudited)............................................................. F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996 and for the Three Months Ended
March 31, 1997 (Unaudited).............................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and for the Three Months Ended March 31, 1996 and
1997 (Unaudited)........................................................ F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Information Management Resources, Inc.
We have audited the accompanying consolidated balance sheets of Information
Management Resources, Inc. and subsidiary (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994. 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 as
of December 31, 1995 and for the years ended December 31, 1995 and 1994,
constituting approximately 31% of consolidated assets as of December 31, 1995
and approximately 81% and 86% of consolidated cost of revenues for the years
ended December 31, 1995 and 1994, respectively (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, 1996 and 1995, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
Coopers & Lybrand, L.L.P.
Tampa, Florida
March 7, 1997, except as to certain information
in Note 22, for which the date is June 19, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Information Management Resources (India) Limited
We have audited the accompanying balance sheet of Information Management
Resources (India) Limited (a company incorporated in India) as of December 31,
1995, and the related statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1995 and December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our 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 the results of its
operations and its cash flows for the years ended December 31, 1995 and
December 31, 1994 in conformity with generally accepted accounting principles
in the United States of America.
Arthur Andersen & Associates
Bombay, India
September 6, 1996
F-3
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $1,620,968 $24,081,743 $12,816,503
Marketable securities................... -- 5,643,535 11,750,043
Accounts receivable..................... 2,905,920 5,669,626 8,216,282
Unbilled work in process................ 708,094 1,073,965 3,199,256
Accounts receivable, affiliates......... -- 646,220 --
Notes receivable, affiliate............. -- 533,750 --
Other current assets.................... 468,940 890,341 1,438,894
---------- ----------- -----------
Total current assets................... 5,703,922 38,539,180 37,420,978
Property and equipment, net of
accumulated depreciation................ 1,699,084 3,702,918 6,962,269
Capitalized software costs, net of
accumulated amortization................ 548,691 719,978 744,405
Note receivable, affiliate............... -- 158,750 --
Deposits and other assets................ 263,382 437,716 513,938
Goodwill, net of accumulated
amortization............................ 451,370 5,394,569 10,347,648
---------- ----------- -----------
Total assets........................... $8,666,449 $48,953,111 $55,989,238
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans.................. $ 655,466 $ -- $ 1,071,319
Accounts payable........................ 490,317 1,364,043 1,653,895
Accrued expenses........................ 1,484,443 2,878,049 4,622,871
Income tax payable...................... -- 476,750 935,192
Deferred income taxes................... -- 257,832 250,000
Current portion of long-term debt....... 326,640 -- 232,680
Current maturities of capital lease
obligations............................ 132,642 55,444 91,507
Current portion of notes payable--
shareholders........................... 242,457 813,754 --
Deferred revenue........................ 17,270 1,964,576 2,624,980
---------- ----------- -----------
Total current liabilities.............. 3,349,235 7,810,448 11,482,444
Long-term debt........................... 1,077,077 -- 698,039
Notes payable--shareholder............... 107,054 -- --
Capital lease obligations................ 54,514 -- --
Deferred income taxes.................... 46,684 634,396 384,423
Other liabilities........................ 82,507 84,879 88,808
---------- ----------- -----------
Total liabilities...................... 4,717,071 8,529,723 12,653,714
---------- ----------- -----------
Minority interest........................ 1,241,266 67,107 73,638
---------- ----------- -----------
Commitments and contingencies (Notes 13,
15 and 22)
Preferred stock, $.10 par value,
10,000,000 shares authorized, no shares
issued and outstanding................. -- -- --
Common stock, $.10 par value per share,
40,000,000 shares authorized,
13,583,940 and 14,473,635 shares issued
and outstanding at December 31, 1995
and 1996, and 14,630,598 issued and
outstanding at March 31, 1997.......... 1,358,394 1,447,364 1,463,060
Additional paid-in capital.............. 714,450 38,359,212 39,824,007
Retained earnings....................... 705,956 669,034 2,100,775
Cumulative foreign currency translation
adjustment............................. (61,938) (119,329) (125,956)
---------- ----------- -----------
Shareholders' equity:
2,716,862 40,356,281 43,261,886
Less treasury stock at cost, 7,500 shares
at December 31, 1995.................... (8,750) -- --
---------- ----------- -----------
Total shareholders' equity............. 2,708,112 40,356,281 43,261,886
---------- ----------- -----------
Total liabilities and shareholders'
equity................................ $8,666,449 $48,953,111 $55,989,238
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $14,101,653 $22,700,170 $27,948,076 $ 6,089,685 $14,347,229
Cost of revenues........ 8,662,244 13,471,069 15,657,862 3,489,373 8,041,965
----------- ----------- ----------- ----------- -----------
Gross profit.......... 5,439,409 9,229,101 12,290,214 2,600,312 6,305,264
Selling, general and
administrative
expenses............... 4,491,199 5,661,759 7,506,948 1,576,007 3,920,701
Goodwill amortization... 119,282 58,936 99,615 14,688 271,401
----------- ----------- ----------- ----------- -----------
4,610,481 5,720,695 7,606,563 1,590,695 4,192,102
----------- ----------- ----------- ----------- -----------
Income from
operations........... 828,928 3,508,406 4,683,651 1,009,617 2,113,162
Other income (expense):
Interest expense....... (472,606) (348,652) (300,526) (63,297) (66,872)
Interest income and
other................. 1,097,015 472,609 253,048 1,163 244,316
Income (loss) in equity
investment............ (125,842) (110,038) 83,131 (16,014) --
----------- ----------- ----------- ----------- -----------
Total other income
(expense).............. 498,567 13,919 35,653 (78,148) 177,444
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes and
minority interest...... 1,327,495 3,522,325 4,719,304 931,469 2,290,606
Provision for income
taxes.................. 450,504 292,747 1,401,244 75,386 852,167
----------- ----------- ----------- ----------- -----------
Income before minority
interest............. 876,991 3,229,578 3,318,060 856,083 1,438,439
Minority interest in net
income................. (62,587) (711,993) (730,373) (153,731) (6,698)
----------- ----------- ----------- ----------- -----------
Net income............ $ 814,404 $ 2,517,585 $ 2,587,687 $ 702,352 $ 1,431,741
=========== =========== =========== =========== ===========
Pro forma adjustments
(See Note 2):
Historical net income... $ 2,517,585 $ 2,587,687 $ 702,352 $ 1,431,741
Pro forma adjustment to
income tax expense..... (905,114) (42,756) (279,525) --
----------- ----------- ----------- -----------
Pro forma net income.... $ 1,612,471 $ 2,544,931 $ 422,827 $ 1,431,741
=========== =========== =========== ===========
Pro forma net income per
share.................. $ 0.08 $ 0.14 $ 0.03 $ 0.07
=========== =========== =========== ===========
Weighted average common
and common stock
equivalent shares
outstanding............ 20,554,491 17,580,677 16,762,623 21,943,968
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN RETAINED
COMMON STOCK 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,
1994................... 9,055,960 $ 905,596 $ 1,167,248 $ (5,642) $(2,626,033) $ -- $ (558,831)
Effect of stock dividend
(see Note 22) ......... 4,527,980 452,798 452,798 -- -- -- --
Translation
adjustments............ -- -- -- 8,723 -- -- 8,723
Net income.............. -- -- -- -- 814,404 -- 814,404
---------- ---------- ----------- --------- ----------- ---------- -----------
Balance, December 31,
1994................... 13,583,940 1,358,394 714,450 3,081 (1,811,629) -- 264,296
Repurchase of common
stock.................. -- -- -- -- -- (8,750) (8,750)
Translation
adjustments............ -- -- -- (65,019) -- -- (65,019)
Net income.............. -- -- -- -- 2,517,585 -- 2,517,585
---------- ---------- ----------- --------- ----------- ---------- -----------
Balance, December 31,
1995................... 13,583,940 1,358,394 714,450 (61,938) 705,956 (8,750) 2,708,112
Issuance of common stock
for options exercised.. 204,255 20,426 (6,809) -- -- -- 13,617
Repurchase of common
stock.................. -- -- -- -- -- (1,489,272) (1,489,272)
Retirement of treasury
stock.................. (4,133,310) (413,331) (1,029,471) -- (55,220) 1,498,022 --
Dividends paid.......... -- -- -- -- (1,623,303) -- (1,623,303)
Termination of S
Corporation tax
status................. -- -- 946,086 -- (946,086) -- --
Common stock issued in
connection with initial
public offering........ 4,818,750 481,875 40,235,169 -- -- -- 40,717,044
Acquisition of majority
shareholder's interest
in subsidiary.......... -- -- (2,500,213) -- -- -- (2,500,213)
Translation
adjustments............ -- -- -- (57,391) -- -- (57,391)
Net income.............. -- -- -- -- 2,587,687 -- 2,587,687
---------- ---------- ----------- --------- ----------- ---------- -----------
Balance, December 31,
1996................... 14,473,635 1,447,364 38,359,212 (119,329) 669,034 -- 40,356,281
Acquisition of
subsidiary
(unaudited)............ 107,562 10,756 1,629,565 -- -- -- 1,640,321
Acquisition of majority
shareholder's interest
in subsidiary
(unaudited)............ -- -- (551,745) -- -- -- (551,745)
Common stock issued in
connection with
Employee Stock Purchase
Plan (unaudited)....... 49,401 4,940 386,975 -- -- -- 391,915
Translation adjustments
(unaudited)............ -- -- -- (6,627) -- -- (6,627)
Net income (unaudited).. -- -- -- -- 1,431,741 -- 1,431,741
---------- ---------- ----------- --------- ----------- ---------- -----------
Balance, March 31,
1997................... 14,630,598 $1,463,060 $39,824,007 $(125,956) $ 2,100,775 $ -- $43,261,886
========== ========== =========== ========= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income............. $ 814,404 $ 2,517,585 $ 2,587,687 $ 702,264 $ 1,431,741
Adjustments to
reconcile net income
to cash provided by
(used in) operating
activities:
Depreciation and
amortization.......... 545,696 491,085 777,751 170,121 610,956
Gain on sale of
property and
equipment............. (76,473) (520,672) -- -- --
Gain on sale of
subsidiary............ (1,013,503) -- -- -- --
Unrealized exchange
losses................ 4,938 62,862 8,790 -- --
(Gain) loss in equity
investment............ 125,842 110,038 (83,131) 16,014 --
Minority interest in
net income............ 62,587 711,993 730,373 153,731 6,698
Changes in operating
assets and
liabilities:
Accounts receivable
and unbilled work-in-
process.............. (568,910) (1,638,061) (3,129,577) (226,323) (1,324,440)
Accounts receivable--
affiliate............ -- -- (646,220) (2,823) --
Other current assets.. (160,708) (69,167) (573,324) 37,483 177,409
Deposits and other
assets............... (65,528) (14,042) (91,203) (107,325) (76,222)
Accounts payable...... 604,019 (716,594) 873,726 22,189 (477,152)
Accrued expenses...... (848,277) 282,439 1,393,606 (491,152) (956,067)
Income tax payable.... -- -- 476,750 -- 388,813
Deferred income
taxes................ 64,849 39,395 865,407 14,690 (257,805)
Deferred revenue...... (281,204) (243,544) 1,947,306 200,459 281,581
Other liabilities..... 45,629 14,821 14,979 (1,905) 12,331
----------- ----------- ----------- ---------- ------------
Total adjustments...... (1,561,043) (1,489,447) 2,565,233 (214,841) (1,613,898)
----------- ----------- ----------- ---------- ------------
Net cash provided by
(used in) operating
activities........... (746,639) 1,028,138 5,152,920 487,423 (182,157)
----------- ----------- ----------- ---------- ------------
Cash flows from
investing activities:
Acquisition of interest
in consolidated
subsidiary............ -- -- (9,967,942) -- (2,703,870)
Investment in
marketable
securities............ -- -- (5,511,475) -- (6,106,508)
Proceeds from sale of
investment in
subsidiary............ 1,883,012 2,500 -- -- --
Proceeds from sale of
property and
equipment............. 284,004 1,388,478 -- -- --
Additions to
capitalized software
costs................. (385,603) (170,088) (302,014) (94,465) (150,000)
Additions to property
and equipment......... (312,282) (710,217) (2,604,738) (89,024) (2,724,752)
Increase in equity
investment and loans
to affiliate.......... (159,402) (7,746) (692,500) (392,500) --
----------- ----------- ----------- ---------- ------------
Net cash provided by
(used in) investing
activities........... 1,309,729 502,927 (19,078,669) (575,989) (11,685,130)
----------- ----------- ----------- ---------- ------------
Cash flows from
financing activities:
Net (repayments)
borrowings from
revolving credit
line.................. (138,421) 230,227 (655,466) 397,989 136,248
Proceeds from long-term
debt.................. 574,586 -- 900,000 -- 930,719
Payments on long-term
debt.................. (440,292) (1,024,881) (1,777,150) (243,750) --
Proceeds from notes
payable--shareholder.. 20,555 207,605 -- -- --
Payments on notes
payable--shareholder.. -- (50,426) (349,511) (240,042) (822,156)
Proceeds from capital
lease obligation...... 15,107 -- -- -- --
Payments on capital
lease obligations..... (180,327) (157,954) (131,712) (48,658) (28,350)
Proceeds from issuance
of common stock....... -- -- 41,840,367 -- 391,915
Payment of costs in
connection with
issuance of common
stock................. -- -- (1,109,706) -- --
Purchase of treasury
stock at cost......... -- (8,750) (1,489,272) (50,000) --
Payment of dividends... -- -- (822,156) -- --
----------- ----------- ----------- ---------- ------------
Net cash provided by
(used in) financing
activities........... (148,792) (804,179) 36,405,394 (184,461) 608,376
----------- ----------- ----------- ---------- ------------
Effect of exchange rate
changes................ (272) (118,815) (18,870) 31,747 (6,329)
----------- ----------- ----------- ---------- ------------
Net increase (decrease)
in cash and cash
equivalents............ 414,026 608,071 22,460,775 (241,280) (11,265,240)
Cash and cash
equivalents at
beginning of year...... 598,871 1,012,897 1,620,968 1,620,968 24,081,743
----------- ----------- ----------- ---------- ------------
Cash and cash equivalent
at end of year......... $ 1,012,897 $ 1,620,968 $24,081,743 $1,379,688 $ 12,816,503
=========== =========== =========== ========== ============
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for interest..... $ 438,100 $ 377,100 $ 300,526
=========== =========== ===========
Cash paid during the
year for income
taxes................. $ 32,200 $ 229,500 $ 132,421
=========== =========== ===========
Supplemental schedule of
noncash investing and
financing activities:
Note payable--
shareholders issued in
lieu of dividend...... $ -- $ -- $ 801,147
=========== =========== ===========
Capital lease
obligations incurred
for property and
equipment............. $ 26,383 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Information Management Resources, Inc. and subsidiaries ("IMR" or the
"Company") provides 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. and its wholly owned
subsidiary and its effectively controlled foreign subsidiary. Subsequent to
December 31, 1996, the Company acquired additional entities. (See Note 22).
All significant intercompany 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. During 1996,
IMR purchased an additional 45.6% (260,000 shares) of IMR-India's outstanding
common shares for approximately $6.9 million in cash in two separate
transactions. These acquisitions are accounted for as purchases pursuant to
the provisions of APB Opinion No. 16, "Business Combinations" and resulting
goodwill is being amortized over a 10-year period. In addition, during
November 1996, IMR acquired an additional 18.4% (104,800 shares) of IMR-India
from the Company's majority shareholder for approximately $3.1 million in
cash. The acquisition from IMR's majority shareholder is accounted for as a
reduction of equity (See Note 21).
IMR accounts for its investment in IMR-India utilizing the consolidation
method for all periods presented, because effective control had been
maintained through the continued direct financial interest in IMR-India held
by IMR's majority shareholder. IMR-India's financial statements are prepared
in conformity with U.S. generally accepted accounting principles.
As a result of the acquisitions noted above, IMR owns 98.2% of the
outstanding common shares of IMR-India.
Interim Financial Information--The unaudited interim financial statements as
of March 31, 1997 and 1996 and for each of the three 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 three months ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997.
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.
Marketable Securities--The Company's short-term investments are classified
as available-for-sale as defined by Statement of Financial Accounting Standard
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." These investments consist of United States and municipal
government securities at December 31, 1996 and are stated at estimated fair
value based upon market quotes.
F-8
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 work-in-progress represents revenues on contracts to be billed in
subsequent periods in accordance with 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, Link Group
Holdings, Ltd. and Information Management Resources (U.K.) Ltd., 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 selling,
general and administrative expenses in the financial statements as incurred.
Software Product Inventory--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 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--Prior to November 1996, the Company elected to be taxed as an
S Corporation under the provisions of the Internal Revenue Code whereby
taxable income is generally reported by the shareholders on their individual
income tax returns. In connection with the initial public offering (See Note
16), the S Corporation election was terminated on November 11, 1996 and
subsequently the Company became subject to U.S. federal and state income taxes
as a C Corporation. The Company utilizes the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years differences between
the
F-9
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. A
valuation allowance is provided against the future benefit of deferred tax
assets if it is determined that it is more likely than not that the future tax
benefits associated with the deferred tax asset will not be realized. (See
Note 14.)
Pro Forma Net Income--To properly reflect the Company's pro forma net
income, the provision for income taxes has been adjusted as if the Company had
been a taxable entity subject to federal and state income taxes at the
marginal rates applicable to such periods. In addition, the pro forma
adjustment to income tax expense for the year ended December 31, 1996 excludes
the $1,075,000 one-time income tax expense resulting from the termination of
the S Corporation status.
Foreign Currency Translation--The financial statements of the foreign
subsidiaries utilize a functional currency which is other than the U.S. dollar
and are translated into U.S. dollars in accordance with SFAS No. 52, "Foreign
Currency Translation." Assets and liabilities are translated at exchange rates
in effect on the reporting date. Income and expense items are translated at
the 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 three months ended March 31, 1997 and 1996
(Unaudited) and the years ended December 31, 1996 and 1995, 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 16, is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------- ------------------------------
1995 1996 1996 1997
------------ ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average common
stock outstanding...... 13,576,440 10,305,283 9,606,030 14,621,037
Weighted average common
stock equivalents...... 6,978,051 7,275,394 7,156,593 7,322,931
------------ ------------ -------------- --------------
Shares used in net
income share
calculation............ 20,554,491 17,580,677 16,762,623 21,943,968
============ ============ ============== ==============
</TABLE>
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 February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings per Share" which is effective
for periods ending after December 15, 1997. This statement establishes
standards for computing and presenting earnings per share data. Management is
currently assessing the impact of SFAS No. 128 on the Company's presentation
of earnings per share data in future periods.
Reclassification--Certain prior year financial statement balances have been
reclassified to conform to the 1997 presentations.
F-10
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. MARKETABLE SECURITIES
The Company currently invests in only high quality, short-term investments
which it classifies as available-for-sale. As such there were no significant
differences between amortized cost and estimated fair value at December 31,
1996. Additionally, because investments are short-term and are generally
allowed to mature, realized gains and losses have been minimal through
December 31, 1996.
The following table presents the estimated fair value of marketable
securities by category:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Municipal debt securities.................................... $5,511,475
Interest income receivable................................... 132,060
----------
$5,643,535
==========
</TABLE>
The maturity of the above marketable securities at December 31, 1996, is
between one and three years.
4. ACCOUNTS RECEIVABLE
The major classifications of accounts receivable at December 31, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Accounts receivable, trade........................ $2,320,252 $4,997,144
Unbilled accounts receivable-time-and-materials
contracts........................................ 585,668 672,482
---------- ----------
$2,905,920 $5,669,626
========== ==========
</TABLE>
5. COSTS AND ESTIMATED EARNINGS ON COMPLETED AND UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Costs incurred on completed and uncompleted
contracts.................................. $ 4,369,463 $ 6,692,453
Estimated earnings.......................... 1,443,266 3,380,593
----------- ------------
5,812,729 10,073,046
Less billings to date....................... (5,121,905) (10,963,657)
----------- ------------
$ 690,824 $ (890,611)
=========== ============
</TABLE>
The following is included in the accompanying balance sheets:
<TABLE>
<CAPTION>
1995 1996
-------- -----------
<S> <C> <C>
Unbilled work in process-fixed-price contracts... $708,094 $ 1,073,965
Deferred revenue-fixed price contracts........... (17,270) (1,964,576)
-------- -----------
$690,824 $ (890,611)
======== ===========
</TABLE>
F-11
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. OTHER CURRENT ASSETS
Other current assets at December 31, 1995 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Employee advances...................................... $141,044 $ 73,548
Software product inventory............................. 84,094 40,992
Prepaid expenses....................................... 234,857 701,027
Other receivable....................................... -- 52,987
Advances to affiliates................................. -- 21,787
Deferred income taxes.................................. 8,945 --
-------- --------
$468,940 $890,341
======== ========
</TABLE>
7. PROPERTY AND EQUIPMENT
The major classifications of property and equipment at December 31, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Building and improvements............ 10-40 $ 159,164 $ 348,118
Computer equipment................... 5-6 1,104,225 2,175,260
Computer software.................... 5-10 615,163 1,497,076
Office furniture and equipment....... 5-12 555,418 954,645
Equipment under capital leases....... 5 503,171 485,603
Construction in progress............. 1,276 4,692
----------- -----------
2,938,417 5,465,394
Less accumulated depreciation and am-
ortization.......................... (1,239,333) (1,762,476)
----------- -----------
$ 1,699,084 $ 3,702,918
=========== ===========
</TABLE>
The equipment under capital lease is pledged as collateral for the related
lease obligations.
Depreciation and amortization expense related to property and equipment was
approximately $426,000, $425,000 and $547,000 for the years ended December 31,
1994, 1995 and 1996, respectively. Accumulated amortization on equipment under
capital leases was approximately $313,000 and $403,000 at December 31, 1995 and
1996, respectively.
8. CAPITALIZED SOFTWARE COSTS
Capitalized software costs at December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Capitalized software costs............................ $555,691 $857,705
Accumulated amortization.............................. (7,000) (137,727)
-------- --------
$548,691 $719,978
======== ========
</TABLE>
Amortization expense related to capitalized software costs was approximately
$7,000 in 1995 and $131,000 in 1996. No adjustments were made during 1996,
1995, or 1994 to write down capitalized software costs to net realizable value.
F-12
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. GOODWILL
Goodwill at December 31, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Goodwill........................................... $ 588,745 $5,631,559
Accumulated amortization........................... (137,375) (236,990)
--------- ----------
$ 451,370 $5,394,569
========= ==========
</TABLE>
Amortization expense related to goodwill was approximately $120,000, $60,000
and $100,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
10. ACCRUED EXPENSES
Accrued expenses at December 31, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Accrued payroll and incentives..................... $ 556,515 $ 882,664
Accrued payroll taxes.............................. 368,974 423,056
Employee Stock Purchase Plan....................... -- 393,665
Accrued vacations.................................. 306,433 234,640
Initial public offering costs...................... -- 125,000
Software costs..................................... -- 245,000
Due to affiliate................................... 27,027 --
Other.............................................. 225,494 574,024
---------- ----------
$1,484,443 $2,878,049
========== ==========
</TABLE>
11. REVOLVING CREDIT LOANS
IMR-India maintains an export sales accounts receivable discounting facility.
Up to February 1996, loans under this facility could be denominated in Indian
rupees or U.S. dollars. Thereafter the loans are denominated in Indian rupees.
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%). At December 31, 1995 and 1996, $655,000 and
approximately $0, respectively, was due under this facility. The maximum amount
available under this facility at December 31, 1996 was approximately $832,000.
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.
IMR-U.K. maintains an accounts receivable discounting facility. Principal
payments on accounts borrowed are due within ninety days of the borrowing.
Interest is payable at the rate of 2% over Midland Bank's prime rate (6.5% at
March 31, 1997). In addition IMR-U.K. is charged an administrative fee on all
accounts receivable discounted. The maximum amount available under this
facility is based upon a computation of accounts receivable as defined. At
March 31, 1997 approximately $945,000 was due under this facility. The facility
is collateralized by accounts receivable and expires July 31, 1997.
F-13
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. NOTES PAYABLE-SHAREHOLDER
Notes payable-shareholder at December 31, 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
8% unsecured notes payable, due on demand.......... $ -- $ 801,147
8% unsecured notes payable with principal and in-
terest payable January 1996 through January 1998.. 361,777 --
Accrued interest on above notes.................... 17,604 12,607
--------- ---------
Total notes payable-shareholder.................. 379,381 813,754
Less: Advances to shareholder...................... (29,870) --
Current portion of notes payable-shareholder..... (242,457) (813,754)
--------- ---------
Notes payable, shareholder, net of current por-
tion............................................ $ 107,054 $ --
========= =========
</TABLE>
Interest expense on notes payable-shareholder for the years ended December
31, 1994, 1995 and 1996 was approximately $21,000, $18,000 and $19,000,
respectively.
13. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 and March 31, 1997 is summarized
as follows:
<TABLE>
<CAPTION>
MARCH 31,
1995 1996 1997
---------- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Term note payable with interest payable
monthly at the financial institution's base
rate plus 1.25% per annum, principal payable
in monthly installments of $16,250 commencing
August 1996, collateralized by the Company's
accounts receivable and equipment, assignment
of certain assets owned by the majority
majority shareholder and guaranteed by the
Company's majority shareholder............... $ 877,157 $-- $ --
U.S. dollar denominated term loan with
interest payable semiannually at a rate of
LIBOR plus 3% per annum principal repayable
in eight equal semiannual installments of
$162,500 commencing September 1997 -- -- 930,719
7% per annum uncollateralized convertible note
payable to a minority shareholder of IMR-
India, interest payable semiannually,
principal payable in semi- annual
installments of $131,640 commencing September
1996 (under circumstances as defined in the
agreement)................................... 526,560 -- --
---------- ---- --------
1,403,717 -- 930,719
Less current portion.......................... 326,640 -- 232,680
---------- ---- --------
$1,077,077 $-- $698,039
========== ==== ========
</TABLE>
F-14
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A provision of the 7% uncollateralized convertible note payable required 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. 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.
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 its
facility in Bangalore, India. The loan will be repayable in eight equal
semiannual installments of $162,500 commencing September 1997. Interest on the
loan is payable semiannually at the rate of LIBOR plus 3% per annum. The loan
is collateralized by a first lien on IMR-India's property and equipment and a
guarantee by the Company's majority shareholder. At December 31, 1996, no
amount had been drawn on this loan.
IMR maintains a line of credit which was refinanced during May 1996 to a
balance equal to 80% of the outstanding accounts receivable balance (as
defined) of IMR at a rate of LIBOR plus 1.8% (7.4% at December 31, 1996). At
December 31, 1996, no amount was outstanding on the line of credit. The line of
credit is collateralized by the Company's accounts receivable, property and
equipment, and investment in subsidiaries.
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, 1996, the Company was in compliance
with these covenants.
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 the Company's fixed obligations (also see
Note 12) 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.
F-15
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal.................................... $ -- $ -- $ 412,508
State and local............................ -- -- 66,000
Foreign.................................... 385,699 250,598 67,656
-------- -------- ----------
Total current provision for income tax-
es...................................... 385,699 250,598 546,164
Deferred:
Federal.................................... -- -- 735,000
State and local............................ -- -- 118,000
Foreign.................................... 64,805 42,149 2,080
-------- -------- ----------
Total deferred provision for income tax-
es...................................... 64,805 42,149 855,080
-------- -------- ----------
Total provision for income taxes......... $450,504 $292,747 $1,401,244
======== ======== ==========
</TABLE>
Upon termination of the S Corporation election, as described in Note 2,
current and deferred income taxes reflecting the tax effects of temporary
differences between the Company's financial statement and the tax bases of
certain assets and liabilities became liabilities of the Company. Accordingly,
the above provision for income taxes includes a $1,075,000 nonrecurring
expense resulting from the termination of the S Corporation election. In
accordance with applicable sections of the Internal Revenue Code (IRC), the
Company will defer the payment of 75% of the nonrecurring charge over the next
three years.
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses................................... $ 8,945 $ 10,918
Deferred tax liabilities:
Property and equipment............................. (46,684) (96,896)
Cash to accrual conversion......................... -- (806,250)
-------- ---------
Total deferred tax liabilities.................... (46,684) (903,146)
-------- ---------
$(37,739) $(892,228)
======== =========
</TABLE>
Balance sheet classification of net deferred tax asset (liability) is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Deferred tax asset-current.......................... $ 8,945 $ --
Deferred tax liability-current...................... -- (257,832)
Deferred tax liability-noncurrent................... (46,684) (634,396)
-------- ---------
$(37,739) $(892,228)
======== =========
</TABLE>
In addition, the Company has a deferred tax asset of $640,000 related to
IMR-India's net operating loss carryforward for U.S. income tax purposes for
that portion of income earned onsite in the U.S. These net operating losses
expire through 2008. The Company has recorded a valuation allowance with
regard to the future tax benefits related to these net operating losses, due
to the uncertainty of their ultimate realization.
F-16
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the Indian Income Tax Act of 1961 (the "Act"), a substantial portion
of IMR-India's income is exempt from Indian income tax as profits attributable
to export operations or pursuant to a tax holiday expiring in 1998. Under the
Act, there are certain alternative minimum tax provisions which impose tax on
net profits at a rate of approximately 13%. Management has received an opinion
of legal counsel that these provisions are not currently applicable due to the
tax holiday. Accordingly, the effective tax rate imposed on IMR-India's income
is substantially less than the current statutory rate of 43%.
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 U.S. federal and state income
tax has been provided thereon. The unremitted earnings, net of foreign tax
credits, are immaterial.
The following table accounts for the differences 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>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Statutory tax provision.................. $ 451,000 $1,198,000 $1,604,000
State taxes, net of federal benefit...... -- -- 34,000
S Corporation not subject to U.S. federal
income taxes............................ (449,000) (779,000) (989,000)
Foreign withholding tax on gain incurred
by S Corporation........................ 365,000 -- --
Difference between federal and foreign
tax rates on permanently reinvested
income of foreign subsidiary............ (13,000) (175,000) (365,000)
(Income) loss in foreign equity
investment.............................. 43,000 37,000 (22,000)
Termination of S Corporation status...... -- -- 1,075,000
Other, net............................... 54,000 12,000 64,000
--------- ---------- ----------
Total provision for income taxes....... $ 451,000 $ 293,000 $1,401,000
========= ========== ==========
</TABLE>
15. LEASES
The Company leases certain equipment under capital leases. Future minimum
lease payments under capital leases as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Total minimum payments........................................... $63,330
Less amount representing interest................................ 7,886
-------
Present value of minimum payments................................ 55,444
Less current portion............................................. 55,444
-------
Long-term lease obligation....................................... $ --
=======
</TABLE>
F-17
<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 $406,000, $517,000 and $604,000
during 1994, 1995 and 1996, respectively. Future minimum lease payments as of
December 31, 1996 for leases with noncancelable terms in excess of the one
year are approximately as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 638,000
1998.......................................................... 392,000
1999.......................................................... 145,000
2000.......................................................... 139,000
2001.......................................................... 146,000
Thereafter.................................................... 661,000
----------
Total minimum payments...................................... $2,121,000
==========
</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 in 1995 and $145,000 during 1996. Future minimum
lease receipts as of December 31, 1996 are approximately $140,000 for 1997.
16. SHAREHOLDER'S EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS
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
40,000,000 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
(also see Note 22).
On November 11, 1996, in connection with the termination of IMR's S
Corporation election (see Note 2) IMR's remaining retained earnings were
classified to additional paid-in capital.
During 1996, the Company completed an initial public offering and received
$40.7 million in cash (net of offering expenses of $1.1 million) in exchange
for the issuance of 3,212,500 shares of common stock. The Company's common
stock commenced trading on the Nasdaq National Market on November 8, 1996.
Employee Stock Option Plan--IMR has granted non-qualified stock options to
certain employees with vesting periods of up to five years. The number of
shares of common stock authorized for issuance under this plan is 8,168,970.
These options give the employee the right to purchase common stock at an
exercise price at least equal to the fair value of the stock at the date of
the option's grant. For all options granted the term during which employees
may exercise the option was initially 10 years. On July 15, 1996 management
finalized the term for all options granted through that date to 10 years
starting July 15, 1996. All options granted subsequent to July 15, 1996 expire
10 years from their grant date. In the case of the options granted at the time
of the Company's initial public offering in November of 1996, the exercise
price is equal to $14 per share, the initial public offering price.
F-18
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Outside Directors Stock Option Plan--In September 1996, the Company
established the Outside Directors Stock Option Plan, whereby outside directors
may be granted non-qualified options to purchase common stock. The number of
shares of common stock authorized for issuance under this plan is 225,000. The
exercise price of the stock option may not be less than the fair market value
of the common stock on the date of the grant. Each outside director is granted
an option grant of 10,000 shares each biannual period which they serve on the
Board which expire 10 years from the grant date. Beginning with the grant date,
these options vest 50% at the end of the first year and 100% at the end of the
second year. As of December 31, 1996, 180,000 options are available for future
grants and 45,000 options are outstanding of which none are exercisable.
Stock Option Disclosures--The Company applies APB Opinion No. 25 and related
Interpretations in accounting for stock options. Accordingly, no compensation
cost has been recognized in connection with the issuance of these options. Had
compensation cost for the Company's stock options plan been determined based on
the fair value at the grant dates for the awards under the plan consistent with
the method of SFAS Statement 123, the Company's net income and earnings per
share for the years ended December 31, 1996 and 1995 would have been reduced to
the adjusted amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Pro forma net income:
As reported....................................... $1,612,471 $2,544,931
As adjusted (unaudited)........................... $1,564,632 $2,088,873
Pro forma earnings per share:
As reported....................................... $ 0.08 $ 0.14
As adjusted (unaudited)........................... $ 0.08 $ 0.12
</TABLE>
The estimated per share fair value of options granted during 1995, 1996, and
the three months ended March 31, 1997 was $0.07, $.98 and $8.01, respectively.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1995 and 1996, respectively: no dividend yield for
each year presented; risk-free interest rates of 5.9% and 7.9%; expected lives
of the options prior to exercise of 9.9 and 11.3 years. Because the Company was
not publicly held when the majority of the grants were made, volatility of the
stock price was omitted from the pricing model as permitted by SFAS 123.
A summary of the status of the Company's stock option plan as of December 31,
1994, 1995, 1996, and March 31, 1997, and changes during the periods ending on
those dates is presented below:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------------------- -------------------- -------------------- -------------------
(UNAUDITED)
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
- ------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,231,140 $0.07 1,563,375 $0.07 3,308,175 $0.07 7,755,105 $0.64
Granted................. 332,235 $0.07 2,088,810 $0.07 4,843,500 $0.98 78,000 $8.01
Exercised............... -- $ -- -- $0.07 (204,255) $0.07 -- $
Cancelled............... -- $ -- (344,010) $0.07 (192,315) $0.07 -- $
--------- --------- --------- ---------
Outstanding at end of
year................... 1,563,375 3,308,175 7,755,105 7,833,105
========= ========= ========= =========
Options exercisable at
year-end............... 642,195 2,711,505 6,827,115 6,887,115
</TABLE>
F-19
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes certain information about stock options at
March 31, 1997 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING REMAINING EXERCISABLE
AT 3/31/97 CONTRACTUAL LIFE EXERCISE PRICES AT 3/31/97 EXERCISE PRICES
----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
2,911,605 9.3 years $ 0.07 2,799,105 $ 0.07
4,205,010 9.3 years $ 0.33 4,065,510 $ 0.33
428,490 9.3 years $ 3.38 -- $ 3.38
15,000 9.6 years $ 6.67 -- $ 6.67
195,000 9.6 years $ 9.33 22,500 $ 9.33
2,250 9.8 years $13.33 -- $13.33
72,000 10.0 years $ 7.59 -- $ 7.59
3,750 10.0 years $12.83 -- $12.83
--------- ---------
7,833,105 6,887,115
========= =========
</TABLE>
As of December 31, 1996, options to purchase 413,865 shares of Common Stock
were available for future grants. Between the date of the initial public
offering and December 31, 1996, no options were granted.
Employee Stock Purchase Plan--The Company's Employee Stock Purchase Plan
(the "Stock Purchase Plan") became effective on October 1, 1996. A total of
300,000 shares of the Company's Common Stock have been reserved for issuance
under the Stock Purchase Plan. 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.
The initial sales occurred subsequent to December 31, 1996.
IMR-India Stock Option Plan--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 was 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, January 1, 1994............................. 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............................................. (5,000) $0.00
------
Balance, December 31, 1996........................... 20,500 $0.00-$0.28
======
Balance, March 31, 1997 (unaudited).................. 20,500
======
</TABLE>
F-20
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1996, vested options were 1,000 and 1,000,
respectively. There were no options exercisable at December 31, 1994, 1995 and
1996.
Compensation expense has been recognized on the difference between fair
value at the date of the grant and the exercise price pursuant to APB Opinion
No. 25. Compensation expense is recognized over the life of the options.
Compensation expense under this plan for the years ended December 31, 1994,
1995 and 1996 approximated $46,000, $24,000 and $2,000, 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.
17. 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 $11,000, $19,000 and $20,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
IMR-India maintains certain 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 $79,000 for the years ended
December 31, 1994, 1995 and 1996, 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' 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 $15,000 for each of the years ended December 31, 1994,
1995 and 1996.
18. RELATED PARTIES
IMR-India provides software development services to IMR-U.K. at market
rates. During the years ended December 31, 1994, 1995, and 1996, the Company
recognized revenue from IMR-U.K. of approximately $-0-, $109,000 and $877,000,
respectively. At December 31, 1995 and 1996, IMR-U.K. owed IMR-India $60,000
and $646,000, respectively for these services.
At December 31, 1996, the Company had two notes receivable from IMR-U.K.
totaling $692,500, which resulted from cash advances. These notes bear
interest at 10% and 8% which is payable quarterly. Principal is payable in
installments through 1998. During 1996, the Company recognized approximately
$35,000 of interest income on these notes.
19. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
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.
F-21
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 34%, 40% and 40% of revenue for the years ended December 31,
1994, 1995 and 1996, respectively, and 33% and 30% of accounts receivable as
of December 31, 1995 and 1996, respectively. No other customer accounted for
10% of revenues for the above periods.
20. INTEREST INCOME AND OTHER
Interest income and other for the years ended December 31, 1994, 1995 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Gain on disposition of property and equipment
in connection with relocation of IMR-India
operations, net of relocation costs of
$102,058 in 1995.............................. $ 71,209 $427,907 $ --
Gain on disposition of IMR-India stock......... 1,013,503 -- --
Investment and other income.................... 12,303 44,702 253,048
---------- -------- --------
$1,097,015 $472,609 $253,048
========== ======== ========
</TABLE>
21. ACQUISITION OF IMR-INDIA
As described in Note 2, the Company acquired an additional 64.0% of IMR-
India during 1996 which was accounted for as a purchase. The following
unaudited pro forma information presents a summary of consolidated results of
operations of the Company as if the acquisition had occurred on January 1,
1995:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue.......................................... $22,700,170 $27,948,076
=========== ===========
Pro forma net income............................. $ 1,800,631 $ 2,747,613
=========== ===========
Pro forma net income per share................... $ 0.13 $ 0.23
=========== ===========
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as reduction in minority
interest in net income and additional amortization expense as a result of
goodwill. They do not purport to be indicative of the results of operations
which actually would have resulted had the combination been in effect on
January 1, 1995, or of future results of operations of the consolidated
entities.
22. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
Link Group Holdings, Limited and Information Management Resources (U.K.),
Limited--On February 10, 1997 (effective January 8, 1997), the Company
acquired 100% of the outstanding stock of Link Group Holdings Limited
("Link"), a United Kingdom limited liability company. Link provides
transitional software outsourcing solutions to the information technology
departments of large businesses located in the U.K. In exchange for Link's
common stock, Link's shareholders received $2.1 million in cash and 107,562
shares of the Company's common stock. In addition, $1.6 million in cash is
payable to Link's shareholders one year from closing. The Link acquisition has
been accounted for as a purchase pursuant to the provisions of APB Opinion No.
16. The purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The excess of the
purchase price over the net assets acquired will be amortized over a period
not to exceed ten years.
F-22
<PAGE>
INFORMATION MANAGEMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Coincident with the above acquisition, the Company also acquired 10.5% of
IMR-U.K. from the Company's majority shareholder and his spouse for $520,000
in cash. The purchase price was determined through negotiations between the
Company and the shareholder and his spouse. The excess of the $520,000
purchase price over the net assets acquired has been charged as a reduction in
equity.
Prior to the above acquisitions, the Company owned 39.5% of IMR-U.K. (see
Note 2) and Link owned 50% of IMR-U.K. After the above acquisitions, the
Company effectively owns 100% of both Link and IMR-U.K.
Movitone Electronics Limited--In March 1997, the Company acquired 100% of
the outstanding stock of Movitone Electronics Limited (an Indian limited
liability company) for approximately $1.7 million in cash. Movitone
Electronics Limited has no significant ongoing activities and its only
significant asset is a building located in India's Santacruz Electronics
Export Processing Zone. The acquisition has been recorded as a purchase
pursuant to the provisions of APB Opinion No. 16. The entire purchase price
has been allocated to the building as it approximated its fair value.
On June 19, 1997, the Company declared a 3-for-2 stock split in the form of
a stock dividend payable on July 10, 1997 to shareholders of record on June
26, 1997. All applicable share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect this
dividend.
F-23
<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, the Selling Shareholders or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any securities other than the shares of Common Stock to which it re-
lates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create implication that there has been no change in the affairs of the Company
or that the information contained herein is correct as of any time subsequent
to the date hereof.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Price Range of Common Stock.............................................. 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 27
Management............................................................... 39
Principal and Selling Shareholders....................................... 46
Certain Transactions..................................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Matters............................................................ 56
Experts.................................................................. 57
Additional Information................................................... 57
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF INFORMATION MANAGEMENT RESOURCES, INC. APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
Montgomery Securities
Alex. Brown & Sons
incorporated
Furman Selz
Raymond James & Associates, Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $ 30,799
National Association of Securities Dealers, Inc. fee.................. 10,663
Nasdaq National Market listing fee.................................... 17,500
Accountants' fees and expenses........................................ 100,000
Legal fees and expenses............................................... 150,000
Transfer Agent's fees and expenses.................................... 20,000
Printing and engraving expenses....................................... 75,000
Miscellaneous......................................................... 196,038
--------
Total estimated expenses.............................................. $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The FBCA 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 FBCA 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 FBCA provides that the Company is required to
indemnify such officers or directors against expenses actually and reasonably
incurred in connection therewith. However, the FBCA 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, circumstances under which the
director has voted for or assented to a distribution made in violation of the
FBCA 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 June 1996, the Registrant issued 385,650 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 377,550 shares immediately
following the issuance thereof.
2. In July 1996, the Company issued an aggregate of 1,129,320 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 112,932
shares immediately following the issuance thereof.
3. In September 1996, the Company issued 9,606,300 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.
4. During the past three years, the Company has issued options to acquire an
aggregate 7,197,105 shares of Common Stock at exercise prices which represented
the fair market value per share on the date of grant and which ranged from
$0.07 to $3.37 per share.
5. In February 1997, the Company issued 107,562 shares of its Common Stock to
Mr. and Mrs. Philip Shipperlee in connection with the acquisition of Link.
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(2) of the
Securities Act and in reliance on Rule 701 and Regulations D and S 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
Articles of Incorporation and 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 Agreement 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10* Master Services Agreement and related schedules between the Registrant
and Dean Witter Discover & Co., Inc.
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.
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 IRM-India and Exim Bank of India and related
documents.
10.29** Acquisition Agreement dated January 13, 1997 between the Registrant
and Philip and Sheila Shipperlee relating to the acquisition of Link
Group Holdings Limited.
10.30 Share Purchase Agreement dated January 13, 1977 between the Registrant
and Satish and Anne Sanan relating to the acquisition of IMR-U.K.
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>
- --------
* Incorporated herein by reference to exhibit of the same number in the Form S-
1 Registration Statement of the Registrant (Registration No. 333-12037).
** Incorporated herein by reference to exhibit 2.1 in the Report on Form 8-K of
the Registrant filed with the Commission on January 13, 1997 (Commission File
No. 0-28840).
II-3
<PAGE>
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 Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(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 2ND DAY OF JULY, 1997.
Information Management Resources,
Inc.
/s/ Satish K. Sanan
By: _________________________________
SATISH K. SANAN
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Satish K. Sanan, John Hindman and Dilip Patel,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
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.
SIGNATURE TITLE DATE
/s/ Satish K. Sanan President; Chief July 2, 1997
- ------------------------------------- Executive Officer
SATISH K. SANAN (Principal
Executive Officer)
and Director
/s/ John R. Hindman Chief Financial July 2, 1997
- ------------------------------------- Officer (Principal
JOHN R. HINDMAN Financial Officer)
/s/ Michael J. Dean Vice President-- July 2, 1997
- ------------------------------------- Finance; Controller
MICHAEL J. DEAN (Principal
Accounting Officer)
/s/ Jeffrey S. Slowgrove Treasurer; Director July 2, 1997
- -------------------------------------
JEFFERY S. SLOWGROVE
/s/ Philip Shipperlee Managing Director, July 2, 1997
- ------------------------------------- IMR-U.K.; Director
PHILIP SHIPPERLEE
/s/ Charles C. Luthin Director July 2, 1997
- -------------------------------------
CHARLES C. LUTHIN
/s/ Vincent Addonisio Director July 2, 1997
- -------------------------------------
VINCENT ADDONISIO
II-5
<PAGE>
EXHIBIT 1.1
3,000,000 SHARES
INFORMATION MANAGEMENT RESOURCES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
July ___, 1997
Montgomery Securities
Alex. Brown & Sons Incorporated
Furman Selz LLC
Raymond James & Associates, Inc.
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 to you (the
-------
"Underwriters") 1,500,000 shares of its Common Stock, par value $.10 per share
- -------------
(the "Common Stock"), and certain shareholders of the Company named in Schedule
------------
B annexed hereto (collectively, the "Selling Shareholders") propose to sell an
--------------------
aggregate of 1,500,000 shares of the Company's Common Stock to the Underwriters.
Said aggregate of 3,000,000 shares are herein called the "Firm Common Shares."
------------------
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 225,000 shares of Common Stock and the Selling Shareholders
have severally granted to the Underwriters an option to purchase up to an
additional 225,000 shares of Common Stock, each Selling Shareholder selling up
to the amount set forth opposite such Selling Shareholder's name in Schedule B,
all as provided in Section 5 hereof. Said aggregate of 450,000 shares are herein
called the "Optional Common Shares". 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 as soon as the Underwriters deem advisable after this
Agreement has been executed and delivered.
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:
<PAGE>
SECTION 2. Representations and Warranties of the Company and the
-----------------------------------------------------
Principal Shareholder. The Company, each of the Selling Shareholders and Satish
- ----------------------
K. Sanan (the "Principal Shareholder") represent and warrant to the several
---------------------
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-______) 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.
2
<PAGE>
(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
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 specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, or
have any equity interest in, any corporation, association or other entity
other than the entities identified on Exhibit 21.1. of the Registration
Statement (each a "Subsidiary" and collectively, the "Subsidiaries"). The
---------- ------------
Company and each of the Subsidiaries have been duly organized and are
validly existing under the laws of their respective jurisdictions of
organization, 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 559,800 equity shares of Information Management Resources
(India) Limited, an Indian limited company ("IMR-India") (representing
---------
approximately 98.2% of the issued and outstanding equity shares of IMR-
India). All equity shares of each Subsidiary owned of record by the
Company 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 Company and its Subsidiaries 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 each its Subsidiaries 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
businesses requires such qualification, except for jurisdictions in which
the failure to so qualify would not have a material adverse effect upon the
Company and the Subsidiaries, considered as a whole. 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.
(e) The authorized, issued and outstanding capital stock of the
Company is 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
3
<PAGE>
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 each Subsidiary 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 any
Subsidiary 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
the Subsidiaries, 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.
(f) 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.
(g) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, 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 by the Company and the
consummation of the transactions contemplated herein (i) will not violate
any provisions of the articles of incorporation or bylaws, or other
organizational documents, of the Company or any Subsidiary, 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 any
Subsidiary is a party or by which the Company or any Subsidiary or any of
their 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 any Subsidiary or
any of their 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 the consummation of the
transactions herein contemplated, except for
4
<PAGE>
compliance with the Act, the blue sky laws applicable to the public
offering of the Common Shares by the several Underwriters and the clearance
of such offering with the National Association of Securities Dealers, Inc.
(the "NASD").
----
(h) 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.
(i) The consolidated financial statements and schedules of the
Company and its Subsidiaries, and the related notes thereto, included in
the Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and its Subsidiaries as of
the respective dates of such financial statements and schedules, and the
consolidated results of operations and changes in financial position of the
Company and its Subsidiaries 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(h). 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.
(j) Except as to defaults which individually or in the aggregate
would not be material to the Company and its Subsidiaries, taken as a
whole, neither the Company nor any Subsidiary 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 any Subsidiary as defined in
such documents or which, with notice or lapse of time or both, would
constitute such an event of default.
(k) 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 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 any Subsidiary nor, to the best of the Company's knowledge,
any other party is in breach of or default under any of such contracts.
(l) 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 any Subsidiary is or may be a party or of which property owned
or leased by the Company or any Subsidiary 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 or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations or
5
<PAGE>
prospects of the Company and its Subsidiaries, taken as a whole. No labor
disturbance by the employees of the Company or any Subsidiary exists or is
imminent which might be expected to affect adversely such condition,
properties, business, results of operations or prospects. Neither the
Company nor any Subsidiary is a party or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other United States or foreign governmental body,
which is material to the Company and its Subsidiaries, taken as a whole.
(m) Each of the Company and its Subsidiaries, 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), in each case free and clear of any 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 its Subsidiaries, taken as a whole. The Company and its
Subsidiaries 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 and its Subsidiaries, taken as a
whole. Except as disclosed in the Prospectus, the Company and each
Subsidiary own or lease all such properties as are necessary to their
respective operations as now conducted or as proposed to be conducted.
(n) 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
any Subsidiary 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 its Subsidiaries, taken as a whole; (ii)
neither the Company nor any Subsidiary 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
its Subsidiaries 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 1996 reclassification of the Common
Stock described in the Registration Statement, and the 3-for-2 stock
dividend paid July 10, 1997, upon the sale of the Common Shares hereunder
and upon the exercise of options described in the Registration Statement
and the 3-for-2 stock dividend paid July 10, 1997) or indebtedness material
to the Company and the Subsidiaries (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 its Subsidiaries, taken as a
whole.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company and its Subsidiaries 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
6
<PAGE>
the Company and its Subsidiaries, taken as a whole; and the Company has no
knowledge of any infringement by it or any Subsidiary 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 any Subsidiary 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 its Subsidiaries, taken as a whole. Neither
the Company nor any Subsidiary holds, owns or licenses any patent rights or
mask works.
(p) The Company has not been advised, and has no reason to believe,
that either it or any Subsidiary 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 its Subsidiaries, taken as a whole.
(q) The Company and each Subsidiary 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 any Subsidiary which could materially and adversely affect the
business, operations or properties of the Company and its Subsidiaries,
taken as a whole.
(r) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(s) 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.
(t) Each of the Company and its Subsidiaries 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 its Subsidiaries 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.
(u) The Common Stock is registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
------------
Common Shares have been approved for quotation on the Nasdaq National
Market, subject only to formal notice of issuance.
(v) 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.
7
<PAGE>
(w) To the best knowledge of the Company, the Principal Shareholder
and the Selling Shareholders, after due inquiry, neither the Company nor
any Subsidiary 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.
(x) Neither the Company, the Principal Shareholder nor any Selling
Shareholder has taken, nor will 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) The Principal Shareholder and each of the Selling Shareholders
controlled by the Principal Shareholder, on the one hand, and each of the
other Selling Shareholders,on the other hand, severally and not jointly,
represent and warrant to, and agree 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, 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,
8
<PAGE>
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. Each of the Shareholders Agreement and this
Agreement is a valid and binding agreement of the Selling Shareholder
and is enforceable against the Selling Shareholder in accordance with
the terms hereof and thereof, except (i) as limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and (ii) that remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding may be brought.
(iii) The performance of this Agreement and the Shareholders
Agreement 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 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.
(vii) None of the proceeds received by such Selling Shareholder
from the sale of the Common Shares will be paid to a member of the
NASD or any affiliate of such member.
(viii) On the Closing Date, all stock transfer or other taxes
(other than income taxes), if any, that are required to be paid in
connection with the sale and
9
<PAGE>
transfer of the Common Shares to the several Underwriters pursuant to
the Underwriting Agreement will have been fully paid or provided for
by such Selling Shareholder, to the extent such taxes have not been
paid by the Company, and all laws imposing such taxes will have been
fully complied with.
(ix) No consent, approval, authorization or order of, or any
filing with, any court or governmental agency or body is required for
the consummation by such Selling Shareholder of the transactions on
its part contemplated in the Shareholders Agreement or this Agreement,
except as may be required under the Act or state or provincial
securities or "blue sky" laws.
(x) Other than as permitted by the Act and the rules and
regulations thereunder, such Selling Shareholder has not distributed
and will not distribute any preliminary prospectus, the Prospectus or
any other offering material in connection with the offering and sale
of the Shares.
(b) The Principal Shareholder and each of the Selling Shareholders
agree 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 90 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.
Notwithstanding the foregoing, such shareholder may make bona fide gifts or
transfers, effected through private transfers to family members of such
shareholder or to trusts, all of the beneficiaries of which are family
members of such shareholder, provided such donee agrees to be bound by the
restrictions to which such shareholder has agreed to be bound pursuant to
this Agreement and any "lock-up" agreement to be executed by such Selling
Shareholder and delivered to the Underwriters.
SECTION 4. Representations and Warranties of the Underwriters. The
--------------------------------------------------
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 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 (other than the fourth paragraph thereof (disclosing lock-up
arrangments) and the ninth paragraph thereof (describing the Company's Nasdaq
symbol)) 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.
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 1,500,000 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 1,500,000 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.
10
<PAGE>
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 1,500,000 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 1,500,000 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 Underwriters) 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
Underwriters) (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.
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 certificates 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 shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
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 Selling Shareholders hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
450,000 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 agrees to
sell to the Underwriters an aggregate of 225,000 Optional Common Shares, and the
Selling Shareholders agree to sell to the Underwriters an aggregate of 225,000
Optional Common Shares. If the option granted hereby is exercised in part, the
respective number of Optional Common Shares to be sold by the Company and the
Selling Shareholders shall be determined on a pro rata basis
11
<PAGE>
in the same proportion as (x) the number of Optional Common Shares that the
Company or the Selling Shareholders 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 Selling
Shareholders 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 Selling Shareholders 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 Selling Shareholders. 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, individually and not as 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.
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
Underwriters 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.
Not later than 12:00 p.m. on the second business day following the date the
Common Shares are released by the Underwriters for sale to the public, the
Company shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Underwriters shall request.
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
12
<PAGE>
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 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.
13
<PAGE>
(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 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.
(h) During the period of 90 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 (i) pursuant to the exercise of outstanding stock options or the
grant or the issuance of options or shares pursuant to stock option or
stock purchase plans (which vest or become exercisable after the expiration
of such 90-day period) disclosed in the Prospectus, or (ii) issuances of
equity securities as consideration for the acquisition of any business
provided the shares so issued may not be
14
<PAGE>
resold within such 90-day period, 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 quoted 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 Canadian blue sky laws designated by you 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 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
15
<PAGE>
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 the 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 the 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 any Subsidiary (other than pursuant to the exercise of
outstanding options disclosed in the Prospectus or the issuance of options
or shares pursuant to stock option or stock purchase plans (which vest or
become exercisable after the expiration of the 90-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 and its
Subsidiaries, taken as a whole, (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 any Subsidiary, 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 its Subsidiaries, taken as a whole, (iii) no loss or damage (whether or
not insured) to the property of the Company or any Subsidiary shall have
been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its Subsidiaries, taken as a whole, (iv) no legal or
16
<PAGE>
governmental action, suit or proceeding affecting the Company or any
Subsidiary which is material to the Company and its Subsidiaries, taken as
a whole, 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 its Subsidiaries, taken as a whole, which makes it impractical
or inadvisable in the judgment of the Underwriters to proceed with the
public offering or purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you 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.
(ii) An opinion of Nishith 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.
(iii) An opinion of Tarlo Lyons Solicitors, counsel for The Link
Group Holdings Limited and Information Management Resources (U.K.)
Limited ("IMR-U.K."), 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.
(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 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;
17
<PAGE>
(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 its Subsidiaries; 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;
(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 its Subsidiaries,
taken as a whole; and no legal or governmental action, suit or
proceeding is pending or threatened against the Company or any
Subsidiary which is material to the Company and its Subsidiaries,
taken as a whole, 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 any Subsidiary
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 and its Subsidiaries, taken as a whole, 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, neither the
Company nor any Subsidiary has
18
<PAGE>
sustained a loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured), which is
material to the Company and the Subsidiaries, taken as a whole.
(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 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.
(viii) On or before the First Closing Date, letters from each of
the Selling Shareholders, each director and officer of the Company and
other shareholder designated by you, in form and substance
satisfactory to you, confirming that for a period of 90 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 Underwriters 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, 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
19
<PAGE>
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 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, the Principal Shareholder and each Selling
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, the Principal Shareholder or any Selling
Shareholder contained herein or any failure of the Company, the Principal
Shareholder or any Selling Shareholder 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 none of the Company, the Principal Shareholder or
any Selling 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
20
<PAGE>
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 (other than due to the
failure of the Company to deliver adequate copies of the Prospectus on a
timely basis as required hereunder), 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 (i) Principal Shareholder and A & S Family
Limited Partnership under this Section 11 shall not exceed the aggregate
total price paid to them for the Common Shares sold by them to the
Underwriters (net of underwriting discounts and commissions but before
deducting any expenses of the offering), it being understood that each such
person shall be jointly and severally obligated for such amount, and (ii)
the liability of Jeffery S. Slowgrove under this Section 11 shall not
exceed the total price paid to him for the Common Shares sold by him to the
Underwriters net of underwriting discounts and commissions but before
deducting any expenses of the offering. The Company, the Principal
Shareholder and the Selling Shareholders 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.
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 Principal Shareholder, the Selling Shareholders
and each person, if any, who controls the Company, the Principal
Shareholder 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, the Principal Shareholder, 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),
21
<PAGE>
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 (other than due to the failure of the Company to deliver
adequate copies of the Prospectus on a timely basis as required hereunder)
and if the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such 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, the Principal
Shareholder or any Selling Shareholder) on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Underwriters'
obligation to reimburse the Company (and, to the extent applicable, each
officer, director, controlling person, Principal Shareholder 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
22
<PAGE>
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 proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses
of more than one separate counsel, approved by the Underwriters 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, directly or indirectly, by the
Company, the Principal Shareholder, 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 Principal Shareholder, 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 Principal Shareholder, the Selling Shareholders and the
Underwriters shall be deemed to be in the same proportion, (x) in the case
of the Company, the Principal Shareholder and the Selling Shareholders, as
the total price paid, directly or indirectly, to the Company, the Principal
23
<PAGE>
Shareholder and to the Selling Shareholders, respectively, for the Common
Shares sold by them or on their behalf 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 (y)
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 Principal
Shareholder, 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 Principal Shareholder, 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 Principal Shareholder, 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 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 and the A & S Family
Limited Partnership shall not be required to contribute pursuant to this
Section 11 any amount in excess of the proceeds received by them in this
offering (net of underwriting discounts and commission, but before
deducting any expenses of the offering). Jeffery S. Slowgrove shall not be
required to contribute pursuant to this Section 11 any amount in excess of
the proceeds received by him in this offering (net of underwriting
discounts and commission, but before deducting any expenses of the
offering). 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
24
<PAGE>
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.
(f) The Company and each of the Underwriters agrees with the
Principal Shareholder and the Selling Shareholders that any claim of such
Underwriter against such person for indemnification, reimbursement or
advancement of expenses or breach of any representation or warranty shall
first be sought by such Underwriter to be satisfied in full by the Company
and, subject to the limitation on the aggregate liability of such persons
set forth in Section 11(a), shall be satisfied by the Principal Shareholder
and Selling Shareholders only to the extent that any such claim has not
been satisfied in full by the Company within the 60-day period following
the date requested for satisfaction of such claim in accordance with the
terms of this Agreement.
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 Underwriters 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
Underwriters 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
Underwriters 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 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.,
25
<PAGE>
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 Underwriters, 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 transactions contemplated by this Agreement, which in any
case, in the reasonable judgment of the Underwriters, 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.
26
<PAGE>
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 Underwriters shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Syndicate Department, with a copy to Latham & Watkins, 633 West Fifth
Street, Suite 4000, Los Angeles, California 90071, Attention: Mary Ellen Kanoff,
Esq.; and if sent to the Company, the Principal Shareholder 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 Principal Shareholder, 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.
SECTION 19. 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.
27
<PAGE>
SECTION 20. 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 21. 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.
* * * *
(Signature Pages to Follow)
28
<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 Principal Shareholder,
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
Satish K. Sanan, the Principal Shareholder
______________________________
Satish K. Sanan
Selling Shareholders
By:__________________________
Satish K. Sanan
Attorney-in-fact
S-1
<PAGE>
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, INCORPORATED
FURMAN SELZ LLC
RAYMOND JAMES & ASSOCIATES, INC.
By: MONTGOMERY SECURITIES
By:______________________________
Partner
S-2
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
Montgomery Securities........................................
Alex. Brown & Sons Incorporated..............................
Furman Selz LLC..............................................
Raymond James & Associates, Inc..............................
TOTAL............................................. 3,000,000
=========
A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm Number of Optional Common
Common Shares to Shares to
be Sold by Selling be Sold by Selling
Name of Selling Shareholder Shareholder Shareholder
- --------------------------- -------------------------- ---------------------------
<S> <C> <C>
The A & S Family Limited Partnership 1,350,000 202,500
Jeffery S. Slowgrove 150,000 22,500
--------- -------
TOTAL 1,500,000 225,000
</TABLE>
B-1
<PAGE>
SCHEDULE C
Form of Opinion of
Morris, Manning & Martin L.L.P.
U.S. Counsel to the Company
(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 heading "Capitalization" in the Prospectus. The issued
and outstanding shares of Common Stock (including the Firm Common Shares and any
Optional Common Shares) 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. 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 ________ Equity Shares of IMR-India
(representing approximately _____ of the outstanding equity of IMR-India); the
Company beneficially owns ____ Ordinary Shares of IMR-U.K. (representing
approximately _____% of the outstanding equity of IMR-U.K.), and the Principal
Shareholder beneficially owns ____ Ordinary Shares (representing approximately
___% of the outstanding equity of IMR-U.K.); all equity shares of IMR-India and
IMR-U.K. beneficially owned by the Company or the Principal Shareholder are
owned free and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts, restrictions or other defects of title whatsoever;
(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 contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, to the best of such counsel's knowledge, neither the Company nor
any Subsidiary 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.
C-1
<PAGE>
(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
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 to sell and deliver the Common Shares to be sold by it to the
several Underwriters; this Agreement 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 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
C-2
<PAGE>
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 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 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 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 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
C-3
<PAGE>
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);
(18) To the best of such counsel's knowledge, this Agreement 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; and
(19) Except for the payment of the documentary stamp tax imposed by the
State 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).
C-4
<PAGE>
SCHEDULE D
Form of Opinion of
Nishith Desai
India Counsel to the Company
(1) IMR-India has been duly organized and is validly existing as a public
limited company;
(2) Based on a review of the organizational documents of IMR-India, such
counsel believe that IMR-India has its share capital organized as under:
Authorized share capital:
(i) 18,000,000 equity shares of Rupees 10 each;
(ii) 2,000,000 non- voting equity shares of Rupees 10 each;
Issued, subscribed and paid-up capital:
(i) _______ equity shares of Rupees 10 each;
(ii) _______ non- voting equity shares of Rupees 10 each.
(3) As of the date of this opinion, the Company beneficially owns
approximately ____% of the equity shares of IMR-India;
(4) Such counsel is not aware of any legal requirement, whether statutory
or otherwise, of approval, authorization, order or consent of any court,
regulatory body, administrative agency or other government body for the
execution and delivery of the Underwriting Agreement or the consummation by the
Company or the Selling Shareholders, as the case may be, of the transactions
contemplated thereby, except as have been made.
(5) Such counsel is not aware of any fact that leads us to believe that
IMR-India does not possess any approval, permission or authority to carry on its
existing business activities and that it has not performed any of its material
obligations with respect to such approvals, permission or authorities.
(9) 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 Indian legal
matters, documents, agreements or other instruments governed by Indian law or
Indian 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 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.
D-1
<PAGE>
SCHEDULE E
Form of Opinion of
Tarlo Lyons Solicitors,
U.K. Counsel to the Company
(1) IMR-U.K. has been duly organized and is validly existing as a
corporation in good standing under the laws of the United Kingdom.
(2) All of the issued and outstanding shares of IMR-U.K. is owned of
record by the Company and there are not 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.
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 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.
E-1
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MORRIS, MANNING & MARTIN]
July 3, 1997
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-
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- ) (the "Registration Statement"), of a
proposed public offering of 3,000,000 shares (the "Shares") of the Company's
authorized common stock, $.10 par value (the "Common Stock"), of which 1,500,000
Shares are to be sold by the Company and 1,500,000 Shares are to be sold by the
selling shareholders (the "Selling Shareholders") named in the Registration
Statement. In addition, the Company and Selling Shareholders have granted to the
underwriters an option to purchase 450,000 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
Shareholders, 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. The 1,500,000 Shares to be sold by the Selling Shareholders
are legally and validly issued, fully paid and nonassessable. The 1,500,000
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.
July 3, 1997
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 Shareholders
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 10.30
SHARE PURCHASE AGREEMENT
THIS AGREEMENT is made this 13th day of January, 1997 among SATISH K. SANAN, and
ANNE SANAN his wife, both residing at 163 Woodcreek Drive, Safety Harbor, in the
State of Florida 34621, United States of America, together hereinafter referred
to as "Selling Shareholders" (which expression shall unless repugnant to the
context or meaning thereof, be deemed to include their successors and assigns)
of the one Part; and
INFORMATION MANAGEMENT RESOURCES, INC., a company registered in the State of
Florida, United States of America, having its principal office at 26750 U.S.
Highway 19 North, Suite 500, Clearwater, Florida 34621-3442, USA hereinafter
referred to as "IMR-US" (which expression shall unless repugnant to the context
or meaning thereof, be deemed to include its successors and assigns) of the
other Part;
WHEREAS, The Selling Shareholders are the owners, beneficially and of record, of
Two Hundred and Ten (210) "A" ordinary shares (hereinafter called "the Shares"),
of Information Management Resources (UK) Limited a company incorporated on
October 2, 1992 as a private company limited by shares and registered in England
under the Companies Acts with number 2752876; and
WHEREAS IMR-US desires to acquire the Shares and the Selling Shareholders
desire to sell such Shares to IMR-US for the consideration and subject to the
terms and conditions as stated in this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective agreements
hereinafter set forth, IMR-US and the Selling Shareholders agree as follows:
1. The Selling Shareholders shall sell the Shares to IMR-US and IMR-US shall
purchase the Shares for a consideration of Five hundred twenty thousand
dollars (US $520,000.00) subject to and conditional on the terms hereof.
2. This Agreement is subject to and conditional upon the completion by IMR-US
(through its wholly owned subsidiry Genepad Limited) of its acquisition
(hereinafter "the Link Acquisition") of Link Group Holdings Limited
pursuant to an Agreement of even date herewith between P. F. Shiperlee,
Esq. and Mrs. S. F. Shiperlee(1), Genepad Limited (2) and IMR - US (3).
3. Closing or completion of the sale and purchase of the Shares shall be
effective January 8, 1997 and shall take place on a date ("the Closing
Date") concurrently with completion of the Link Acquisition.
1 of 3
<PAGE>
4. On the Closing Date, IMR-US shall pay the Selling Shareholders by wire
transfer or Bankers Draft the sum of Five hundred twenty thousand dollars
(US $520,000.00) less withholding taxes if any, in exchange for:
4.1 all certificates representing the Shares,
4.2 properly executed transfers of the Shares in favor of IMR-US or such
other persons as IMR-US shall direct,
4.3 such waivers of pre-emptive rights, consents to transfer or other
documents as are required to enable IMR-US or its nominee to be registered
as the holder of the Shares;
4.4 irrevocable powers of attorney (in the approved terms) executed by
each of the holders of the Shares in favour of IMR-US or its nominee(s) to
enable IMR-US (pending registration of the transfers of such shares) to
exercise all voting and other rights attaching to such shares and to
appoint proxies for this purpose; and
4.5 such other documents (including any power of attorney under which any
document required to be delivered under this Agreement has been executed
and any waivers or consents) as IMR-US may require to enable IMR-US or its
nominee to be registered as the holder of the Shares;
5. IMR-US represents and warrants to the Selling Shareholders that it has full
power and authority to execute, deliver, and carry out the terms of this
Agreement.
6. The Selling Shareholders jointly and severally represent and warrant to
IMR-US that as of the date hereof the Selling Shareholders have the
unrestricted power and the unqualified right to sell, assign, and deliver
to IMR-US a good, valid, and marketable title to the Shares, free and clear
of any liens, claims, encumbrances and equitable rights.
7. This Agreement shall be governed by and construed in accordance with
English law and each of the parties hereto submits to the non-exclusive
jurisdiction of the English Courts.
IN WITNESS WHEREOF the Parties have caused this Agreement to be executed the day
and year first herein above mentioned.
2 of 3
<PAGE>
INFORMATION MANAGEMENT
RESOURCES, INC.
By: /s/ Dilip Patel
---------------------------------------------
Dilip Patel, Vice President - General Counsel
/s/ Satish K Sanan
--------------
SATISH K SANAN
/s/ Anne Sanan
----------
ANNE SANAN
3 of 3
<PAGE>
EXHIBIT 21.1
INFORMATION MANAGEMENT RESOURCES, INC.
The subsidiaries of the Registrant are as follows:
Information Management Resources (India) Organized in India
Limited
Information Management Resources (U.K.) Organized in the United
Limited Kingdom
The Link Group Holdings Limited Organized in the United
Kingdom
Information Management Resources UK Holding
Company Limited Organized in the United
Kingdom
Movitone Electronics, Limited Organized in India
Information Management Resources IOR, Ltd. Organized in Mauritius
Information Management Resources Canada
Ltd. Organized in Canada
Information Management Resources (Northern
Ireland) Limited Organized in Northern
Ireland
Each Company does business in the name listed above.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 7, 1997, except as to certain information in Note 22, for
which the date is June 19, 1997, 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
July 2, 1997
<PAGE>
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- (in connection with the offering of 3,450,000 shares of common
stock) of Information Management Resources, Inc.
ARTHUR ANDERSEN & ASSOCIATES
Bombay, India
July 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,816,503
<SECURITIES> 11,750,043
<RECEIVABLES> 8,216,282
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,420,978
<PP&E> 8,939,209
<DEPRECIATION> 1,976,940
<TOTAL-ASSETS> 55,989,238
<CURRENT-LIABILITIES> 11,482,444
<BONDS> 698,039
0
0
<COMMON> 1,463,060
<OTHER-SE> 39,824,007
<TOTAL-LIABILITY-AND-EQUITY> 55,989,238
<SALES> 0
<TOTAL-REVENUES> 14,347,229
<CGS> 0
<TOTAL-COSTS> 8,041,965
<OTHER-EXPENSES> 4,192,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,872
<INCOME-PRETAX> 2,290,606
<INCOME-TAX> 852,167
<INCOME-CONTINUING> 1,438,439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,431,741
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
