<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
SERANOVA, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEW JERSEY 22-3677719
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
499 THORNALL STREET, EDISON, NEW JERSEY 08837
- -------------------------------------------- --------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(732) 590-1600
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(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
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<PAGE> 2
SERANOVA, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY
REFERENCE
Cross Reference Sheet Between Information Statement and Items of Form 10.
ITEM 1. BUSINESS.
The registrant, SeraNova, Inc., a New Jersey corporation, is a subsidiary
of Intelligroup, Inc., a New Jersey corporation.
The information required by this item is contained in the sections entitled
"Summary," "Risk Factors" and "Business" of the Information Statement.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained in the sections entitled
"Summary," "Capitalization," "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Information Statement.
ITEM 3. PROPERTIES.
The information required by this item is contained in the section entitled
"Business" of the Information Statement.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained in the sections entitled
"Management -- Executive Compensation" and "Principal Shareholders" of the
Information Statement.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained in the sections entitled
"Management -- Directors, Executive Officers and Key Employees" of the
Information Statement.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained in the section entitled
"Management -- Executive Compensation" of the Information Statement.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained in the sections entitled
"The Spin-Off -- Agreements Between SeraNova and Intelligroup and Relationship
After the Spin-off" and "Relationship with Intelligroup" of the Information
Statement.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained in the section entitled
"Business -- Legal Proceedings" of the Information Statement.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained in the sections entitled
"The Spin-Off -- Manner of Effecting the Spin-off," "Principal Shareholders" and
"Description of Capital Stock" of the Information Statement.
1
<PAGE> 3
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 9, 1999, SeraNova has issued unregistered securities in the
transactions described below. Securities issued in such transactions were
offered in reliance upon the exemption from registration under Section 4(2) of
the Securities Act of 1933, relating to sales by an issuer not involving any
public offering, or under Rule 701 under the Securities Act of 1933 as
transactions made pursuant to a written compensatory plan or pursuant to a
written contract relating to compensation. The transactions were effected
without the use of an underwriter and the certificates evidencing the shares
bear a restrictive legend permitting the transfer thereof only upon registration
of the shares or an exemption under the Securities Act of 1933. All recipients
had adequate access to information about SeraNova.
(i) On September 9, 1999, Intelligroup, Inc. formed Infinient, Inc.
and was issued 100 shares of its common stock in connection therewith. On
December 6, 1999, Infinient changed its name to SeraNova, Inc. On January
1, 2000, SeraNova, in connection with the transfer by Intelligroup of its
Internet solutions business to SeraNova, issued 900 shares of its common
stock to Intelligroup. The 1,000 shares currently held by Intelligroup are
estimated to be 16,200,000 shares after giving effect to the contemplated
stock split in order to effect a one SeraNova share-for-one Intelligroup
share distribution in connection with the spin-off.
(ii) Since September 9, 1999, SeraNova has granted stock options to
purchase an aggregate of 3,236,092 shares of its common stock outside of
any stock option plan at a weighted average exercise price of $3.19 per
share.
(iii) Since September 9, 1999, SeraNova has granted stock options to
purchase an aggregate of 1,667,575 shares of its common stock under the
1999 Stock Plan at a weighted average exercise price of $6.51 per share.
(iv) On March 14, 2000, SeraNova issued an aggregate of 50 shares of
common stock to four (4) accredited institutional investors for an
aggregate purchase price of $10,000,000. The 50 shares currently held by
such investors are estimated to be 809,388 shares after giving effect to
the contemplated stock split in order to effect a one SeraNova
share-for-one Intelligroup share distribution in connection with the
spin-off.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained in the sections entitled
"Description of Capital Stock" and "Anti-Takeover Effects of Certain Certificate
of Incorporation and By-Law Provisions" of the Information Statement.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained in the sections entitled
"Anti-Takeover Effects of Certain Certificate of Incorporation and By-Law
Provisions" and "Limitations on Directors' and Officers' Liability" of the
Information Statement.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is identified in the Index to
Financial Statements of the Information Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
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(a) Financial Statements
1. See the Index to Financial Statements on page F-1 of the
Information Statement.
</TABLE>
2
<PAGE> 4
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(b) Exhibits
*2.1 Information Statement (attached to this Registration
Statement as Annex A).
*2.2 Distribution Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000.
3.1 Certificate of Incorporation of SeraNova, Inc.
3.2 By-Laws of SeraNova, Inc.
*10.1 Contribution Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000.
*10.2 Services Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000.
10.3 Space Sharing Agreement by and among Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000.
10.4 Tax Sharing Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000.
10.5 Form of Indemnification Agreement by and between SeraNova,
Inc. and each of its directors and executive officers.
10.6 Employment Agreement by and between SeraNova, Inc. and
Rajkumar Koneru dated as of September 9, 1999.
10.7 Employment Agreement by and between SeraNova, Inc. and Ravi
Singh dated as of September 9, 1999.
10.8 Employment Agreement by and between SeraNova, Inc. and Rajan
Nair dated as of October 1, 1999.
10.9 Master Consulting Services Agreement by and between
SeraNova, Inc. and Mueller/Shields dated as of December 21,
1999.
10.10 1999 Stock Plan.
*10.11 Registration Rights Agreement by and between SeraNova, Inc.
and Evansville, Ltd. dated as of March 14, 2000.
*10.12 Registration Rights Agreement by and between SeraNova, Inc.
and Ampal -- American Israel Corporation, dated as of March
14, 2000.
*10.13 Registration Rights Agreement by and between SeraNova, Inc.
and NSA Investments, Inc. dated as of March 14, 2000.
*10.14 Registration Rights Agreement by and between SeraNova, Inc.
and SSB, Ltd. dated as of March 14, 2000.
*10.15 Common Stock Purchase Option Agreement by and between
SeraNova, Inc. and Global Emerging Markets North America,
Inc. dated March 15, 2000.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
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* Filed herewith. All other exhibits previously filed.
3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
SERANOVA, INC.
By: /s/ RAVI SINGH
------------------------------------
Ravi Singh
Chief Financial Officer
DATE: March 17, 2000
4
<PAGE> 1
ANNEX A
EXHIBIT 2.1
INTELLIGROUP, INC.
499 THORNALL STREET
EDISON, NEW JERSEY 08837
, 2000
Dear Intelligroup Shareholder:
I am pleased to inform you that the Board of Directors of Intelligroup,
Inc. has conditionally approved a distribution to holders of our common stock.
Intelligroup intends to distribute all of the outstanding shares of common stock
of Intelligroup's subsidiary, SeraNova, Inc. ("SeraNova") held by Intelligroup.
Intelligroup currently owns approximately 95% of the outstanding shares of
SeraNova. SeraNova provides professional services, primarily in the area of
business-to-business interactions on the Internet.
The distribution will be made to holders of record of Intelligroup common
stock on , 2000. Pursuant to the distribution, you will receive
one share of SeraNova common stock for every one share of Intelligroup common
stock you hold on the record date. Shares of SeraNova common stock are expected
to trade on the Nasdaq National Market under the symbol "SERA." Holders of
Intelligroup common stock on the record date are not required to take any action
to participate in the distribution.
The enclosed Information Statement explains the proposed distribution in
detail and provides important financial and other information regarding
SeraNova. We urge you to read this Information Statement carefully. A
shareholder vote is not required in connection with the distribution and,
accordingly, your proxy is not being sought. We thank you for your continued
support.
Very truly yours,
Nagarjun Valluripalli
Chairman and Co-Chief Executive
Officer
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES WILL NOT BE ISSUED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PRELIMINARY INFORMATION STATEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THESE SECURITIES.
PRELIMINARY COPY, DATED MARCH 17, 2000
SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION STATEMENT
SERANOVA, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
We have prepared this information statement to provide you with information
regarding the proposed spin-off of all outstanding shares of SeraNova which are
currently held by Intelligroup to Intelligroup shareholders.
You should consider carefully the risk factors beginning on page 9 of this
information statement.
The spin-off does not require approval by shareholders of Intelligroup,
Inc. Therefore, Intelligroup is not asking you for a proxy and requests that you
do not send Intelligroup a proxy. This information statement is not an offer to
sell, or a solicitation of an offer to buy, any of our securities or those of
Intelligroup.
If you are an Intelligroup shareholder at the close of business on
, 2000, you will receive one share of our common stock for every
one share of Intelligroup common stock you hold at that time. The spin-off will
take effect on , 2000 and certificates for our shares will be mailed
to you on or about , 2000. You will not be required to make any
payment for the shares of our common stock that you will receive in the
spin-off.
If you have any questions regarding the spin-off, you may contact American
Stock Transfer & Trust Company at 40 Wall Street, New York, New York 10005, or
by telephone at (212) 936-5100, or Intelligroup's investor relations contact,
Richard Bevis, at Intelligroup, Inc., 499 Thornall Street, Edison, New Jersey
08837, or by telephone at (732) 362-2343.
No public trading market currently exists for our common stock. However, we
are seeking to have our common stock approved for quotation on the Nasdaq
National Market. If the shares are accepted for quotation on the Nasdaq National
Market, we expect that a "when issued" market will develop on or shortly before
the record date for the spin-off and regular way trading will begin on the first
business day after the effective date of the spin-off.
Proposed Nasdaq National Market Trading Symbol
"SERA"
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OUR COMMON STOCK, OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this information statement is , 2000.
<PAGE> 3
SERANOVA, INC.
INFORMATION STATEMENT
TABLE OF CONTENTS
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PAGE
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Questions and Answers about the Spin-Off.................... ii
Forward-Looking Statements.................................. iii
Summary..................................................... 1
Risk Factors................................................ 9
The Spin-Off................................................ 20
Capitalization.............................................. 23
Selected Historical Financial Data.......................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 34
Management.................................................. 45
Relationship with Intelligroup.............................. 51
Certain Transactions........................................ 54
Principal Shareholders...................................... 54
Description of Capital Stock................................ 56
Where You Can Find More Information......................... 60
Index to Financial Statements............................... F-1
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i
<PAGE> 4
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF
WHAT IS THE SPIN-OFF? Intelligroup intends to pay a dividend to its
shareholders consisting of all of the shares of
SeraNova's common stock owned by Intelligroup.
The dividend is known as a spin-off.
WHAT WILL I RECEIVE IN THE
SPIN-OFF? For every one share of Intelligroup stock that
you hold at the close of business on
, 2000, you will receive one share
of our common stock. Shares of our common stock
will be sent to you automatically without any
required payment or other action on your part.
WHEN WILL THE SPIN-OFF OCCUR? The spin-off will be completed as soon as
possible after the conditions to the spin-off
are met. These conditions include, among
others, approval for quotation of our common
stock on the Nasdaq National Market.
ARE THERE TAX CONSEQUENCES? Arthur Andersen LLP has issued an opinion to
Intelligroup to the effect that the spin-off
should be tax-free to Intelligroup shareholders
and to Intelligroup for federal income tax
purposes. To review the material federal income
tax consequences in greater detail, see page
21.
WILL I BE PAID DIVIDENDS ON MY
SERANOVA COMMON STOCK? We do not expect to pay cash dividends on our
stock for the foreseeable future.
WHERE WILL MY SERANOVA COMMON
STOCK BE TRADED? We anticipate that our common stock will be
traded on the Nasdaq National Market under the
symbol "SERA," subject to official notice of
issuance.
WHAT WILL HAPPEN TO
INTELLIGROUP AND
MY EXISTING INTELLIGROUP
COMMON
STOCK? Intelligroup will continue to own and operate
its other business. Intelligroup stock will
continue to trade on the Nasdaq National Market
under the symbol "ITIG." The spin-off will not
affect the number of outstanding shares of
Intelligroup stock or any rights of
Intelligroup shareholders.
HOW WILL I TRADE MY
INTELLIGROUP
AND SERANOVA COMMON STOCK? Beginning on or about , 2000, and
continuing through , 2000, you will
only be able to sell your Intelligroup stock
with due bills for our stock. The due bill
entitles you to receive the dividend intended
to be paid to each of the Intelligroup
shareholders in the spin-off. This means that
during the due bill period, if you sell your
Intelligroup stock, you will give up your right
to receive the dividend of SeraNova stock. As a
result, if you sell your Intelligroup stock
during the due bill period, you will have to
deliver the certificate for our stock to the
buyer of your Intelligroup stock once you
receive our certificate. Shares of Intelligroup
common stock are traded on the Nasdaq National
Market which is aware of the due bill period.
Accordingly, you do not have to notify the
Nasdaq National Market when trading your
Intelligroup stock during the due bill period.
Beginning on , 2000 we expect that
regular way trading in our stock will begin on
the Nasdaq National Market. This means that
Intelligroup stock will no longer be traded
with due bills. Accordingly, beginning on
, 2000, you will be able to trade
your SeraNova stock and your Intelligroup stock
independently of each other.
ii
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This information statement contains certain "forward-looking statements"
concerning our operations, performance and financial condition, including our
future economic performance, plans, and objectives and the likelihood of success
in developing and expanding our business. These statements are based upon a
number of assumptions and estimates which are subject to significant
uncertainties, many of which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate"
and similar expressions are meant to identify such forward-looking statements.
Actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those set forth in the section
entitled "Risk Factors." These forward-looking statements reflect our views only
as of the date of this information statement. We undertake no obligation to
update such statements or publicly release the result of any revisions to these
forward-looking statements which we may make to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
iii
<PAGE> 6
SUMMARY
This summary highlights selected information from this information
statement, but does not contain all details concerning the spin-off of our
common stock to Intelligroup shareholders, including information that may be
important to you. To better understand the spin-off and our business and
financial position, you should carefully review this entire information
statement.
OUR BUSINESS
SeraNova provides professional services, primarily in the area of
business-to-business interactions on the Internet. Business-to-business
interactions include communications and commerce conducted between a company and
its customers, suppliers and partners. Our services include strategy consulting,
creative design, technology implementation and management of Internet
applications. In all of our client engagements, we apply SeraNova's
Time-to-Market Approach, our proprietary methodology, to deliver these services.
We provide an integrated set of services that helps strategize, design,
build and manage Internet applications. Our strategy consulting services
combines the expertise in business-to-business interactions with
industry-specific knowledge to create a comprehensive Internet strategy for our
clients. We build and implement Internet applications that enable a range of
business-to-business activities, such as procurement, interaction with customers
and transactions with business partners. Once the applications are deployed, we
provide application and content management service that is seamless, resulting
in reduced risk of reliability and security.
Our services enable Global 1000 companies to combine the scope and
efficiencies of the Internet with their existing business practices. We also
work with emerging Internet-based companies that conduct their business
exclusively through the Internet. We focus on five industry markets -- financial
services, telecommunications, automotive, technology and healthcare. During the
last three years, we have provided Internet professional services to over 80
clients in a variety of industries. Our clients in 1999 included American
Express, Audi of America, EMI Music Publishing, Hewlett-Packard,
LiquidPrice.com, Medical Internet Solutions, Novell and Volkswagen.
MARKET OPPORTUNITY
The Internet presents opportunities to transform businesses and entire
industries. Increasingly, many companies are using the Internet as the primary
platform for universal communication and sophisticated global business
transactions. According to International Data Corporation, worldwide
business-to-business transactions on the Internet are expected to reach $1.14
trillion by 2003. This increase in business-to-business activities on the
Internet has forced companies to develop complex and scalable Internet
applications consistent with their market positioning and business goals. The
development and implementation of Internet-based applications require expertise
in business strategy, creative design and technology implementation. Given the
lack of in-house capabilities, many companies are seeking outside specialists.
International Data Corporation estimates the market for Internet professional
services will grow from $7 billion in 1998 to $78.5 billion in 2003.
We believe that most companies seeking to build or enhance their
capabilities for business-to-business interactions on the Internet need a
professional service provider with comprehensive and integrated capabilities.
Such a service provider must provide strategic insights combined with extensive
technological expertise to build Internet applications that are rapidly
deployable as well as scalable. As the complexity and the scope of
business-to-business interactions grow, the underlying content of these
applications must be updated and their functionalities must be expanded.
Therefore, to ensure a reliable, secure and robust system for complex
business-to-business interactions, the service provider must also be able to
provide application management services following the deployment. Furthermore,
to be able to achieve such rapid deployment, the service provider must apply an
integrated methodology. We believe many professional service providers do not
provide the full range of services; most providers lack the necessary focus and
technology expertise to build applications required for sophisticated
business-to-business interactions.
1
<PAGE> 7
OUR STRATEGY
We seek to be the leading provider of professional services focused on
business-to-business interactions on the Internet. To that end, we are pursuing
the following strategies:
Build Our Brand. Establish the SeraNova name through an aggressive
marketing strategy that emphasizes our business-to-business focus.
Attract and Retain Outstanding Professionals. We emphasize hiring,
developing and retaining individuals that are vital to our professional
services business.
Strengthen Our Client Relationships and Penetrate Industry Markets. We
continue to strengthen our relationships with key clients. We are expanding
our market-specific solution frameworks and organizing our sales efforts
around specific industry segments.
Widen Our Global Presence. We intend to expand our global presence
through a combination of internal growth and strategic acquisitions.
Refine and Enhance SeraNova Time-to-Market Approach. We continue to
build upon our proprietary methodology and invest in the knowledge
management process to enable us to reduce the delivery time of our services
and minimize our costs to deliver such services.
RECENT DEVELOPMENTS
On March 14, 2000, we entered into a purchase agreement with four
institutional investors pursuant to which such investors purchased an aggregate
of 50 shares of our common stock at a price per share of $200,000, for an
aggregate purchase price of $10,000,000. The 50 shares currently held by such
investors are estimated to be 809,388 shares after giving effect to the
contemplated stock split in order to effect a one SeraNova share-for-one
Intelligroup share distribution in connection with the spin-off. Additionally,
we may, at our option, sell an additional 25 shares of our common stock for an
additional $5,000,000 to another investor. We intend to use such proceeds for
working capital and general corporate purposes, including the repayment of debt.
ADDRESS AND TELEPHONE NUMBER
Our principal executive offices are located at 499 Thornall Street, Edison,
New Jersey 08837. Our telephone number at that address is (732) 590-1600. Our
website is located at http://www.SeraNova.com. The information contained at our
website is not incorporated into and does not constitute a part of this
information statement.
All references to "we," "us," "our," "SeraNova" or "the Company" in this
information statement means SeraNova, Inc. and SeraNova's business after the
contribution of assets and liabilities of Intelligroup, Inc.'s Internet services
business to us by Intelligroup and certain of its subsidiaries pursuant to the
Contribution Agreement between Intelligroup, Inc. and SeraNova, dated as of
January 1, 2000.
2
<PAGE> 8
THE SPIN-OFF
Company Doing the Spin-off.... Intelligroup, Inc., a New Jersey corporation.
Company Resulting from the
Spin-off...................... SeraNova, Inc., a New Jersey corporation.
Conditions to the Spin-off.... Completion of the spin-off is subject to
approval for quotation of our common stock on
the Nasdaq National Market, among other
conditions.
Spin-off Ratio................ One share of our common stock for every one
share of Intelligroup common stock held of
record on the spin-off record date.
Spin-off Record Date.......... , 2000 (5:00 p.m. New York time).
Spin-off Effective Date....... , 2000. The dividend agent will
commence mailing our common stock certificates
on this date.
Trading in Intelligroup Common
Stock from the Spin-off Record
Date Up To and Including the
Spin-off Effective Date..... During this period, Intelligroup common stock
will trade on the Nasdaq National Market with
due bills attached. The due bills will entitle
a purchaser of Intelligroup common stock during
this period to receive one share of our stock
for every one share purchased. Accordingly, a
seller of Intelligroup common stock during the
due bill period will have to deliver the
certificate for our common stock to the buyer
of Intelligroup common stock once he or she
receives our certificate. Since the Nasdaq
National Market is aware of the due bill
period, no notification by a purchaser or
seller is necessary when trading Intelligroup
common stock. If the spin-off conditions are
not satisfied and the spin-off is not
completed, the due bills will become null and
void.
Our Outstanding Stock and
Options....................... Based on approximately 16.2 million shares of
Intelligroup common stock outstanding at the
close of business on March 14, 2000 and 809,388
shares of SeraNova common stock held by certain
institutional investors, approximately 17
million shares of our common stock will be
distributed in the spin-off. We also have
reserved 5.0 million shares of common stock for
issuance under our 1999 Stock Plan, of which
options to purchase 1,667,575 shares have been
granted, and we have granted additional options
to purchase 3,236,092 shares outside of the
1999 Stock Plan. See "Management -- 1999 Stock
Plan."
Dividend Agent................ The dividend agent is American Stock Transfer &
Trust Company. The address and telephone number
of the dividend agent are 40 Wall Street, New
York, New York 10005, (212) 936-5100.
Material Federal Income Tax
Consequences to Intelligroup
Shareholders................ Arthur Andersen LLP has issued an opinion to
Intelligroup to the effect that, for federal
income tax purposes, the spin-off should
qualify as a tax-free distribution to the
shareholders of Intelligroup under Section 355
of the Internal Revenue Code. Therefore, you
should not incur federal income tax upon the
receipt of our
3
<PAGE> 9
common stock in the spin-off. See "The
Spin-off -- Material Federal Income Tax
Consequences."
Trading Market and Symbol for
our Common Stock.............. We are seeking to have our common stock
approved for quotation on the Nasdaq National
Market under the proposed symbol "SERA". Prior
to the spin-off, we do not expect there to be
any public trading market for our common stock
except that our common stock is expected to
trade on a "when-issued" basis on the Nasdaq
National Market beginning on , 2000 for
settlement on , 2000. If the spin-off is
not completed, all "when-issued" trading in our
common stock will be null and void. If the
spin-off is completed, we expect that "regular
way" trading in our common stock on the Nasdaq
National Market will commence at 9:30 a.m. New
York time, on , 2000 subject to
official notice of issuance. See "Risk
Factors -- An Active Trading Market May Not
Develop for Our Common Stock" and "-- Absence
of Dividends" and "The Spin-Off -- Trading of
Our Common Stock."
Transfer Agent and Registrar
for our Common Stock.......... American Stock Transfer & Trust Company.
Agreements between SeraNova
and Intelligroup and
Relationship after the
Spin-off.................... After the spin-off, SeraNova and Intelligroup
will operate independently of each other as
separate public companies. Prior to the
spin-off, we entered into the following
agreements with Intelligroup: Contribution
Agreement; Services Agreement; Space Sharing
Agreement; Tax Sharing Agreement and
Distribution Agreement. Such agreements govern
our on-going relationship with Intelligroup.
See "The Spin-Off -- Agreements Between
SeraNova and Intelligroup and Relationship
After the Spin-off."
4
<PAGE> 10
SUMMARY COMBINED FINANCIAL DATA
The historical summary combined financial data set forth below for each of
the fiscal years in the two-year period ended December 31, 1999, is derived from
our audited combined financial statements included elsewhere in this information
statement. The historical summary combined financial data for the fiscal years
ended March 31, 1998 and 1997 is derived from our audited combined financial
statements not included in this information statement. Historical financial
information may not be indicative of our future performance as an independent
company. The information set forth below should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and Notes. See "Index to
Financial Statements." We have not presented data about historical earnings per
share because the capital structure of our business prior to the spin-off is not
indicative of our capital structure following the spin-off. We have presented
pro forma net loss per share for the year ended December 31, 1999. This is
calculated by dividing net loss by the outstanding shares of common stock of
Intelligroup as of December 31, 1999. Intelligroup shares were utilized since
the spin-off will be one share of SeraNova common stock for each share of
Intelligroup common stock.
<TABLE>
<CAPTION>
FOR THE NINE-
FOR THE MONTH PERIOD
YEAR ENDED ENDED FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------- -------------------
1999(2) 1998(1) 1998 1997
------------ ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $39,795 $12,438 $ 8,995 $ 9,200
Cost of sales..................................... 22,475 7,315 4,797 4,949
Selling, general and administrative expenses...... 17,605 5,106 3,812 4,092
Depreciation and amortization..................... 1,131 102 133 150
Operating income (loss)........................... (1,416) (85) 253 9
Net loss.......................................... (1,261) (552) (253) (243)
Unaudited pro forma net loss per common
share -- basic and diluted(3).................. $ (0.08)
=======
Shares used in per share calculation of unaudited
pro forma net loss -- basic and diluted(3)..... 15,949
=======
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 611 $ 677 $ 368 $ 635
Working capital (deficit)......................... (776) (424) 145 565
Total assets...................................... 18,880 5,775 3,216 2,402
Total liabilities................................. 13,910 5,383 2,975 1,866
Shareholder's equity.............................. 4,970 392 241 536
OTHER DATA:
Capital expenditures.............................. $ 2,175 $ 603 $ 7 $ 328
</TABLE>
- ---------------
(1) Effective April 1, 1998, the Company changed its fiscal year from March 31
to December 31.
(2) On January 8, 1999, Intelligroup, Inc. acquired the common stock of Network
Publishing, Inc. in a purchase business combination. The results of
operations of Network Publishing, Inc. have been included above since the
date of acquisition. Pro forma results for the period January 1, 1999 to
January 7, 1999 are not material to SeraNova's combined financial statements
for the year ended December 31, 1999.
(3) See Note 2 to SeraNova's combined financial statements.
5
<PAGE> 11
SUMMARY OF UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Effective January 1, 2000, the net borrowings from the Parent ($8,397,000
as of December 31, 1999) were converted to amounts payable to a bank under
Intelligroup's revolving Credit Facility Agreement (the "Agreement"). SeraNova
has become a co-borrower under the Agreement with a sublimit of up to
$10,000,000 available to SeraNova (see Note 13 to the combined financial
statements). On March 14, 2000, SeraNova sold 50 shares of its common stock to
four institutional investors for $10,000,000 and, at SeraNova's option, may sell
an additional 25 shares for an additional $5,000,000 to an additional investor.
Proceeds from this financing will be used to repay SeraNova's borrowings under
the Agreement prior to spin-off.
SeraNova entered into certain agreements with Intelligroup that became
effective January 1, 2000. Under these agreements, Intelligroup will continue to
provide SeraNova with certain general and administrative functions on a fee
basis. (See "Relationship with Intelligroup" for a summary of these agreements).
We believe that, temporarily, these agreements are the most cost efficient and
least disruptive way to maintain the administrative support services we require.
The following pro forma balance sheet as of December 31, 1999, reflects the
above mentioned equity financing and repayment of outstanding debt to the bank.
The pro forma statement of operations for the year ended December 31, 1999
adjusts the results of operations as if the agreements with Intelligroup were
effective during 1999. The pro forma amounts are presented for informational
purposes only. The pro forma financial data is not necessarily indicative of the
balance sheet and results of operations of SeraNova.
6
<PAGE> 12
SERANOVA, INC. AND AFFILIATES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL EQUITY DEBT
SERANOVA, INC. FINANCING REPAYMENT PRO FORMA
-------------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................ $ 611 $10,000(1) $(8,397)(2) $ 2,214
Accounts receivable......................... 7,456 7,456
Unbilled services........................... 3,680 3,680
Other current assets........................ 769 769
------- ------- ------- -------
Total Current Assets.......................... 12,516 10,000 (8,397) 14,119
Property and equipment, net................... 2,863 2,863
Intangible assets, net and other assets....... 3,501 3,501
------- ------- -------
Total Assets.................................. $18,880 $10,000 $(8,397) $20,483
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term lease
obligations.............................. $ 120 $ 120
Notes payable to Parent..................... 8,397 $(8,397)(2) --
Accounts payable............................ 872 872
Accrued payroll and related costs........... 1,551 1,551
Accrued expenses and other liabilities...... 2,352 2,352
------- ------- ------- -------
Total Current Liabilities..................... 13,292 -- (8,397) 4,895
Long-Term Debt and Capital Lease
Obligations................................. 618 618
------- ------- ------- -------
Total Liabilities............................. 13,910 -- (8,397) 5,513
Shareholders' Equity:
Parent company investment and advances...... 7,250 10,000(1) 17,250
Currency translation adjustment............. (34) (34)
Accumulated deficit......................... (2,246) (2,246)
------- ------- ------- -------
Total Shareholders' Equity.................... 4,970 10,000 -- 14,970
------- ------- ------- -------
Total Liabilities and Shareholders' Equity.... $18,880 $10,000 $(8,397) $20,483
======= ======= ======= =======
</TABLE>
- ---------------
(1) Represents the sale of 50 shares of the Company's common stock completed on
March 14, 2000.
(2) Represents the repayment of outstanding debt prior to spin-off.
7
<PAGE> 13
SERANOVA, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
SERANOVA, INC. PRO FORMA ADJUSTMENTS PRO FORMA
-------------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $39,795 $39,795
Cost of Sales........................ 22,475 22,475
------- -------
Gross Profit......................... 17,320 17,320
------- -------
Selling, general and administrative
expenses........................... 17,605 $(803)(1) $ 1,162(2) 17,964 (3
Depreciation and amortization........ 1,131 1,131
------- ----- ------- -------
Total operating expenses........... 18,736 (803) 1,162 19,095
------- ----- ------- -------
Operating loss....................... (1,416) 803 (1,162) (1,775)
Other income (expense), net.......... (80) (288)(4) (368)
------- ----- ------- -------
Loss before income taxes............. (1,496) 803 (1,450) (2,143)
Benefit for income taxes............. (235) (235)
------- ----- ------- -------
Net loss............................. $(1,261) $ 803 $(1,450) $(1,908)
======= ===== ======= =======
Unaudited pro forma net loss per
common share -- basic and
diluted............................ $ (0.08) $ (0.12)
======= =======
Shares used in per share calculation
of unaudited pro forma net
loss -- basic and diluted.......... 15,949 15,949
======= =======
</TABLE>
- ---------------
(1) Represents the elimination of historical costs covered by the services and
space sharing agreements.
(2) Represents the estimated annual costs that would have been incurred under
the services and space sharing agreements (See Note 4 to the combined
financial statements).
(3) The difference between the historical costs covered by the services and
space sharing arrangements and the costs to be incurred under the services
and space sharing agreements is due to Company growth throughout 1999 which
resulted in SeraNova utilizing an increasing volume of office space and
incurring higher costs as the year progressed.
(4) Represents the estimated annual interest expense to be incurred if the bank
credit facility was in place for the year 1999.
8
<PAGE> 14
RISK FACTORS
You should carefully consider each of the following risks and all of the
other information in this information statement. Some of the following risks
relate principally to the spin-off while other risks relate principally to our
business in general and the industry in which we operate. Finally, other risks
relate principally to the securities markets and ownership of our common stock.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our business. If
any of the following risks and uncertainties develop into actual events, our
business, financial condition or results of operations could be materially
adversely affected. If that happens, the trading price of our common stock could
decline.
This information statement contains forward-looking statements that involve
risks and uncertainties. You should not rely on these forward-looking
statements. We use words such as "anticipate," "believe," "plan," "expect,"
"future," "intend," and similar expressions to identify such forward-looking
statements. This information statement also contains forward-looking statements
attributed to certain third parties relating to their estimates regarding, among
other things, the growth in the market for professional services, including
business-to-business interactions on the Internet. Our actual results could
differ materially from those anticipated in the forward-looking statements for
many reasons, including the risks faced by us described below and elsewhere in
this information statement.
RISKS RELATING TO THE SPIN-OFF
FEDERAL TAX CONSEQUENCES OF THE SPIN-OFF TO INTELLIGROUP AND INTELLIGROUP
SHAREHOLDERS.
Arthur Andersen LLP has issued an opinion to Intelligroup to the effect
that the spin-off should be tax-free to Intelligroup and to Intelligroup
shareholders. We have not requested a ruling from the Internal Revenue Service
relating to the tax consequences of the spin-off. Arthur Andersen's opinion is
not binding on the Internal Revenue Service or the courts. If it is determined
that the spin-off is not a tax-free spin-off, then:
- Intelligroup would recognize a gain equal to the excess of the fair
market value of the SeraNova common stock distributed to its shareholders
over Intelligroup's basis in the SeraNova common stock; and
- Each U.S. holder of Intelligroup common stock would be generally treated
as if such shareholder had received a taxable dividend, to the extent of
earnings and profits, in an amount equal to the fair market value of the
SeraNova common stock received.
IF WE ARE UNABLE TO OBTAIN CERTAIN THIRD-PARTY CONSENTS TO THE SPIN-OFF, OUR
ABILITY TO CONDUCT OUR BUSINESS AS CURRENTLY CONDUCTED COULD BE MATERIALLY
ADVERSELY AFFECTED.
The spin-off and related transactions could result in a violation of
certain of Intelligroup's existing contractual arrangements or require the
consent of a third party to transfer these arrangements to us. In a substantial
number of situations, an amendment, consent or waiver from third parties,
including many clients, will be required. In particular, American Express, our
largest customer (representing approximately 28% of our total revenues for the
year ended December 31, 1999), has not yet consented to the assignment of their
contracts with Intelligroup to us. We are seeking amendments and consents to all
material arrangements although we believe that no single agreement for which an
amendment, consent or waiver is being sought is material, the failure to receive
a significant number of such amendments, waivers or consents with respect to
contractual arrangements could have a material adverse effect on our ability to
continue to conduct our business.
THE COMBINED POST-SPIN-OFF VALUE OF INTELLIGROUP AND SERANOVA SHARES MAY NOT
EQUAL OR EXCEED THE PRE-SPIN-OFF VALUE OF INTELLIGROUP SHARES.
After the spin-off, we anticipate that shares of Intelligroup common stock
will continue to be traded on the Nasdaq National Market and we expect that
shares of SeraNova common stock will also be traded on the
9
<PAGE> 15
Nasdaq National Market. We cannot assure you that the combined trading prices of
Intelligroup common stock and SeraNova common stock after the spin-off will be
equal to or greater than the trading price of Intelligroup common stock prior to
the spin-off. Until the market has fully evaluated the business of Intelligroup
without the business of SeraNova, the price at which Intelligroup common stock
trades may fluctuate significantly. Similarly, until the market has fully
evaluated the SeraNova business on an independent basis, the price at which our
common stock trades may fluctuate significantly.
IF THE SPIN-OFF IS NOT A LEGAL DIVIDEND, IT COULD BE HELD INVALID BY A COURT.
The dividend which effects the spin-off is subject to New Jersey corporate
law. We cannot assure you that a court will not later determine that the
spin-off was invalid under New Jersey law and reverse the spin-off. The
resulting complications, costs and expenses could have a material adverse effect
on our business, financial condition and results of operations.
CREDITORS OF INTELLIGROUP AT THE TIME OF THE SPIN-OFF MAY CHALLENGE THE
SPIN-OFF.
If a court in a lawsuit by an unpaid creditor or representative of
creditors of Intelligroup, such as a trustee in bankruptcy, were to find that
among other reasons, at the time of the spin-off, Intelligroup or SeraNova:
- was insolvent;
- was rendered insolvent by reason of the spin-off;
- was engaged in a business or transaction for which Intelligroup's or
SeraNova's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed it would incur, debts beyond its ability
to pay such debts as they matured,
the court may be asked to void the spin-off (in whole or in part) as a
fraudulent conveyance. The court could then require that the shareholders return
some or all of the shares of SeraNova common stock, or require Intelligroup or
SeraNova, as the case may be, to fund certain liabilities of the other company
for the benefit of creditors. The measure of insolvency for purposes of the
foregoing will vary depending upon the jurisdiction whose law is being applied.
Generally, however, each of Intelligroup and SeraNova, as the case may be, would
be considered insolvent if the fair value of its assets were less than the
amount of its liabilities or if it incurred debt beyond its ability to repay
such debt as it matures. Intelligroup and SeraNova, believe that each company
will be solvent after the spin-off.
RISK FACTORS RELATING TO OUR BUSINESS AND OUR SECURITIES
OUR LIMITED OPERATING HISTORY AS A SEPARATE COMPANY MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS.
SeraNova was operated as a separate business division within Intelligroup
since September 1999. We were not operated as a separate company until January
1, 2000 and, therefore, we have a limited operating history as a stand-alone
company. Accordingly, we have a limited history of addressing material risks in
our business. These risks are magnified by the fact that we are operating in the
new and expanding Internet professional services markets. These risks include
our potential inability to:
- attract, retain and motivate qualified personnel;
- expand our sales and support staff;
- obtain financing for our expanding business which may be hindered by our
lack of an operating history as a separate corporate entity;
- develop our own internal operating and financial reporting procedures;
- increase the scale of our operations;
- maintain sufficiently high employee utilization;
- respond effectively to competitive pressures;
10
<PAGE> 16
- continue to develop and upgrade our services and solutions;
- replace the transitional services necessary for the conduct of our
business that Intelligroup has agreed to provide to us for a limited
period after the completion of the spin-off; and
- satisfy legal and regulatory requirements.
In addition, we believe that our historical financial statements for all
periods do not reflect potential changes that may occur in our funding and our
operations as a result of our becoming a stand-alone company.
WE ANTICIPATE FUTURE LOSSES.
We expect to incur significant sales and marketing, infrastructure
development and general and administrative expenses. As a result, we anticipate
losses through at least the third quarter of 2000. In order to achieve
profitability, we will need to control costs associated with building an
infrastructure as well as increase our revenues. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. We cannot assure you that we will be
able to contain costs, grow revenue or increase profitability.
WE WILL NOT BE ABLE TO RELY ON INTELLIGROUP TO FUND FUTURE CAPITAL REQUIREMENTS.
Prior to January 1, 2000, the assets, liabilities, operations and personnel
associated with our business were operated within Intelligroup and certain of
its subsidiaries. As such, all of our capital requirements in excess of
internally generated funds were provided by Intelligroup's equity offerings or
credit facilities. Consequently, we have not independently maintained or managed
any cash or been responsible for obtaining external sources of financing.
Following the spin-off, Intelligroup will no longer be obligated to provide
funds to finance our working capital or other cash requirements. While our
agreements with Intelligroup permit, and Intelligroup has provided, intercompany
loans, Intelligroup is not obligated to fund our operations. As of December 31,
1999, we were indebted to Intelligroup for approximately $8.4 million. We
believe our capital requirements will vary greatly from quarter to quarter,
depending on, among other things, capital expenditures, fluctuations in our
operating results and financing activities. We cannot guarantee that financing,
if needed, will be available on favorable terms, if at all. In addition, future
financing could subject us to restrictive covenants that may limit our ability
to take certain actions. We may not be able to obtain financing with interest
rates as favorable as those historically obtained by Intelligroup. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POTENTIAL CONFLICTS WITH INTELLIGROUP MAY NOT BE RESOLVED IN OUR FAVOR.
Conflicts may develop between Intelligroup and us regarding the terms of
our agreements with Intelligroup. Such disputes may not be resolved in our
favor. It is our policy and the policy of Intelligroup that transactions between
Intelligroup and us will generally be on terms and conditions comparable to
those between unaffiliated third parties. However, because our agreements with
Intelligroup were negotiated in the context of a parent-subsidiary relationship,
we cannot assure you that these agreements, or the transactions with
Intelligroup contemplated by such agreements, will be effected on terms as
favorable to us as could have been obtained from unaffiliated third parties. If
such conflicts are not resolved in our favor, our business, financial condition
and results of operations could be adversely affected. See "Relationship with
Intelligroup."
VARIABILITY OF QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE.
The market price of our common stock may be adversely affected because our
revenue, gross profit, operating income and net income or net loss may vary
substantially from quarter to quarter. Many factors may contribute to
fluctuations in our operating results. These factors include the following:
Factors within our control:
- changes in our pricing policies;
- introduction of our new services offerings;
11
<PAGE> 17
- possibility of over-runs on fixed-price contracts;
- the timing and number of personnel we hire;
- the timing and acquisition of new businesses by us; and
- the efficiency with which we utilize our employees.
Factors not exclusively within our control:
- changes in our competitors' pricing policies;
- variations in billing margins and personnel utilization rates;
- introduction of new services by our competitors;
- acceptance of our new services offerings;
- the market for qualified technical personnel;
- seasonal impact on customer spending;
- cancellation or delay of contracts by our customers or potential
customers;
- length of our sales cycle;
- short-term nature of our customers' contractual commitments;
- the number, size, scope and timing of our projects; and
- the demand for Internet professional services.
WE MAY NOT BE ABLE TO EXPAND OUR OWN SALES AND SUPPORT ORGANIZATION.
We need to substantially expand our direct and indirect sales activities
and we may not be able to do so. Our services require a sophisticated and
technical sales effort targeted at professionals at different levels within our
prospective customers' organizations. Without an expanded sales effort, we may
not be able to:
- Build market awareness and establish name recognition for SeraNova;
- Compete effectively with larger Internet services organizations; or
- Establish alternative sales channels.
We cannot be certain that we will be able to successfully expand our sales
and marketing efforts or that we will be able to successfully promote our
existing or future services offerings. See "Business -- Strategy" and "-- Sales
and Marketing."
OUR HISTORICAL FINANCIAL INFORMATION MAY HAVE LIMITED RELEVANCE TO OUR RESULTS
OF OPERATIONS AS A SEPARATE COMPANY.
Prior to the transfer of Intelligroup's Internet services business to us on
January 1, 2000, Intelligroup did not account for our business as, and we were
not operated as, a separate unit or division. In presenting our historical
financial statements for all periods, we specifically identified all revenue,
cost of sales, other income (expense) and certain selling, general and
administrative expenses incurred by Intelligroup on our behalf. Other selling,
general and administrative expenses were allocated using methodologies which
took into consideration the ratio of our revenue to the consolidated revenue of
Intelligroup, head count, occupancy and other factors. However, we cannot assure
you that our historical financial information prior to December 31, 1999
necessarily reflects what the results of operations, financial position and cash
flows would have been had we been a separate company, or is indicative of our
future results of operations, financial positions and cash flows. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12
<PAGE> 18
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALITY TECHNICAL AND MANAGERIAL PERSONNEL
DUE TO A COMPETITIVE MARKET.
We may not be able to hire and retain the number of quality technical
personnel necessary to meet our requirements. Our future success depends to a
significant extent on our ability to attract, train and retain quality
professionals who are highly skilled in the Internet and its rapidly changing
technology. We believe that there is a worldwide shortage of, and significant
competition for, professionals with the advanced technical and managerial skills
necessary to perform the services we offer. Our business, financial condition,
results of operations and growth prospects could decline significantly if we are
unable to hire and retain qualified technical personnel that are necessary to
conduct and expand our operations successfully. While substantially all of our
technical personnel have entered into agreements which contain non-disclosure,
non-solicitation and non-competition provisions, we cannot guarantee that such
agreements are enforceable or ensure continued service by such individuals. See
"Business -- Strategy" and "-- Employees."
IF WE EXPERIENCE LOWER BILLING AND UTILIZATION RATES OUR RESULTS OF OPERATIONS
WILL BE ADVERSELY AFFECTED.
Our personnel costs are relatively fixed for any given period. Our
personnel expense levels are based in part on expectations of future revenue. As
a result, our operating results have been, and in the future will continue to
be, impacted by changes in technical personnel billing and utilization rates. We
may be required to increase the compensation of our employees due to the
competitive market for technical personnel, which would likely result in lower
billing margins. During periods of rapid and concentrated hiring, technical
personnel utilization rates have been, and are expected to continue to be,
adversely affected and we are likely to incur greater technical training costs.
Due to these and other factors, if we are successful in expanding our services
offerings and revenue, periods of variability in utilization are likely to
occur. We believe, therefore, that past operating results and period-to-period
comparisons should not be relied upon as an indication of future operating
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Selected Quarterly Results of Operations."
THERE IS INTENSE COMPETITION IN THE INTERNET SERVICES MARKET.
The Internet services market is relatively new, intensely competitive and
rapidly changing. We expect competition to continue and intensify which may
adversely affect our ability to maintain or increase our market share. To be
competitive, we must respond effectively to evolving changes in technology as
well as to our competitors' innovations by continuing to enhance our services
offerings and expand our sales channels. Any pricing pressures, reduced margins
or loss of market share resulting from our failure to compete effectively could
materially adversely affect our business. Furthermore, we believe the barriers
to entry into our markets are relatively low, which enable new competitors to
offer competing services. Current or future competitors may develop or offer
services that are comparable or superior to ours at a lower price, which could
result in a decrease in our revenues and the value of your investment.
Many of our current and potential competitors have longer operating
histories and substantially greater financial, marketing, technical and other
resources than us. Some of these competitors have a greater ability to provide
services on a national or international basis and may be able to adapt more
quickly to changes in customer needs or to devote greater resources to their
Internet services business. Such competitors may attempt to increase their
presence in our markets by forming strategic alliances with other competitors or
our customers, offering new or improved services to our customers or increasing
their efforts to gain and retain market share through competitive pricing. In
addition, other companies have developed particularly strong reputations in
niche service offerings or local markets which may provide them with a
competitive advantage. See "Business -- Competition."
WE MAY BE LIABLE TO DISSATISFIED CUSTOMERS.
We design, develop, implement and manage Internet solutions that are
critical to the operation of our customers' businesses. Defects in the solutions
developed by us could result in delayed or lost revenue to our
13
<PAGE> 19
customers. Since many of our projects are critical to the operation of our
customers' businesses and provide benefits that are difficult to quantify, the
claim for damages by the customer could be substantial. In cases in which we
have written contracts with our customers, we attempt to contractually limit our
liability for damages arising from errors, mistakes, omissions or negligent acts
performed while rendering our services. However, the limitations of liability
set forth in our contracts may not be enforceable in all instances or may not
otherwise protect us from liability for damages. Additionally, we do not have
written contracts with many of our customers, and therefore we have no
contractual limitation of liability. We do not carry errors and omissions
insurance. We intend to pursue such coverage. However, we can not assure you
that such coverage will be available on terms acceptable to us. Our business,
financial condition and results of operations could decline if customers
successfully assert one or more large claims that exceed available insurance
coverage, if any, against us.
WE MUST MANAGE OUR GROWTH EFFECTIVELY.
We have experienced substantial growth in revenue, employees and customers
during the past few years. Future growth will likely place a strain on our
resources. We also expect that additional demands will be placed on our
resources due to our becoming a separate company. To manage our growth
effectively, we will have to develop and improve our operational, financial and
other internal systems, as well as our business development capabilities. We
must also continue to attract, train, retain, motivate and manage our employees.
Our future success will depend in large part on our ability to:
- continue to maintain high rates of employee utilization at profitable
billing rates;
- successfully execute fixed-price contracts within our target cost
parameters;
- maintain project quality, particularly if the size and scope of our
projects increase; and
- integrate the services offerings, operations and employees of acquired
businesses.
In the foreseeable future, our administrative, operational and other
infrastructure resources will continue to be provided, in large part, by
Intelligroup. For the near term, our ability to manage our growth effectively
will depend, in part, upon Intelligroup's timely and complete performance of its
obligations to provide such resources. Over the long term, our ability to manage
growth will depend on our ability to develop independent internal systems, as
well as our own business development capabilities. If we fail to manage our
growth effectively, it could adversely affect our business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE MAY NOT BE ABLE TO KEEP PACE WITH ANTICIPATED RAPID TECHNOLOGICAL CHANGES.
Our success depends, in part, on our ability to develop solutions that keep
pace with:
- Rapidly changing Internet and other technology;
- Evolving industry standards;
- Changing customer objectives and standards; and
- Frequent new services introductions.
Any delay or failure on our part in responding quickly, efficiently and
cost-effectively to these developments could result in serious harm to our
business and operating results. The development and commercialization of new
technologies and the introduction of new services could render our existing
services obsolete or unmarketable. We cannot assure you that we will be
successful in identifying, developing, marketing or implementing the new
services necessary to keep pace with technological change. We must enhance
existing services while developing, integrating and introducing new services
offerings on a timely and cost-effective basis to keep pace with technological
developments and address increasingly sophisticated customer requirements. We
may experience contractual, technical or personnel difficulties that could delay
or prevent our successful introduction of such new services. See
"Business -- Industry Background."
14
<PAGE> 20
OUR SUCCESS IS DEPENDENT UPON OUR KEY PERSONNEL.
We believe our success depends to a significant degree upon the continued
service of the key members of our management team, Rajkumar Koneru, our
chairman, chief executive officer and president, Ravi Singh, our chief financial
officer and executive vice president and Rajan Nair, our chief operating
officer, because of their industry knowledge, marketing skills and relationships
with our major customers, partners and employees. The loss of the services of
any one of them could materially adversely affect us. See
"Management -- Employment Agreements."
OUR FUTURE ACQUISITIONS MAY NEGATIVELY IMPACT OUR BUSINESS.
A key element of our strategy is growth by acquisition. We expect to
undertake acquisitions in the future, although none are planned or being
negotiated as of the date of this information statement. Risks associated with
an acquisition include:
- Potential difficulty assimilating acquired personnel, operations,
customers or vendors;
- Possibility that we are unable to retain acquired personnel, customers or
vendors;
- Management of growth issues;
- Dilution to existing shareholders in the event we have to incur debt or
issue equity securities to pay for any future acquisitions;
- Risks associated with financing;
- Disruption of our ongoing business and distraction of our management and
employees; and
- Unanticipated expenses or liabilities or lower than expected revenues of
the business acquired.
Although we intend to conduct due diligence reviews with respect to all
acquisition candidates, we may not successfully identify all material
liabilities or risks related to a potential acquisition candidate.
WE MAY EXPERIENCE COST OVER-RUNS ON FIXED-PRICE CONTRACTS.
We bear the risk of cost over-runs and inflation in connection with
fixed-price projects. An increasing number of our future projects may be
fixed-price contracts rather than contracts billed based on actual time spent
providing services. Cost over-runs for fixed-price contracts would likely result
from our inaccurately estimating the time or resources required. Inaccurate
estimates on our part could lead to losses on our engagements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
WE DEPEND ON INTELLIGROUP FOR MANY ADMINISTRATIVE SERVICES.
The majority of our administrative functions are provided by Intelligroup
pursuant to our contractual arrangements with Intelligroup, including most
administrative, human resources and management information systems functions. We
intend, over time, to further develop our own administrative infrastructure. If
we are required to perform all of such functions prior to developing our own
infrastructure, we will likely experience operational disruptions and increased
expenses. We cannot assure you that we will be able to develop adequate
administrative functions in a timely and cost-effective manner. See
"Relationship with Intelligroup."
WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS AND NEED TO ESTABLISH RELATIONSHIPS
WITH NEW CLIENTS.
We generally are engaged by clients on a project-by-project basis, rather
than long-term contracts. As a result, clients may not engage us for future
services once a project has been completed. Additionally, most of our contracts
can be canceled by the customer on short notice and without significant penalty.
The cancellation or significant reduction in the scope of a large contract could
have a material adverse effect on our business.
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<PAGE> 21
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS.
Our future success is dependent, in part, upon our proprietary
implementation methodology, development tools and other intellectual property
rights. In order to protect our proprietary rights, we:
- Rely upon trade secrets, nondisclosure and other contractual
arrangements;
- Rely on copyright and trademark laws;
- Enter into confidentiality agreements with employees, consultants and
customers;
- Limit access to and distribution of proprietary information; and
- Require almost all employees and consultants to assign to us their rights
in intellectual property developed during their employment or engagement
by us.
There can be no assurance that the steps taken by us will be adequate to
deter misappropriation of our proprietary information or that we will be able to
detect unauthorized use of and take appropriate steps to enforce our
intellectual property rights.
We believe that our trademarks, service marks, services, methodology and
development tools do not infringe on the intellectual property rights of others.
There can be no assurance, however, that such a claim will not be asserted
against us in the future, or that if asserted, any such claim will be
successfully defended.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET.
The Internet is new and rapidly evolving. Our future success depends on the
acceptance and continued use of the Internet for conducting business. Our
business will be adversely affected if commerce on the Internet does not
continue to grow, or grows more slowly than anticipated. Some of the critical
issues relating to Internet usage that concern businesses and consumers include:
- Actual or perceived lack of security;
- Cost and ease of Internet access;
- Intellectual property ownership;
- Potentially inadequate network infrastructure;
- Quality of service; and
- Uncertainty of potential taxation of electronic commerce transactions.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
AFFECT OUR BUSINESS.
An increase in the regulation of the Internet could hinder the growth and
the use of the Internet for business and commerce. Although there are currently
few laws and regulations in effect, federal, state and local governmental
organizations as well as foreign governments are considering a number of
legislative and regulatory proposals. New laws and regulations may govern or
restrict the areas of:
- User privacy;
- Pricing and taxation of goods and services offered over the Internet;
- Quality of services;
- Content of websites; and
- Intellectual property ownership.
We can not be certain as to how new or existing laws governing the Internet
will affect our business.
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<PAGE> 22
WE FACE RISKS BECAUSE WE HAVE INTERNATIONAL OPERATIONS.
Our international operations have increased in recent years. For the year
ended December 31, 1999, approximately 31% of our revenues were derived from
international operations. To date, we have established foreign operations in
Australia, New Zealand, Philippines, Thailand, India and the United Kingdom. In
order to expand international sales, we may establish or acquire additional
foreign operations. Increasing foreign operations has required and likely will
continue to require significant management attention and financial resources and
could materially adversely affect our business. There can be no assurance that
we will be able to increase international market demand for our services. The
risks in our international business activities include:
- Unexpected changes in regulatory environments;
- Foreign currency fluctuations;
- Tariffs and other trade barriers;
- Longer accounts receivable payment cycles;
- Difficulties in managing international operations;
- Political instability;
- Potential foreign tax consequences including restrictions on the
repatriation of earnings; and
- The burdens of complying with a wide variety of foreign laws and
regulations.
There can be no assurance that such factors will not have a material
adverse effect on our future international sales, if any, and, consequently, on
our business.
WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS IN INDIA.
We commenced Internet operations in India in October 1999. As a result, we
are subject to the risks associated with doing business in India. India's
central and state governments heavily regulate the Indian economy. In the recent
past, the government of India has provided significant tax incentives and
relaxed certain regulatory restrictions in order to encourage foreign investment
in certain sectors of the economy. Certain of these benefits that directly
affect our Indian operations include:
- Tax holidays;
- Liberalized import and export duties; and
- Preferential rules on foreign investment and repatriation.
Changes in the business, political or regulatory climate of India could
have a material adverse effect on our Indian business. Further, the United
States has recently imposed sanctions on India in response to certain nuclear
testing conducted by the Indian government. Changes in the following factors
could have a material adverse effect on our business:
- Inflation;
- Interest rates;
- Taxation; or
- Other social, political, economic or diplomatic developments affecting
India in the future.
RISK OF INCREASED GOVERNMENT REGULATION OF IMMIGRATION.
In the United States, we have relied, and in the future expect to continue
to rely, increasingly upon attracting and retaining personnel with technical and
project management skills from other countries. The Immigration and
Naturalization Service limits the number of new petitions it approves each year.
Accordingly, we may be unable to obtain visas necessary to bring critical
foreign employees to the United States. Any
17
<PAGE> 23
difficulty in hiring or retaining foreign nationals in the United States could
increase competition for technical personnel and have a material adverse effect
on our business.
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our common stock may be volatile as the stock market in
general has been volatile. In addition, the stock prices for many technology and
Internet-related companies have experienced wide fluctuations which often have
been unrelated to operating performance. Investors may not be able to resell
their shares of common stock at acceptable prices following periods of
volatility because of the market's adverse reaction to such volatility. Factors
that could cause volatility in our stock price include, among other things:
- Actual or anticipated variations in quarterly results;
- Variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations;
- Changes in earnings estimates or recommendations by securities analysts;
- Conditions or trends in the Internet services industry;
- Changes in the market valuations of, and earnings and other announcements
by, providers of Internet professional services;
- Announcements by us or our competitors of technological innovations;
- Additions or departures of our key personnel; and
- Volume and timing of sales of our common stock.
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR OUR COMMON STOCK.
There is no public market for our common stock. We are seeking to have our
common stock included for quotation on the Nasdaq National Market. We cannot
assure you that an active trading market in the common stock will develop or, if
one develops, that it will be sustained. Until the time that the spin-off has
been completed, our common stock is fully distributed and an orderly market
develops, various conditions may adversely affect the trading price of our
common stock. These conditions include, among others, investor perception about
us and general economic and market conditions.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD DETER OUR
ACQUISITION BY A THIRD PARTY.
Certain provisions of our Certificate of Incorporation and By-laws could
make it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to our shareholders. For example, our
Certificate of Incorporation eliminates the rights of shareholders to call a
special meeting of shareholders or take action by written consent. In addition,
our Certificate of Incorporation allows our Board of Directors to issue
preferred stock without shareholder approval. Such issuances could make it more
difficult for a third party to acquire us. As a New Jersey corporation, we are
also subject to the New Jersey Shareholders Protection Act contained in Section
14A:10A-1. In general, Section 14A:10A-1 prohibits a publicly-held New Jersey
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of five years following the date the person became an
interested shareholder, unless, among other things:
- the board of directors approved the transaction in which such shareholder
became an interested shareholder prior to the date the interested
shareholder attained such status; and
- the business combination is approved by the affirmative vote of the
holders of at least 66 2/3% of the corporation's voting stock not
beneficially owned by the interested shareholder at a meeting called for
such purpose.
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<PAGE> 24
A "business combination" generally includes a merger, sale of assets or
stock, or other transaction resulting in a financial benefit to the interested
shareholder. In general, an interested shareholder is a person who, together
with affiliates and associates, owns, or within five years prior to the
determination of interested shareholder status, did own, 10% or more of the
corporation's voting stock. See "Description of Capital Stock -- Preferred
Stock" and "-- Anti-Takeover Effects of Certain Certificate of Incorporation and
By-law Provisions."
ABSENCE OF DIVIDENDS.
We have never paid, and do not anticipate paying any cash dividends on our
common stock in the foreseeable future.
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<PAGE> 25
THE SPIN-OFF
REASONS FOR THE SPIN-OFF.
The spin-off will allow us to focus solely on our Internet professional
services business which requires a sales and marketing effort that is distinct
from Intelligroup's. In addition, we believe that we will be able to raise
capital more easily and provide better incentives for our employees as a
separate publicly-traded Internet services company. The spin-off should enable
us and Intelligroup to conduct business with each other's competitors and to
invest in or acquire complementary businesses that will potentially solidify our
competitive position in the market for Internet professional services. The
spin-off will also allow Intelligroup to focus on its core business relating to
the implementation of enterprise resource planning software and as an
application service provider.
MANNER OF EFFECTING THE SPIN-OFF.
The spin-off will be effected by a stock dividend paid to each holder of
record of Intelligroup common stock. The spin-off ratio will be one share of our
common stock for every one share of Intelligroup common stock outstanding on the
spin-off record date. Intelligroup shareholders will not be required to pay for
shares of our common stock received in the spin-off. Additionally, Intelligroup
shareholders will not need to surrender or exchange Intelligroup common stock in
order to receive shares of our common stock. All shares of our common stock
received by Intelligroup shareholders in connection with the spin-off will be
fully paid and non-assessable. Intelligroup shareholders do not have any
appraisal rights in connection with the spin-off.
On or about , 2000 and continuing through , 2000, Intelligroup
common stock will trade on the Nasdaq National Market with due bills attached.
The due bills will entitle a purchaser of Intelligroup common stock during this
period to receive one share of our common stock for each one share purchased.
Accordingly, a seller of Intelligroup common stock during the due bill period
will have to deliver the certificate for our common stock to the buyer of
Intelligroup common stock once he or she receives our certificate. Since the
Nasdaq National Market is aware of the due bill period, no notification by a
purchaser or seller is necessary when trading Intelligroup common stock. If the
spin-off is not completed, all due bills attaching to Intelligroup common stock
will become null and void.
In order to be entitled to receive shares of our common stock in the
spin-off, Intelligroup shareholders must be holders of record of Intelligroup
common stock at 5:00 p.m. New York time on the spin-off effective date, which is
expected to be , 2000.
The dividend agent is American Stock Transfer & Trust Company. American
Stock Transfer & Trust Company will commence mailing our common stock
certificates on the spin-off effective date.
RESULTS OF THE SPIN-OFF.
Following the spin-off, we will be a separate, publicly-traded company.
Immediately after the spin-off, based on the number of outstanding shares of
Intelligroup common stock and the number of record holders on , 2000, we
expect to have approximately 17 million shares of common stock outstanding, held
by approximately 89 record holders. The actual number of shares of our common
stock to be issued will be determined as of the spin-off effective date.
Following the spin-off, Intelligroup will continue to own and operate its
other business. The spin-off will not affect the number of outstanding shares of
Intelligroup common stock or any rights of Intelligroup shareholders.
TRADING OF OUR COMMON STOCK.
We are seeking to have our common stock included for quotation on the
Nasdaq National Market under the symbol "SERA." Prior to the spin-off, we do not
expect any public trading market for our common stock to exist except that,
beginning on , 2000, our common stock is expected to trade on a
"when-issued" basis on the Nasdaq National Market for settlement when our common
stock is issued on , 2000. The term
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<PAGE> 26
"when-issued" means trading in shares prior to the time certificates are
actually available or issued. If the spin-off conditions are not satisfied and
the stock dividend is not paid, all such "when-issued" trading will become null
and void. If the spin-off conditions are satisfied and the stock dividend is
paid on the spin-off effective date, it is expected that "regular way" trading
in our common stock on the Nasdaq National Market will commence at 9:30 a.m. New
York time on , 2000, subject to official notice of issuance.
The shares of our common stock issued to Intelligroup shareholders will be
freely transferable, except for shares received by persons who may be deemed to
be our "affiliates" under the Securities Act. Persons who may be deemed to be
our affiliates after the spin-off generally include individuals or entities that
control, are controlled by, or are under common control with us and may include
certain of our officers and directors. Persons who are our affiliates will be
permitted to sell their shares of our common stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemptions afforded
by Section 4(1) of the Securities Act and Rule 144 under the Securities Act
(with the exemption under Rule 144 not available until 90 days after the date of
this information statement).
For a discussion of certain uncertainties that should be considered when
trading in our common stock, see "Risk Factors -- An Active Trading Market May
Not Develop for Our Common Stock."
AGREEMENTS BETWEEN SERANOVA AND INTELLIGROUP AND RELATIONSHIP AFTER THE
SPIN-OFF.
After the spin-off, SeraNova and Intelligroup will operate independently of
each other as separate public companies. Neither SeraNova nor Intelligroup will
have any beneficial stock ownership interest in the other. All employees of
Intelligroup who join us will cease to be employees of Intelligroup.
We entered into agreements with Intelligroup providing for the transfer of
Intelligroup's Internet business to us prior to the spin-off. We also entered
into agreements with Intelligroup that will define our responsibilities
regarding the following:
- Indemnification against certain liabilities, including liabilities for
taxes;
- Corporate transitional matters, including the transfer of assets and
liabilities under employee benefit plans;
- Space sharing and other administrative services; and
- Allocation of taxes.
These agreements were negotiated before the spin-off and thus were
negotiated between affiliated parties. We believe that the terms of these
agreements equitably reflect the benefits and costs of our ongoing relationship
with Intelligroup. However, we cannot assure you that any of these agreements,
or that any of the transactions provided for in these agreements, were effected
on terms at least as favorable to us or to Intelligroup as could have been
obtained from unaffiliated third parties. See "Relationship With Intelligroup"
for a summary of such agreements, arrangements and transactions.
Following the spin-off, additional or modified agreements, arrangements and
transactions may be entered into by us and Intelligroup. Any such future
agreements, arrangements and transactions will be determined through
arm's-length negotiation between the parties.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.
Arthur Andersen LLP has issued an opinion to Intelligroup to the effect
that, among other things, the spin-off should qualify as a tax-free spin-off to
Intelligroup's shareholders and Intelligroup under Section 355 of the Internal
Revenue Code. The following is a summary of the material federal income tax
consequences to Intelligroup's shareholders and Intelligroup expected to result
from the spin-off.
- An Intelligroup shareholder should not recognize any taxable gain or loss
as a result of the spin-off.
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<PAGE> 27
- An Intelligroup shareholder should apportion the tax basis for his
Intelligroup stock on which our common stock is distributed between the
Intelligroup stock and our common stock received in the spin-off in
proportion to the relative fair market values of Intelligroup stock and
our common stock on the date of the spin-off.
- The holding period for our common stock received by an Intelligroup
shareholder in the spin-off should include the period during which he or
she held the Intelligroup stock on which our common stock is distributed,
provided that the Intelligroup stock is held as a capital asset by such
holder on the date of the spin-off.
- Intelligroup should not recognize any gain or loss as a result of the
spin-off.
Current Treasury regulations require each Intelligroup shareholder who
receives our common stock in the spin-off to attach to his or her federal income
tax return for the year in which the spin-off occurs, a detailed statement
setting forth such data as may be appropriate in order to show the applicability
of Section 355 of the Internal Revenue Code to the spin-off. Intelligroup will
provide the appropriate information to each shareholder of record as of the
spin-off record date.
The summary of federal income tax consequences set forth above is for
general information only and may not be applicable to shareholders who receive
their shares of our common stock through the exercise of employee stock options
or otherwise as compensation or who are otherwise subject to special treatment
under the Internal Revenue Code. All shareholders should consult their own tax
advisors as to the particular tax consequences to them, including the
applicability and effect of state, local and foreign tax laws.
REASONS FOR FURNISHING THIS INFORMATION STATEMENT.
This information statement is being furnished by Intelligroup solely to
provide information to Intelligroup shareholders about, subject to the
satisfaction of the spin-off conditions, the receipt of our common stock
pursuant to the spin-off. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any of our securities or those of
Intelligroup. The information contained in this information statement is
believed by us and Intelligroup to be accurate as of the date set forth on its
front cover. Changes may occur after that date, and neither we nor Intelligroup
will update the information except in the normal course of our respective public
disclosure practices.
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<PAGE> 28
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual and as adjusted basis. The as adjusted information reflects the
spin-off as if the spin-off had occurred on December 31, 1999.
Notes payable to parent represents $8.4 million payable to Intelligroup as
of December 31, 1999. As of such date, our long-term debt was $618,000. You
should read this table in conjunction with "Selected Historical Financial Data,"
our historical financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which appear elsewhere in this information statement.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Notes payable to parent..................................... $ 8,397 $ 8,397
======= =======
Long-term debt.............................................. 618 618
======= =======
Shareholder's equity
Common stock: $0.01 par value 40,000,000 shares authorized:
outstanding 15,949,000 as adjusted(1)..................... -- 159
Additional paid-in capital.................................. -- 7,091
Parent company investment(2)................................ 7,250 --
Accumulated comprehensive loss.............................. (2,280) (2,280)
------- -------
Total shareholder's equity............................. 4,970 4,970
------- -------
Total capitalization................................... $13,985 $13,985
======= =======
</TABLE>
- ---------------
(1) Excludes 3,236,092 SeraNova options and vested Intelligroup options as of
December 31, 1999 which may be exercised prior to spin-off, the number of
which will not be ascertainable until the spin-off. (See Note 10 of Notes to
Combined Financial Statements.) Also excludes 809,388 shares issued by
SeraNova in a private placement to four institutional investors in March
2000. (See Note 13 of Notes to Combined Financial Statements.)
(2) At the time of the spin-off, the parent company investment will be converted
to common stock and additional paid-in capital.
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<PAGE> 29
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data for all periods reflects the
combined results of operations and financial condition of Intelligroup's
Internet services business as if we had existed as a corporation separate from
Intelligroup during the periods presented. The selected historical data includes
the historical assets, liabilities, revenue and expenses directly related to our
operations that were either specifically identified or in the case of certain
selling, general and administrative expenses, allocated using methodologies
which took into consideration the ratio of our revenue to the consolidated
revenue of Intelligroup, headcount, occupancy or other appropriate factors. You
should read the selected historical financial data together with our financial
statements and the sections of this information statement entitled
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
We derived the selected financial data presented below from our combined
financial statements described in this paragraph. Arthur Andersen LLP,
independent public accountants, audited our combined financial statements as of
December 31, 1999 and 1998 and for the year ended December 31, 1999, the nine
months ended December 31, 1998 and the year ended March 31, 1998. Their report
relating to such audits appears on page F-2 of this information statement. The
historical financial data set forth below for the fiscal year ended March 31,
1997 are derived from the Company's audited combined financial statements not
included in this information statement. The historical financial data set forth
below for the fiscal year ended March 31, 1996 are derived from the Company's
unaudited combined financial statements. In our opinion, these unaudited
combined financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information.
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<PAGE> 30
SERANOVA, INC. AND AFFILIATES
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
------------ ------------ -----------------------------------
1999(3) 1998(1) 1998 1997 1996
------------ --------------- --------------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $39,795 $12,438 $8,995 $9,200 $9,347
Cost of sales........................ 22,475 7,315 4,797 4,949 4,664
------- ------- ------ ------ ------
Gross profit......................... 17,320 5,123 4,198 4,251 4,683
------- ------- ------ ------ ------
Selling, general and administrative
expenses........................... 17,605 5,106 3,812 4,092 3,576
Depreciation and amortization........ 1,131 102 133 150 119
------- ------- ------ ------ ------
Total operating expenses.... 18,736 5,208 3,945 4,242 3,695
------- ------- ------ ------ ------
Operating income (loss).............. (1,416) (85) 253 9 988
Other income (expense), net.......... (80) (66) 13 (80) 13
------- ------- ------ ------ ------
Income (loss) before income taxes.... (1,496) (151) 266 (71) 1,001
Provision (benefit) for income
taxes.............................. (235) 401 519 172 470
------- ------- ------ ------ ------
Net income (loss).................... $(1,261) $ (552) $ (253) $ (243) $ 531
======= ======= ====== ====== ======
Unaudited pro forma net loss per
common share -- basic and
diluted(2)......................... $ (0.08)
=======
Shares used in per share calculation
of unaudited pro forma net
loss -- basic and diluted(2)....... 15,949
=======
BALANCE SHEET DATA: (AT PERIOD END)
Cash................................. $ 611 $ 677 $ 368 $ 635 $1,237
Working capital (deficit)............ (776) (424) 145 565 1,152
Total assets......................... 18,880 5,775 3,216 2,402 4,026
Long-term debt....................... 618 -- 219 521 523
Shareholder's equity................. 4,970 392 241 536 925
</TABLE>
- ---------------
(1) Effective April 1, 1998, the Company changed its fiscal year from March 31
to December 31.
(2) See Note 2 to SeraNova's combined financial statements.
(3) On January 8, 1999, Intelligroup, Inc. acquired the common stock of Network
Publishing, Inc. in a purchase business combination. The results of
operations of Network Publishing, Inc. have been included above since the
date of acquisition. Pro forma results for the period January 1, 1999 to
January 7, 1999 are not material to SeraNova's combined financial statements
for the year ended December 31, 1999.
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<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our combined
financial statements and the notes related to combined financial statements
contained elsewhere in this information statement. This discussion contains
forward-looking statements that involve risks and uncertainties. SeraNova's
actual results could differ materially from those anticipated by such
forward-looking information due to competitive factors and other factors
discussed under "Risk Factors" and elsewhere in this information statement.
OVERVIEW
SeraNova provides professional services, primarily in the area of
business-to-business interactions on the Internet. Business-to-business
interactions include communications and commerce conducted between a company and
its customers, suppliers and partners. We offer a comprehensive set of services,
including strategy consulting, creative design, technology implementation and
management of Internet applications for our customers. Our revenues are derived
primarily from providing professional services to clients who are redefining
their existing businesses on the Internet platform, or emerging start-up
companies that have the potential to become leaders in their respective markets.
We believe that to become competitive in this new medium, enterprises need to
transform their business models and execution strategy. Accordingly, we take a
consultative approach to our sales process. A team consisting of a salesperson,
a relevant vertical industry expert and the appropriate solutions expert guides
the prospective customer through the decision-making process. Strategy
consulting, which includes business analysis and project definition, is
typically performed at the client's site. A significant part of our creative
design and technology implementation is provided from one of our delivery
centers. Most of the services we provide are for clients within the United
States. In addition to our domestic offices, we maintain a presence in multiple
locations in the Asia-Pacific region, India and the United Kingdom.
We generally bill our services based on the actual time spent providing
services. For the year ended December 31, 1999, approximately 95% of our
revenues were derived from such time and materials contracts and arrangements.
Revenues related to time and materials contracts are typically recognized when
the services are provided. Revenues with respect to fixed-price contracts are
recognized in proportion to the costs incurred. In the year ended December 31,
1999, only one client accounted for more than 10% of our revenues. American
Express accounted for approximately 28% of the total revenues for the year ended
December 31, 1999. Six clients, including American Express, accounted for
approximately 50% of total revenue for the year ended December 31, 1999. We
anticipate that such client concentration will continue for the foreseeable
future. To effectively address the market demand, and to remain competitive, our
clients tend to pursue multiple Internet initiatives at the same time. By
proactively developing a strong relationship with our key clients, we expect to
benefit from such initiatives, but to the extent our significant clients use
fewer of our services or terminate their relationship with us, our revenues
could decline materially. This could result in a significant negative impact on
our business and operations. Our results from quarter to quarter may vary based
upon various factors such as changes in our pricing policies, variations in
billing margins and personnel utilization rates, length of our sales cycle, our
ability to recruit technical personnel, the acceptance of our new services
offerings and fluctuation in foreign exchange rates.
Our cost of sales represent the costs to provide our professional services
and include compensation, benefits, consultant-training and expenses incurred by
our personnel that are not billable to our clients. They do not include expenses
relating to our sales and marketing efforts. Given the supply-constrained
market, we anticipate that our cost per professional will increase in future
quarters. Our typical client engagement lasts between three and six months, and
any early termination or postponement of a large project or of several projects
could significantly impact revenues in any given quarter and result in lower
gross margins.
Selling, general and administrative expenses include costs associated with
a range of sales and sales support functions such as salaries, commissions and
related expenses for our salesforce; salaries and bonuses of executives,
marketing, information technology, human resources and other administrative
personnel; marketing expenses, facilities costs, technology expenditures,
professional services and fees and other general
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<PAGE> 32
corporate costs. Beginning in the fourth quarter of 1999, we made, and
anticipate making, significant marketing investments to build a visible SeraNova
brand among prospects and potential employees, and to reorganize our sales
process. To that end, we have retained Mueller Shields, a leading sales and
marketing strategy firm, based in Los Angeles. While some of these expenses may
occur only one time, a significant portion of these expenses should continue to
be part of our selling, general and administrative expenses, whether the
services are provided by Mueller Shields or otherwise. More than 85% of Mueller
Shields's fees will be paid on a time and materials basis. In addition, we
anticipate developing Digital Vision Labs in New York City and San Francisco.
The Digital Vision Labs will enable us to demonstrate our vision for the new or
business-to-business paradigms on the Internet, and serve as a
client-interaction facility. We expect selling, general and administrative
expenses to increase in absolute dollars, and increase in the short term as a
percentage of revenue, as we invest in new infrastructures and strategic
initiatives and incur additional costs required to grow our business and
operations.
We expect to incur significant sales and marketing, infrastructure
development and general and administrative expenses. As a result, we anticipate
losses through at least the third quarter of 2000. In order to achieve
profitability, we will need to control costs associated with building an
infrastructure as well as increase our revenues. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. We cannot assure you that we will be
able to contain costs, grow revenue or increase profitability.
In November 1998, Intelligroup acquired Azimuth Consulting Limited, Azimuth
Holdings Limited, Braithwaite Richmond Limited and Azimuth Corporation Limited
(the "Azimuth Companies"), by exchanging 902,928 shares of Intelligroup common
stock for all the common stock of the Azimuth Companies. The acquisition of the
Azimuth Companies was accounted for as a pooling of interests. Accordingly, all
prior period combined financial statements contain the financial results and
financial position of Azimuth Companies. In January 1999, Intelligroup acquired
Network Publishing, Inc., a Utah based Internet consulting firm, for a
combination of cash paid up front and an additional consideration amount payable
upon the achievement of certain operating results. In July 1999, Intelligroup
and the owners of Network Publishing, Inc. agreed that this additional
consideration was approximately $2.43 million, and would no longer be contingent
on any operating performance. However, Intelligroup at its discretion, could pay
the amount either in cash, or in its common stock. Intelligroup paid
approximately $340,000 in cash and issued 99,558 shares in connection with such
agreement on January 8, 2000. This acquisition has been accounted for using the
purchase method. The excess of the purchase price over net tangible assets
acquired has been allocated to intangible assets and goodwill and is being
amortized over five years. The financial results of Network Publishing, Inc.
have been included in the combined financial statements since the date of
acquisition. The management and operations of the Azimuth Companies and Network
Publishing, Inc. have now been integrated into SeraNova. SeraNova's U.S.
Internet business commenced in mid 1997. Prior to such period, all operating
results are those of the Azimuth Companies.
Prior to September 1999, Intelligroup did not account for our business as a
separate unit or division. In presenting our historical financial statements for
all periods, we specifically identified all revenue, cost of sales, other income
(expense) and certain selling, general and administrative expenses incurred by
Intelligroup on our behalf. Other selling, general and administrative expenses
were allocated using methodologies which took into consideration the ratio of
our revenue to the consolidated revenue of Intelligroup, head count, occupancy
and other factors. However, we cannot assure you that our historical financial
information prior to December 31, 1999 necessarily reflects what the results of
operations, financial position and cash flows would have been had we been a
separate company, or is indicative of our future results of operations,
financial positions and cash flows.
27
<PAGE> 33
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE-MONTH FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................................... $39,795 $12,438 $8,995
Cost of sales.......................................... 22,475 7,315 4,797
------- ------- ------
Gross profit......................................... 17,320 5,123 4,198
Operating expenses:
Selling, general and administrative expenses........... 17,605 5,106 3,812
Depreciation and amortization.......................... 1,131 102 133
------- ------- ------
Total operating expenses.......................... 18,736 5,208 3,945
------- ------- ------
Operating income (loss)........................... (1,416) (85) 253
Other income (expenses), net:
Interest expense....................................... (82) (14) (10)
Other income (expense), net............................ 2 (52) 23
------- ------- ------
Total other income (expenses), net................ (80) (66) 13
------- ------- ------
Income (loss) before income taxes...................... (1,496) (151) 266
Provision (benefit) for income taxes................... (235) 401 519
------- ------- ------
Net loss............................................. $(1,261) $ (552) $ (253)
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE-MONTH FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------ ------------ ----------
<S> <C> <C> <C>
As a Percentage of Revenues:
Revenues............................................... 100.0% 100.0% 100.0%
Cost of sales.......................................... 56.5 58.8 53.3
----- ----- -----
Gross profit......................................... 43.5 41.2 46.7
Operating expenses:
Selling, general and administrative expenses........... 44.2 41.1 42.4
Depreciation and amortization.......................... 2.9 0.8 1.5
----- ----- -----
Total operating expenses.......................... 47.1 41.9 43.9
----- ----- -----
Operating income (loss)........................... (3.6) (0.7) 2.8
Other income (expenses), net:
Interest expense..................................... (0.2) (0.1) (0.1)
Other income (expense)............................... 0.0 (0.4) 0.3
----- ----- -----
Total other income (expenses), net................ (0.2) (0.5) 0.2
----- ----- -----
Income (loss) before income taxes...................... (3.8) (1.2) 3.0
Provision (benefit) for income taxes................... (0.6) 3.2 5.8
----- ----- -----
Net loss............................................. (3.2)% (4.4)% (2.8)%
===== ===== =====
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
Revenues. Revenues increased by $27.4 million, to $39.8 million for the
year ended December 31, 1999 compared with $12.4 million for the nine-month
period ended December 31, 1998. This increase would equate to $23.3 million, or
141.2%, if the nine-month period were annualized. The increase in revenue is the
result of an increase in the number of clients and an increase in the average
size of engagements, as well as the acquisition of Network Publishing, Inc. on
January 8, 1999. Network Publishing, Inc. accounted for approximately $5.9
million, or 14.8%, of total revenue for the year ended December 1999. U.S. based
revenue, exclusive of Network Publishing, increased $15.5 million during the
year ended December 31, 1999 to $21.5
28
<PAGE> 34
million from $6.0 million for the nine-month period ended December 31, 1998.
U.S. billing rates increased by 5.4% and the number of billable consultants
increased from 153 to 249, or 62.8%, for the year ended December 31, 1999. The
Azimuth Companies' revenue increased by $2.8 million, or 32.3% for the year 1999
as compared with an annualized 1998. This increase in sales is due to Azimuth's
expansion into additional foreign markets.
Gross profit. Gross profit represents revenues less cost of sales. Cost of
sales consists primarily of salaries and associated employee benefits for
personnel directly assigned to client projects and non-reimbursed direct
expenses incurred to complete projects. For the year ended December 31, 1999,
gross profit increased by $12.2 million to $17.3 million from $5.1 million in
the nine months ended December 31, 1998. This increase would equate to a $10.5
million, or 153.6% for the year 1999 versus an annualized 1998. The primary
reasons for this increase is the expansion of U.S. operations, the addition of
Network Publishing, Inc. in January 1999, and an increase in profitability in
the Azimuth Companies' operations. U.S. operations, exclusive of Network
Publishing, increased by $4.8 million during the year ended December 31, 1999
compared to the nine-month period ended December 31, 1998 or $4.1 million
(151.8%) compared to an annualized 1998. Network Publishing contributed $4.1
million of gross profit during the year 1999. The Azimuth Companies gross profit
increased from $3.1 million during the nine months ended December 31, 1998 to
$5.7 million for the year ended December 31, 1999. This is a 38.0% increase of
1999 over 1998 on an annualized basis. Gross profit as a percentage of total
revenues increased by 2.3% to 43.5% for 1999 as compared to 41.2% for the nine
months ended December 31, 1998. The gross profit percentage is primarily
affected by two factors: the overall utilization of consulting personnel and
average billing rates less consultant payroll rates. Employee utilization could
be impacted by multiple factors including increases in recruiting, rapid growth
or reduction of number or size of projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses include sales and administrative salaries and related
benefit costs, occupancy costs, professional fees, and other costs. These
expenses increased $12.5 million, or 245.0%, to $17.6 million for the year ended
December 31, 1999 from $5.1 million in the nine month period ended December
1998. This would equate to an increase of $10.8 million, or 158.8%, for the year
1999 over an annualized 1998. Selling, general and administrative expenses
increased slightly as a percentage of total sales to 44.2% for the year ended
December 31, 1999 compared to 41.1% for the nine months ended December 31, 1998.
The primary reasons for the large increase in actual selling, general and
administrative expenses during 1999 as compared with an annualized 1998 were: 1)
costs associated with the acquisition of Network Publishing, Inc., 2) the
continued investment in the expansion of U.S. operations, 3) an emphasis on
marketing and development of SeraNova during 1999 and 4) costs associated with
the spin-off of SeraNova.
Depreciation and amortization. Depreciation and amortization increased
$1.0 million, or 1008.8%, to $1.1 million for the year ended December 31, 1999
from $102,000 in the nine months ended December 31, 1998. This would equate to
an increase of $995,000, or 731.6% based on an annualization of 1998. The
primary reasons for the significant increase in depreciation and amortization
during 1999 are the acquisition of Network Publishing and the expansion of U.S.
based operations. Amortization of goodwill and intangible assets related to the
acquisition were $569,000 for 1999 plus depreciation of $279,000 from Network
Publishing operations. Depreciation related to U.S. operations increased by
$165,000 during 1999 as compared to the nine months ended December 31, 1998.
Other income (expense), net. Other income (expense), net decreased
$14,000, or 21.2%, to a net expense of $80,000 for the year ended December 31,
1999 as compared to a net expense of $66,000 for the nine months ended December
31, 1998. The decrease is primarily the result of additional interest expenses
of $77,000 in 1999 from Network Publishing operations.
Provision for income taxes. Income tax expense represents combined
federal, state and foreign taxes. Our income tax benefit is $235,000 on pretax
losses of $1.5 million for the year ended December 31, 1999 compared to a tax
provision of $401,000 on pretax loss of $151,000 for the comparable period in
1998. The effective tax rate for the year ended 1999 was (15.7)% as compared
with 265.5% for the nine months ended December 31, 1998. The low effective tax
rate benefit for 1999 was due to income taxes incurred in certain
29
<PAGE> 35
foreign countries which were not able to be offset against domestic operations.
The high effective tax rate for 1998 was due to income taxes incurred by the
Azimuth Companies that were not able to be offset against losses in other
foreign jurisdictions. Our India operation, which commenced in the fourth
quarter of 1999, has a tax holiday for ten years, thus no income taxes have been
provided on their earnings.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1998
Revenues. Revenues increased $3.4 million, or 38.3%, to $12.4 million for
the nine-month period ended December 31, 1998 from $9.0 million for the
twelve-month period ending March 31, 1998. This increase would equate to an
increase of $7.5 million, or 84.4%, if the nine-month period was annualized.
This increase is due primarily to the rapid expansion of U.S. operations from
start up in the last calendar quarter of 1997. U.S. revenues increased by $3.9
million to $6.0 million for the nine-month period ended December 31, 1998
compared to $2.1 million for the twelve-month period ended March 31, 1998.
Revenues from foreign operations were relatively equal for the nine-month period
ended December 31, 1998 and the twelve month period ended March 31, 1998 at $6.4
million and $6.9 million, respectively. Annualization of the nine-month period
ended December 31, 1998 would equate to an increase of 23.2% over the
twelve-month period ended March 31, 1998. Revenue increases were the result of
growth in both the size and number of client projects.
Gross profit. Gross profit increased $924,000, or 22.0%, to $5.1 million
over the nine-month period ending December 31, 1998 from $4.2 million for the
twelve month period ended March 31, 1998. Annualization of the nine-month period
would equate to an increase of $2.6 million, or 62.7% over the twelve-month
period ended March 31, 1998. These increases are primarily attributable to rapid
expansion of U.S. operations during 1998. Gross profit from U.S. operations
increased $1.3 million for the nine-month period ending December 31, 1998
compared with the twelve-month period ended March 31, 1998. Gross profit as a
percentage of total revenues decreased to 41.2% for the nine-month period ended
December 31, 1998 from 46.7% for the twelve-month period ended March 31, 1998.
The decrease in gross margin percentage is primarily due to lower utilization
rates attained during expansion of the U.S. operations and, therefore, higher
costs as compared with the established foreign operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.3 million, or 34.0%, to $5.1 million in the
nine-month period ended December 31, 1998 from $3.8 million for the twelve-month
period ended March 31, 1998. This increase would equate to an increase of $3.0
million, or 78.6%, if the nine-month period were annualized. Selling, general
and administrative expenses decreased as a percentage of total revenue to 41.1%
for the nine-month period ended December 31, 1998 from 42.4% for the
twelve-month period ended March 31, 1998. The increase in actual dollars is
primarily due to the additional investment in U.S. operations and a one-time
charge of $659,000 incurred in the nine months ended December 31, 1998. This one
time charge is for legal and accounting fees associated with the sale of the
Azimuth Companies to Intelligroup, Inc.
Depreciation and amortization. Depreciation and amortization decreased
$31,000, or 23.6%, to $102,000 in the nine-month period ended December 31, 1998
from $133,000 in the twelve-month period ended March 31, 1998. If the nine-month
period were annualized, depreciation and amortization would increase $3,000, or
1.9% to approximately $136,000. This increase in depreciation and amortization
expense over the twelve-month period was due to an increase in depreciation on
the increased asset base in the U.S. somewhat offset by a reduction in
depreciation expense on foreign operations. The decrease in foreign depreciation
expense is primarily due to a smaller asset base.
Other income (expense), net. Other income (expense) decreased $79,000, or
597.8%, to a net expense of $66,000 in the nine-month period ended December 31,
1998 from a net income of $13,000 in the twelve-month period ended March 31,
1998. If the nine-month period were annualized to twelve months, the decrease
would be approximately $101,000. The decrease is principally due to losses
incurred on currency fluctuations relating to foreign operations during the
nine-month period ended December 31, 1998 compared with gains on currency
fluctuations during the comparative twelve-month period ended March 31, 1998.
Provision for income taxes. Income tax expense represents combined
federal, state and foreign taxes. Our income tax provision was $401,000 on
pretax losses of $151,000 for the nine-month period ended
30
<PAGE> 36
December 31, 1998 compared with $519,000 on pretax profits of $266,000 for the
twelve-month period ended March 31, 1998. The high effective income tax rates in
these periods were due to income taxes incurred by the Azimuth Companies in
certain foreign countries that were not able to be offset against losses in New
Zealand.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly
financial information for each of the eight most recent quarters in the period
ended December 31, 1999. This information is derived from our unaudited
financial statements that include, in our opinion, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
results of operations for such periods. This table should be read in conjunction
with the audited Combined Financial Statements and Notes thereto beginning on
page F-1 of this information statement.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $12,722 $10,471 $8,614 $7,988 $4,811 $4,169 $3,525 $2,873
Cost of sales................... 6,869 6,091 4,866 4,649 2,898 2,534 1,924 1,604
------- ------- ------ ------ ------ ------ ------ ------
Gross profit.................. 5,853 4,380 3,748 3,339 1,913 1,635 1,601 1,269
Operating expenses:
Selling, general and
administrative expenses..... 7,808 3,698 3,373 2,726 2,327 1,525 1,250 1,178
Depreciation and
amortization................ 501 350 145 135 75 2 45 29
------- ------- ------ ------ ------ ------ ------ ------
Total operating expenses...... 8,309 4,048 3,518 2,861 2,402 1,527 1,295 1,207
------- ------- ------ ------ ------ ------ ------ ------
Operating income (loss)....... (2,456) 332 230 478 (489) 108 306 62
Other (expenses) income, net.... (43) (5) (13) (19) (156) 106 (12) 43
------- ------- ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes......................... (2,499) 327 217 459 (645) 214 294 105
Provision (benefit) for income
taxes......................... (684) 205 65 179 (69) 420 67 181
------- ------- ------ ------ ------ ------ ------ ------
Net income (loss)............... $(1,815) $ 122 $ 152 $ 280 $ (576) $ (206) $ 227 $ (76)
======= ======= ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Revenues:
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 54.0 58.2 56.5 58.2 60.2 60.8 54.6 55.8
------- ------- ------ ------ ------ ------ ------ ------
Gross profit.................. 46.0 41.8 43.5 41.8 39.8 39.2 45.4 44.2
Operating expenses:
Selling, general and
administrative expenses..... 61.4 35.3 39.2 34.1 48.3 36.6 35.5 41.0
Depreciation and
amortization................ 3.9 3.3 1.7 1.7 1.6 0.1 1.2 1.0
------- ------- ------ ------ ------ ------ ------ ------
Total operating expenses...... 65.3 38.6 40.9 35.8 49.9 36.7 36.7 42.0
------- ------- ------ ------ ------ ------ ------ ------
Operating income (loss)....... (19.3) 3.2 2.6 6.0 (10.1) 2.5 8.7 2.2
Other (expenses) income, net.... (0.3) (0.1) (0.2) (0.2) (3.3) 2.5 (0.3) 1.5
------- ------- ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes......................... (19.6) 3.1 2.4 5.8 (13.4) 5.0 8.4 3.7
Provision (benefit) for income
taxes......................... (5.4) 2.0 0.8 2.2 1.4 10.1 2.0 6.3
------- ------- ------ ------ ------ ------ ------ ------
Net income (loss)............... (14.2)% 1.1% 1.6% 3.6% (12.0)% (5.1)% 6.4% (2.6)%
======= ======= ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to fund working capital needs and
capital expenditures in order to support revenue growth. Historically,
SeraNova's business has operated as a division or subsidiary of
31
<PAGE> 37
Intelligroup. As a result, Intelligroup has managed most of our cash, capital
resources and cash management functions. We have not independently maintained or
managed any cash or independently sought external sources of financing.
Following the proposed spin-off, we intend to maintain a separate and
independent cash management system, as well as seek separate financing. See
"Relationship with Intelligroup."
For the year ended December 31, 1999, net cash used in operating activities
totaled $6.1 million. Cash was provided by $1.1 million from depreciation and
amortization, $410,000 from accrued payroll and related costs increase and
$288,000 from an increase in accounts payable. This was offset by a $3.8 million
increase in accounts receivable, a $2.7 million increase in unbilled services
and a net loss from operations of $1.3 million. The increase in accounts
receivable and unbilled services was primarily due to the increased operations
within the U.S. and the acquisition of Network Publishing, Inc. In the nine
months ended December 31, 1998, net cash used in operating activities was
$466,000. The principal uses of funds were the net loss of $552,000, an increase
in accounts receivable of $1.1 million, an increase in unbilled services of
$648,000 and an increase of $174,000 in other current assets. This was offset by
an increase in accounts payable of $250,000 and increases in accrued expenses of
$1.4 million.
We had capital expenditures for the year ended December 31, 1999 and the
nine months ended December 31, 1998 of $2.2 million and $603,000, respectively,
for computers, furniture, equipment and leasehold improvements. Capital
expenditures are expected to continue to be significant for the first six months
of 2000.
On January 8, 1999, Intelligroup acquired all of the shares of outstanding
capital stock of Network Publishing, Inc. The acquisition was accounted for
utilizing the purchase method of accounting. The purchase price included an
initial cash payment in the aggregate of $1.8 million together with a cash
payment of $200,000 to be held in escrow and acquisition costs of $165,000 and
resulted in costs in excess of fair value of net tangible assets acquired of
$1.6 million. In addition, the purchase price also included an earnout payment
of up to $2.2 million in restricted shares of Intelligroup and up to $354,000 in
cash. In July, 1999, Intelligroup and the former shareholders of Network
Publishing, Inc. agreed to amend the agreements to eliminate the earnout and fix
the additional consideration amount to $2.4 million payable at the option of
Intelligroup in common stock or cash. As of December 31, 1999, SeraNova recorded
this transaction as an addition to goodwill. On January 8, 2000, Intelligroup
made a cash payment of $340,000 with the balance paid in Intelligroup common
stock to satisfy the obligation.
The foregoing cash flows are not necessarily indicative of the cash flows
that would have resulted if we were a separate entity.
Notes Payable to Parent represents a calculation of net borrowings from the
Parent. Although no formal note existed, SeraNova has agreed to repay such
amounts. On January 1, 2000, such borrowings were converted to amounts repayable
by SeraNova to a bank under a revolving credit facility agreement of
Intelligroup, Inc. Effective January 1, 2000, SeraNova became a co-borrower
under Intelligroup's revolving credit agreement with a bank. The amount
available under the revolving credit facility is up to $15,000,000 in the
aggregate with a sublimit of up to $10,000,000 available to SeraNova.
Intelligroup and SeraNova are jointly and severally liable under the agreement.
In the event Intelligroup requests and the bank approves a change in control of
the ownership of SeraNova as contemplated by the spin-off, all SeraNova's
obligations due under the agreement become due and payable.
As of December 31, 1999, the aggregate outstanding advances against the
revolving credit facility were $10.6 million. SeraNova's portion of the
outstanding balance as of December 31, 1999, was $8.4. All amounts due to the
bank from SeraNova's portion will be paid prior to the spin-off and upon receipt
of payment by the bank, the bank will release SeraNova from all obligations
under the credit facility.
Originally, on January 29, 1999, Intelligroup entered into a three-year
revolving credit facility agreement (the "Credit Agreement") with a bank. The
Credit Agreement with the bank was comprised of a revolving line of credit
pursuant to which Intelligroup may borrow up to $30,000,000 either at the bank's
prime rate per annum or the EuroRate plus 2% (at the Parent's option). The
Credit Agreement contained certain covenants which, among other things, required
Intelligroup to (i) maintain a minimum Consolidated Cash Flow
32
<PAGE> 38
Leverage Ratio, (ii) maintain a minimum Consolidated Net Worth, and (iii)
maintain a minimum Fixed Charge Coverage Ratio, all as defined in the Credit
Agreement. At Intelligroup's option, for each loan, interest shall be computed
either at the bank's prime rate per annum or the Adjusted Libor Rate plus the
Applicable Margin, as defined.
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, Intelligroup was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Consolidated Net Worth financial
covenants at June 30, 1999. On August 12, 1999, the bank notified Intelligroup
that such non-compliance constituted an Event of Default under the Credit
Agreement. At September 30, 1999, while Intelligroup was in compliance with the
Consolidated Net Worth financial covenant, it was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio
financial covenants. On January 26, 2000, Intelligroup finalized with the bank
the terms of a waiver and amendment to the Credit Agreement to remedy defaults
which existed under the Credit Agreement. The terms of the waiver and amendment
include, among other things, (i) a $15,000,000 reduction in availability under
the Credit Agreement, (ii) a first priority perfected security interest on all
assets of Intelligroup and its domestic subsidiaries and (iii) modification of
certain financial covenants and a waiver of prior covenant defaults.
On March 14, 2000, we entered into a purchase agreement with four
institutional investors pursuant to which such investors purchased an aggregate
of 50 shares of our common stock at a price per share of $200,000, for an
aggregate purchase price of $10,000,000. Additionally, we may, at our option,
sell an additional 25 shares of our common stock for an additional $5,000,000 to
another investor. We intend to use such proceeds for working capital and general
corporate purposes, including the repayment of approximately $8.4 million of
debt to the bank. We are currently negotiating an asset-based credit facilities
with domestic and foreign commercial banks which are expected to be completed
within the near future. We believe that the net proceeds from the sale of common
stock and from the asset-based credit facilities will be sufficient to fund
capital requirements for the next year. We believe that the planned financing
arrangements, will be sufficient to satisfy our current and planned operations.
There can be no assurance that we will be able to consummate the additional
financing that we require on terms acceptable to us, if at all.
YEAR 2000 COMPLIANCE
We did not experience any significant computer or systems problems relating
to the Year 2000. Upon review of our internal and external systems during 1999,
we determined that we did not have any material exposure to such computer
problems and that the software and systems required to operate our business and
provide our services were Year 2000 compliant. As a result, we did not incur,
and do not expect to incur, any material expenditures relating to Year 2000
systems issues.
33
<PAGE> 39
BUSINESS
OVERVIEW
SeraNova provides professional services, primarily in the area of
business-to-business interactions on the Internet. Business-to-business
interactions include communications and commerce conducted between a company and
its customers, suppliers and partners. We offer a comprehensive set of services,
including strategy consulting, creative design, technology implementation and
management of Internet applications. We create value for our clients by rapidly
developing and deploying Internet applications that enable strategic
business-to-business interactions. We emphasize an integrated service model and
leverage our proprietary methodology, SeraNova's Time-to-Market Approach to
deliver our services. We believe that our services allow our clients to gain a
competitive advantage by enabling them to penetrate existing markets, enter new
markets, create new business opportunities, reduce operational costs, improve
customer service, shorten product development cycles and enhance employee and
organizational efficiency.
We believe we have gained considerable experience and market presence from
completing multiple engagements for Global 1000 companies and Internet start-ups
such as American Express, Audi of America, EMI Music Publishing,
Hewlett-Packard, Liquidprice.com, Medical Internet Solutions, Novell and
Volkswagen Corporation of America.
INDUSTRY BACKGROUND
Growth of Business-to-Business Electronic Commerce
The Internet is one of the fastest growing means of communication, reaching
consumers and businesses globally. Companies are increasingly using the Internet
to improve their core business processes, lower operating costs and acquire new
competencies. Many companies have identified new offerings to extend and
complement their existing products and services. Some companies have adopted the
Internet as the primary platform to conduct business. International Data
Corporation estimates that business-to-business transactions on the Internet
will reach $1.14 trillion by 2003.
Market for Strategic Internet Services
We believe that the Internet represents a revolutionary and powerful
vehicle through which businesses and entire industries will conduct day-to-day
operations. Rapidly changing markets, constantly evolving customer and supplier
relationships, emergence of new technologies, geographically dispersed
operations and demands for increased efficiencies are forcing companies to
re-evaluate their business models. As a result, many senior executives rank
their Internet strategy among their highest corporate priorities.
While companies can realize tremendous value by utilizing the Internet, the
analysis, design and implementation of an effective Internet solution requires a
range of expertise and skills that few businesses possess. To develop successful
and scalable Internet solutions, companies need business strategists, Internet
technology experts, creative designers and application development capabilities.
Given the increasing pressure to bring products and offerings to market quickly,
training in-house employees to learn the requisite skills is impractical. In
addition, hiring and maintaining a full-service staff of trained professionals
can be inefficient and costly. Accordingly, many companies have chosen to
outsource some or all of their Internet services requirements to outside
specialists with strategic consulting, creative and technical expertise. These
outsourcing needs have generated a dramatic demand for Internet professional
services, which International Data Corporation estimates will grow from $7
billion in 1998 to $78.5 billion in 2003.
Challenges in Selecting the Right Internet Solutions Provider
Increased demand for Internet professional services has attracted many
firms to this market. SeraNova believes that many of these firms lack an
integrated set of offerings. For example, many traditional information
technology service providers do not have the creative skills required to create
captivating web-based content and provide a favorable user-experience.
Advertising and marketing firms typically lack the technical expertise
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and integration skills necessary to deliver the increasingly complex solutions
demanded by customers; and strategic consulting firms lack Internet technology
expertise, marketing perspective and implementation capabilities required to
offer comprehensive solutions. In addition, many of these firms lack sufficient
knowledge of their clients' industries and business processes and have limited
experience in delivering complex applications that enable business-to-business
interactions. Furthermore, companies realize that their Internet strategy is
constantly evolving, and often they are forced to pursue several initiatives
simultaneously. Therefore, program management, or the ability to manage multiple
projects and ensure an execution that is coherent with a company's business
goals, is critical to success.
We believe that companies seeking to effectively capitalize on the Internet
require and seek one firm that has a comprehensive suite of service offerings,
such as strategy consulting, creative design, technology implementation and
Internet application management services to achieve a seamless delivery and
management of Internet solutions. Furthermore, to be able to execute a rapid
application deployment, the service provider must leverage an integrated
methodology. We believe many professional service providers do not provide the
full range of services; most providers lack the necessary focus and
technological expertise to build applications required for sophisticated
business-to-business interactions.
THE SERANOVA SOLUTION
Our services include strategy consulting, creative design, technology
implementation and management of Internet applications. We believe we have the
necessary assets to build strategic Internet solutions that enable our clients
to achieve competitive advantages. These key assets include:
- 80 strategy consultants with strong expertise in business-to-business
interactions and knowledge in specific industry markets;
- Information planning and program management experience;
- Full spectrum of business-to-business interaction solutions, such as
customer interaction to electronic procurement and channel management;
- Intimate knowledge of widely-used enterprise software applications and
technologies;
- Interactive designers and creative professionals;
- SeraNova's Time-to-Market Approach, a proprietary methodology that
emphasizes constant innovation and targets a rapid execution; and
- Application management capabilities.
Enterprise Information Portal as a Framework for Business-to-Business
Interactions.
An enterprise information portal is a framework to build scalable Internet
applications for business-to-business interactions. Typically, enterprises
utilize multiple information systems to address a variety of business processes
such as human resources activities, customer relationship management, financial
accounting, procurement and manufacturing. The information systems that manage
these core business processes are often built with disparate technologies, old
and new applications and a variety of information databases. Enterprises today
are faced with certain fundamental challenges. First, they must seamlessly
integrate applications, databases and information systems that reside within the
enterprises. Second, the information systems and business processes then need to
be integrated with the information systems of their customers, suppliers and
business partners. Furthermore, as markets and technologies evolve, enterprises
must be able to cost-efficiently transition into new information systems without
disrupting the strategic business processes. We have developed the enterprise
information portal, which provides a structured approach to new application
development, seamless integration and transition. The enterprise's customers,
suppliers, partners and employees can access the information, and use the
desired applications through customizable browser-based interfaces. While we do
not sell the enterprise information portal as a product, it is a critical
leverage for the professional services we provide. It enables us to effectively
strategize for a specific business-to-business interaction, design a scalable
solution and reduce our time to develop the required Internet application.
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SeraNova Time-to-Market Approach
We use our SeraNova Time-to-Market Approach, our proprietary methodology,
to deliver professional services. The service model divides each client
engagement into five well-defined phases -- eStrategy, discover, plan, implement
and optimize, which provide our consultants with a consistent, yet flexible
approach. Our methodology identifies and prioritizes initiatives, rapidly
delivers them to market, captures valuable market experience and feedback and
immediately applies the feedback to refine the solution. Often, we execute
multiple initiatives within the same client project to effectively adapt to ever
changing market conditions. We believe this process results in a solution that
provides measurable competitive advantage to our clients. Our approach allow us
to identify, capture, and re-use valuable Internet frameworks that we develop in
client projects. We also offer flexible application maintenance and content
management services that maximize the return on investment to our clients.
Global Delivery Model
Internet professional service providers are constantly seeking to shorten
application development time and to recruit professionals to deliver such
services. SeraNova has built a network of global delivery centers spanning
multiple time zones, enabling us to engage in concurrent development and have a
virtual 24-hour work day on client projects. The development centers provide us
with extensive resources that can be quickly deployed on any specific project on
a global basis. We currently have delivery centers in four strategic locations
in the US -- (Edison, New Jersey; Phoenix, Arizona; Provo, Utah; Foster City,
California); a state-of-the-art Internet development center in Hyderabad, India;
and a development center in Wellington, New Zealand.
BUSINESS STRATEGY
We seek to be the leading provider of professional services focused on
business-to-business interactions on the Internet. To that end, we are pursuing
the following strategies:
- BUILD OUR BRAND. We plan to establish and build recognition of the
SeraNova name through an aggressive marketing strategy, which will
emphasize our service offerings targeted to rapidly enable
business-to-business interactions. In addition, we intend to sponsor
seminars and host roundtable discussions that will highlight our
leadership in conceiving innovative solution frameworks such as the
enterprise information portal. We are building digital vision labs, where
we can demonstrate innovative solutions to prospective clients and
industry leaders for their specific markets. Currently we are in the
process of leasing physical spaces in New York City, San Francisco and
London to build these digital vision labs.
- ATTRACT AND RETAIN OUTSTANDING PROFESSIONALS. Our business depends upon
the experience and dedication of our professionals. As an integral part
of our services offerings, we offer our intellectual experience to
clients. Our future growth and our ability to provide a comprehensive
range of innovative Internet professional services are dependent on our
ability to attract and retain highly skilled and experienced
professionals. We are committed to training and developing our
professionals to meet the challenges of the fast-paced environment in
which we perform. We attract business and technical professionals who are
driven by a desire to work on strategic and technically innovative
projects. We plan to retain and motivate our employees through
competitive compensation packages, stock option grants, and a culture
that rewards teamwork and customer-orientation. We place great emphasis
on training our employees and provide numerous career and personal
improvement programs within SeraNova. We reward employees based on merit.
- INTEGRATED FOCUS -- INDUSTRY MARKETS AND BUSINESS-TO-BUSINESS
INTERACTIONS. We are investing to build superior practice groups along
specific industry markets and business-to-business interactions. We
continue to enhance our capabilities in five target industry
markets -- financial services, telecommunications, automotive, technology
and healthcare. Our business-to-business interaction offerings are
organized around suppliers, partners, employees and customers. For
example, our electronic procurement offering focuses on building strategy
and Internet solutions to facilitate the transaction and
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communication between companies and their suppliers. The interactive
customer offering allows us to develop solutions targeted at a company's
customers. We believe an integrated approach, where we combine
business-to-business interaction expertise with industry specific
knowledge allows our consultants to quickly conceive effective solutions
and deliver rapid return on investment to clients.
- STRENGTHEN OUR CLIENT RELATIONSHIPS. We believe in becoming partners in
our clients' success. The online market is in a continuous state of flux.
In such an environment, our long lasting relationships with our clients
become critical in developing sustainable competitive advantages. By
working closely with our clients to define and enhance their Internet
strategies, we believe we can help our clients address challenges and
seize opportunities more effectively. To further strengthen the
relationships with our key clients, we continue to assemble a superior
portfolio of client-driven services offerings. We believe such a focus
results in client-satisfaction, follow-on engagements with existing
clients and referrals for engagements with new clients. Financially, this
strategy results in increased revenue and reduced sales costs.
- WIDEN OUR GLOBAL PRESENCE. We have established a worldwide organization
to support our global customers. Consequently, over the next two years we
intend to enhance our presence within the United States and certain
global markets, driven by the demands of our existing clients, new
customers and strategic acquisitions. Currently, in addition to the US,
we offer services in Europe, Australia, New Zealand, Thailand, India and
Philippines. These markets present us with significant new business
opportunities.
- A COMPREHENSIVE SET OF OFFERINGS. We believe our portfolio of service
offerings is one of the most comprehensive in the Internet professional
services market. We start our client engagements with strategy
consulting, then define project requirements, design and build Internet
applications and finally provide application management services after
deployment. By offering a portfolio of integrated services, we reduce the
development time and maximize the impact, quality, consistency and cost-
effectiveness of the Internet solution for our clients. Our end-to-end
integrated offerings also allow us to increase the potential size of the
opportunity within our client base. We believe SeraNova is one of the
very few Internet professional service providers with a comprehensive
application management offering. This offering allows us to continue our
engagement beyond the implementation phase. Our application management
offering becomes the gatekeeper to other opportunities within an existing
client. We have been awarded multiple projects that resulted from our
continued involvement in the application management phase.
- REFINE AND ENHANCE SERANOVA TIME-TO-MARKET APPROACH AND SOLUTIONS
FRAMEWORKS. We believe a structured approach to our services allows us
to shorten our implementation time, lower our costs and consistently
deliver high-quality products. In all of our projects, we use our
Time-to-Market Approach, our proprietary methodology that enables our
team to formulate strategy, design, implement in a rapid time-frame and
manage the application after deployment. We continue to refine these
processes resulting in further acceleration of the delivery of our
services. In addition, we have developed the enterprise information
portal solution frameworks based upon strategic business-to-business
activities. We capture the firm-wide expertise and knowledge on specific
business-to-business interactions into repeatable and integrated
processes, resulting in faster and more efficient delivery. We continue
to evaluate, identify, test and incorporate new technologies into these
solution frameworks. We believe that continuous enhancement of our
methodology and solution frameworks is critical to maintaining a
competitive advantage in the Internet professional service provider
market.
OUR SERVICES
Our services offerings can be grouped into three areas: strategy
consulting, business-to-business interaction solutions and application
management. These offerings have been assembled to deliver complete integrated
solutions and they represent our view of how successful Internet strategies and
solutions are deployed.
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Strategy Consulting
Changing market places and competitive pressures are forcing companies to
pursue multiple Internet initiatives at the same time. Often they pursue these
initiatives in an isolated and uncoordinated manner, ignoring the opportunity to
integrate them with a broader corporate strategy. Our strategy consultants work
with clients to first help define their competitive positioning and then tailor
a strategy that is designed to provide them measurable competitive advantage. We
leverage our industry experience and business-to-business interaction knowledge
to formulate executable Internet strategies that are closely tied to the
client's overall business objectives and operations.
Business-to-Business Interaction Solutions
Our solution professionals utilize the strategic plan and recommendations
from our strategy consultants and develop robust technology-based solutions that
are aimed at enabling one or more business-to-business interactions. These
offerings are focused on four primary enterprise stakeholders: suppliers,
partners, employees and customers.
- INTERACTIVE CUSTOMER SOLUTIONS. We believe that the Internet offers our
clients an opportunity to reach customers on a global basis and to target
specific services and products based on their customers' needs. Online
solutions significantly reduce the acquisition cost of new customers. We
implement solutions that enable clients to engage in personalized
interactions with their customers and prospects over the Internet. These
solutions allow our clients to develop enduring relationships with their
customers, practice one-to-one marketing, segment customers based on
their profitability and rapidly grow their online customer base by
attracting and serving prospects with the right information.
- ELECTRONIC PROCUREMENT SOLUTIONS. The Internet has created an
opportunity to re-engineer procurement processes within the online world.
We have created new Internet-enabled procurement processes for
organizations and implemented solutions that automate their online
procurement cycle. These electronic procurement solutions deliver
significant direct cost-savings to our clients as well as indirect
savings resulting from the streamlining of procurement processes, which
have a direct impact on the length of the production cycles.
- EMPLOYEE ENABLEMENT SOLUTIONS. At SeraNova, we have gained significant
experience in designing and implementing Intranet-based solutions that
provide employees with the right information needed to effectively
perform their job.
- CHANNEL MANAGEMENT SOLUTIONS. Our clients interact with multiple
business partners like dealers, resellers, distributors and OEMs. While
the Internet can serve as a cost-effective channel for selling products
and services within certain industries, it can often result in channel
conflicts. For example, automotive manufacturers selling vehicles
directly over the Internet can create a conflict with their dealer
network. Through careful planning and execution, it is possible to
resolve these conflicts and have the Internet and traditional channels
co-exist and often complement each other. We build solutions that expand,
integrate and manage multiple channels.
Application Management
As the complexity and the scope of business-to-business interactions grow,
the underlying content of these applications must be updated and their
functionalities must be expanded. Application management is an integral part of
our end-to-end offering. Following the deployment of an Internet solution, we
provide a comprehensive application management service that addresses content
management, upgrade of applications, additional development, management of
information systems and transition onto new technology platforms. This reduces
security risks and provides reliability that are critical to conduct strategic
business-to-business activities. We perform these functions from our delivery
centers in Phoenix, Arizona; Provo, Utah and Hyderabad, India. Our application
management offering has been received very well with customers and approximately
30% of our new projects include an application management component.
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Our clients can choose to have our application management team work at
their locations or at one of our support facilities or provide 24-by-7
maintenance and support by leveraging our Internet Development Center located in
Hyderabad, India. Most clients choose a combination of the above options to
achieve the right set of services and cost savings. We typically do not host
applications for our clients, unless requested to do so. SeraNova can perform
the required application management services regardless of where the customers'
Internet applications are hosted.
OUR APPROACH AND SOLUTIONS FRAMEWORKS
The markets are transforming fast, and often a company's ability to bring
its product and services to the market defines its success. SeraNova provides
professional services that enable strategic business-to-business interactions on
the Internet and help our clients stay ahead of their competition. In delivering
our professional services, we use our proprietary methodology, our
Time-to-Market approach. Our consultants apply specific solution frameworks to
rapidly develop an Internet solution for a particular business-to-business
activity.
SeraNova Time-to-Market Approach
As our clients' partners in success, we seek to effectively strategize,
design and rapidly deploy Internet solutions. Our proprietary methodology,
SeraNova's Time-to-Market approach consists of five phases: eStrategy, discover,
plan, implement and optimize.
- eSTRATEGY. In this phase we identify enterprise business objectives;
assess opportunities and risks; analyze market and competition; build the
business case; assess impact across the enterprise and suggest required
transformation. Our strategists help companies define metrics for
success, evaluate existing infrastructures and recommend a framework for
technology architecture. This strategy development often identifies
multiple projects that can be executed simultaneously across the
organization. Each of these projects then goes through the four distinct
phases: discover, plan, implement and optimize. One of the key components
of eStrategy is the program management function that allows our team to
manage multiple projects.
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[MARKET APPROACH CHART]
- DISCOVER. In this phase we clearly define the requirements and scope for
a specific project. Based on our client's objectives, our professionals
help our clients choose the appropriate solution framework and relevant
technologies.
- PLAN. During this phase the project team creates an initial layout and
subsequent roadmap to deploy the Internet solution. The project team
carefully plans development objectives and testing plans.
- IMPLEMENT. In the fourth phase, activities center on building and
deploying Internet solutions through incremental releases. Our project
teams perform rigorous testing on each release to ensure proper function
and reliability.
- OPTIMIZE. The optimize phase coincides with the application management
offering. Some of the activities we engage in during our optimize phase
are: return on investment analysis, application support, content
management, maintenance and performance review.
Business-to-Business Interaction Solution Frameworks
A solution framework is a set of guidelines that incorporates best
practices and implementation templates for a specific business-to-business
activity such as procurement or customer-interaction. By incorporating our
experience in developing interactive and integrated Internet solutions for our
clients, these solution frameworks allow us to bring our cumulative expertise to
client engagements, allowing us to leverage our knowledge for the benefit of our
clients. This results in faster and more efficient solution implementations.
At SeraNova, we have developed the enterprise information portal which is
incorporated in of our solution frameworks. This provides a structured approach
to conceive and develop Internet solutions, provide seamless integration with
clients' existing information systems and transition to new technology
platforms. Every constituent of the enterprise -- customers, suppliers, partners
and employees can access the information, and use the desired applications
through customizable browser-based interfaces. There are four key components
within enterprise information portals: user profiles, personalization,
interactions and integration.
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We continue to invest in building reusable component templates within our
solution frameworks. These solution frameworks incorporate best practices for
both planning as well as implementation. They enable our project team to
compress the strategy, design and deployment cycle.
CASE STUDIES
The following case studies illustrate the challenges faced by some of our
customers and the solutions we have provided:
VOLKSWAGEN OF AMERICA: NEW PRODUCT LAUNCH
Volkswagen of America, Inc. markets a full line of Volkswagen and Audi
vehicles manufactured at company plants in Germany and Mexico. In the fall of
1997, Volkswagen of America sought to expand its Internet presence in
preparation for the launch of its new Beetle in January 1998. Volkswagen saw the
Internet as the perfect new medium to redefine its brand identity, to transform
its customer acquisition process and to generate new and sustainable demand.
Our automotive practice began working with Volkswagen's Interactive
Marketing group to reposition Volkswagen's brand and communication identity.
Following a market assessment of Volkswagen's target audience and positioning
strategy, our team executed extensive functional re-design of its website
including building comparitors to compare different models, an online commerce
platform and an innovative configurator for the new Beetle model. These
applications were integrated with Volkswagen's internal business processes such
as product planning and inventory management. We believe our solutions enabled
Volkswagen to achieve a significant online milestone. Both the number of visits
to Volkswagen site and the time spent per visit have doubled (almost 24,000
visits a day) since the launch of new site.
As a result of the success in launching the Beetle, Volkswagen engaged us
to continue enhancing its Internet presence. At present, we are working on
multiple electronic commerce initiatives with Volkswagen, including an on-line
buying system that is completely integrated with sales and distributions systems
of the company and its dealers.
EMI MUSIC PUBLISHING: INTERACTIVE E-COMMERCE
EMI Music Publishing controls the rights to a very large and diverse song
catalog. With approximately one million songs in copyright holdings, EMI Music
is the largest music publisher in the world. EMI licenses songs to advertising
agencies, film companies, multimedia firms and other businesses for use in
television commercials, computer games, movies, corporate presentations and many
other projects that require music. EMI sought to leverage the power of the
Internet to create a completely different customer experience.
In close collaboration with EMI's Creative Services and New Media group,
our team began by determining an Internet strategy that would create a
completely different interactive experience for EMI's customers and enable
commerce via the web. Once the strategy was conceived, our team started building
the website -- www.emimusicpub.com for music professionals to interact with EMI
Publishing. We designed a business center where registered professional users
could access EMI's catalog using a unique search engine, that allowed them to
not only search by traditional categories such as label, artist, year etc., but
also search by "concepts". Today, we are assisting EMI to proactively market to
new customer segments through emimusicpub.com.
SeraNova and EMI continue to bring new innovation to emimusicpub.com. We
are currently building a new generation environment to enable a
customer-licensing process over the web.
LIQUIDPRICE.COM: ONLINE MARKET PLACE CONNECTING BUYERS, MERCHANTS AND
MANUFACTURERS
In July 1999, LiquidPrice.com sought to re-define the business of shopping
for new products. The portal would not only fill a growing need for the
buyers -- "hassle-free shopping at the best price", but would significantly
expand the presence of traditional merchants and add tremendous efficiency to
manufacturers'
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channel management. Buyers can choose their target purchase items from an
extensive catalog of products; merchants and manufacturers bid for buyers'
business.
LiquidPrice.com was on a critical path to launch the site in the United
States by the 1999 Christmas holiday season. Engaged by LiquidPrice.com in
August 1999, our team moved quickly to outline the positioning and created a
strategic roadmap to take them from "idea" to "launch". A four-week strategy
session yielded a complete set of functional requirements. In the following six
weeks, a team of technical architects, creative designers and application
developers built and launched the first version of the site.
While a mid-November launch achieved the first milestone on time, it was
essential for LiquidPrice.com to constantly stay ahead of competition. The
Company has already engaged SeraNova to conceive and build a second generation
site with complete business-to-business integration among partner merchants,
manufacturers and distribution agents.
SIGNIFICANT CLIENTS
We have provided professional services to a variety of clients worldwide in
a range of industries, including financial services, telecommunications,
automotive, technology and healthcare. In addition, we work with a number of
Internet start-up companies. Following is a representative list of our clients
in fiscal year 1999:
<TABLE>
<S> <C> <C>
Financial Services Telecommunication and Automotive
Utilities
American Express Bell Atlantic Volkswagen of America
ASB Bank US Cellular Audi of America
American Investment Bank Philippines Long Distance Subaru of America
New Zealand Telecom
CLEAR Communications
Pacific Gas & Electric
Technology Internet Healthcare
Hewlett Packard LiquidPrice.com Medical Internet Solutions
3 COM UTAH.COM
EMI
Novell
</TABLE>
SALES AND MARKETING
Our sales process is strategic, targeted and comprehensive. Once an
opportunity is identified, a sales manager, accompanied by the appropriate
industry-market specialist and a business-to-business interaction solutions
expert, present a market analysis and business scenario to the client team. We
believe a consultative sales process yields more value for our clients and
allows us to penetrate deep into the client's organization.
Our marketing efforts include communicating with existing customers and
developing relationships with new customers through referrals, requests for
proposals, responses to customer-initiated contacts and contacts initiated by us
with desired customers. A critical focus for us is to build a visible identity
among our customers, prospects, employees and investors. To that end, we have
retained Mueller Shields, a leading sales and marketing consulting firm to
enable us achieve these goals. In addition, they are helping extensively in
generating qualified leads and closing sales. We are seeking to expand the size
and enhance the quality of our sales force. By hiring additional highly
qualified sales personnel, we intend to increase direct sales, build market
awareness, establish name recognition and promote our reputation as a
high-quality, full-service Internet solutions provider. In addition, we intend
to continue to leverage Intelligroup's relationships to generate sales leads for
us.
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The length of the sales cycle varies depending on the type of service and
size of customer, typically ranging from approximately one to three months. Our
direct sales representatives typically have several years of sales experience in
the Internet services industry.
PEOPLE AND CULTURE
As of December 31, 1999, we employed 537 client-team professionals
worldwide. They included strategy consultants, creative designers, technical
architects and application development specialists. At December 1998, we had 212
client-team professionals. At December 31, 1999, our non-client staff included
approximately 33 in sales, 45 in services support and 25 in administrative and
management functions. None of our employees is represented by a labor union.
Substantially all of our employees have executed non-competition agreements.
We recognize that our employees are key to our future success. This future
success is based on (1) an effective recruiting program that attracts
intelligent, creative and entrepreneurial individuals, (2) a strong and coherent
corporate culture, (3) an effective career management program and (4)
equity-ownership for all employees. Substantially all of our employees the
participate in employee stock option program.
RECRUITING
We have dedicated significant resources to our recruiting efforts and
manage it like a sales function. From time to time, we use certain recruiting
consultants to assist our staff recruiters. Our recruiting drive is targeted at
four levels: executive, industry experts, technical and creative. We have
designed specific career development programs for strategy consultants,
technical experts and creative professionals within our company. We aggressively
train and provide numerous career and personal improvement programs within
SeraNova.
ADMINISTRATIVE AND SUPPORT SERVICES
While SeraNova has its own independent support staff for critical functions
such as sales, marketing and recruiting, we anticipate in the short term
Intelligroup will provide a range of support services. For further details,
please see Inter-company Service Agreements discussed elsewhere in this
information statement.
COMPETITION
We compete in rapidly changing markets that are intensely competitive and
highly fragmented. We compete, directly and indirectly, with a variety of
national and regional companies, such as
- Internet professional service providers, including Sapient, Scient,
Viant, Proxicom, iXL and Razorfish.
- Large systems integrators and consulting firms such as Andersen
Consulting and the consulting units of "Big Five" accounting firms.
- General management consulting firms, such as McKinsey & Co., Bain &
Company and Boston Consulting Group.
We believe that the principal competitive factors in the market for
Internet services include technical expertise, breadth of services offerings,
reputation, financial stability and price. To be competitive, we must respond
promptly and effectively to the challenges of technological change, evolving
standards and our competitors' innovations by continuing to enhance our services
offerings and expand our sales channels. Any pricing pressure, reduced margins
or loss of market share resulting from our failure to compete effectively could
materially affect our business.
Many of our current and potential competitors have longer operating
histories and substantially greater financial, marketing, technical and other
resources than do we. As a result, our competitors may be able to adapt more
quickly to changes in customer needs or to devote greater resources to the
provisioning of Internet solutions services. Such competitors may attempt to
build their presence in our markets by forming strategic alliances with other
competitors or our customers, offering new or improved products and services to
our
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customers or increasing their efforts to gain and retain market share through
competitive pricing. In addition, competition for quality technical personnel
has continued to intensify, resulting in increased personnel costs. Such
competition has adversely affected, and is likely to continue to adversely
affect, our gross profits, margins and results of operations. Furthermore, we
believe the barriers to entry into our markets are relatively low, which enable
new competitors to offer competing services. See "Risk Factors -- There Is
Intense Competition in the Internet Services Market."
We believe that we compete successfully by providing comprehensive
solutions for our customers. We deliver creative, innovative, end-to-end
Internet services to help our customers expand their businesses and maintain
their competitive advantage through Internet-driven opportunities. We also
believe that we distinguish ourselves on the basis of our strategic thinking,
technical expertise, competitive pricing, our 24x7 global delivery model and our
ability to understand our customers' needs.
FACILITIES
SeraNova leases various office facilities under operating leases expiring
at various dates through December 31, 2005 (See Notes to the Financial
Statements). Also, we are currently permitted to occupy and use various office
space pursuant to the terms of a space sharing agreement with Intelligroup. Our
principal executive offices are located in Edison, New Jersey. Our headquarters
includes sufficient space for certain of our sales and technical staffs and our
marketing, administrative, finance and management personnel. We maintain offices
in the following locations:
<TABLE>
<CAPTION>
UNITED STATES EUROPE ASIA PACIFIC
- ---------------------- -------------- ------------
<S> <C> <C>
Edison, New Jersey United Kingdom Australia
Foster City, New Zealand
California
Phoenix, Arizona Philippines
Rosemont, Illinois Thailand
Auburn Hills, Michigan India
Provo, Utah
Fayetteville, Georgia
</TABLE>
We believe that our existing facilities are adequate to meet our current
needs and that suitable additional or alternative space will be available in the
future on reasonable terms as needed.
INTELLECTUAL PROPERTY RIGHTS
We do not have and do not rely on registered trademarks or patents to
protect our proprietary information. Instead, we rely primarily on a combination
of copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions.
We have developed specific processes, methodologies and tools underlying
the SeraNova's Time-to-Market Approach. We can not guarantee that steps we have
taken to protect our proprietary rights will be adequate to prevent
misappropriation of our intellectual property.
LEGAL PROCEEDINGS
There are currently no material legal proceedings pending to which we are a
party or to which any of our property is subject.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
At the time of the spin-off, the following individuals are expected to
serve on our board of directors and/or serve as our executive officers or key
employees. Our board of directors may appoint additional executive officers from
time to time.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Rajkumar Koneru............................ 30 Chairman, Chief Executive Officer and
President
Ravi Singh................................. 41 Chief Financial Officer, Executive Vice
President and Director
Rajan Nair................................. 31 Chief Operating Officer
Nagarjun Valluripalli...................... 31 Secretary, Treasurer and Director
Tom Bernetich.............................. 38 Senior Vice President, North America Sales
Donald Moore............................... 38 Senior Vice President, International
Operations
Richard Bevis.............................. 50 Vice President, Marketing
Tarun Chandra.............................. 33 Vice President, Corporate Strategy
Ashok Roy.................................. 28 Vice President, Business Development
</TABLE>
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. All of our executive
officers are elected annually by the board of directors and serve at the
discretion of the board of directors and until their successors are elected and
qualified.
Rajkumar Koneru has been the Chief Executive Officer of SeraNova since its
formation in September 1999. Mr. Koneru joined our parent company, Intelligroup,
in 1994 when his company Oxford Systems merged with Intelligroup. He has served
as the Chief Executive Officer of Intelligroup from November 1997 to April 1998,
and from May 1999 to January 2000. Mr. Koneru led the reorganization of
Intelligroup resulting in two separate businesses -- ASP Plus and SeraNova. Mr.
Koneru has led SeraNova's strategic direction and growth over the last three
years. He also serves as the Chairman of the Board of Directors of IndiaInfo.com
Private Limited and Visual Interactive, Inc. Mr. Koneru graduated from the Birla
Institute of Technology and Science with a Masters degree in Management Studies.
Ravi Singh has served as our Chief Financial Officer since September 1999.
Mr. Singh has eighteen years of investment banking and senior management
experience, including eleven years in investment banking, focused on technology
and emerging growth companies. Before joining SeraNova, from July 1998 to
September 1999, Mr. Singh was a Managing Director and Head of Technology
Investment Banking at Punk Ziegel & Company in New York. From 1996 to 1998,
before joining Punk Ziegel, Mr. Singh was Managing Director of Forbes & Walker
Inc., a New York and Toronto based private equity investment firm. Prior to
that, Mr. Singh was a General Partner and Managing Director of SG Cowen in New
York. Before joining SG Cowen, Mr. Singh was a Manager in Coopers & Lybrand's
New York practice. Mr. Singh is a member of the Board of Directors at SeraNova.
He also serves on the Board of Directors for each of Mangosoft Corporation in
Westborough, MA, and Bacon Felt Company in Taunton, MA. Mr. Singh received his
MBA from Columbia University.
Rajan Nair has served as the Chief Operating Officer of SeraNova since
December 1999. Since joining Intelligroup in February 1997, Mr. Nair has been
instrumental in building the sales force and delivery team for Intelligroup's
Internet Services unit. From January 1999 to December 1999 he was the Vice
President of Intelligroup's Internet Services unit. In December 1999 Mr. Nair
was appointed as the Chief Operating Officer of SeraNova. Prior to that, from
August 1995 to February 1997, he was a Principal with Computer Sciences
Corporation's national SAP practice. From February 1994 to August 1995, Mr. Nair
was a Senior Consultant with Deloitte and Touche. Mr. Nair received his
bachelor's degree from Bombay University in India.
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<PAGE> 51
Nagarjun Valluripalli serves as Secretary and Treasurer of SeraNova, and a
member of its Board of Directors. Mr. Valluripalli joined Intelligroup in 1994
when his company Oxford Systems merged with Intelligroup and currently serves as
Chairman and Co-Chief Executive Officer for Intelligroup. Prior to founding
Intelligroup, Mr. Valluripalli was a regional sales manager for Satya
Electronics. He received a Masters in Technology from Birla Institute of
Technology and Science in 1990.
Tom Bernetich joined SeraNova as a Senior Vice President in November 1999.
Mr. Bernetich is responsible for SeraNova's North American sales efforts. Prior
to that, from April 1998 to October 1999, Mr. Bernetich was a Vice-President at
Bluestone Software, where he led the company's software sales effort. From
August 1994 to April 1998, Mr. Bernetich was a director at Bluestone Consulting,
where he was responsible for multiple functions including sales, recruiting and
operations. Mr. Bernetich received a BA in Accounting with a minor in Computer
Science from Lynchburg College in May 1983.
Richard Bevis has served as the Vice President of Marketing at SeraNova
since September 1999. Mr. Bevis served as the Director of Marketing for
Intelligroup from February 1999 to September 1999. Prior to that, Mr. Bevis
served in various capacities at multiple technology companies. He was Vice
President of Marketing at Planetworks from 1997 to 1999. From 1990 to 1994, Mr.
Bevis managed the Consulting Partners Program at Novell and was a Group
Marketing Manager at Unix System Laboratories. From 1979 to 1990, Mr. Bevis held
several marketing management positions at AT&T Information Systems. Mr. Bevis
has a B.Sc. degree in Physics and Math from the University of Liverpool and an
MBA in Information Systems from Pace University.
Tarun Chandra is the Vice President of Corporate Strategy at SeraNova.
Prior to joining SeraNova in October 1999, Mr. Chandra spent eight years on Wall
Street. Most recently, from 1997 to 1999 he was a Partner and Senior Analyst
with Punk, Ziegel & Company, a technology and healthcare investment banking
boutique in New York, where he covered IT services and Internet companies. Mr.
Chandra has an MBA in Finance from the University of Detroit, and an M.S. in
information systems from Pace University.
Donald Moore is a Senior Vice President at SeraNova and is responsible for
its international operations, including Asia-Pacific and Europe. Mr. Moore
joined Intelligroup with the acquisition of Azimuth Consulting in November 1998.
From October 1995 to November 1998 he served as the Managing Director of Azimuth
Consulting. From April 1992 to September 1995, Mr. Moore was the General Manager
of Azimuth Consulting, New Zealand. Prior to that he held several sales and
senior management positions at Wang Computers and other professional services
companies.
Ashok Roy has been the Vice President of Business Development at SeraNova
since September 1999. Mr. Roy is responsible for the Company's business
development with respect to Internet-based companies and acquisitions. Mr. Roy
joined Intelligroup in December 1997 to lead the company's mergers and
acquisition efforts. Prior to joining Intelligroup, Mr. Roy was an investment
banker at Broadview Associates. He received his Masters in Business
Administration from the Wharton School and a Bachelor of Technology degree from
the Indian Institute of Technology.
The board of directors has a compensation committee, which approves
salaries and incentive compensation for our executive officers and administers
our stock plan. The compensation committee currently consists of Messrs. Koneru
and Singh. Upon the election of three independent directors, we expect that our
compensation committee will consist of Mr. Koneru and one or more of the
independent directors. The board of directors also has an audit committee, which
reviews the results and scope of the audit and other services provided by our
independent accountants. The audit committee currently consists of the entire
board. Upon the election of three independent directors, we expect that our
audit committee will consist of at least three independent directors.
DIRECTORS' COMPENSATION
Currently, we do not provide our directors with cash compensation for their
services as members of our board of directors. However, we anticipate that we
will compensate each non-employee member of the Board with cash compensation and
stock option grants upon his or her election to the Board of Directors. In
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<PAGE> 52
December 1999, we granted Mr. Nagarjun Valluripalli options to purchase 300,000
shares of SeraNova's common stock at an exercise price of $6.51 per share.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by Intelligroup for services in all capacities awarded to, earned by or
paid to our chief executive officer and each of our other executive officers
whose aggregate compensation exceeded $100,000 during the year ended December
31, 1999 or would have exceeded $100,000 had they served the entire year
(collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ----------------
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS STOCK OPTIONS(1)
- ------------------------------ ---- -------- ------- ----------------
<S> <C> <C> <C> <C>
Rajkumar Koneru................................ 1999 $252,798 $ -- 777,938
Chairman, Chief Executive Officer and
President
Ravi Singh..................................... 1999 $ 75,803 $ -- 466,763
Chief Financial Officer
Rajan Nair..................................... 1999 $200,126 $81,126 466,763
Chief Operating Officer
</TABLE>
- ---------------
(1) The number of shares covered by this option grant was established based upon
the assumption that the spin-off will be effected in a manner whereby each
holder of an outstanding share of Intelligroup common stock will receive one
share of SeraNova common stock as a result of the spin-off. If the spin-off
occurs at a ratio other than one-to-one as herein described, then the number
of shares purchasable by the Named Executive pursuant to such option shall
be proportionately adjusted.
OPTION GRANTS IN 1999
The following table sets forth information concerning individual grants of
stock options made during year ended December 31, 1999 to each of the Named
Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
---------------------------------------------- VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS EXERCISE APPRECIATION FOR OPTION
GRANTED TO PRICE TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION -----------------------
NAME GRANTED 1999(2) SHARE(3) DATE 5% 10%
- ---- ------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rajkumar Koneru............. 777,938 24.0% $2.52 9/15/09 $1,232,887 $3,124,379
Ravi Singh.................. 466,763 14.4% $2.52 9/15/09 $ 739,732 $1,874,628
Rajan Nair.................. 466,763 14.4% $2.52 10/1/09 $ 739,732 $1,874,628
</TABLE>
- ---------------
(1) All options were granted outside of the 1999 Stock Plan as described herein.
The number of shares covered by such options, was established based upon the
assumption that the spin-off will be effected in a manner whereby each
holder of an outstanding share of Intelligroup Inc. common stock will
receive one share of SeraNova common stock as a result of the spin-off. If
the spin-off occurs at a ratio other than one-to-one as herein described,
then the number of shares purchasable by the Named Executive shall be
proportionately adjusted.
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<PAGE> 53
(2) Based on 3,236,092 shares reserved for issuance upon the exercise of options
granted to employees during 1999.
(3) The exercise price equals the fair market value of the common stock as of
the grant date as determined by the board of directors.
(4) The potential realizable value is calculated based upon the term of the
option at the time of grant (10 years). Assumed stock price appreciation of
5% and 10% is based on the fair value at the time of grant.
1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF OPTIONS AT VALUE OF IN-THE-MONEY
FISCAL YEAR-END OPTIONS(1)
--------------------- ----------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- ------- --------- ------- -----------
<S> <C> <C> <C> <C>
Rajkumar Koneru..................................... -- 777,938 $-- $3,103,973
Ravi Singh.......................................... -- 466,763 -- 1,862,384
Rajan Nair.......................................... -- 466,763 -- 1,862,384
</TABLE>
- ---------------
(1) Based on a year-end fair market value of the underlying securities equal to
$6.51 per share less the exercise price per share for such shares. The
year-end fair market value of the common stock was determined in good faith
by the Board of Directors of SeraNova.
1999 STOCK PLAN
The 1999 Stock Plan was adopted by the board of directors, approved by
Intelligroup, as our sole shareholder, and became effective on December 1, 1999.
The 1999 Stock Plan shall remain in effect until terminated by the board of
directors. As of December 31, 1999, a total of 5,000,000 shares of common stock
were reserved for issuance upon the exercise of options or the grant of
restricted stock awards or stock awards under the 1999 Stock Plan. However, the
total number of shares reserved for issuance under the 1999 Stock Plan may be
automatically increased in the event such number of shares represents less than
20% of the outstanding shares of our common stock on December 31 of any future
year. Those eligible to receive stock option grants, restricted stock awards and
stock awards under the 1999 Stock Plan include employees, non-employee directors
and consultants. The 1999 Stock Plan is administered by the compensation
committee of our board of directors.
Subject to the provisions of the 1999 Stock Plan, the administrator of the
1999 Stock Plan has the discretion to determine the optionees and/or grantees,
the type of options or awards to be granted, the vesting provisions, the terms
of the grants and other related provisions as are consistent with the 1999 Stock
Plan. The exercise price of an incentive stock option may not be less than the
fair market value per share of the our common stock on the date of grant or, in
the case of an optionee who beneficially owns 10% or more of the voting power of
all classes of our capital stock, not less than 110% of the fair market value
per share on the date of grant. The exercise price of a non-qualified stock
option may not be less than 85% of the fair market value per share of our common
stock on the date of grant. Prior to the spin-off, the fair market value is
determined by the board of directors in good faith. We anticipate that following
the spin-off, the fair market value shall be determined in accordance with the
closing sales price of our common stock as quoted on the Nasdaq National Market.
In addition, the 1999 Stock Plan allows for the grant of restricted stock awards
and stock awards subject to the restrictions and conditions as the administrator
may determine at the time of grant.
The term of each stock option granted under the 1999 Stock Plan shall be
stated in the applicable option agreement, provided, however, in the case of
incentive stock options, the term shall be no more than ten years from the date
of grant, subject to earlier termination upon or after a fixed period following
the optionee's death, disability or termination of employment with us. The term
of any options granted to a holder of more than 10% of our capital stock may be
no longer than five years. Options granted under the 1999 Stock Plan to our
employees will vest in the manner determined by our board of directors.
Typically, options are not assignable or otherwise transferable except by will
or as per the laws of descent and distribution. The
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<PAGE> 54
administrator, however, may in its discretion provide that certain options may
be transferred to one or more transferees provided certain conditions are
satisfied. In the event of a merger or consolidation of us with or into another
corporation or the sale of all or substantially all of our assets in which the
successor corporation does not assume outstanding options or issue equivalent
options, our board of directors is required to provide accelerated vesting of
outstanding options.
As of the date of this information statement, there were options to
purchase 1,667,575 shares of common stock at a weighted average exercise price
per share of $6.51 outstanding under this plan. The number of shares reserved
under the 1999 Stock Plan was established based upon the assumption that the
spin-off will be effected in a manner whereby each holder of an outstanding
share of Intelligroup common stock will receive one share of SeraNova common
stock as a result of the spin-off. If the spin-off occurs at a ratio other than
one-to-one as herein described, then the number of shares purchasable by
employees shall be proportionately adjusted.
In addition, there were 3,236,092 options outstanding outside the plan.
These options include the grants to the Named Executives described above. The
weighted average exercise price of these options is $3.19 per share. In case the
spin-off occurs at a ratio other than one-to-one as herein described, then the
number of shares purchasable by these options shall be proportionately adjusted.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of our executive
officers.
The Company has an employment agreement with Rajkumar Koneru, our
President, Chief Executive Officer and Chairman of the Board, which expires
September 9, 2002. Such employment agreement automatically renews for additional
successive one-year terms unless otherwise terminated by either party upon 60
days written notice prior to the expiration of the term then in effect. The
annual salary provided under this agreement is $350,000 together with an annual
bonus of not less than $150,000 per year. In the event of termination without
cause, the agreement provides for Mr. Koneru to receive his annual base salary
for the full term of such agreement, as well as continued coverage under all of
our benefit plans, programs and policies to the extent required by law.
Additionally, the agreement provided for the grant of options to purchase
777,938 shares of our common stock at $2.52 per share which was equal to the
fair market value per share of our common stock as of the grant date as
determined by the board of directors. One third of such options vest on March
15, 2000 and the remaining options vest in equal monthly amounts over a 30 month
period thereafter. Additionally, Mr. Koneru has agreed that during the term of
his agreement and for one year thereafter, he will not interfere with our
customer relationships or solicit our executives or affiliates.
The Company has an employment agreement with Ravi Singh, our Chief
Financial Officer, which expires September 9, 2002. Such employment agreement
automatically renews for additional successive one-year terms unless otherwise
terminated by either party upon 90 days written notice prior to the term then in
effect. The annual salary provided under this contract is approximately $250,000
together with an annual bonus of not less than $100,000 per year. In the event
of termination without cause, the agreement provides for a severance payment
equal to one year of salary, bonus, benefit payments and coverage. Additionally,
the agreement provided for the granting of options to purchase 466,763 shares of
our common stock at $2.52 per share which was equal to the fair market value per
share of our common stock as of the grant date as determined by the board of
directors. One third of such options vest on March 15, 2000, and the remaining
options vest in equal monthly amounts over a 30 month period thereafter. Mr.
Singh has agreed that during the term of this agreement and, in the event his
employment is terminated for cause, permanent incapacity or by Mr. Singh without
good reason, then for a period of one year thereafter, he will not compete with
us. Mr. Singh has also agreed that during the term of his agreement and for one
year thereafter, he will not interfere with our customer relationships. The
agreement also provides that Mr. Singh maintain the confidentiality of
information about us and our business. Additionally, Mr. Singh has agreed to
assign and transfer to us all his title and right to inventions and works in our
business.
The Company has an employment agreement with Rajan Nair, our Chief
Operating Officer. The annual salary provided under this agreement is $250,000.
Either party may terminate the agreement without cause
49
<PAGE> 55
upon 30 days written notice. In the event of termination without cause, the
agreement provides for severance payment equal to six months salary. The
agreement provides that Mr. Nair maintain the confidentiality of our information
and our business. Mr. Nair has also agreed to assign and transfer to us all of
his title and right to inventions and works in our business. Additionally,
during the term of the agreement and for one year thereafter, Mr. Nair has
agreed not to solicit or accept similar business from our customers or
prospective customers, interfere with our customer relationships or solicit our
executives and individual contractors.
In addition to the foregoing agreements, we have executed agreements with
each of our employees, whereby each employee agrees to maintain the
confidentiality of our information and to assign inventions to us.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1999, the compensation of our executive
officers was determined by the compensation committee. The compensation
committee was established by the board of directors on September 10, 1999. The
compensation committee consists of Messrs. Koneru and Singh. Upon the election
of three independent directors, we expect that our compensation committee will
consist of Mr. Koneru and one or more of the independent directors. Mr. Koneru
also serves on the compensation committee of the Intelligroup board of directors
which, among other things, determines the compensation of Mr. Valluripalli, a
member of our board of directors. See "Management -- Employment Agreements" and
"Certain Transactions."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation and By-laws provide that we are authorized
to indemnify our directors and officers to the fullest extent authorized under
New Jersey law. We intend to enter into indemnification agreements with each of
our directors and officers providing for indemnification of such directors and
officers to the fullest extent permitted by applicable law.
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<PAGE> 56
RELATIONSHIP WITH INTELLIGROUP
CONTRACTUAL ARRANGEMENTS
We have entered into a number of agreements with Intelligroup which became
effective January 1, 2000. We believe that the terms of these agreements
equitably reflect the benefits and costs of our ongoing relationship with
Intelligroup. However, as a result of Intelligroup's ownership interest in
SeraNova, the terms of such agreements were not, and the terms of any future
amendments to those agreements will not be, the result of arm's-length
negotiations.
Contribution Agreement
The assets and liabilities of Intelligroup's Internet services business was
transferred by Intelligroup and certain of its subsidiaries to SeraNova on
January 1, 2000. The transfer may be subject to certain post-closing
adjustments. SeraNova and Intelligroup have agreed to execute and deliver such
further assignments, documents of transfer, deeds and instruments as may be
necessary for the more effective implementation of such transfers.
Some post-closing assignments and transfers may require consent by third
parties and various filings, approvals or recordings with governmental entities.
Some permits or licenses may require reapplication by us, and the reissuance in
our name. If consent to the assignment or reissuance of any contract, license or
permit being transferred is not obtained, SeraNova and Intelligroup will seek to
develop alternative approaches so that, to the maximum extent possible, we will
receive the benefits of the contract, license or permit and will discharge the
duties and bear the costs and risks under the contract, license or permit. We
will bear the risk that the alternative arrangements will not provide us with
the full benefits of the contract, license or permit. We and Intelligroup,
however, believe that all necessary consents and reissuances that are material
to us will be obtained.
Services Agreement
Prior to Intelligroup's transfer of its Internet services business to us on
January 1, 2000, Intelligroup's administrative personnel provided support
services for our business. We have entered into a services agreement with
Intelligroup under which Intelligroup will continue to provide to us certain
general and administrative functions. We believe that our services agreement
with Intelligroup minimizes the possibility of disruption of such functions for
the foreseeable future.
The initial term of the services agreement is for a period of one year
beginning on January 1, 2000. The services agreement shall automatically renew
for additional consecutive one-year periods unless either party gives notice of
its intent not to renew at least 60 days prior to the end of the then expiring
term. The services agreement can be terminated by either party upon 30 days
written notice.
General and Administrative Services and Expenses. Under the terms of the
services agreement, we have agreed with Intelligroup: (1) to share certain
general and administrative expenses; and (2) for Intelligroup to provide us with
other general and administrative services in exchange for a fixed fee. The
general and administrative expenses that we have agreed to share with
Intelligroup include payroll costs for shared employees, utilities costs,
equipment expenses, taxes and office supplies.
The services that Intelligroup has agreed to provide to us for a fee are:
- Administrative services, including reception services, 401(k) plan
maintenance and travel administration;
- Tax services, including preparation and filing of corporate tax returns,
assistance with tax compliance and accounting for taxes, and supervision
of audits and other proceedings and litigation;
- Human resources services, including advice and assistance relating to
employee benefits, facilitation of government/regulatory reporting and
assistance with compliance issues; and
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<PAGE> 57
- Management information systems services, including operational and
technical support for telephones and voice mail.
Our Cost of Fee-Based Services. Our cost for administrative services
provided by Intelligroup is approximately $30,000 per month.
Reasons for the Agreement. We believe that the most cost-efficient and
least disruptive way to obtain the administrative support services we require is
for Intelligroup to continue to provide such services to us on a fee basis as
described above rather than based on the actual hours spent by Intelligroup
personnel providing such services. It would be difficult, if not impossible, to
determine the portion of time spent by Intelligroup's employees on functions
pertaining only to our business or only to Intelligroup's business. For example,
the provision of technical support services for internal operating systems,
inputting and processing data, recruiting of personnel, administration of
employee benefit plans that pertain to both companies and government reporting
would be difficult to allocate.
Direct Expenses. Except for the services provided on our behalf by
Intelligroup pursuant to the services agreement and the other agreements
described below, we are responsible for providing or otherwise obtaining all of
the necessary administrative, management and support services required to
conduct our business, all of which were previously provided or obtained by
Intelligroup. The direct expenses include executive compensation, personnel
salaries and benefits for our employees.
Space Sharing Agreement
We have entered into a space sharing agreement with Intelligroup providing
for the sharing by Intelligroup and us of Intelligroup's office facilities,
including the office facilities located in Edison, New Jersey at which our and
Intelligroup's principal executive offices are located. We and Intelligroup
believe that it is beneficial for us to continue to be located within
Intelligroup's corporate headquarters and branch office facilities due to
economies of scale.
Under the space sharing agreement, the costs associated with the leasing
and maintaining facilities are, in general, allocated between Intelligroup and
us on the basis of actual use of floor space.
Tax Sharing Agreement
We have entered into a tax sharing agreement with Intelligroup that governs
the allocation between us of federal, state, local and foreign tax liabilities
and related tax matters, such as the preparation and filing of tax returns and
the conduct of audits and other tax proceedings, for taxable periods before and
after the spin-off.
In general, the tax sharing agreement provides for, among other things,
that:
- each of Intelligroup and SeraNova shall be responsible for their
respective tax liabilities and receive their respective tax benefits
relating to the taxable periods prior to the spin-off as allocated by the
agreement;
- Intelligroup will be responsible for, and will indemnify us against, its
tax liabilities for taxable periods ending prior to the date of the
spin-off; and
- we will be responsible for, and will indemnify Intelligroup and its
subsidiaries against, our tax liabilities for taxable periods beginning
on or after the date of the spin-off.
In addition, Intelligroup will be liable for, and will indemnify us
against, all tax liabilities incurred by us as a result of any event, action, or
failure to act, wholly or partially within the control of Intelligroup or any of
its subsidiaries, including any event, action or failure to act that results in
a breach of any representation made to the Internal Revenue Service, or any
other event related to the acquisition of Intelligroup stock, resulting in taxes
imposed on us with respect to any action taken pursuant to the spin-off or any
related transaction. We will be liable for, and will indemnify Intelligroup and
its subsidiaries against, all tax liabilities incurred by Intelligroup or any of
its subsidiaries as a result of any event, action, or failure to act wholly or
partially within our control, including any event, action or failure to act that
results in a breach of any representation made to
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<PAGE> 58
the Internal Revenue Service, or any other event related to the acquisition of
our stock, resulting in taxes imposed on Intelligroup or any of its subsidiaries
with respect to any action taken pursuant to the spin-off or any related
transaction.
POTENTIAL CONFLICTS WITH INTELLIGROUP
As a result of our relationship with Intelligroup, conflicts may develop
between Intelligroup and us and such conflicts may not be resolved in our favor.
For some examples of potential conflicts, see "Risk Factors -- Potential
Conflicts with Intelligroup May Not Be Resolved in Our Favor."
Our agreements with Intelligroup provide procedures for resolving any
disputes arising out of or relating to such agreements. Generally, the procedure
establishes that the parties shall first attempt to negotiate in good faith a
resolution of the dispute. If the parties fail to amicably resolve the dispute,
either party may submit the dispute to binding arbitration.
We may enter into material transactions and agreements with Intelligroup in
the future in addition to those described above. We have been advised by
Intelligroup that it intends that, for so long as Intelligroup owns a majority
of our voting power, the terms of any future transactions and agreements between
Intelligroup or its affiliates and us will be at least as favorable to us as
could be obtained from unrelated third parties. The board will utilize such
procedures in evaluating the terms and provisions of any material transactions
between Intelligroup or its affiliates and us as the board may deem appropriate
in light of its fiduciary duties under state law. Depending on the nature and
size of the particular transaction, in any such evaluation, the board may rely
on management's statements and opinions and may or may not utilize outside
experts or consultants or obtain independent appraisals or opinions.
Two of our three directors are also directors of Intelligroup. Rajkumar
Koneru, our Chairman, President and Chief Executive Officer will resign as an
officer of Intelligroup effective upon the spin-off. Mr. Koneru will remain a
director of Intelligroup. Nagarjun Valluripalli, a member of our board also
serves as Co-Chief Executive Officer of Intelligroup. Our directors who are also
directors of Intelligroup may have conflicts of interest with respect to matters
potentially or actually involving or affecting Intelligroup and us, such as
acquisitions, financing and other corporate opportunities that may be suitable
for Intelligroup and us. To the extent that such opportunities arise, such
directors may consult with their legal advisors and make a determination after
consideration of a number of factors, including whether such opportunity is
presented to any such director in his capacity as our director, whether such
opportunity is within our line of business or consistent with our strategic
objectives and whether we will be able to undertake or benefit from such
opportunity. In addition, determinations may be made by the board, when
appropriate, by the vote of the disinterested directors only. Notwithstanding
the foregoing, there can be no assurance that conflicts will be resolved in our
favor.
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<PAGE> 59
CERTAIN TRANSACTIONS
We have a loan payable to Intelligroup as of December 31, 1999, in the
amount of $8,397,000. Additional amounts may become payable to Intelligroup
stemming from income taxes and/or cash flow requirements for the periods
subsequent to December 31, 1999 and prior to the proposed spin-off. Effective
January 1, 2000, the loan payable to Intelligroup, Inc. was converted to amounts
repayable by SeraNova to a bank under a revolving credit facility of
Intelligroup, Inc.
On September 15, 1999, we granted non-qualified stock options to purchase
an aggregate of 777,938 shares of our common stock to Rajkumar Koneru for an
exercise price of $2.52 per share.
On September 15, 1999, we granted non-qualified stock options to purchase
an aggregate of 466,763 shares of our common stock to Ravi Singh for an exercise
price of $2.52 per share.
On October 1, 1999, we granted non-qualified stock options to purchase an
aggregate of 466,763 shares of our common stock to Rajan Nair for an exercise
price of $2.52 per share.
On December 1, 1999, we granted non-qualified stock options to purchase an
aggregate of 300,000 shares of our common stock to Nagarjun Valluripalli for an
exercise price of $6.51 per share.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 14, 2000, as adjusted to give
effect to the spin-off, certain information regarding beneficial ownership of
our common stock by:
- each person or group of affiliated persons we expect to be the beneficial
owner of more than 5% of the outstanding shares of common stock;
- each director;
- each Named Executive; and
- all directors and Named Executives as a group.
The address for each director and officer is c/o SeraNova, Inc., 499
Thornall Street, Edison, New Jersey 08837.
<TABLE>
<CAPTION>
NAME SHARES(1) PERCENTAGE(2)
- ---- --------- -------------
<S> <C> <C>
Rajkumar Koneru(3).......................................... 2,461,533 14.3%
Nagarjun Valluripalli(4).................................... 2,239,721 13.1
Ravi Singh(5)............................................... 155,588 *
Rajan Nair.................................................. 117,291 *
Ashok Pandey(6)............................................. 2,080,083 12.2
NSA Investments, Inc.(7).................................... 1,722,980 10.1
Capital Guardian Trust Company(8)........................... 876,000 5.2
All directors and executive officers as a group (four
persons).................................................. 4,974,133 28.3
</TABLE>
- ---------------
* Denotes less than 1%.
(1) Beneficial ownership includes any shares as to which the individual or
entity has sole or shared voting power or investment power and also any
shares which the individual or entity has a right to acquire within 60 days
after March 14, 2000 through the exercise of any stock options. The
inclusion herein of such shares, however, does not constitute an admission
that the named stockholder is a direct or indirect beneficial owner of such
shares. Unless otherwise indicated, each person or entity named in the table
has sole voting power and investment power with respect to all shares of
capital stock listed as owned by such person or entity. Based upon shares of
Intelligroup common stock beneficially owned by such holder and shares
underlying options to purchase SeraNova common stock granted to such holder.
(2) Based upon approximately 16.2 million shares of Intelligroup common stock
and 809,388 equivalent shares of SeraNova common stock outstanding as of
March 14, 2000.
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<PAGE> 60
(3) Includes 259,312 shares of common stock purchasable upon the exercise of
options which are exercisable as of January 15, 2000 or sixty days
thereafter.
(4) Includes 37,500 shares of common stock purchaseable upon the exercise of
options which are exercisable as of March 14, 2000 or sixty days thereafter.
(5) Represents 155,587 shares of common stock purchaseable upon the exercise of
options which are exercisable as of January 15, 2000 or sixty days
thereafter.
(6) The address for Ashok Pandey is c/o Intelligroup, Inc., 499 Thornall Street,
Edison, New Jersey 08837.
(7) The address for NSA Investments, Inc. is 250 Engamore Lane, Suite 102,
Norwood, Massachusetts 02062. The information set forth on the table is
based solely upon data derived from a Schedule 13D/A filed by such
shareholder with respect to Intelligroup. NSA's holdings consist of
1,398,980 shares of Intelligroup common stock and approximately 324,000
shares of SeraNova common stock purchased in the March 2000 equity
investment. (See Note 13 of Notes to Combined Financial Statements).
(8) The address for Capital Guardian Trust Company is 11100 Santa Monica
Boulevard, Los Angeles, California 90025-3384. The information set forth on
the table is based solely upon data derived from a Schedule 13G/A filed by
such shareholder with respect to Intelligroup.
55
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 40,000,000 shares of our common
stock, par value $0.01 per share and 5,000,000 shares of undesignated preferred
stock, par value $0.01 per share. The following statements are brief summaries
of certain provisions with respect to our capital stock contained in our
Certificate of Incorporation and By-laws, copies of which have been filed as
exhibits to the registration statement. The following summary is qualified in
its entirety by reference thereto.
COMMON STOCK
Voting Rights
The holders of our common stock are entitled to one vote per share on all
matters to be voted on by shareholders. Holders of shares of our common stock
are not entitled to cumulate their votes in the election of directors.
Generally, all matters to be voted on by shareholders must be approved by a
majority, or, in the case of election of directors, by a plurality, of the votes
entitled to be cast by the holders of our common stock present in person or
represented by proxy, subject to any voting rights granted to holders of any
preferred stock. Except as otherwise provided by law or in our Certificate of
Incorporation, and subject to any voting rights granted to holders of any
outstanding preferred stock, amendments to our Certificate of Incorporation must
be approved by a majority of the votes entitled to be cast by the holders of our
common stock. However, amendments to our Certificate of Incorporation that would
alter or change the powers, preferences or special rights of the our common
stock so as to affect them adversely also must be approved by a majority of the
votes entitled to be cast by the holders of the shares affected by the
amendment. Notwithstanding the foregoing, any amendment to our Certificate of
Incorporation to increase the authorized shares of any class of our capital
stock requires the approval only of a majority of the votes entitled to be cast
by the holders of our common stock.
Dividends
Holders of our common stock will share ratably on a per share basis in any
dividend declared by the board of directors, subject to any preferential rights
of any outstanding preferred stock. Dividends payable in shares of common stock
may be paid only as follows: (1) shares of our common stock may be paid only to
holders of our common stock; and (2) the number of shares so paid will be equal
on a per share basis with respect to each outstanding share of our common stock.
Other Rights
Unless approved by a majority of the votes entitled to be cast by the
holders of our common stock, in the event of any reorganization or consolidation
of us with one or more corporations or a merger of us with another corporation
in which shares of common stock are converted into or exchangeable for shares of
stock, other securities or property, all holders of our common stock, will be
entitled to receive the same kind and amount of shares of stock and other
securities and property.
On our liquidation, dissolution or winding up, after payment in full of the
amounts required to be paid to holders of preferred stock, if any, all holders
of our common stock, are entitled to receive the same amount per share with
respect to any distribution of assets to holders of shares of our common stock.
No shares of our common stock are subject to redemption or have preemptive
rights to purchase additional shares of our common stock or our other
securities.
Upon completion of the spin-off, all of the issued and outstanding shares
of our common stock will be validly issued, fully paid and non-assessable.
As of March 14, 2000, based on the stock ownership of Intelligroup, the
additional equity financing and assuming a one share-for-one share spin-off
ratio, there were approximately 17 million shares of our common
56
<PAGE> 62
stock issued or outstanding, five stockholders of record and outstanding options
to purchase an aggregate of 4,903,667 shares of our common stock, 15,000 of
which were immediately exercisable. See "Management -- 1999 Stock Plan."
PREFERRED STOCK
The preferred stock is issuable from time to time in one or more series and
with such designations, preferences and other rights for each series as shall be
stated in the resolutions providing for the designation and issue of each such
series adopted by our board of directors. The board of directors is authorized
by our Certificate of Incorporation to determine, among other things, the
voting, dividend, redemption, conversion, exchange and liquidation powers,
rights and preferences and the limitations thereon pertaining to such series.
The board of directors, without shareholder approval, may issue preferred stock
with voting and other rights that could adversely affect the voting power of the
holders of the common stock and that could have certain anti-takeover effects.
We have no present plans to issue any shares of preferred stock. The ability of
the board of directors to issue preferred stock without shareholder approval
could have the effect of delaying, deferring or preventing a change in control
of us or the removal of existing management.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
On March 14, 2000, we entered into a purchase agreement with four
institutional investors pursuant to which such investors purchased an aggregate
of 50 shares of our common stock at a price per share of $200,000, for an
aggregate purchase price of $10,000,000. The Company granted certain demand and
piggyback registration rights to such investors.
ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW
PROVISIONS
New Jersey Statute
We are governed by the provisions of Section 14A:10A-1 et seq., the New
Jersey Shareholders Protection Act (the "New Jersey Act"), of the New Jersey
Business Corporation Act, an anti-takeover law. In general, the statute
prohibits a publicly-held New Jersey corporation from engaging in a "business
combination" with an "interested shareholder" for a period of five years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who, together with affiliates and associates, owns (or
within five years, did own) 10% or more of the corporation's voting stock. After
the five-year waiting period has elapsed, a business combination between a
corporation and an interested shareholder will be prohibited unless the business
combination is approved by the holders of at least two-thirds of the voting
stock not beneficially owned by the interested shareholder, or unless the
business combination satisfies the New Jersey Act. The New Jersey Act's fair
price provision is intended to provide that all shareholders (other than the
interested shareholders) receive a fair price for their shares.
General
The provisions of our Certificate of Incorporation and By-laws summarized
below may delay, deter, or prevent a tender offer or takeover attempt that a
stockholder might consider to be in its best interest.
Board of Directors
Our Certificate of Incorporation and By-laws provide that the number of our
directors shall be fixed from time to time exclusively by resolution adopted by
the affirmative vote of not less than a majority of the entire board of
directors. However, there shall not be less than one director. In addition, the
By-laws provide that any vacancies will be filled by the affirmative vote of:
- A majority of the remaining directors, even if less than a quorum; or
- By a sole remaining director.
57
<PAGE> 63
Generally, directors may be removed from office by the affirmative vote of
the holders of at least a majority of our voting power.
Special Meetings and Action by Written Consent
Our By-laws provide that, special meetings of shareholders may be called
only by the President, the Chairman or by order of a majority of the board of
directors. In addition, our By-laws provide that our shareholders may not act by
written consent in lieu of a meeting of shareholders.
Amendment
Amendment of the foregoing provisions, require approval by holders of at
least 66% of all of the outstanding shares of our capital stock entitled to vote
in the election of directors, voting together as a single class. Our By-laws may
also be amended by action of the board of directors.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
Section 14A:3-5 of the New Jersey Business Corporation Act permits each New
Jersey business corporation to indemnify its directors, officers, employees and
agents against expenses and liabilities in connection with:
- any proceeding involving such persons by reason of his serving or having
served in such capacities; or
- for each such person's acts taken in his capacity as a director, officer,
employee or agent of the corporation if such actions were taken in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation.
With respect to any criminal proceeding, indemnity is permitted if such
person had no reasonable cause to believe his or her conduct was unlawful,
provided that any such proceeding is not by or in the right of the corporation.
Our Certificate of Incorporation limits the liability of our directors and
officers as authorized by Section 14A:2-7(3). Section 14A:2-7(3) of the New
Jersey Business Corporation Act enables a corporation in its certificate of
incorporation to limit the liability of directors and officers of the
corporation to the corporation or its shareholders. Specifically, the
certificate of incorporation may provide that directors and officers of the
corporation will not be personally liable for money damages for breach of a duty
as a director or an officer, except for liability:
- for any breach of the director's or officer's duty of loyalty to the
corporation or its shareholders,
- for acts or omissions not in good faith or which involve a knowing
violation of law,
- as to directors only, under Section 14A:6-12(1) of the New Jersey
Business Corporation Act, which relates to unlawful declarations of
dividends or other distributions of assets to shareholders or the
unlawful purchase of shares of the corporation, or
- for any transaction from which the director or officer derived an
improper personal benefit.
Article XI of our By-laws specifies that we shall indemnify our directors,
officers, employees and agents to the extent such parties are a party to any
action because he or she was our director, officer, employee or agent. This
provision of the By-laws is deemed to be a contract between the registrant and
each director and officer who serves in such capacity at any time while such
provision and the relevant provisions of the New Jersey Business Corporation Act
are in effect, and any repeal or modification thereof shall not offset any
action, suit or proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts. The affirmative vote of the
holders of at least 80% of the voting power of all outstanding shares of capital
stock of the Company is required to adopt, amend or repeal such provisions of
the By-laws.
58
<PAGE> 64
We intend to enter into indemnification agreements with each of our
officers and directors pursuant to which we will agree to indemnify such parties
to the full extent permitted by law, subject to certain exceptions, if such
party becomes subject to an action because such party is a director or officer
of SeraNova.
At present, there is no pending litigation or proceeding involving a
director or officer of SeraNova as to which indemnification is being sought nor
are we aware of any threatened litigation that may result in claims for
indemnification by any officer of director.
LISTING
Application has been made to have our common stock approved for quotation
on the Nasdaq National Market under the symbol "SERA."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the our common stock is American Stock
Transfer & Trust Company.
59
<PAGE> 65
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission the registration
statement under the Securities Exchange Act with respect to the SeraNova common
stock being received by Intelligroup shareholders in the spin-off. This
information statement does not contain all of the information set forth in the
registration statement and the exhibits thereto, to which reference is hereby
made. Statements made in this information statement as to the contents of any
contract, agreement or other document referred to herein and filed as an exhibit
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the registration statement, reference is
made to such exhibit form more complete description of the matter involved, and
each such statement shall be deeded qualified in its entirety by such reference.
The registration statement and the exhibits thereto filed by us with the
Securities and Exchange Commission may be inspected at the public reference
facilities of the Securities and Exchange Commission listed below.
After the spin-off, we will be subject to the information requirements of
the Exchange Act, and in accordance therewith will file reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Securities and Exchange
Commission at its principal offices at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such documents may be obtained from
the Public Reference Room of the Commission at prescribed rates. This material
also may be obtained on the Commission's website at http://www.sec.gov.
Information regarding the operation of the Public Reference Room may be obtained
by calling the Commission at 1(800) SEC-0330. Application has been made to have
the shares of SeraNova common stock included for quotation on the Nasdaq
National Market and, if and when such shares of SeraNova common stock commence
trading on the Nasdaq National Market, such reports, proxy statements and other
information relating to the Company will be available for inspection at 1735 K
Street, N.W., Washington, D.C. 20006-1500.
We intend to furnish our shareholders with annual reports containing
consolidated financial statements (beginning with fiscal year 1999) audited by
our independent accountants.
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<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SERANOVA, INC. AND AFFILIATES
Report of Independent Public Accountants.................... F-2
Combined Balance Sheets..................................... F-3
Combined Statements of Operations........................... F-4
Combined Statements of Changes in Shareholder's Equity &
Comprehensive Income (Loss)............................... F-5
Combined Statements of Cash Flows........................... F-6
Notes to Combined Financial Statements...................... F-7
NETWORK PUBLISHING, INC.
Report of Independent Public Accountants.................... F-18
Balance Sheets.............................................. F-19
Statements of Operations.................................... F-20
Statements of Shareholders' Equity.......................... F-21
Statements of Cash Flows.................................... F-22
Notes to Financial Statements............................... F-23
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SeraNova, Inc.:
We have audited the accompanying combined balance sheets of SeraNova, Inc.
(a New Jersey corporation) and affiliates as of December 31, 1999 and 1998 and
the related statements of operations, shareholder's equity and cash flows for
the year ended December 31, 1999, the nine-month period ended December 31, 1998
and the year ended March 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 SeraNova, Inc. and
affiliates as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for the year ended December 31, 1999, the nine-month period
ended December 31, 1998 and the year ended March 31, 1998, in conformity with
accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 6, 2000 (except with respect to Note 13
as to which the date is March 14, 2000)
F-2
<PAGE> 68
SERANOVA, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 611 $ 677
Accounts receivable, net of allowance for doubtful
accounts of $353 and $207, respectively................ 7,456 3,096
Unbilled services......................................... 3,680 900
Other current assets...................................... 769 286
------- ------
Total Current Assets........................................ 12,516 4,959
Property and equipment, net................................. 2,863 816
Intangible assets, net...................................... 3,492 --
Other assets................................................ 9 --
------- ------
Total Assets................................................ $18,880 $5,775
======= ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 120 $ --
Notes payable to Parent................................... 8,397 1,779
Accounts payable.......................................... 872 526
Accrued payroll and related costs......................... 1,551 1,039
Accrued expenses and other liabilities.................... 2,352 2,039
------- ------
Total Current Liabilities................................... 13,292 5,383
Long-Term Debt, net of current portion...................... 618 --
------- ------
Total Liabilities........................................... 13,910 5,383
------- ------
Commitments
Shareholder's Equity:
Preferred stock $.01 par value, 5,000,000 shares
authorized, none issued or outstanding................. -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 1,000 shares issued and outstanding as of
December 31, 1999...................................... -- --
Parent company investment................................. 7,250 1,353
Accumulated deficit....................................... (2,246) (985)
Currency translation adjustment........................... (34) 24
------- ------
Total Shareholder's Equity.................................. 4,970 392
------- ------
Total Liabilities and Shareholder's Equity.................. $18,880 $5,775
======= ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-3
<PAGE> 69
SERANOVA, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
FOR THE YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------------ ------------- ------------------
<S> <C> <C> <C>
Revenues......................................... $39,795 $12,438 $8,995
Cost of sales.................................... 22,475 7,315 4,797
------- ------- ------
Gross profit..................................... 17,320 5,123 4,198
------- ------- ------
Selling, general and administrative expenses..... 17,605 5,106 3,812
Depreciation and amortization.................... 1,131 102 133
------- ------- ------
Total operating expenses......................... 18,736 5,208 3,945
------- ------- ------
Operating income (loss).......................... (1,416) (85) 253
Other income (expense), net...................... (80) (66) 13
------- ------- ------
Income (loss) before income taxes................ (1,496) (151) 266
Provision (benefit) for income taxes............. (235) 401 519
------- ------- ------
Net loss......................................... $(1,261) $ (552) $ (253)
======= ======= ======
Unaudited pro forma net loss per common share --
basic and diluted.............................. $ (0.08)
=======
Shares used in per share calculation of unaudited
pro forma net loss -- basic and diluted........ 15,949
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-4
<PAGE> 70
SERANOVA, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER'S
ACCUMULATED OTHER EQUITY AND
PARENT COMPANY ACCUMULATED COMPREHENSIVE COMPREHENSIVE
INVESTMENT DEFICIT INCOME (LOSS) INCOME (LOSS)
-------------- ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
BALANCE -- MARCH 31, 1997........ $ 701 $ (180) $ 15 $ 536
Net loss......................... -- (253) -- (253)
Foreign currency translation..... -- -- (68) (68)
-------
Comprehensive loss............... (321)
Net transfers from Intelligroup,
Inc............................ 26 -- -- 26
------ ------- ---- -------
BALANCE -- MARCH 31, 1998........ 727 (433) (53) 241
Net loss......................... -- (552) -- (552)
Foreign currency translation..... -- -- 77 77
-------
Comprehensive loss............... (475)
Net transfers from Intelligroup,
Inc............................ 626 -- -- 626
------ ------- ---- -------
BALANCE -- DECEMBER 31, 1998..... 1,353 (985) 24 392
Net loss......................... -- (1,261) -- (1,261)
Foreign currency translation..... -- -- (58) (58)
-------
Comprehensive loss............... (1,319)
Net transfers from Intelligroup,
Inc............................ 5,897 -- -- 5,897
------ ------- ---- -------
BALANCE -- DECEMBER 31, 1999..... $7,250 $(2,246) $(34) $ 4,970
====== ======= ==== =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-5
<PAGE> 71
SERANOVA, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE-MONTH FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------ ------------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $(1,261) $ (552) $ (253)
Adjustments to reconcile net loss to net cash used
operating activities:
Depreciation and amortization..................... 1,131 102 133
Provisions for doubtful receivables............... 189 140 127
Changes in assets and liabilities, net of acquired
business:
Accounts receivable............................. (3,766) (1,068) (1,066)
Unbilled services............................... (2,662) (648) (248)
Other current assets............................ (425) (174) (71)
Other assets.................................... (5) -- --
Accounts payable................................ 288 250 139
Accrued payroll and related costs............... 410 74 (32)
Accrued expenses and other
liabilities.................................. 8 1,410 418
------- ------- -------
Net cash used in operating activities........ (6,093) (466) (853)
------- ------- -------
Cash Flows from Investing Activities:
Purchase of business, net of cash acquired........ (2,186) -- --
Capital expenditures.............................. (2,175) (603) (7)
------- ------- -------
Net cash used in investing activities............. (4,361) (603) (7)
------- ------- -------
Cash Flows from Financing Activities:
Loans from Parent............................... 6,618 894 886
Repayment of loans.............................. (109) (219) (302)
Proceeds from loans............................. -- -- --
Net transfers from Parent....................... 3,937 626 26
------- ------- -------
Net cash provided by financing activities.... 10,446 1,301 610
------- ------- -------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents.......................................... (58) 77 (17)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents....... (66) 309 (267)
Cash and Cash Equivalents, Beginning of Period......... 677 368 635
------- ------- -------
Cash and Cash Equivalents, End of Period........ $ 611 $ 677 $ 368
======= ======= =======
Supplementary disclosures of cash flow information:
Cash paid for interest.......................... $ 81 $ 17 $ 6
Cash paid for income taxes...................... $ 229 $ 361 $ 84
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-6
<PAGE> 72
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
SeraNova, Inc. (the "Company" or "SeraNova") is a provider of strategic
eBusiness services, including business-to-business solutions. The Company's
services include strategic consulting, design, implementation and management of
eBusiness systems. The Company serves e-business solution needs of Global 5000
as well as emerging internet based companies through rapid conception, creation
and deployment of innovation internet and portal-based solutions.
SeraNova was incorporated under the name Infinient, Inc. in the State of
New Jersey on September 9, 1999 and issued 100 shares to Intelligroup, Inc.
("Intelligroup" or the "Parent") on such date. Effective on January 1, 2000,
Intelligroup contributed the assets and liabilities of its Internet solutions
group, including SeraNova India which commenced operations in October 1999, the
capital stock of Network Publishing, Inc. and the capital stock of the Azimuth
Companies to the Company in exchange for 900 shares of the common stock of the
Company, $0.01 par value per share (the "Formation"). The Formation was
accounted for using the carryover basis of accounting. The accompanying combined
financial statements include the accounts and operations of the Internet
solutions group since its inception in 1997, Network Publishing, Inc. from the
date of its acquisition by the Parent (January 8, 1999) and the Azimuth
Companies for all periods presented (see Note 3). Intelligroup acquired the
Azimuth Companies in a transaction accounted for as a pooling of interests and
Network publishing, Inc. through a purchase acquisition.
SeraNova began operations in India in October of 1999 and the United
Kingdom in November of 1999. Results of operations and financial information
since inception have been included in the accompanying combined financial
statements.
The Parent has proposed to distribute to its shareholders of all of the
SeraNova shares of common stock it holds. For each common share of Intelligroup
stock held, one share of SeraNova common stock is anticipated to be issued. The
Company intends to split the number of its outstanding shares on the record date
of such dividend so that the number of the Company's outstanding shares shall
equal the number of outstanding shares of the Parent. The spin-off is subject to
certain conditions and approvals.
SeraNova has not operated as a separate company and faces the risks and
uncertainties encountered by companies in the early stages of development such
as managing growth, intense competition, expansion both domestically and
internationally and rapidly changing technology. In the past, the Company has
relied on the Parent for many administrative services and financial support. The
Company has entered into various agreements with the Parent (see Note 4) and is
currently exploring various alternative financing options.
Effective April 1, 1998, the Company changed its year end from March 31
(the Azimuth Companies former year end) to December 31. All significant
intercompany balances and transactions have been eliminated.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 recorded amounts of assets and liabilities, the
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of investments in highly liquid
short-term instruments, with maturities of three months or less from date of
purchase.
F-7
<PAGE> 73
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company generates revenue from professional services rendered. Revenue
is recognized as services are performed with the corresponding cost of providing
those services reflected as cost of sales. Substantially all customers are
billed on a per diem basis whereby actual time is charged directly to the
customer. Billings to customers for out-of-pocket expenses are recorded as a
reduction of expenses incurred. Unbilled services represent services provided
which are billed subsequent to the respective period end. The Company
anticipates all such amounts to be realized within the following year.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets (five years). Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life (ten
years). Cost of maintenance and repairs are charged to expense as incurred.
Intangible Assets
Intangible assets as of December 31, 1999 include goodwill of $3,922,000
and other intangibles totaling $139,500 less accumulated amortization of
$569,000 that was attributable to the acquisition of Network Publishing, Inc.
(see Note 3). These intangible assets are being amortized over the estimated
useful lives of 5 years using the straight-line method. Amortization expense was
$569,000 for the year ended December 31, 1999.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon a review
of outstanding receivables as well as historical collection information. Credit
is granted to substantially all customers on an unsecured basis. In determining
the amount of allowance, management is required to make certain estimates and
assumptions. The provision for doubtful accounts totaled $189,000, $140,000 and
$127,000 for the year ended December 31, 1999, the nine months ended December
31, 1998 and the year ended March 31, 1998, respectively. Write-offs of accounts
receivable totaled $43,000, $60,000 and $0 for the year ended December 31, 1999,
the nine months ended December 31, 1998 and the year ended March 31, 1998,
respectively.
Recoverability of Long-Lived Assets
The Company reviews the recoverability of its long-lived assets on a
periodic basis whenever events and circumstances have occurred that indicate the
remaining balance may not be recoverable. The assessment for potential
impairment is based primarily on the Company's ability to recover the carrying
value of its long-lived assets from expected future cash flows from its
operations on an undiscounted basis. The Company does not believe that any such
events or changes in circumstances have occurred. The amount of impairment of
goodwill and other intangibles would be determined as part of the long-lived
asset grouping being evaluated. Where goodwill is identified with assets subject
to an impairment loss, the carrying amount of the identified goodwill would be
eliminated before making any reduction of the carrying amounts of the impaired
long-lived assets and identifiable intangibles.
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method
under APB No. 25. For disclosure purposes, pro forma net income (loss) impacts
are provided as if the fair market value method has been applied.
F-8
<PAGE> 74
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Currency Translation
Assets and liabilities relating to foreign operations are translated into
US dollars using exchange rates in effect at the balance sheet date. Income and
expenses are translated in US dollars using monthly average exchange rates
during the year. Translation adjustments associated with assets and liabilities
are excluded from income and credited or charged directly to shareholder's
equity.
Foreign currency transaction gains and losses are recorded in other income
(expense) in the combined statements of operations.
Concentrations
One customer accounted for approximately 28% of the combined revenues of
SeraNova for the year ended December 31, 1999. Accounts receivable as of
December 31, 1999 attributable to this customer was $1,960,000. Another customer
accounted for 13% of revenues for the nine-month period ended December 31, 1998
(see Note 4). Accounts receivable attributable to this customer was $419,000 as
of December 31, 1998. No other customer contributed in excess of 10% of the
combined revenues for any other period. For the year ended December 31, 1999,
six customers accounted for approximately 50% of the Company's revenues.
Income Taxes
The Company accounts for income taxes pursuant to SFAS 109, "Accounting for
Income Taxes", which uses the liability method to calculate deferred income
taxes.
The accompanying combined statements of operations reflect income taxes as
if the Company filed a separate tax return. U.S. income taxes on undistributed
earnings of foreign entities have not been provided as they are considered
permanently invested.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and
debt approximate fair value because of the short-term nature of these
instruments.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share -- basic has been computed by dividing the net
loss by the December 31, 1999 outstanding shares of common stock of the Parent.
Pro forma net loss per share -- diluted has been computed by dividing the
net loss by the December 31, 1999 outstanding shares of common stock of the
Parent. Stock options (3,236,000 as of December 31, 1999) have not been included
in the calculation since they are anti-dilutive.
NOTE 3 -- BUSINESS COMBINATIONS
On November 25, 1998, the Parent consummated the acquisition of all of the
outstanding capital stock of Azimuth Consulting Limited, Azimuth Holdings
Limited, Braithwaite Richmond Limited and Azimuth Corporation Limited
(collectively the "Azimuth Companies"). The acquisition of the Azimuth Companies
was accounted for as a pooling of interests. The accompanying combined financial
statements include the results of operations and financial position of the
Azimuth Companies for all periods presented in accordance with pooling of
interests accounting. As consideration for this acquisition, the Parent issued
902,928 shares of its common stock.
On January 8, 1999, the Parent consummated the acquisition of all of the
shares of outstanding capital stock of Network Publishing, Inc. The acquisition
was accounted for utilizing the purchase method of
F-9
<PAGE> 75
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
accounting. The purchase price included an initial cash payment in the aggregate
of $1,800,000 together with a cash payment of $200,000 to be held in escrow plus
costs of the transaction, and resulted in costs in excess of fair value of net
tangible assets acquired of $1,600,000. Such amount has been allocated to
intangible assets (assembled workforce of $139,500) with the remainder assigned
to goodwill. In addition, the purchase price included an earn-out payment of up
to $2,212,650 in restricted shares of the Parent's common stock payable on or
before April 15, 2000 and a potential lump sum cash payment of $354,024 payable
no later than March 31, 2000. In July 1999, the Parent and the former
shareholders of Network Publishing, Inc. agreed to amend the agreements to
eliminate the earnout and fix the additional consideration amount at $2,430,000
payable at the option of the Parent in Parent Company common stock or cash. As
of December 31, 1999, SeraNova has recorded this transaction as an increase to
goodwill and equity. On January 8, 2000, the Parent made a cash payment of
$340,000 and issued approximately 100,000 shares of its common stock to satisfy
its obligation.
The following unaudited pro forma information presents a summary of results
of operations of the Company and Network Publishing, Inc. as if the acquisition
had occurred on April 1, 1997.
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
PERIOD ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 MARCH 31, 1998
------------------ ------------------
<S> <C> <C>
Revenues.................................................. $15,576,000 $12,393,000
Net loss.................................................. (571,000) (559,000)
Pro forma net loss per common share -- basic and
diluted................................................. $ (0.04)
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS
Prior to the Formation, the Parent accounted for the separate financial
results of Network Publishing, Inc. and the Azimuth Companies. However, the
Parent did not account separately for the U.S. internet business. In the
preparation of the accompanying combined financial statements, the Company and
the Parent have specifically identified all revenue, costs of sales, other
income (expense), net and certain direct selling, general and administrative
expenses incurred on behalf of SeraNova related to the U.S. internet operations.
Other selling, general and administrative expenses have been allocated between
the Parent and SeraNova based on either revenue generation, head count or
occupancy, where applicable. The selling, general and administrative expenses
captured and allocated by these methods pertain to only U.S. operations.
Revenue, head count and occupancy percentages were calculated using only U.S.
data for Intelligroup and SeraNova. The Company believes that allocated costs
approximate the historical costs of SeraNova and that the allocation methods
used are reasonable. For balance sheet purposes, the U.S. internet operation's
cash and payables are included in Parent company investment as they historically
have not been accounted for separately.
For the nine-month period ended December 31, 1998, one customer accounted
for approximately $1.7 million, or 13%, of the combined revenues of SeraNova. An
executive officer of such customer is currently a member of the Board of
Directors of the Parent. SeraNova generated approximately $58,000 of revenue
from such Company during the year ended December 31, 1999. During the year ended
December 31, 1999, one customer accounted for approximately $105,000 of combined
revenues of SeraNova. An executive officer of such customer is currently the
chairman of SeraNova.
Notes payable to parent represents a calculation of net borrowing from the
Parent as of December 31, 1999 and 1998 (See Note 13).
SeraNova and the Parent have entered into the following agreements
effective January 1, 2000.
F-10
<PAGE> 76
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Distribution Agreement
This agreement between SeraNova and Intelligroup calls for distribution by
Intelligroup on the Distribution Date of the SeraNova Common Stock owned by
Intelligroup to the holders of Intelligroup Common Stock as of the Record Date,
subject to certain conditions.
Services Agreement
Under the terms of the services agreement, SeraNova has agreed with
Intelligroup: (1) to share certain general and administrative expenses; and (2)
for Intelligroup to provide the Company with other general, administrative
services in exchange for a fee. The general and administrative expenses include
payroll costs for shared employees, utilities costs, equipment expenses, taxes
and office supplies. SeraNova's cost for administrative services provided by
Intelligroup will approximate $30,000 per month.
Contribution Agreement
The assets and liabilities of Intelligroup's Internet services business, as
defined, were transferred by Intelligroup and certain of its subsidiaries to
SeraNova effective January 1, 2000 subject to certain conditions being
satisfied. The transfer may be subject to a post contribution adjustment, as
defined. Some assignments and transfers may require prior consent by third
parties and various filings or recordings with governmental entities.
Space Sharing Agreement
SeraNova has entered into a space sharing agreement with Intelligroup
providing for the sharing by Intelligroup and SeraNova of Intelligroup's office
facilities, including the office facilities located in Edison, New Jersey at
which SeraNova's and Intelligroup's principal executive offices are located.
Under the space sharing agreement, the costs associated with leasing and
maintaining facilities are, in general, allocated between Intelligroup and
SeraNova on the basis of actual use of floor space. SeraNova's space sharing
costs will approximate $68,000 per month.
Tax Sharing Agreement
SeraNova has entered into a tax sharing agreement with Intelligroup that
governs the allocation of federal, state, local and foreign tax liabilities and
related tax matters.
NOTE 5 -- COMMITMENTS
Employment Agreements
In September and October, 1999, the Company entered into three employment
agreements with certain executive officers which expire through October 2002.
The amount due under these contracts is approximately $1.1 million per year.
Additionally, the contracts provided for the granting of options to purchase
1,711,464 shares of the Company's common stock at $2.52 per share which was
equal to the estimated fair market value of the Company's common stock as of the
grant date as determined by the board of directors (See Note 10). The options
vest over a three year period.
Leases
SeraNova leases various office space, office equipment and vehicles under
operating leases expiring at various dates through December 2005. Rental expense
for all leases approximated $729,000 for the year ended
F-11
<PAGE> 77
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999, $284,000 for the nine-month period ended December 31, 1998
and $388,000 for the year ended March 31, 1998, respectively. Future lease
commitments are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C>
2000........................................... $ 736,000
2001........................................... 635,000
2002........................................... 586,000
2003........................................... 551,000
2004........................................... 611,000
Thereafter..................................... 479,000
----------
$3,598,000
==========
</TABLE>
Rental expense associated with the space sharing agreement with
Intelligroup (Note 4) is not included in the above table.
Benefit Plans
Employees of SeraNova were eligible to participate in the Intelligroup,
Inc. Employee Retirement Plan (the "Plan"). The Plan allows eligible employees
to contribute up to 15% percent of their annual compensation, subject to the
Internal Revenue Code's statutory limitations. Effective January 1, 1999,
contributions to the Plan by Intelligroup are made at the discretion of the
Board of Directors, and the related expense specific to the SeraNova Plan were
approximately $132,000 for the year ended December 31, 1999. There were no
employer contributions to the Plan for the periods prior to January 1, 1999.
Effective January 1, 2000, the SeraNova, Inc. Employee Retirement Plan was
formed. As of this date, SeraNova employees will no longer be eligible to
participate in the Intelligroup, Inc. Retirement Plan. SeraNova will contribute
50% of the first 4% of a participants contribution subject to the Internal
Revenue Code's statutory limitations.
Other Commitments
The Company has entered into an agreement with a strategic marketing
consulting company in connection with certain sales and marketing services.
Under the terms of this agreement the consulting company will assist the Company
in building a SeraNova brand, generate leads, support sales force and build a
sales systems infrastructure. SeraNova expects to spend approximately $3 million
in the first six months of the fiscal year 2000 related to this agreement.
NOTE 6 -- INCOME TAXES
The operating results of the domestic Internet solutions group have
historically been included in the consolidated tax returns of Intelligroup and
have been computed as if they were on a stand-alone basis. The tax accounts for
Network Publishing, Inc. and the Azimuth Companies are reported based on
individual tax returns filed by each company historically. The provisions for
income taxes include the effect of certain temporary differences between amounts
reported for tax purposes versus financial reporting.
F-12
<PAGE> 78
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
-----------------------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1999 1998 1998
------------ ------------ ---------
<S> <C> <C> <C>
Current
Federal....................................... $(560,000) $163,000 $ 76,000
State......................................... (55,000) 54,000 25,000
Foreign....................................... 363,000 386,000 450,000
--------- -------- --------
Current....................................... (252,000) 603,000 551,000
--------- -------- --------
Deferred
Federal....................................... 15,000 (37,000) (26,000)
State......................................... 2,000 (9,000) (6,000)
--------- -------- --------
Deferred...................................... 17,000 (46,000) (32,000)
--------- -------- --------
Total........................................... $(235,000) $557,000 $519,000
========= ======== ========
</TABLE>
The tax effects of the significant temporary differences which comprised
the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Tax Deferred Assets:
Allowance for doubtful accounts.......................... $ 124,000 $ 84,000
Vacation accrual......................................... 180,000 123,000
Foreign net operating loss carryforwards................. 81,000 75,000
--------- ---------
Total deferred tax assets................................ 385,000 282,000
Deferred Tax Liabilities:
Depreciation............................................. 24,000 (4,000)
Valuation allowance........................................ (261,000) (198,000)
--------- ---------
Net deferred tax asset..................................... $ 100,000 $ 80,000
========= =========
Current.................................................... $ 304,000 $ 207,000
Non-current................................................ 57,000 71,000
Valuation.................................................. (261,000) (198,000)
--------- ---------
Net deferred tax asset..................................... $ 100,000 $ 80,000
========= =========
</TABLE>
The Company has provided a valuation allowance for all deferred tax assets
of the Azimuth Companies and the start up operations in the United Kingdom due
to the historical losses of these companies.
The effective tax rate of SeraNova for each period presented is comprised
of federal taxes on income of domestic operations at 34%. State taxes on
domestic income totaled 4% of the effective tax rate. Other permanent items,
including, among others, non-deductible entertainment expenses, totaled 3% of
the effective rate while non-deductible amortization totaled 13% of the
effective tax rate in 1999. The remaining difference between the statutory
federal rate of 34% and the Company's effective rates relates to taxes on income
from foreign jurisdictions. Losses incurred in certain countries could not be
offset by income from other countries thus resulting in high effective rate.
F-13
<PAGE> 79
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG-TERM DEBT
Network Publishing, Inc. has entered into a $875,000 note payable with a
bank dated April 25, 1997, secured by their equipment, furniture and fixtures.
The note, which bears interest at the bank's prime rate (8.5% percent as of
December 31, 1999) plus 2%, matures on April 25, 2007. Principal and interest
are payable in monthly installments. Interest expense for the period ended
December 31, 1999 was $77,000. Included in current portion of long-term debt are
other miscellaneous borrowings totaling approximately $48,000. The aggregate
amount of principal maturities of long-term debt as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000........................................................ $120,000
2001........................................................ 73,000
2002........................................................ 81,000
2003........................................................ 89,000
2004........................................................ 99,000
Thereafter.................................................. 276,000
--------
$738,000
========
</TABLE>
NOTE 8 -- PROPERTY AND EQUIPMENT
Property and Equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Computers and software..................................... $ 2,839 $ 595
Furniture and equipment.................................... 1,191 796
------- ------
4,030 1,391
Accumulated depreciation................................... (1,167) (575)
------- ------
$ 2,863 $ 816
======= ======
</TABLE>
Depreciation expense was $561, $102 and $133 for the year ended December 31,
1999, the nine months ended December 31, 1998 and the year ended March 31, 1998.
NOTE 9 -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Accrued expenses........................................... $2,053 $1,779
Advanced billings.......................................... 83 64
Income taxes payable....................................... 216 196
------ ------
Total............................................ $2,352 $2,039
====== ======
</TABLE>
NOTE 10 -- STOCK OPTIONS
On December 1, 1999 the Company adopted the SeraNova, Inc. 1999 Stock Plan
covering its employees, officers and directors, and certain consultants, agents
and key contractors. The maximum number of shares available for issuance under
the Plan is 5,000,000 on a post split and spin-off basis, subject to certain
adjustments. The Company has granted stock options with an exercise price at
fair market value as described
F-14
<PAGE> 80
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
below. The Plan provides for both non-qualified and incentive stock options.
Generally, options granted under the Plan vest in six equal installments at the
end of each six month period after the date of grant and expire within ten years
from the date of the grant and have an exercise price equal to the fair market
value of SeraNova's common stock on the date of grant.
SeraNova has elected to follow APB No. 25 in accounting for its employee
stock options. Accordingly, no compensation cost has been recognized. A summary
of the stock option grants is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE
--------- ---------------- ----------------
<S> <C> <C> <C>
Options Outstanding, December 31, 1998........... -- -- --
Options Granted, September 15, 1999.............. 1,244,701 $2.52 $2.16
Options Granted, October 1, 1999................. 1,450,010 2.52 2.16
Options Granted, December 1, 1999................ 541,381 6.51 5.58
--------- ----- -----
Options Outstanding, December 31, 1999 (none
exercisable)................................... 3,236,092 $3.19 $2.73
========= ===== =====
</TABLE>
On January 1, 2000, pursuant to the 1999 stock plan, stock options were
granted to purchase 1,407,575 shares of the Company's common stock at an
exercise price of $6.51 per share. On January 14, 2000, the Company granted
stock options under the 1999 stock plan to purchase 260,000 shares of the
Company's common stock with an exercise price per share of $6.51.
The calculation of the option grant prices of SeraNova's common stock was
as follows: The Company multiplied SeraNova's revenue contribution in the most
recent quarter (SeraNova's revenue as a percentage of the total consolidated
revenue for Intelligroup) to the Intelligroup's stock price as of the valuation
date. Then the Company applied 100% premium to the implied price to obtain fair
market value of SeraNova's common stock.
The fair value of option grants for disclosure purposes is estimated on the
date of grant using the Black-Scholes option-pricing model that uses the
following assumptions: expected volatility of 82%, risk-free interest rate of
6%, dividend rate of 0% and expected lives of 10 years. The weighted-average
fair value of options granted during 1999 was $2.73. Had the compensation cost
for the Company's stock options been determined using the Black-Scholes fair
value pricing model, the net of tax impact for year ended December 31, 1999
would be as follows:
<TABLE>
<S> <C>
Net loss as reported............................ $(1,261,000)
Net loss pro forma.............................. $(1,625,000)
Unaudited pro forma net loss per common share as
reported -- basic and diluted................. $ (0.08)
Unaudited pro forma net loss per common share as
adjusted -- basic and diluted................. $ (0.10)
</TABLE>
The pro forma results are not intended to be indicative of or a projection
of future results.
NOTE 11 -- SEGMENT INFORMATION
Historically, SeraNova has managed operations only by geographic region.
The following is information by geographic area as of and for the nine-month
periods ended December 31, 1999 and December 31, 1998 and the year ended March
31, 1998.
F-15
<PAGE> 81
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 UNITED STATES ASIA PACIFIC EUROPE INDIA COMBINED TOTAL
- ------------------------------------ ------------- ------------ ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Revenue............................ $27,408 $11,324 $ -- $1,063 $39,795
Depreciation & amortization........ 1,015 82 -- 34 1,131
Income (loss) from operations...... (2,734) 848 (99) 569 (1,416)
Interest income.................... 6 24 -- -- 30
Interest expense................... (77) (5) -- -- (82)
Other income (expense)............. -- (28) -- -- (28)
Income (loss) before income taxes... (2,805) 839 (99) 569 (1,496)
Capital spending................... 1,012 120 -- 1,043 2,175
Total assets....................... 14,032 3,410 39 1,399 18,880
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 1998 UNITED STATES ASIA PACIFIC COMBINED TOTAL
- ------------------------------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Revenue.............................................. $6,020 $6,418 $12,438
Depreciation & amortization.......................... 33 69 102
Income (loss) from operations........................ 411 (496) (85)
Interest income...................................... -- -- --
Interest expense..................................... -- 14 14
Other income (expense)............................... -- (52) (52)
Income (loss) before income taxes.................... 411 (562) (151)
Capital spending..................................... 594 9 603
Total assets......................................... 2,968 2,807 5,775
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1998 UNITED STATES ASIA PACIFIC COMBINED TOTAL
- --------------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Revenue.............................................. $2,100 $6,895 $8,995
Depreciation & amortization.......................... -- 133 133
Income (loss) from operations........................ 169 84 253
Interest income...................................... -- 1 1
Interest expense..................................... -- 10 10
Other income (expense)............................... -- 22 22
Income (loss) before income taxes.................... 170 96 266
Capital spending..................................... -- 7 7
Total assets......................................... 1,328 1,888 3,216
</TABLE>
Foreign revenue is based on the country in which SeraNova's operations
reside.
NOTE 12 -- PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company has the
authority to issue 5,000,000 shares of undesignated preferred stock, par value
$.01 per share. The preferred stock may be issued, from time to time, pursuant
to a resolution by the Company's Board of Directors that will set forth the
voting powers and other pertinent rights of such series.
NOTE 13 -- SUBSEQUENT EVENTS
Equity Investment
On March 14, 2000, the Company sold 50 shares of its common stock to four
institutional investors for $10,000,000. The Company granted certain demand and
piggyback registration rights to such investors.
F-16
<PAGE> 82
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company has an option to sell an additional 25 shares of its
common stock to an institutional investor for $5,000,000.
Bank Credit Facility
As discussed in Note 4 notes payable to Parent represents a calculation of
net borrowings from the Parent. Although no formal note existed, SeraNova has
agreed to repay such amounts. On January 1, 2000, such borrowings were converted
to amounts repayable by SeraNova to a bank under a revolving credit facility
agreement. Effective January 1, 2000, SeraNova became a co-borrower under
Intelligroup's revolving credit agreement with a bank. The revolving credit
facility is up to $15,000,000 in aggregate with a sublimit of up to $10,000,000
available to SeraNova. Intelligroup and SeraNova are jointly and severally
liable under the agreement. In the event Intelligroup requests and the bank
approves a change in control of the ownership of SeraNova as contemplated by the
spin off, all SeraNova's obligations under the agreement become due and payable.
As of December 31, 1999, the aggregate outstanding advances against the
revolving credit facility were $10.6 million. SeraNova's portion of the
outstanding balance as of December 31, 1999, was $8.4 million. All amounts due
to the bank from SeraNova's portion will be paid prior to spin off and upon
receipt of payment by the bank, the bank will release SeraNova from all
obligations under the credit facility.
Originally, on January 29, 1999, Intelligroup entered into a three-year
revolving credit facility agreement (the "Credit Agreement") with a bank. The
Credit Agreement with the bank was comprised of a revolving line of credit
pursuant to which Intelligroup may borrow up to $30,000,000 either at the bank's
prime rate per annum or the EuroRate plus 2% (at the Parent's option). The
Credit Agreement contained certain covenants which, among other things, required
Intelligroup to (i) maintain a minimum Consolidated Cash Flow Leverage Ratio,
(ii) maintain a minimum Consolidated Net Worth and (iii) maintain a minimum
Fixed Charge Coverage Ratio, as defined. At Intelligroup's option for each loan,
interest shall be computed either at the bank's prime rate per annum or the
Adjusted Libor Rate plus the Applicable Margin, as defined.
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, Intelligroup was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Consolidated Net Worth financial
covenants at June 30, 1999. On August 12, 1999, the bank notified Intelligroup
that such non-compliance constituted an Event of Default under the Credit
Agreement. At September 30, 1999, while Intelligroup was in compliance with the
Consolidated Net Worth financial covenant, it was not in compliance with the
Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio
financial covenants. On January 26, 2000, Intelligroup finalized with the bank
the terms of a waiver and amendment to the Credit Agreement to remedy defaults
which existed under the Credit Agreement. The terms of the waiver and amendment
include, among other things, (i) a $15,000,000 reduction in availability under
the Credit Agreement, (ii) a first priority perfected security interest on all
assets of Intelligroup and its domestic subsidiaries and (iii) modification of
certain financial covenants and a waiver of prior covenant defaults.
F-17
<PAGE> 83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Network Publishing, Inc.:
We have audited the accompanying balance sheets of Network Publishing, Inc.
(a Utah corporation) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Network Publishing, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Salt Lake City, Utah
December 21, 1999
F-18
<PAGE> 84
NETWORK PUBLISHING, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 319,282 $ 93,957
Accounts receivable, net of allowance for doubtful
accounts of $36,000 and $44,000, respectively........... 781,845 656,670
Unbilled services......................................... 118,006 56,382
Prepaid expenses.......................................... 47,510 9,070
Related-party note receivable............................. 10,089 --
Income tax receivable..................................... -- 106,598
Deferred income tax asset................................. -- 12,436
---------- ----------
Total current assets............................... 1,276,732 935,113
---------- ----------
FURNITURE AND EQUIPMENT:
Computer equipment........................................ 748,467 622,520
Software.................................................. 249,611 173,379
Office furniture and equipment............................ 54,582 54,582
---------- ----------
1,052,660 850,481
Less accumulated depreciation............................. (617,930) (359,080)
---------- ----------
434,730 491,401
---------- ----------
DEFERRED INCOME TAX ASSET................................... 3,923 --
---------- ----------
$1,715,385 $1,426,514
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit............................................ $ -- $ 80,000
Current portion of long-term debt......................... 61,887 42,652
Current portion of capital lease obligations.............. 47,135 --
Accounts payable.......................................... 57,687 88,241
Accrued payroll and related benefits...................... 102,304 100,249
Accrued liabilities....................................... 27,078 70,604
Deferred revenue.......................................... 133,633 163,047
Income taxes payable...................................... 11,979 --
Deferred income tax liability............................. 132,363 --
---------- ----------
Total current liabilities.......................... 574,066 544,793
---------- ----------
LONG-TERM DEBT, net of current portion...................... 690,464 767,958
---------- ----------
CAPITAL LEASE OBLIGATIONS, net of current portion........... 47,692 --
---------- ----------
DEFERRED INCOME TAX LIABILITY............................... -- 15,211
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 100,000 shares authorized,
40,000 shares issued.................................... 40,000 40,000
Additional paid-in capital................................ 514,013 274,975
Treasury stock; 22,000 shares at cost..................... (420,577) (420,577)
Deferred compensation..................................... (225,338) (25,021)
Retained earnings......................................... 495,065 229,175
---------- ----------
Total shareholders' equity......................... 403,163 98,552
---------- ----------
$1,715,385 $1,426,514
========== ==========
</TABLE>
F-19
<PAGE> 85
NETWORK PUBLISHING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES............................................... $3,947,763 $3,397,713 $2,556,607
COST OF REVENUES....................................... 1,277,263 1,057,211 719,322
---------- ---------- ----------
Gross margin...................................... 2,670,500 2,340,502 1,837,285
---------- ---------- ----------
OPERATING EXPENSES:
Research and development............................. 230,120 288,319 --
Selling, general and administrative.................. 1,920,171 2,047,078 1,433,280
---------- ---------- ----------
Total operating expenses.......................... 2,150,291 2,335,397 1,433,280
---------- ---------- ----------
OPERATING INCOME....................................... 520,209 5,105 404,005
---------- ---------- ----------
INTEREST INCOME (EXPENSE):
Interest income...................................... 7,902 1,189 5,720
Interest expense..................................... (84,281) (64,451) (16,207)
---------- ---------- ----------
Interest expense, net............................. (76,379) (63,262) (10,487)
---------- ---------- ----------
INCOME (LOSS) BEFORE (PROVISION) BENEFIT FOR INCOME
TAXES................................................ 443,830 (58,157) 393,518
(PROVISION) BENEFIT FOR INCOME TAXES................... (177,940) 36,773 (160,647)
---------- ---------- ----------
NET INCOME (LOSS)...................................... $ 265,890 $ (21,384) $ 232,871
========== ========== ==========
</TABLE>
F-20
<PAGE> 86
NETWORK PUBLISHING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
---------------- PAID-IN ------------------ DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT COMPENSATION RETAINED EARNINGS EQUITY
------ ------- ---------- ------ --------- ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................. 40,000 $40,000 $254,250 -- $ -- $ (17,245) $ 17,688 $ 294,693
Deferred compensation
related to stock
option grants........ -- -- 8,425 -- -- (8,425) -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 5,183 -- 5,183
Net income............. -- -- -- -- -- 232,871 232,871
------ ------- -------- ------ --------- --------- --------- ---------
Balance, December 31,
1996................. 40,000 40,000 262,675 -- -- (20,487) 250,559 532,747
Deferred compensation
related to stock
option grants........ -- -- 12,300 -- -- (12,300) -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 7,766 -- 7,766
Purchase of treasury
stock................ -- -- -- 22,000 (420,577) -- -- (420,577)
Net loss............... -- -- -- -- -- -- (21,384) (21,384)
------ ------- -------- ------ --------- --------- --------- ---------
Balance, December 31,
1997................. 40,000 40,000 274,975 22,000 (420,577) (25,021) 229,175 98,552
Deferred compensation
related to stock
option grants........ -- -- 239,038 -- -- (239,038) -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 38,721 -- 38,721
Net income............. -- -- -- -- -- -- 265,890 265,890
------ ------- -------- ------ --------- --------- --------- ---------
Balance, December 31,
1998................. 40,000 $40,000 $514,013 22,000 $(420,577) $(225,338) $ 495,065 $ 403,163
====== ======= ======== ====== ========= ========= ========= =========
</TABLE>
F-21
<PAGE> 87
NETWORK PUBLISHING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 265,890 $ (21,384) $ 232,871
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation....................................... 258,850 213,229 109,027
Deferred income taxes.............................. 125,665 (15,830) 12,185
Amortization of deferred compensation.............. 38,721 7,766 5,183
Changes in operating assets and liabilities:
Accounts receivable, net......................... (125,175) (198,505) (319,716)
Unbilled services................................ (61,624) 22,557 (51,425)
Prepaid expenses................................. (38,440) (7,753) 11,704
Accounts payable................................. (30,554) (1,667) 65,351
Accrued payroll and related benefits............. 2,055 38,661 39,596
Accrued liabilities.............................. (43,526) 71,230 (6,642)
Deferred revenue................................. (29,414) 123,047 38,763
Income taxes payable/receivable.................. 118,577 (240,948) 144,251
--------- --------- ---------
Net cash provided by (used in) operating
activities.................................. 481,025 (9,597) 281,148
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment................... (114,267) (344,609) (289,688)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit......... (80,000) 80,000 --
Proceeds from issuance of debt........................ -- 863,973 125,000
Principal payments on debt............................ (58,259) (213,452) (35,865)
Principal payments on capital lease obligations....... (3,174) -- --
Purchase of treasury stock............................ -- (420,577) --
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. (141,433) 309,944 89,135
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH......................... 225,325 (44,262) 80,595
CASH, beginning of year................................. 93,957 138,219 57,624
--------- --------- ---------
CASH, end of year....................................... $ 319,282 $ 93,957 $ 138,219
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 77,902 $ 60,395 $ 16,207
Cash paid for income taxes.............................. 19,777 219,905 --
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1998, the Company entered into four capital lease agreements to
finance the acquisition of certain computer equipment totaling $98,001.
During 1998, the Company sold various pieces of computer equipment to
Utah.com, a company owned by the three shareholders of the Company, in exchange
for a note receivable from Utah.com in the amount of $10,089.
F-22
<PAGE> 88
NETWORK PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Network Publishing, Inc. (the "Company"), a Utah corporation founded on
February 4, 1994, provides information technology services through web-site
development and hosting services based on leading technologies. The Company
markets its services to a wide variety of industries in the United States. The
majority of the Company's business is with large established companies,
including automobile manufacturers and technology companies.
As discussed in Note 9, subsequent to December 31, 1998, all of the
Company's outstanding shares of common stock were acquired by Intelligroup, Inc.
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 recorded 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.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, trade payables and debt instruments. The carrying amounts of these
instruments reported in the accompanying balance sheets are considered to
estimate their fair values due to the short-term nature of such financial
instruments and the current interest rate environment.
Concentration of Credit Risk and Significant Customers
In the normal course of business, the Company extends credit to
substantially all its customers on an unsecured basis. The Company provides an
allowance for doubtful accounts, which is based upon a review of outstanding
receivables as well as historical collection information. At December 31, 1998,
management believes the Company had incurred no material impairments in the
carrying value of its accounts receivable, other than uncollectable amounts for
which a provision has been recorded.
One customer accounted for approximately 26, 19 and 10 percent of revenue
in 1998, 1997 and 1996, respectively. Accounts receivable due from this customer
were approximately 37 and 32 percent of accounts receivable as of December 31,
1998 and 1997, respectively. Another customer accounted for approximately 6, 44
and 61 percent of revenue in 1998, 1997 and 1996, respectively. Accounts
receivable due from this customer were approximately 6 and 30 percent of
accounts receivable as of December 31, 1998 and 1997, respectively. Two
additional customers each accounted for approximately 17 percent of revenue
during 1998 and 36 and 3 percent of accounts receivable as of December 31, 1998.
No other customer accounted for more than 10 percent of the Company's accounts
receivable as of December 31, 1998 or 1997 or revenues for 1998, 1997 or 1996.
The loss of one or more of these significant customers could have a material
adverse impact on the Company's financial position and results of operations.
Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated depreciation.
Computer equipment, software and furniture and fixtures are depreciated using
the straight-line method over the estimated useful life of the asset, which is
typically three to seven years.
F-23
<PAGE> 89
NETWORK PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when events or
changes in circumstances indicate that the book value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred which indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset or
group of assets over the remaining life in measuring whether the assets are
recoverable. As of December 31, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Revenue Recognition
The Company generates revenue from professional services rendered. Revenue
is recognized as services are performed with the corresponding cost of providing
those services reflected as cost of sales. A majority of the customers are
billed on a time and materials basis. Billings to customers for out-of-pocket
expenses are recorded as a reduction of expenses incurred. Unbilled services of
$118,006 and $56,382 at December 31, 1998 and 1997, respectively, represent
services provided prior to year-end which were billed subsequent to year-end.
Revenue from advance billings is deferred until the services are provided and
amounted to $133,633 and $163,047 as of December 31, 1998 and 1997,
respectively.
Research and Development
Research and development costs are expensed as incurred and amounted to
$230,120 and $288,319 during the years ended December 31, 1998 and 1997,
respectively. No research and development costs were incurred during the year
ended December 31, 1996.
Income Taxes
The Company recognizes an asset or liability for the deferred income tax
consequences of all temporary differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years when the reported
amounts of the assets and liabilities are recovered or settled. These deferred
income tax assets or liabilities are measured using currently enacted tax rates.
NOTE 2 -- LINE OF CREDIT
The Company has entered into a line of credit agreement with a bank, which
provided for maximum borrowings of $300,000 as of December 31, 1998. Borrowings
under the agreement were secured by the accounts receivable of the Company, were
guaranteed by the Company's three shareholders and bore interest at the bank's
prime rate (7.75 percent at December 31, 1998) plus three percent. As of
December 31, 1998 and December 31, 1997, the Company had outstanding borrowings
of $0 and $80,000, respectively. The line of credit matured on April 5, 1999.
Under the terms of the agreement, the Company was required to comply with
certain restrictive covenants, including a minimum earnings ratio and a minimum
debt to net worth requirement. As of December 31, 1998, the Company was in
compliance with these covenants.
F-24
<PAGE> 90
NETWORK PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LONG-TERM DEBT
As of December 31, 1996, long-term debt consisted of two notes payable to a
bank. In April 1997, the Company paid the outstanding balance on these two notes
with proceeds from a new note obtained from the same bank. Principal and
interest are payable in monthly installments through April 2007. The note bears
interest at the bank's prime rate (7.75 percent at December 31, 1998) plus two
percent. The note is secured by furniture and equipment, and is guaranteed by
the Company's three shareholders.
The aggregate amount of principal maturities of long-term debt as of
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999.............................................. $ 61,877
2000.............................................. 65,585
2001.............................................. 72,842
2002.............................................. 80,669
2003.............................................. 89,337
Thereafter........................................ 382,031
--------
$752,351
========
</TABLE>
NOTE 4 -- INCOME TAXES
The components of the income tax provision (benefit) for the years ended
December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 45,268 $(18,136) $128,561
State............................................ 7,007 (2,807) 19,901
-------- -------- --------
52,275 (20,943) 148,462
-------- -------- --------
Deferred:
Federal.......................................... 118,995 (16,480) 11,575
State............................................ 6,670 650 610
-------- -------- --------
125,665 (15,830) 12,185
-------- -------- --------
$177,940 $(36,773) $160,647
======== ======== ========
</TABLE>
The reconciliation of the total provision (benefit) for income taxes with
amounts determined by applying the statutory U. S. federal income tax rate to
income (loss) before income tax provision (benefit) for the years ended December
31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal income tax at statutory rate............... $150,902 $(19,773) $133,796
State income tax, net of federal income tax
impact........................................... 14,646 (1,919) 12,986
Non-deductible compensation expense related to
stock option grants.............................. 14,443 2,897 1,933
Research and development income tax credits........ (14,429) (18,078) --
Other.............................................. 12,378 100 11,932
-------- -------- --------
$177,940 $(36,773) $160,647
======== ======== ========
</TABLE>
F-25
<PAGE> 91
NETWORK PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred income tax assets and liabilities as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred income tax assets:
Depreciation.............................................. $ 3,923 $ --
Research and development income tax credits............... 36,565 28,830
--------- --------
40,488 28,830
--------- --------
Deferred income tax liabilities:
Accrual to cash basis conversion.......................... (168,928) (16,394)
Depreciation.............................................. -- (15,211)
--------- --------
(168,928) (31,605)
--------- --------
Net deferred income tax liability........................... $(128,440) $ (2,775)
========= ========
</TABLE>
As of December 31, 1998, the Company has research and development income
tax credit carryforwards of $36,565 for which there is no expiration date.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities and vehicles under operating leases and
certain computer equipment under capital leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 1998. Future
minimum aggregate annual lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING LEASE
YEAR ENDING DECEMBER 31, OBLIGATIONS OBLIGATIONS
- ------------------------ ------------- ---------------
<S> <C> <C>
1999..................................................... $53,653 $122,177
2000..................................................... 49,181 19,575
2001..................................................... 677 --
------- --------
103,511 $141,752
========
Less interest............................................ (8,684)
-------
94,827
Less current portion..................................... (47,135)
-------
$47,692
=======
</TABLE>
The Company has certain computer equipment under capital lease obligations.
These assets had a gross book value of $98,001 and a net book value of $89,963
as of December 31, 1998.
Rent expense related to the operating leases was $129,634, $115,308 and
$50,376 for the years ended December 31, 1998, 1997 and 1996, respectively.
Legal
The Company is engaged in legal and administrative proceedings arising in
the ordinary course of business. Management believes the outcome of these
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.
F-26
<PAGE> 92
NETWORK PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SHAREHOLDERS' EQUITY
Treasury Stock
In April 1997, the Company's Board of Directors approved the repurchase of
22,000 shares of common stock for $420,577 from the Company's majority
shareholder. The Company repurchased these shares for cash on April 24, 1997.
Stock Options
On July 1, 1995, the Company adopted the 1995 Stock Option Plan (the
"Plan") to provide incentives to eligible employees and officers. Under the
Plan, the Board of Directors is authorized to grant 3,200 options to purchase
shares of common stock to eligible participants. The Board of Directors is also
authorized to specify the terms and conditions of each option granted, including
the number of shares, the exercise price, vesting provisions, and the option
term.
A summary of option activity under the 1995 Stock Option Plan for the years
ended December 31, 1998, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
OPTIONS
-------
<S> <C>
Balance, December 31, 1995.................................. 1,400
Granted................................................... 500
-----
Balance, December 31, 1996.................................. 1,900
Granted................................................... 200
-----
Balance, December 31, 1997.................................. 2,100
Granted................................................... 1,150
Canceled.................................................. (50)
-----
Balance December 31, 1998................................... 3,200
=====
</TABLE>
All of the options granted by the Company have an exercise price of $1 and
a term of 7 years from the date of grant. The outstanding options as of December
31, 1998 have a weighted average remaining contractual life of 4.9 years and
1,350 of these options are exercisable. The weighted average fair value of
options granted during 1998, 1997 and 1996 was $208.09, $61.78 and $17.07,
respectively.
The Company accounts for its stock options issued to directors, officers
and employees under Accounting Principles Board Opinion No. 25 ("APB No. 25")
and related interpretations. Under APB No. 25, compensation expense is
recognized if an option's exercise price is below the intrinsic fair value of
the Company's common stock at the date of grant. During 1998, 1997 and 1996, the
Company granted options at prices less than the estimated intrinsic fair value
of the Company's common stock at the date of grant and accordingly recorded
deferred compensation of $239,038, $12,300 and $8,425, respectively. The Company
amortizes the deferred compensation related to these option issuances over the
vesting term of the related options and accordingly, recorded compensation
expense of $38,721, $7,766 and $5,183 during the years ended December 31, 1998,
1997 and 1996, respectively.
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," requires pro forma information
regarding net income (loss) as if the Company had accounted for its stock
options granted subsequent to January 1, 1996 under the fair value method. The
fair market value of the stock options is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted-average assumptions
for grants during the years ended December 31, 1998, 1997 and 1996: risk-free
interest rates of 5.33 percent, 6.23 percent and 6.13 percent, respectively;
expected dividend yield of zero percent; and expected exercise lives of 4 years
for all periods. For purposes of the pro forma
F-27
<PAGE> 93
NETWORK PUBLISHING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disclosures, the estimated fair market value of the stock options is amortized
over the vesting periods of the respective stock options. Following are the pro
forma disclosures and the related impact on net income (loss) for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) as reported...................... $265,890 $(21,384) $232,871
Net income (loss) pro forma........................ 265,670 (21,428) 232,756
</TABLE>
NOTE 7 -- SEGMENT INFORMATION
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information". This statement requires disclosures related
to components of a company for which separate financial information is available
and evaluated regularly by the company's chief operating decision makers in
deciding how to allocate resources and in assessing performance. Management
believes that the Company has only one operating segment because the Company's
core business operations consist only of information technology services. All of
the Company's revenues for the years ended December 31, 1998, 1997 and 1996 were
sourced from the United States.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
The Company offers its employees participation in a qualified 401(k)
profit-sharing plan which requires the Company to match employee contributions
up to predetermined limits for qualified employees as defined by the plan. For
the years ended December 31, 1998, 1997 and 1996, the Company contributed
$24,025, $20,451 and $7,383 to the plan, respectively.
NOTE 9 -- SUBSEQUENT EVENT
On January 8, 1999, all outstanding shares of the Company's common stock
and vested stock options to purchase the Company's common stock were purchased
by Intelligroup, Inc. for a purchase price of approximately $4.5 million,
consisting of cash and Intelligroup, Inc. common stock.
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Exhibit 2.2
DISTRIBUTION AGREEMENT
This Distribution Agreement dated as of January 1, 2000 (the
"Agreement") between Intelligroup, Inc., a New Jersey corporation
("Intelligroup") and SeraNova, Inc., a New Jersey corporation ("SeraNova").
W I T N E S S E T H:
WHEREAS, SeraNova is a wholly-owned Subsidiary of
Intelligroup;
WHEREAS, the Board of Directors of Intelligroup has determined
that it is in the best interest of Intelligroup, its shareholders and SeraNova
to distribute to the holders of shares of Common Stock, par value $.01 per
share, of Intelligroup (the "Intelligroup Common Stock") all of the outstanding
shares of Common Stock, par value $.01 per share, of SeraNova (the "SeraNova
Common Stock") owned by Intelligroup;
WHEREAS, the Distribution is intended to qualify as a tax-free
spin-off under Section 355 of the Internal Revenue Code of 1986, as amended; and
WHEREAS, the parties hereto have determined that it is
necessary and desirable to set forth the principal corporate transactions
required to effect the Distribution and to set forth other agreements that will
govern certain other matters prior to or following the Distribution;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and intending to be legally bound thereby, the
parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding by or before any court, governmental or other
regulatory or administrative agency or commission or any other tribunal.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common control with,
such other Person. For the purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this Agreement, no member of one Group shall be treated as an
Affiliate of any member of either of the other Groups.
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"Azimuth Companies" means, collectively, Azimuth Consulting ,
Azimuth Corporation, Azimuth Holdings, Braithwaite Richmond and each Subsidiary
of the Azimuth Companies.
"Azimuth Consulting" means Azimuth Consulting Limited, a
corporation formed pursuant to the laws of New Zealand and a wholly-owned
subsidiary of Intelligroup.
"Azimuth Corporation" means Azimuth Corporation Limited, a
corporation formed pursuant to the laws of New Zealand and a wholly-owned
subsidiary of Intelligroup.
"Azimuth Holdings" means Azimuth Holdings Limited, a
corporation formed pursuant to the laws of New Zealand and a wholly-owned
subsidiary of Intelligroup.
"Braithwaite Richmond" means Braithwaite Richmond Limited, a
corporation formed pursuant to the laws of New Zealand and a wholly-owned
subsidiary of Intelligroup.
"Code" means the Internal Revenue Code of 1986, as amended.
"Distribution" means the distribution by Intelligroup on the
Distribution Date of the SeraNova Common Stock owned by Intelligroup to the
holders of Intelligroup Common Stock as of the Record Date.
"Distribution Agent" means American Stock Transfer & Trust
Company.
"Distribution Date" means the business day as of which the
Distribution shall be effected.
"Distribution Documents" means all of the agreements and other
documents entered into in connection with the Distribution or the other
transactions contemplated hereby, including, without limitation, this Agreement,
the Contribution Agreement, Tax Sharing Agreement, Services Agreement and Space
Sharing Agreement.
"Effective Time" means immediately prior to the close of
business on the Distribution Date.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, permits, licenses and governmental
restrictions, whether now or hereafter in effect, relating to the environment,
the effect of the environment on human health or to emissions, discharges,
releases, manufacturing, storage, processing, distribution, use, treatment,
disposal, transportation or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances or wastes or the clean-up or other remediation thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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"Finally Determined" means, with respect to any Action or
other matter, that the outcome or resolution of such Action or matter has been
judicially determined by judgment or order not subject to further appeal or
discretionary review (or, in the case of any matter required to be resolved by
arbitration in accordance with Section 8.11, that the outcome or resolution of
such matter has been determined thereunder).
"Group" means, as the context requires, the SeraNova Group or
the Intelligroup Group.
"Indemnified Party" has the meaning set forth in Section 4.4.
"Indemnifying Party" has the meaning set forth in Section 4.4.
"Intelligroup Business" means the Internet solutions provider
business conducted primarily by Intelligroup's Internet Solutions Group.
"Intelligroup Common Stock" has the meaning set forth in the
second recital hereto.
"Intelligroup Group" means Intelligroup and its Subsidiaries
(other than any member of the SeraNova Group).
"Intelligroup Indemnitees" has the meaning set forth in
Section 4.1.
"Intelligroup India" means Intelligroup India Private
Limited., a corporation formed pursuant to the laws of India and a wholly-owned
subsidiary of Intelligroup.
"Intelligroup Liabilities" means all (i) Liabilities of the
Intelligroup Group under this Agreement or the other Distribution Documents,
(ii) except as otherwise specifically provided herein or in any other
Distribution Document, other Liabilities, whether arising before, on or after
The Distribution Date, of the parties hereto (or their respective Subsidiaries)
to the extent such Liabilities arise primarily from or relate primarily to the
management or conduct of the Intelligroup Business prior to the Effective Time
(the Liabilities listed in clauses (i) and (ii) are collectively referred to as
"True Intelligroup Liabilities") and (iii) that percentage of the Shared
Liabilities that are clearly attributable, or attributable by means of a
reasonable apportionment to the Intelligroup Group. The Intelligroup Liabilities
1999 included in Intelligroup's quarterly report on Form 10-Q for the quarter
ended on such date other than the SeraNova Balance Sheet Liabilities.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law (including Environmental Laws), rule, regulation, any action,
order, injunction or consent decree of any governmental agency or entity, or any
award of any arbitrator of any kind, and those arising under any agreement,
commitment or undertaking.
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<PAGE> 4
"Losses" means, with respect to any Person, any and all
damage, loss, liability and expense incurred or suffered by such Person
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any and all Actions
or threatened Actions).
"Managing Party" has the meaning set forth in Section 4.6.
"Nasdaq" means the Nasdaq Stock Market.
"Netpub" means Network Publishing, Inc., a Utah corporation
and wholly-owned subsidiary of Intelligroup.
"Participating Party" has the meaning set forth in Section
4.6.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Pre-Distribution Policy" has the meaning set forth in Section
7.4.
"Record Date" means the date determined by Intelligroup's
Board of Directors (or determined by a committee of such Board of Directors or
by any person pursuant to authority delegated to such committee or such person)
as the record date for determining the holders of Intelligroup Common Stock
entitled to receive SeraNova Common Stock pursuant to the Distribution.
"Representatives" has the meaning set forth in Section 6.6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SeraNova Balance Sheet Liabilities" has the meaning set forth
in this Section 1.1 in the definition of "SeraNova Liabilities."
"SeraNova Business" means the business of providing Internet
solutions.
"SeraNova Common Stock" has the meaning set forth in the
second recital hereto.
"SeraNova Form 10" means the registration statement on Form 10
filed by SeraNova with the SEC on or about January 27, 1999, to effect the
registration of SeraNova Common Stock pursuant to the Exchange Act in connection
with the Distribution, as such registration statement may be amended from time
to time.
"SeraNova Group" means SeraNova and its Subsidiaries as of
(and, except where the context clearly indicates otherwise, after) the Effective
Time (including all predecessors to
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such Persons). The members of the SeraNova Group are SeraNova, SeraNova Limited,
NetPub, the Azimuth Companies and Intelligroup India.
"SeraNova Indemnitees" has the meaning set forth in Section
4.2.
"SeraNova Information Statement" means the information
statement that forms a part of the SeraNova Form 10 and is to be sent to each
holder of Intelligroup Common Stock in connection with the Distribution.
"SeraNova Liabilities" means all (i) Liabilities of the
SeraNova Group under this Agreement or the other Distribution Documents, (ii)
except as otherwise specifically provided herein or in any other Distribution
Document, other Liabilities, whether arising before, on or after the
Distribution Date, of the parties hereto (or their respective Subsidiaries) to
the extent such Liabilities arise primarily from or relate primarily to the
management or conduct of the SeraNova Business (other than Shared Corporate
Liabilities) prior to the Effective Time (the Liabilities listed in clauses (i)
and (ii) are collectively referred to as "True SeraNova Liabilities") and (iii)
that percentage of the Shared Liabilities that are clearly attributable, or
attributable by means of a reasonable apportionment to the SeraNova Group. The
SeraNova Liabilities include all Liabilities set forth on the balance sheet of
SeraNova as of September 30, 1999 included in the SeraNova Information Statement
(the "SeraNova Balance Sheet Liabilities").
"Services Agreement" means the Services Agreement by and
between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
"Shared Liability" means any Liability (whether arising
before, on or after the Distribution Date) of the parties hereto or their
respective Subsidiaries which (i) arises from or relates to the management or
conduct prior to the Effective Time of the businesses of Intelligroup and its
Subsidiaries and (ii) is not a True Intelligroup Liability or a True SeraNova
Liability.
Shared Liabilities include, without limitation, Liabilities listed on Schedule
1.1 hereto.
"Shared Liability Claim" has the meaning set forth in Section
4.6.
"Space Sharing Agreement" means the Space Sharing Agreement by
and between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
"Subsidiary" means, with respect to any Person, any other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person.
"Tax" means Tax as such term is defined in the Tax Sharing
Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement
Agreement by and between Intelligroup, Inc. and SeraNova, Inc. dated as of
January 1, 2000.
"Third-Party Claim" has the meaning set forth in Section 4.5.
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"True Intelligroup Liabilities" has the meaning set forth in
this Section 1.1 in the definition of "Intelligroup Liabilities."
"True SeraNova Liabilities" has the meaning set forth in this
Section 1.1 in the definition of "SeraNova Liabilities."
ARTICLE 2.
CERTAIN ACTIONS PRIOR TO THE DISTRIBUTION DATE
Section 2.1. Certificate of Incorporation; By-laws.
Intelligroup and SeraNova shall take all action necessary so that, at the
Distribution Date, the Amended and Restated Certificate of Incorporation and
By-laws of SeraNova shall be in the forms attached hereto as Schedule 2.1(a) and
Schedule 2.1(b), respectively.
Section 2.2. Issuance of Stock. Prior to or as of the
Distribution Date, the parties hereto shall take all steps necessary to
reclassify the outstanding shares of SeraNova Common Stock so that, except as
otherwise contemplated by this Agreement, immediately prior to or as of the
Distribution Date the number of shares of SeraNova Common Stock outstanding and
held by Intelligroup shall be equal to one to one (1/1) the number of shares of
Intelligroup Common Stock outstanding on the Record Date.
Section 2.3. Transfer of Certain Other Assets and Assumption
of Liabilities. Effective prior to or as of the Distribution Date or as soon as
practicable after the Distribution Date, subject to receipt of any necessary
consents or approvals of third parties or of governmental or regulatory agencies
or authorities and subject to Section 7.2, Intelligroup shall, or shall cause
the relevant member of the Intelligroup Group to, assign, contribute, convey,
transfer and deliver to SeraNova or to one or more members of the SeraNova Group
(a) all of the right, title and interest of Intelligroup or such member of the
Intelligroup Group in and to all assets (including all agreements), if any, held
by any member of the Intelligroup Group that relate predominantly to the
SeraNova Business and (b) all of the shares of capital stock of NetPub, the
Azimuth Companies, and Intelligroup India and SeraNova shall, or shall cause
such member or members of the SeraNova Group to, assume and take transfer of all
liabilities associated with such assets.
Section 2.4. Conduct of Business Pending the Distribution
Date. Each of the parties hereto agrees that from the date hereof until the
Distribution Date, except as otherwise contemplated by this Agreement, it will
use its best efforts to carry on the Intelligroup Business diligently in the
ordinary course and substantially in the same manner as heretofore conducted and
to preserve intact the business organization and goodwill of the Intelligroup
Business (including using its best efforts to cause its Subsidiaries to take
such actions.
Section 2.5. Refinancing. Each of the parties hereto agrees
that it will use reasonable efforts to obtain, prior to the Distribution Date,
all necessary consents, waivers or amendments to each bank credit agreement,
debt security or other financing facility to which it and its Subsidiaries is a
party or by which it or any of its Subsidiaries is bound, or to refinance such
agreement, security or facility, in each case on terms satisfactory to
Intelligroup and
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SeraNova and to the extent necessary to permit the Distribution to be
consummated without any material breach of the terms of such agreement, security
or facility.
Section 2.6. Registration and Listing. Prior to the
Distribution Date (a) Intelligroup and SeraNova shall prepare the SeraNova
Information Statement and the SeraNova Form 10. SeraNova shall file the SeraNova
Form 10 with the SEC. Intelligroup and SeraNova shall use reasonable efforts to
cause the SeraNova Form 10 to become effective under the Exchange Act as
promptly as reasonably practicable. Intelligroup and SeraNova shall prepare the
SeraNova Information Statement; and after the SeraNova Form 10 becomes
effective, Intelligroup shall cause the SeraNova Information Statement to be
mailed to the holders of Intelligroup Common Stock as of the Record Date.
(b) The parties shall use their best efforts to take all such
action as may be necessary or appropriate under state securities and "blue sky"
laws in connection with the transactions contemplated by this Agreement.
(c) Intelligroup and SeraNova shall prepare, and SeraNova
shall file and seek to make effective, an application for the trading of the
SeraNova Common Stock on Nasdaq, subject to official notice of issuance.
(d) Intelligroup and SeraNova shall cooperate in preparing,
filing with the SEC and causing to become effective any registration statements
or amendments thereto that are appropriate to reflect the establishment of or
amendments to any employee benefit and other plans contemplated by this
Agreement.
ARTICLE 3.
THE DISTRIBUTION
Section 3.1. Intelligroup Board Action; Conditions Precedent.
(a) Intelligroup's Board of Directors shall, in its discretion, establish (or
delegate authority to establish) the Record Date and the Distribution Date and
any appropriate procedures in connection with the Distribution. In no event
shall the Distribution occur unless the following conditions shall have been and
continue to be satisfied:
(i) The transactions contemplated by Sections 2.1, 2.2, 2.3,
2.4, 2.5, and 2.6 shall have been consummated in all material respects;
(ii) the SeraNova Form l0 shall have become effective under
the Exchange Act and no stop order with respect thereto shall be in effect;
(iii) the SeraNova Common Stock to be delivered in the
Distribution shall have been approved for trading on Nasdaq, subject to official
notice of issuance;
(iv) the Board of Directors of Intelligroup shall be satisfied
that (a) at the time of the Distribution and after giving effect to the
Distribution and other related transactions, Intelligroup will not be insolvent
(in that, both before and immediately following the
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Distribution, (i) the fair market value of Intelligroup's assets would exceed
Intelligroup's liabilities, (ii) Intelligroup would be able to pay its
liabilities as they mature and become absolute and (iii) Intelligroup would not
have unreasonably small capital with which to engage in its business) and (b)
the Distribution shall be payable in accordance with applicable law;
(v) Intelligroup's Board of Directors shall have approved the
Distribution and shall not have abandoned, deferred or modified the Distribution
at any time prior to the Distribution Date;
(vi) SeraNova shall take such action as is necessary such that
its Board of Directors is comprised of those individuals named as directors in
the SeraNova Information Statement.
(vii) The Contribution Agreement, Tax Sharing Agreement, Space
Sharing Agreement and Services Agreement shall have been duly executed and
delivered by the parties thereto;
(viii) All authorizations, consents, approvals and clearances
of all federal, state, local and foreign governmental agencies required to
permit the valid consummation by the parties hereto of the transactions
contemplated by this Agreement shall have been obtained; and no such
authorization, consent, approval or clearance shall contain any conditions which
would have a material adverse effect on (a) the Intelligroup Business, (b) the
assets, results of operations or financial condition of the Intelligroup Group,
in each case taken as a whole, or (c) the ability of Intelligroup or SeraNova to
perform its obligations under this Agreement; and all statutory requirements for
such valid consummation shall have been fulfilled;
(ix) No preliminary or permanent injunction or other order,
ruling or decree issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by governmental authority,
shall be in effect preventing the payment of the Distribution;
(x) All necessary consents, amendments or waivers to each bank
credit agreement, debt security or other financing facility to which any member
of the Intelligroup Group is a party or by which any such member is bound shall
have been obtained, or each such agreement, security or facility shall have been
refinanced, in each case on terms satisfactory to Intelligroup and SeraNova and
to the extent necessary to permit the Distribution to be consummated without any
material breach of the terms of such agreement, security or facility; and
(xi) Intelligroup shall have received an opinion from Arthur
Andersen LLP, substantially in the form attached hereto as Exhibit Schedule
3.1(xi) that the Distribution should be tax-free to Intelligroup and to U.S.
stockholders of the Intelligroup Common Stock.
(b) Any determination made by the Board of Directors of
Intelligroup in good faith prior to the Distribution Date concerning the
satisfaction or waiver of any or all of the conditions set forth in this Section
3.1 shall be conclusive.
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Section 3.2. The Distribution. Subject to the terms and
conditions set forth in this Agreement, (i) prior to the Distribution Date,
Intelligroup shall deliver to the Distribution Agent for the benefit of holders
of record of Intelligroup Common Stock on the Record Date, stock certificates,
endorsed by Intelligroup in blank, representing all of the then-outstanding
shares of SeraNova Common Stock owned by Intelligroup, (ii) the Distribution
shall be effective as of the close of business, New York City time, on the
Distribution Date and (iii) Intelligroup shall instruct the Distribution Agent
to distribute, on or as soon as practicable after the Distribution Date, to each
holder of record of Intelligroup Common Stock as of the Record Date one share of
SeraNova Common Stock for each one share of Intelligroup Common Stock so held.
SeraNova agrees to provide all certificates for shares of SeraNova Common Stock
that Intelligroup shall require (after giving effect to Section 3.4) in order to
effect the Distribution.
Section 3.3. Stock Dividends to Intelligroup. On or prior to
the Distribution Date, SeraNova shall issue to Intelligroup as a stock dividend
the number of shares of SeraNova Common Stock as required to effect the
Distribution, as certified by the Distribution Agent. In connection therewith,
Intelligroup shall deliver to SeraNova for cancellation the share certificate
currently held by it representing SeraNova Common Stock.
Section 3.4. Fractional Shares. No certificates representing
fractional shares of SeraNova Common Stock will be distributed in the
Distribution. The Distribution Agent will be directed to determine the number of
whole shares and fractional shares of SeraNova Common Stock allocable to each
holder of Intelligroup Common Stock as of the Record Date. Upon the
determination by the Distribution Agent of such number of fractional shares, as
soon as practicable after the Distribution Date, the Distribution Agent, acting
on behalf of the holders thereof, shall sell such fractional shares for cash on
the open market and shall disburse the appropriate portion of the resulting cash
proceeds (net of any costs of selling the fractional shares) to each holder
entitled thereto.
ARTICLE 4.
INDEMNIFICATION
Section 4.1. SeraNova Indemnification of the Intelligroup
Group. (a) Subject to Section 4.3, on and after the Distribution Date, SeraNova
shall indemnify, defend and hold harmless the Intelligroup Group and the
respective directors, officers, employees and Affiliates of each Person in the
Intelligroup Group (the "Intelligroup Indemnitees") from and against any and all
Losses incurred or suffered by any of the Intelligroup Indemnitees (1) arising
out of, or due to the failure of any Person in the SeraNova Group to pay,
perform or otherwise discharge, any of the SeraNova Liabilities and (2) arising
out of the breach by any member of the SeraNova Group of any obligation under
this Agreement or any of the other Distribution Documents. This indemnification
is not intended to, and should not be construed as, limiting or amending
SeraNova's indemnification obligations defined in any of the other Distribution
Documents.
(b) Subject to Section 4.3, SeraNova shall indemnify, defend
and hold harmless each of the Intelligroup Indemnitees and each Person, if any,
who controls any Intelligroup Indemnitee within the meaning of either Section 15
of the Securities Act or Section
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20 of the Exchange Act from and against any and all Losses caused by any untrue
statement or alleged untrue statement of a material fact contained in the
SeraNova Form 10 or any amendment thereof or the SeraNova Information Statement
(as amended or supplemented), or caused by any omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as such Losses are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished to
SeraNova in writing by Intelligroup expressly for use therein.
Section 4.2. Intelligroup Indemnification of SeraNova Group.
(a) Subject to Section 4.3, on and after the Distribution Date, Intelligroup
shall indemnify, defend and hold harmless the SeraNova Group and the respective
directors, officers, employees and Affiliates of each Person in the SeraNova
Group (the "SeraNova Indemnitees") from and against any and all Losses incurred
or suffered by any of the SeraNova Indemnitees, (1) arising out of, or due to
the failure of any Person in the Intelligroup Group to pay, perform or otherwise
discharge, any of the Intelligroup Liabilities and (2) arising from any breach
by any member of the Intelligroup Group of any obligation made under this
Agreement or any of the other Distribution Documents. This indemnification is
not intended to, and should not be construed as, limiting or amending
Intelligroup's indemnification obligations defined in any of the other
Distribution Documents.
(b) Subject to Section 4.3, Intelligroup shall indemnify,
defend and hold harmless each of the SeraNova Indemnitees and each Person, if
any, who controls any SeraNova Indemnitee within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and against any
and all Losses caused by any untrue statement or alleged untrue statement of a
material fact contained in the SeraNova Form 10 or any amendment thereof or in
the SeraNova Information Statement (as amended or supplemented), or caused by
any omission or alleged omission to state therein a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, in each case to the extent, but only to the extent,
that such Losses are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information furnished to SeraNova in
writing by Intelligroup expressly for use therein.
Section 4.3. Insurance; Third-Party Obligations. Any
indemnification pursuant to Section 4.1 or 4.2 shall be paid net of the amount
of any insurance or other amounts that would be payable by any third party to
the Indemnified Party (as defined below) in the absence of this Agreement
(irrespective of time of receipt of such insurance or other amounts) and net of
any Tax Benefit (as defined in the Tax Sharing Agreement) to the Indemnified
Party attributable to the relevant payment or Liability. It is expressly agreed
that no insurer or any other third party shall be (i) entitled to a benefit it
would not be entitled to receive in the absence of the foregoing indemnification
provisions, (ii) relieved of the responsibility to pay any claims to which it is
obligated or (iii) entitled to any subrogation rights with respect to any
obligation hereunder.
Section 4.4. Notice and Payment of Claims. If any Intelligroup
Indemnitee or SeraNova Indemnitee (the "Indemnified Party") determines that it
is or may be entitled to indemnification by any party (the "Indemnifying Party")
under Article 4 (other than in connection with any Action subject to Section 4.5
or 4.6), the Indemnified Party shall deliver to the
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Indemnifying Party a written notice specifying, to the extent reasonably
practicable, the basis for its claim for indemnification and the amount for
which the Indemnified Party reasonably believes it is entitled to be
indemnified. Within 30 days after receipt of such notice, the Indemnifying Party
shall pay the Indemnified Party such amount in cash or other immediately
available funds unless the Indemnifying Party objects to the claim for
indemnification or the amount thereof. If the Indemnifying Party does not give
the Indemnified Party written notice objecting to such indemnity claim and
setting forth the grounds therefor within such 30-day period, the Indemnifying
Party shall be deemed to have acknowledged its liability for such claim and the
Indemnified Party may exercise any and all of its rights under applicable law to
collect such amount. In the event of such a timely objection by the Indemnifying
Party, the amount, if any, that is Finally Determined to be required to be paid
by the Indemnifying Party in respect of such indemnity claim shall be paid by
the Indemnifying Party to the Indemnified Party in cash within 15 days after
such indemnity claim has been so Finally Determined.
Section 4.5. Notice and Defense of Third-Party Claims Other
Than Those for Shared Liabilities. Promptly following the earlier of (i) receipt
of notice of the commencement by a third party of any Action against or
otherwise involving any Indemnified Party or (ii) receipt of information from a
third party alleging the existence of a claim against an Indemnified Party, in
either case, with respect to which indemnification may be sought pursuant to
this Agreement (a "Third-Party Claim"), the Indemnified Party shall give the
Indemnifying Party written notice thereof. The failure of the Indemnified Party
to give notice as provided in this Section 4.5 shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the extent
that the Indemnifying Party is prejudiced by such failure to give notice. Within
30 days after receipt of such notice, the Indemnifying Party may (i) by giving
written notice thereof to the Indemnified Party, acknowledge liability for such
indemnification claim and at its option elect to assume the defense of such
Third-Party Claim at its sole cost and expense or (ii) object to the claim for
indemnification set forth in the notice delivered by the Indemnified Party
pursuant to the first sentence of this Section 4.5; provided that if the
Indemnifying Party does not within such 30-day period give the Indemnified Party
written notice objecting to such indemnification claim and setting forth the
grounds therefor, the Indemnifying Party shall be deemed to have acknowledged
its liability for such indemnification claim. If the Indemnifying Party has
acknowledged liability and elected to assume the defense of a Third-Party Claim,
(x) the defense shall be conducted by counsel retained by the Indemnifying Party
and reasonably satisfactory to the Indemnified Party, provided that the
Indemnified Party shall have the right to participate in such proceedings and to
be represented by counsel of its own choosing at the Indemnified Party's sole
cost and expense; and (y) the Indemnifying Party may settle or compromise the
Third-Party Claim without the prior written consent of the Indemnified Party so
long as such settlement includes an unconditional release of the Indemnified
Party from all claims that are the subject of such Third-Party Claim, provided
that the Indemnifying Party may not agree to any such settlement pursuant to
which any remedy or relief, other than monetary damages for which the
Indemnifying Party shall be responsible hereunder, shall be applied to or
against the Indemnified Party, without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. If the
Indemnifying Party does not assume the defense of a Third-Party Claim for which
it has acknowledged liability for indemnification hereunder, the Indemnified
Party will act in good faith with respect thereto and may require the
Indemnifying Party to
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<PAGE> 12
reimburse it on a current basis for its reasonable expenses of investigation,
reasonable attorneys' fees and reasonable out-of-pocket expenses incurred in
defending against such Third-Party Claim and the Indemnifying Party shall be
bound by the result obtained with respect thereto by the Indemnified Party;
provided that the Indemnifying Party shall not be liable for any settlement
effected without its consent, which consent shall not be unreasonably withheld.
If the Indemnifying Party objects to a claim for indemnification, (a) the
Indemnifying Party shall not be entitled to assume the defense of the related
Third-Party Claim, (b) the Indemnified Party shall act in good faith with
respect to such Third-Party Claim, (c) the dispute as to whether the Indemnified
Party is entitled to indemnification hereunder shall be resolved in accordance
with Section 8.11 if it is determined that the Indemnified Party is entitled to
indemnification hereunder, the Indemnifying Party will be responsible for all
Losses of the Indemnified Party arising from such Third-Party Claim. The
Indemnifying Party shall pay to the Indemnified Party in cash the amount, if
any, for which the Indemnified Party is entitled to be indemnified hereunder
within 15 days after such Third-Party Claim has been Finally Determined, in the
case of a Third-Party Claim as to which the Indemnifying Party has acknowledged
liability or, in the case of any Third-Party Claim as to which the Indemnifying
Party has not acknowledged liability, within 15 days after such Indemnifying
Party's objection to liability hereunder has been Finally Determined to be
unfounded. This Section 4.5 shall govern all claims under this Article 4 for
indemnification against Third-Party Claims except Third-Party Claims in respect
of Shared Liabilities, as to which Section 4.6 shall govern.
Section 4.6. Notice and Defense of Third-Party Claims for
Shared Liabilities. Promptly following the earlier of (i) receipt of notice of
the commencement of a Third-Party Claim in respect of a Shared Liability (a
"Shared Liability Claim") or (ii) receipt of information from a third party
alleging the existence of a Shared Liability Claim, the party receiving such
notice or information shall give the other parties written notice thereof. The
failure of the party receiving notice or information with respect to a Shared
Liability Claim in respect to give notice as provided in this Section 4.6 shall
not relieve another party of its indemnification obligations under this
Agreement with respect thereto, except to the extent that such party is
prejudiced by such failure to give notice.
Each party hereto shall be entitled to participate in the
defense of such Shared Liability Claim if either the Shared Liability Claim has
been asserted or threatened against such party or such party has acknowledged in
writing its obligation to bear a portion of the potential liability in respect
of such Shared Liability Claim. (Each party that is so entitled to participate
in the defense of such Shared Liability Claim is referred to herein as a
"Participating Party".) Without limiting the terms of Sections 4.1(a) and
4.2(a), the party against whom the Shared Liability Claim is made shall have
management and administrative responsibility in respect thereof; provided that
if SeraNova is a Participating Party it shall have management and administrative
responsibility in respect thereof. The party responsible for the management and
administration of a Shared Liability Claim is referred to herein as the
"Managing Party" and such management and administrative responsibility shall
entail the defense of such Shared Liability Claim, negotiation with claimants
and potential claimants (subject to the limitations in the following paragraph)
and other reasonably related activities. The Managing Party shall retain counsel
selected by it and reasonably satisfactory to the other Participating Parties,
provided that the other Participating Parties shall have the right to
participate in such proceedings and to be
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<PAGE> 13
represented by counsel of its or their own choosing at its or their sole cost
and expense. The legal or other expenses in respect of a Shared Liability Claim
incurred by or on behalf of any person other than the Managing Party shall not
be Losses for purposes of this Agreement. All parties hereto shall cooperate
with the Managing Party and each other in the defense or prosecution of such
Shared Liability Claim.
In no event will the party against which the claim was made
admit any liability with respect to, or settle, compromise or discharge, any
Shared Liability Claim without the prior written consent of each other
Participating Party; provided, however, that the party against which the claim
was made may settle or compromise the Shared Liability Claim without the prior
written consent of the other Participating Parties if such party releases each
of the other Participating Parties from their respective indemnification
obligations hereunder with respect to such Shared Liability Claim and such
settlement, compromise or discharge would not otherwise adversely affect the
other Participating Parties. The Managing Party shall act in good faith with
respect to the Shared Liability Claim and may require the other parties to
reimburse it on a current basis for its reasonable expenses of investigation,
reasonable attorneys' fees and reasonable out-of-pocket expenses incurred in
defending against such Shared Liability Claim, and the other parties shall be
bound by the result obtained with respect thereto; provided that a Participating
Party shall not be liable for any settlement effected without its consent, which
consent shall not be unreasonably withheld. If a party objects to, or does not
within 30 days of notice acknowledge in writing its indemnification obligations
hereunder in respect of a portion of the liability for a Shared Liability Claim,
(a) such party shall not be entitled to participate in the defense of such
Shared Liability Claim, and (b) the dispute as to whether such party is required
to provide indemnification hereunder with respect thereto shall be resolved in
accordance with Section 8.11 hereof. Each Indemnifying Party in respect of a
Shared Liability Claim shall pay to the Indemnified Party in cash the amount, if
any, for which the Indemnified Party is entitled to be indemnified hereunder by
such Indemnifying Party within 15 days after such Shared Liability Claim has
been Finally Determined, in the case of a Shared Liability Claim as to which the
Indemnifying Party has acknowledged liability or, in the case of any Shared
Liability Claim as to which the Indemnifying Party has not acknowledged
liability, within 15 days after such Indemnifying Party's objection to liability
hereunder has been Finally Determined to be unfounded.
Section 4.7. Contribution. If for any reason the
indemnification provided for in Section 4.1 or 4.2 is unavailable to any
Indemnified Party, or insufficient to hold it harmless, then the Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses in such proportion as is appropriate to reflect all
relevant equitable considerations.
Section 4.8. Non-Exclusivity of Remedies. The remedies
provided for in this Article 4 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any Indemnified Party at law or
in equity.
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<PAGE> 14
ARTICLE 5.
EMPLOYEE MATTERS
Section 5.1. Employee Matters Generally. (a) Stock options
outstanding under the Intelligroup Equity-Based Plans will be adjusted so that
following the Distribution the exercise price of such options shall be adjusted
to take into account the Distribution and to ensure that the aggregate intrinsic
value of the adjusted Intelligroup options after the record date in respect of
the Distribution is equal to or less than, the aggregate intrinsic value of the
related Intelligroup option prior to the record date in respect of the
Distribution.
(b) In partial consideration for all Services provided or to
be provided (including by any member of the SeraNova Group to any member of the
Intelligroup Group or by any member of the Intelligroup Group to any member of
the SeraNova Group) and other consideration provided pursuant to this Agreement
(including the transfers of assets and assumptions of liabilities as provided
herein), SeraNova and Intelligroup shall use their best efforts to accomplish
the foregoing including, but not limited to, making such grants of options and
issuing such shares of Intelligroup Common Stock and SeraNova Common Stock as
may be required hereunder.
(c) Intelligroup options held by SeraNova employees will cease
to vest beyond those options vested as of the Distribution Date. Further, such
vested options will be caused to expire 90 days after the Distribution Date.
(d) Retained Employees (as defined in Section 5(a)(ii) of the
Services Agreement executed contemporaneously with the execution of this
Distribution Agreement) to whom Intelligroup options have previously been
granted will be required to forfeit such options as follows, or will be
ineligible for grants of SeraNova options:
(i) as of the Distribution Date, all unvested options will be
forfeited immediately; and
(ii) vested options as of the Distribution Date, will be
forfeited if not exercised within 90 days of such date.
ARTICLE 6.
ACCESS TO INFORMATION
Section 6.1. Provision of Corporate Records. Prior to or as
soon as practicable following the Distribution Date, each Group shall provide or
make available to each other Group all documents, contracts, books, records and
data (including but not limited to minute books, stock registers, stock
certificates and documents of title) in its possession relating to such other
Group or such other Group's business and affairs; provided that if any such
documents, contracts, books, records or data relate to both Groups or the
business and operations of both Groups, each such Group shall provide or make
available to the other Group true and complete copies of such documents,
contracts, books, records or data.
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<PAGE> 15
Section 6.2. Access to Information. From and after the
Distribution Date, each Group shall afford promptly to each other Group and its
accountants, counsel and other designated representatives reasonable access
during normal business hours to all documents, contracts, books, records,
computer data and other data in such Group's possession relating to such other
Group or the business and affairs of such other Group (other than data and
information subject to an attorney/client or other privilege), insofar as such
access is reasonably required by such other Group, including, without
limitation, for audit, accounting, litigation and disclosure and reporting
purposes.
Section 6.3. Litigation Cooperation. Each Group shall use
reasonable efforts to make available, upon written request, its directors,
officers, employees and representatives as witnesses to each other Group and its
accountants, counsel, and other designated representatives, and shall otherwise
cooperate with each other Group, to the extent reasonably required in connection
with any legal, administrative or other proceedings arising out of any Group's
business and operations prior to the Distribution Date in which the requesting
party may from time to time be involved.
Section 6.4. Reimbursement. Each Group providing information
or witnesses to any other Group, or otherwise incurring any expense in
connection with cooperating, under Sections 6.1, 6.2 or 6.3 shall be entitled to
receive from the recipient thereof, upon the presentation of invoices therefor,
payment for all costs and expenses as may be reasonably incurred in providing
such information, witnesses or cooperation.
Section 6.5. Retention of Records. Except as otherwise
required by law or agreed to in writing, each party shall, and shall cause the
members of its respective Group to, retain all information relating to any other
Group's business and operations in accordance with the past practice of such
party. Notwithstanding the foregoing, any party may destroy or otherwise dispose
of any such information at any time, provided that, prior to such destruction or
disposal, (i) such party shall provide not less than 90 days' prior written
notice to the other parties, specifying the information proposed to be destroyed
or disposed of, and (ii) if a recipient of such notice shall request in writing
prior to the scheduled date for such destruction or disposal that any of the
information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the information as was requested at the
expense of the requesting party or parties.
Section 6.6. Confidentiality. Each party shall hold and shall
cause its Affiliates and its and their respective directors, officers,
employees, agents, consultants and advisors ("Representatives") to hold in
strict confidence all information concerning any other party or its Affiliates
unless (i) such person is compelled to disclose such information by judicial or
administrative process or, in the opinion of its counsel, by other requirements
of law or (ii) such information can be shown to have been (A) in the public
domain through no fault of such party or its Representatives or (B) lawfully
acquired after the Distribution Date on a non-confidential basis from other
sources. Notwithstanding the foregoing, such party may disclose such information
to its Representatives so long as such Persons are informed by such party of the
confidential nature of such information and are directed by such party to treat
such information
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<PAGE> 16
confidentially. If a party or any of its Representatives becomes legally
compelled to disclose any documents or information subject to this Section 6.6,
such party will promptly notify the other applicable party so that such other
party may seek a protective order or other remedy or waive compliance with this
Section 6.6. If no such protective order or other remedy is obtained or waiver
granted, the party subject to compulsion will furnish only that portion of the
information which it is advised by counsel is legally required and will exercise
its reasonable efforts to obtain reliable assurance that confidential treatment
will be accorded such information. Each party agrees to be responsible for any
breach of this Section 6.6 by its Representatives.
Section 6.7. Inapplicability of Article 6 to Tax Matters.
Notwithstanding anything to the contrary in Article 6, Article 6 shall not apply
with respect to information, records and other matters relating to Taxes, all of
which shall be governed by the Tax Sharing Agreement.
ARTICLE 7.
CERTAIN OTHER AGREEMENTS
Section 7.1. Further Assurances and Consents. In addition to
the actions specifically provided for elsewhere in this Agreement, each of the
parties hereto shall use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by this
Agreement, including but not limited to using its reasonable efforts to obtain
any consents and approvals and to make any filings and applications necessary or
desirable in order to consummate the transactions contemplated by this
Agreement; provided that no party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to any
third party from whom such consents or approvals are requested or to take any
action or omit to take any action if the taking of or the omission to take such
action would be unreasonably burdensome to the party, its Group or its Group's
business.
Section 7.2. Intellectual Property Rights and Licenses. Except
as set forth in that certain Contribution Agreement by and between Intelligroup,
Inc. and SeraNova, Inc. dated as of January 1, 2000, none of the Groups shall
have any right or license in or to any technology, software, intellectual
property (including any trademark, service mark, patent or copyright), know-how
or other proprietary right owned, licensed or held for use by another Group.
Section 7.3. Insurance. Notwithstanding anything contained
herein or in any Distribution Document to the contrary, nothing contained herein
or in any Distribution Document shall constitute an assignment or transfer of
any insurance policy or the rights thereunder to the extent any such assignment
or transfer would cause the coverage under such policy to be reduced. If any
such assignment or transfer would result in such a reduction, the party that
would have assigned or transferred such rights will enforce the rights
thereunder for the benefit of the party to whom such assignment or transfer
would have been made but for the effect of the preceding sentence and shall hold
any payment received in respect thereof in trust for such party. Each party
hereunder hereby appoints Intelligroup as its agent to administer any claim it
or any
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<PAGE> 17
member of its Group may have under any insurance policy held by Intelligroup or
any of its Subsidiaries prior to the Distribution Date (each, a
"Pre-Distribution Policy") with respect to any claim or occurrence arising prior
to the Distribution Date. If, as a result of any retrospective loss adjustment,
stop loss, deductible, coverage limit or other similar arrangement, any party
(or any member of its Group) is required to make any payment in respect of, or
is not paid the full amount it may claim under, any Pre-Distribution Policy, the
amount of any such payment or shortfall shall be allocated among the parties
hereto in an equitable manner as determined in good faith by SeraNova, and each
party hereto shall make such payments to the other parties hereto as shall be
required in order to effect such equitable allocation.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices. All notices and other communications to
any party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be deemed given when received addressed as follows:
If to Intelligroup, to: Intelligroup, Inc.
499 Thornall Street
Edison, NJ 08837
Telecopy: 732-362-2100
Attention: Ashok Pandey,
Copy to: Buchanan Ingersoll Professional Corporation
650 College Road East
Princeton, NJ 08540
Telecopy: 609-520-0360
Attention: David J. Sorin
If to SeraNova, to: SeraNova, Inc.
c/o Intelligroup, Inc.
499 Thornall Street
Edison, NJ 08837
Telecopy: 732-362-2100
Attention: Rajkumar Koneru,
Copy to: Buchanan Ingersoll Professional Corporation
650 College Road East
Princeton, NJ 08540
Telecopy: 609-520-0360
Attention: David J. Sorin
Any party may, by written notice so delivered to the other
parties, change the address to which delivery of any notice shall thereafter be
made. All such notices shall be
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<PAGE> 18
deemed received on the date of receipt by the recipient thereof if received
prior to 5 p.m. in the place of receipt and such day is a business day in the
place of receipt. Otherwise, any such notice shall be deemed not to have been
received until the next succeeding business day in the place of receipt.
Section 8.2. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by Intelligroup and
SeraNova, or in the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 8.3. Expenses. Except as specifically provided
otherwise in this Agreement or the Tax Sharing Agreement (including, without
limitation, in Article 4, Sections 6.4, 6.5, and 8.7(c) and Schedule 5.1 of this
Agreement), all costs and expenses incurred after the date hereof in connection
with the preparation, execution and delivery of the Distribution Documents and
the consummation of the Distribution and the other transactions contemplated
hereby (including the fees and expenses of all counsel, accountants and
financial and other advisors of each Group in connection therewith, and all
expenses in connection with preparation, filing and printing of the SeraNova
Form 10 and the SeraNova Information Statement) shall be Shared Liabilities;
provided (i) that Intelligroup shall be responsible for and pay the fees,
expenses and other amounts payable to the lenders in respect of Intelligroup's
credit facilities and all other fees and expenses incurred in connection
therewith (including the fees and expenses of Intelligroup's counsel in
connection with the preparation and negotiation of all documentation relating to
such credit facilities) and (ii) that the SeraNova Group shall be responsible
for and pay the fees, expenses and other amounts payable to the lenders under
the SeraNova Group's credit facilities and all other fees and expenses incurred
in connection therewith (including the fees and expenses of counsel to the
SeraNova Group in connection with the preparation and negotiation of all
documentation relating to such credit facilities).
Section 8.4. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
Section 8.5. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of New Jersey (other
than the laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
Section 8.6. Entire Agreement. This Agreement and the other
Distribution Documents constitute the entire understanding of the parties with
respect to the subject matter
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<PAGE> 19
hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof and thereof. No representation, inducement, promise,
understanding, condition or warranty not set forth herein or in the other
Distribution Documents has been made or relied upon by any party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder. To the extent
that the provisions of this Agreement are inconsistent with the provisions of
any other Distribution Document, the provisions of such other Distribution
Document shall prevail.
Section 8.7. Tax Sharing Agreement; Setoff; Certain Transfer
Taxes. (a) Except as otherwise provided herein, this Agreement shall not govern
any Tax, and any and all claims, losses, damages, demands, costs, expenses or
liabilities relating to Taxes shall be exclusively governed by the Tax Sharing
Agreement.
(b) If, at the time any party hereto is required to make any
payment to any other party under this Agreement, the party entitled to the
payment owes the obligor any amount under this Agreement or the Tax Sharing
Agreement, then such amounts shall be offset and the excess shall be paid by the
party liable for such excess.
(c) The party or parties that is or are required by applicable
law to file any Return (as defined in the Tax Sharing Agreement) or make any
payment with respect to any such Tax shall do so, and the other party or parties
shall cooperate with respect thereto as necessary. The non-paying party or
parties shall reimburse the paying party in accordance with this Section 8.7
within 5 business days after it or they receive notice of the payment of such
Tax.
Section 8.8. Existing Arrangements. Except as otherwise
contemplated hereby or as set forth on Schedule 8.8, all prior agreements and
arrangements, including those relating to goods, rights or services provided or
licensed, between any member of one Group and any member of another Group shall
be terminated effective as of the Distribution Date, if not theretofore
terminated. No such agreements or arrangements shall be in effect after the
Distribution Date unless embodied in the Distribution Documents or set forth in
Schedule 8.8.
Section 8.9. Termination Prior to the Distribution. The
Intelligroup Board of Directors may at any time prior to the Distribution
abandon the Distribution and, by notice to SeraNova, terminate this Agreement
(whether or not the Intelligroup Board of Directors has theretofore approved
this Agreement and/or the Distribution).
Section 8.10. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 8.11. Arbitration; Dispute Resolution. Unless
otherwise provided for in this Agreement, any conflict or disagreement arising
out of the interpretation, implementation or compliance with the provisions of
this Agreement shall be finally settled pursuant to the provisions of Article 6
(Arbitration; Dispute Resolution) of that certain Contribution Agreement by and
between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000, which
provisions are incorporated herein by reference.
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<PAGE> 20
Section 8.12. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions, the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
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<PAGE> 21
IN WITNESS WHEREOF the parties hereto have caused this
Distribution Agreement to be duly executed by these respective authorized
officers as of the date first above written.
INTELLIGROUP, INC.
By: /s/ Ashok Pandey
----------------------------------
Name:
Title:
SERANOVA, INC.
By: /s/ Raj Koneru
----------------------------------
Name: Raj Koneru
Title: CEO
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<PAGE> 22
SCHEDULE 1.1
SHARED LIABILITIES
1. Shared Corporate Liabilities.
2. Liabilities under the Securities Act or the Exchange Act
arising from acts or omissions of Intelligroup prior to the Distribution Date,
other than Liabilities arising from the filing by Intelligroup of a Current
Report on Form 8-K containing information on the Intelligroup Group.
<PAGE> 23
SCHEDULE 2.1(a)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SERANOVA, INC.
<PAGE> 24
CERTIFICATE REQUIRED TO BE FILED WITH THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SERANOVA, INC.
Pursuant to the provisions of Section 14A:9-5(5) of the New Jersey
Business Corporations Act, the undersigned corporation hereby executes the
following certificate:
1. The name of the corporation is SeraNova, Inc. (the "Corporation").
2. The Amended and Restated Certificate of Incorporation was adopted by
the Board of Directors of the Corporation on December 1, 1999 and by the sole
shareholder of the Corporation on December 1, 1999.
3. The number of shares of the Corporation entitled to vote on the
Amended and Restated Certificate of Incorporation is 1,000 shares of Common
Stock. All outstanding shares of Common Stock voted for the foregoing Amended
and Restated Certificate of Incorporation and no shares of Common Stock voted
against the foregoing Amended and Restated Certificate of Incorporation.
4. The Amended and Restated Certificate of Incorporation restates,
integrates and amends in its entirety the provisions of the Corporation's
Certificate of Incorporation, as amended to date.
IN WITNESS WHEREOF, the undersigned has signed this Certificate on
behalf of the Corporation this 25th day of January, 2000.
By: Rajkumar Koneru
---------------------------------------
Rajkumar Koneru, Chairman,
Chief Executive Officer and President
<PAGE> 25
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SERANOVA, INC.
Pursuant to Section 14A:9-5 of the New Jersey Business Corporation Act
(the "Act"), the undersigned corporation hereby executes this Amended and
Restated Certificate of Incorporation.
FIRST: The name of the Corporation is SeraNova, Inc. (the
"Corporation").
SECOND: The purpose or purposes for which the Corporation is organized
is to engage in any lawful activity within the purposes for which corporations
may be organized under Title 14A of the Act.
THIRD: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty five million (45,000,000)
shares. The Corporation is authorized to issue two classes of stock designated
"Common Stock" and "Preferred Stock," respectively. The total number of shares
of Common Stock authorized to be issued by the Corporation is forty million
(40,000,000), each such share of Common Stock having a par value of $.01. The
total number of shares of Preferred Stock authorized to be issued by the
Corporation shall be five million (5,000,000), each such share of Preferred
Stock having a par value of $.01, all of which is undesignated.
The undesignated Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of the Corporation is hereby
authorized, by adopting a resolution or resolutions and filing a certificate or
certificates pursuant to the applicable provisions of the Act, to establish from
time to time the number of shares to be included in each such series of
Preferred Stock, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof, including but not limited to the fixing or alteration of
the dividend rights, dividend rate or rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of shares of Preferred Stock, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issuance of shares
of that series, but not below the number of shares of such series then
outstanding. In the event the number of shares of any series shall be so
decreased, the shares removed from such series by such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
FOURTH: The address of the registered office of the Corporation shall
be 499 Thornall Street, Edison, New Jersey 08837. The registered agent of the
Corporation at its registered office shall be Rajkumar Koneru.
<PAGE> 26
FIFTH: The number of directors constituting the current Board of
Directors is three. The names and addresses of each of such directors is as
follows:
Name Address
---------------------- ------------------------
Rajkumar Koneru c/o SeraNova, Inc.
499 Thornall Street
Edison, New Jersey 08837
Nagarjun Valluripalli c/o SeraNova, Inc.
499 Thornall Street
Edison, New Jersey 08837
Ravi Singh c/o SeraNova, Inc.
499 Thornall Street
Edison, New Jersey 08837
SIXTH: The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and shareholders:
(i) The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation,
subject to any limitation thereof contained in the Bylaws. The
shareholders also shall have the power to adopt, amend or repeal the
Bylaws of the Corporation; provided, however, that, except as set forth
below in clause (ii), in addition to any vote of the holders of any
class or series of stock of the Corporation required by law or by this
Amended and Restated Certificate of Incorporation, the affirmative vote
of the holders of at least sixty six and two-thirds percent (66 2/3%)
of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be
required to adopt, amend or repeal any provision of the Bylaws of the
Corporation;
(ii) in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this Amended
and Restated Certificate of Incorporation, the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting
together as a single class, shall be required to adopt, amend or repeal
any provision of ARTICLE XI of the Bylaws of the Corporation entitled
"INDEMNIFICATION AND INSURANCE."
(iii) Upon the earlier of (i) the consummation of an initial
public offering of securities of the Corporation under the Securities
Act of 1933, as amended, or (ii) the registration of the Corporation's
Common Stock under the
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Securities Exchange Act of 1934, as amended, shareholders of the
Corporation may not take any action by written consent in lieu of a
meeting.
(iv) Special meetings of shareholders may be called at any
time only by the President, the Chairman of the Board of Directors of
the Corporation (if any) or a majority of the Board of Directors of the
Corporation. Business transacted at any special meeting of shareholders
shall be limited to matters relating to the purpose or purposes set
forth in the notice of such special meeting.
(v) The Board of Directors of the Corporation, when evaluating
any offer of another party (a) to make a tender or exchange offer for
any equity security of the Corporation or (b) to effect a business
combination, merger, consolidation, or sale of all or substantially all
of the assets of the Corporation, shall, in connection with the
exercise of its judgment in determining what is in the best interests
of the Corporation as a whole, be authorized to give due consideration
to any such factors as the Board of Directors of the Corporation
determines to be relevant, including, without limitation:
(1) the short term and long term interests of the
Corporation and the Corporation's shareholders, including the
possibility that these interests might be best served by the
continued independence of the Corporation;
(2) whether the proposed transaction might violate
federal or state laws;
(3) not only the consideration being offered in the
proposed transaction, in relation to the then current market
price for the outstanding capital stock of the Corporation,
but also to the market price for the capital stock of the
Corporation over a period of years, the estimated price that
might be achieved in a negotiated sale of the Corporation as a
whole or in part or through orderly liquidation, the premiums
over market price for the securities of other corporations in
similar transactions, current political, economic and other
factors bearing on securities prices and the Corporation's
financial condition and future prospects; and
(4) the social, legal and economic effects upon
employees, suppliers, creditors, customers and others having
similar relationships with the Corporation, upon the
communities in which the Corporation operates its business and
upon the economy of the state, region and nation.
In connection with any such evaluation, the Board of Directors of the
Corporation is authorized to conduct such investigations and engage in
such legal proceedings as the Board of Directors of the Corporation may
determine.
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(vi) in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this Amended
and Restated Certificate of Incorporation, the affirmative vote of the
holders of at least sixty six and two-thirds percent (66 2/3%) of the
voting power of all of the then outstanding shares of the capital stock
of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to
amend any provision of Article SIXTH of this Amended and Restated
Certificate of Incorporation (other than clause (ii) of Article SIXTH).
(vii) in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this Amended
and Restated Certificate of Incorporation, the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend any provision of
clause (ii) of Article SIXTH or Article SEVENTH of this Amended and
Restated Certificate of Incorporation.
SEVENTH: No director or officer shall be personally liable to the
Corporation or its shareholders for damages for breach of any duty owed to the
Corporation or its shareholders, except that this provision shall not relieve a
director or officer from liability for any breach of duty based on an act or
omission (a) in breach of such person's duty of loyalty to the Corporation or
its shareholders, (b) not in good faith or involving a knowing violation of law,
or (c) resulting in receipt by such person of an improper personal benefit. No
amendment to, expiration of or repeal of this Article shall have any effect on
the liability or alleged liability of any director or officer of the Corporation
for or with respect to any acts or omissions of such director or officer
occurring prior to such amendment, expiration or repeal.
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IN WITNESS WHEREOF, the undersigned has signed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation this 25th day
of January, 2000.
SERANOVA, INC.
By: /s/ Rajkumar Koneru
----------------------------------------
Rajkumar Koneru, Chairman,
Chief Executive Officer and President
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SCHEDULE 2.1(b)
BY-LAWS OF SERANOVA, INC.
<PAGE> 31
BY-LAWS
OF
SERANOVA, INC.
(FORMERLY INFINIENT, INC.)
ARTICLE I
OFFICES
1.01 Registered Office: The initial registered office of the
Corporation shall be c/o Intelligroup, Inc., 499 Thornall Street, Edison, New
Jersey 08837. The Board of Directors may change the registered office from time
to time.
1.02 Other Offices: The Corporation may have such other offices
either within or without the State of New Jersey as the Board of Directors may
designate or as the business of the Corporation may require from time to time.
ARTICLE II
SEAL
2.01 Seal: The corporate seal shall be in the form adopted by the Board
of Directors and may be altered by them from time to time.
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<PAGE> 32
ARTICLE III
SHAREHOLDERS' MEETINGS
3.01 Place: All meetings of the shareholders shall be held at the
registered office of the Corporation or at such other place or places, either
within or without the State of New Jersey, as may from time to time be selected
by the Board of Directors.
3.02 Annual Meetings: The annual meeting of shareholders shall be held
at such time as may be fixed by the Board of Directors. At that meeting the
shareholders shall elect, by a plurality vote, a Board of Directors, and
transact such other business as may properly come before the meeting.
3.03 Special Meetings: Special meetings of the shareholders may be
called only by the President, the Chairman of the Board of Directors of the
Corporation (if any) or by order of a majority of the Board of Directors. Such
written request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purpose or
purposes stated in the notice calling such meeting.
3.04 Notice of Shareholders' Meetings: Written notice of the time,
place and purpose or purposes of every meeting of shareholders shall be given
not less than ten or more than sixty days before the date of the meeting, either
personally or by mail (to the last address appearing on the books of the
Corporation), to each shareholder of record entitled to vote at the meeting and
to each shareholder otherwise entitled to notice by law, unless a greater period
of notice is required by statute in a particular case.
When a meeting is adjourned to another time or place, it shall not be
necessary to give notice of the adjourned meeting if the time and place to which
the meeting is adjourned are announced at the meeting at which the adjournment
is taken and at the adjourned meeting only such business is transacted as might
have been transacted at the original meeting. However, if after the adjournment
the Board fixes a new record date for the adjourned meeting, a notice of the
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adjourned meeting shall be given to each shareholder of record on the new record
date entitled to notice.
3.05 Waiver of Notice: Notice of a meeting need not be given to any
shareholder who signs a waiver of such notice, in person or by proxy, whether
before or after the meeting. The attendance of any shareholder at a meeting, in
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of notice by that
shareholder.
Whenever shareholders are authorized to take any action after the lapse
of a prescribed period of time, the action may be taken without such lapse if
such requirement is waived in writing, in person or by proxy, before or after
the taking of such action, by every shareholder entitled to vote thereon as of
the date of the taking of such action.
3.06 Action by Shareholders Without Meeting:
(1) Any action required or permitted to be taken at a meeting
of shareholders by statute or the Certificate of Incorporation or By-laws of the
Corporation may be taken without a meeting if all the shareholders entitled to
vote thereon consent thereto in writing, except that in the case of any action
to be taken pursuant to Chapter 10 (concerning mergers, etc.) of the New Jersey
Business Corporation Act (the "Act"), such action may be taken without a meeting
only if all shareholders entitled to vote consent thereto in writing and the
Corporation provides to all other shareholders the advance notification required
by paragraph (2)(b) of this section.
(2) Except as otherwise provided in the Certificate of
Incorporation and subject to the provisions of this subsection, any action
required or permitted to be taken at a meeting of shareholders by the Act, the
Certificate of Incorporation, or By-laws, other than the annual election of
Directors, may be taken without a meeting upon the written consent of
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shareholders who would have been entitled to cast the minimum number of votes
which would be necessary to authorize such action at a meeting at which all
shareholders entitled to vote thereon were present and voting.
(a) If any shareholder shall have the right to
dissent from a proposed action, pursuant to Chapter 11 of the Act, the Board
shall fix a date on which written consents are to be tabulated; in any other
case, it may fix a date for tabulation. If no date is fixed, consents may be
tabulated as they are received. No consent shall be counted which is received
more than sixty days after the date of the Board action authorizing the
solicitation of consents or, in a case in which consents, or proxies for
consents, are solicited from all shareholders who would have been entitled to
vote at a meeting called to take such action, more than sixty days after the
date of mailing of solicitation of consents, or proxies for consents.
(b) Except as provided in paragraph (2)(c), the
Corporation, upon receipt and tabulation of the requisite number of written
consents, shall promptly notify all non-consenting shareholders, who would have
been entitled to notice of a meeting to vote upon such action, of the action
consented to, the proposed effective date of such action, and any conditions
precedent to such action. Such notification shall be given at least twenty days
in advance of the proposed effective date of such action in the case of any
action taken pursuant to Chapter 10 of the Act, and at least ten days in advance
in the case of any other action.
(c) The Corporation need not provide the notification
required to be given by paragraph (2)(b) if it
(i) solicits written consents or proxies for
consents from all shareholders who would have been entitled to vote at a meeting
called to take such action,
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and at the same time gives notice of the proposed action to all other
shareholders who would have been entitled to notice of a meeting called to vote
upon such action;
(ii) advises all shareholders, if any, who
are entitled to dissent from the proposed action, as provided in Chapter 11 of
the Act, of their right to do so and to be paid the fair value of their shares;
and
(iii) fixes a date for tabulation of
consents not less than twenty days, in the case of any proposed action to be
taken pursuant to Chapter 10 of the Act, or not less than ten days in the case
of any other proposed action, and not more than sixty days after the date of
mailing of solicitations of consents or proxies for consents.
(d) Any consent obtained pursuant to paragraph (2)(c)
may be revoked at any time prior to the day fixed for tabulation of consents.
Any other consent may be revoked at any time prior to the day on which the
proposed action could be taken upon compliance with paragraph (2)(b). The
revocation must be in writing and be received by the Corporation.
(3) Whenever action is taken pursuant to subsection (1) or
(2), the written consents of the shareholders consenting thereto or the written
report of inspectors appointed to tabulate such consents shall be filed with the
minutes or proceedings of shareholders.
(4) In case the Corporation is involved in a merger,
consolidation or other type of acquisition or disposition regulated by Chapters
10 and 11 of the Act, the pertinent provisions of the statute should be referred
to and strictly complied with.
(5) Notwithstanding the provisions of this Section 3.06,
immediately following the consummation of an initial public offering under the
Securities Act of 1933, as
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amended, or registration under the Securities Exchange Act of 1934, as amended,
by the Corporation of any of its capital stock, shareholders of the Corporation
may not take any action by written consent in lieu of a meeting.
3.07 Fixing Record Date:
(1) The Board may fix, in advance, a date as the record date
for determining the Corporation's shareholders with regard to any corporate
action or event and, in particular, for determining the shareholders who are
entitled to
(a) notice of or to vote at any meeting of
shareholders or any adjournment thereof;
(b) give a written consent to any action without a
meeting; or
(c) receive payment of any dividend or allotment of
any right.
The record date may in no case be more than sixty days prior to the
shareholders' meeting or other corporate action or event to which it relates.
The record date for a shareholders' meeting may not be less than ten days before
the date of the meeting. The record date to determine shareholders to give a
written consent may not be more than sixty days before the date fixed for
tabulation of the consents or, if no date has been fixed for tabulation, more
than sixty days before the last day on which consents received may be counted.
(2) If no record date is fixed,
(a) the record date for a shareholders' meeting shall
be the close of business on the day next preceding the day on which notice is
given, or, if no notice is given, the day next preceding the day on which the
meeting is held; and
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(b) the record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
resolution of the Board relating thereto is adopted.
(3) When a determination of shareholders of record for a
shareholders' meeting has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date under this section for the adjourned meeting.
3.08 Voting Lists: The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete list of
shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof. A list required by this section may consist of cards arranged
alphabetically or any equipment which permits the visual display of the
information required. Such list shall be arranged alphabetically within each
class, series or group of shareholders maintained by the Corporation for
convenience of reference, with the address of, and the number of shares held by,
each shareholder; be produced (or available by means of a visual display) at the
time and place of the meeting; be subject to the inspection of any shareholder
for reasonable periods during the meeting; and be prima facie evidence of the
identity of the shareholders entitled to examine such list or to vote at any
meeting.
If the requirements of this section have not been complied with, the
meeting shall, on the demand of any shareholder in person or by proxy, be
adjourned until the requirements are complied with. Failure to comply with the
requirements of this section shall not affect the validity of any action taken
at such meeting prior to the making of any such demand.
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3.09 Quorum: Unless otherwise provided in the Certificate of
Incorporation or by statute, the presence of holders of shares (in person or by
proxy) entitled to cast a majority of the votes at a meeting shall constitute a
quorum at such meeting. The shareholders present in person or by proxy at a duly
organized meeting may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum. Less than a
quorum may adjourn.
Whenever the holders of any class or series of shares are entitled to
vote separately on a specified item of business, the provisions of this section
shall apply in determining the presence of a quorum of such class or series for
the transaction of such specified item of business.
3.10 Voting: Each holder of shares with voting rights shall be entitled
to one vote for each such share registered in his/her name, except as otherwise
provided in the Certificate of Incorporation. Whenever any action, other than
the election of Directors, is to be taken by vote of the shareholders, it shall
be authorized by a majority of the votes cast at a meeting of shareholders by
the holders of shares entitled to vote thereon, unless a greater plurality is
required by statute or by the Certificate of Incorporation.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent without a meeting may authorize another person or persons to act
for him/her by proxy. Every proxy shall be executed in writing by the
shareholder or his/her agent, except that a proxy may be given by a shareholder
or his/her agent by telegram or cable or its equivalent. No proxy shall be valid
for more than eleven months unless a longer time is expressly provided therein.
Unless it is coupled with an interest, a proxy shall be revocable at will. A
proxy shall not be revoked by the death or incapacity of the shareholder but
such proxy shall continue in force until revoked by the personal representative
or guardian of the shareholder. The presence at any meeting of any
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shareholder who has given a proxy shall not revoke such proxy unless the
shareholder shall file written notice of such revocation with the Secretary of
the meeting prior to the voting of such proxy.
3.11 Election of Directors: At each election of Directors every
shareholder entitled to vote at such election shall have the right to vote the
number of shares owned by him for as many persons as there are Directors to be
elected and for whose election he has a right to vote. Directors shall be
elected by a plurality of the votes cast at the election, except as otherwise
provided by the Certificate of Incorporation.
Elections of Directors need not be by ballot unless a shareholder
demands election by ballot at the election and before the voting begins.
3.12 Inspectors of Election: The Board may, in advance of any
shareholders' meeting, or of the tabulation of written consents of shareholders
without a meeting, appoint one or more inspectors to act at the meeting or any
adjournment thereof or to tabulate such consents and make a written report
thereof. If inspectors to act at any meeting of shareholders are not so
appointed or shall fail to qualify, the person presiding at a shareholders'
meeting may, and on the request of any shareholder entitled to vote there at
shall, make such appointment.
Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. No person shall be
elected a Director in an election for which he has served as an inspector.
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3.13 Conduct of Meetings:
(1) The President of the Corporation, and in the President's
absence, the Vice President of the Corporation, shall preside at all meetings of
shareholders. In the absence of the President and the Vice President, the
shareholders present shall, by a simple majority vote, elect a chairman of the
meeting.
(2) The Secretary of the Corporation shall act as Secretary of
all meetings of shareholders; in the Secretary's absence, the chairman presiding
at any such meeting shall appoint a person to act as secretary of the meeting.
ARTICLE IV
DIRECTORS
4.01 Number of Directors: The number of Directors constituting the
entire Board shall be one or such greater number as shall be set by the vote of
a majority of the Board of Directors then authorized to hold office. A Director
shall be at least eighteen years of age and need not be a United States citizen
or resident of this State or a shareholder in the Corporation. Each Director
shall be elected by the shareholders, at the annual meeting of shareholders of
the Corporation, and shall be elected for the term of one year, and until his
successor shall be elected and shall qualify.
4.02 Term of Directors: The Directors named in the Certificate of
Incorporation shall hold office until the first annual meeting of shareholders,
and until their successors shall have been elected and qualified. At the first
annual meeting of shareholders and at each annual meeting thereafter, the
shareholders shall elect Directors to hold office until the next succeeding
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annual meeting. Each Director shall hold office for the term for which he/she is
elected and until a successor shall have been elected and qualified.
4.03 Removal of Directors: Unless otherwise provided in the Certificate
of Incorporation, any or all of the Directors of the Corporation may be removed
with or without cause by the shareholders by the affirmative vote of the
majority of all shares then entitled to vote for the election of the Directors.
4.04 Quorum of Board of Directors and Committees; Action of Directors
Without a Meeting:
(1) The participation of Directors with a majority of the
votes of the entire Board of Directors, or of any Committee thereof, shall
constitute a quorum for the transaction of business.
(2) Any action required or permitted to be taken pursuant to
authorization voted at a meeting of the Board of Directors, or any Committee
thereof, may be taken without a meeting if, prior or subsequent to such action,
all members of the Board or such Committee, as the case may be, consent thereto
in writing and such written consents are filed with the minutes of the
proceedings of the Board or Committee.
4.05 Place of Board of Directors Meeting: Meetings of the Board of
Directors may be held either within or without the State of New Jersey, at such
times and places as the Board of Directors shall determine.
4.06 Annual Meeting: An annual meeting of the newly elected Board of
Directors shall be held immediately following the annual meeting of shareholders
(or immediately following any adjournment thereof) at the place of such annual
meeting of shareholders, for the
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organization of such Board of Directors and for the transaction of any other
business as may conveniently and properly be brought before such meeting.
4.07 Meetings of the Board of Directors:
(1) Regular meetings of the Board of Directors may be held
with or without notice. Special meetings of the Board of Directors shall be held
upon notice to the Directors and may be called by the President upon at least
one days notice to each Director either personally or by mail, wire, or
telephone; special meetings shall be called by the President or Secretary in a
like manner upon written request of one or more Directors. Notice of any meeting
need not be given to any Director who signs a written waiver of notice, whether
before or after the meeting. The attendance of any Director at a meeting,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute an effective waiver of notice by that Director.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
(2) Where appropriate communication facilities are reasonably
available, any or all Directors shall have the right to participate in all or
any part of a meeting of the Board of Directors, or any Committee thereof, by
means of conference telephone or any means of communication by which all persons
participating in the meeting are able to hear each other.
4.08 Adjournment: A majority of the Directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place. Notice of
the adjournment shall be given to all Directors who were absent at the time of
the adjournment. Notice of an adjourned meeting need not be given to any
Directors who were present at the time of the adjournment only if the time and
place are fixed at the meeting adjourning and if the period of adjournment does
not exceed ten days in any one adjournment.
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4.09 Powers of Directors: The Board of Directors shall manage or direct
the management of the business and affairs of the Corporation. In addition to
the powers and authorities expressly conferred upon them by these By-laws, the
Board may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by these By-laws directed or required
to be exercised or done by the shareholders.
4.10 Compensation of Directors: The Board, by the affirmative vote of a
majority of Directors in office and irrespective of any personal interest of any
of them, shall have authority to establish reasonable compensation of Directors
for services to the Corporation as Directors, officers or otherwise.
4.11 Executive Committees: The Board of Directors, by resolution
adopted by a majority of the entire Board, may appoint from among its members an
executive committee and one or more other committees, each of which shall have
one or more members. Each such committee shall have and may exercise all the
authority delegated to it by the Board, except that no such committee shall
make, alter or repeal any By-law of the Corporation; elect or appoint any
Director, or remove any officer or Director; submit to shareholders any action
that requires shareholders' approval; or amend or repeal any resolution
theretofore adopted by the Board which by its terms is amendable or repealable
only by the Board.
Actions taken at a meeting of any such committee shall be reported to
the Board at its next meeting following such committee meeting; except that,
when the meeting of the Board is held within two days after the committee
meeting, such report shall, if not made at the first meeting, be made to the
Board at its second meeting following such committee meeting.
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ARTICLE V
OFFICERS
5.01 Officers: The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer, and, if desired, a Chairman of the Board,
one or more Vice Presidents, and such other officers as the Board deems
appropriate. The officers shall be elected by the Board of Directors at its
annual meeting and shall hold office for one year and until their successors are
elected and have qualified, subject to earlier termination by removal or
resignation. The Board may also choose such employees and agents as it shall
deem necessary, who shall hold their offices for such terms and shall have such
authority and shall perform such duties as from time to time shall be prescribed
by the Board.
Unless otherwise provided by law, the Certificate of Incorporation or
these By-laws, any two or more offices may be held by the same person but no
officer shall execute, acknowledge, or verify any instrument in more than one
capacity if such instrument is required by law or by these By-laws to be
executed, acknowledged, or verified by two or more officers.
5.02 Salaries: The salaries of all officers, employees and agents of
the Corporation shall be fixed by the Board of Directors.
5.03 Removal: Any officer elected or appointed by the Board of
Directors may be removed by the Board with or without cause. An officer elected
by the shareholders may be removed, with or without cause, only by vote of the
shareholders but his authority to act as an officer may be suspended by the
Board for cause.
5.04 President: The President shall be the chief executive officer of
the Corporation; he/she shall preside at all meetings of the shareholders and
Directors; he/she shall have general and active management of the business of
the Corporation, shall see that all orders and
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resolutions of the Board are carried into effect, subject, however, to the right
of the Directors to delegate any specific powers, except such as may be by
statute exclusively conferred on the President, or to any other officer or
officers of the Corporation. He/she shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation. He/she shall be
EX-OFFICIO a member of all committees, and shall have the general powers and
duties of supervision and management usually vested in the office of President
of the Corporation. He/she shall present a report of the condition of the
business of the Corporation at each annual meeting of the shareholders and the
Board of Directors.
5.05 Vice President: The Vice President, if one has been appointed,
shall be vested with all the powers and be required to perform all the duties of
the President in his/her absence or refusal to act. He/she shall also exercise
such powers and perform such duties as may be properly delegated by the
President or the Board of Directors.
5.06 Chairman of the Board: The Chairman of the Board, if one has been
appointed, shall exercise such powers and perform such duties as shall be
provided in the resolution proposing that a Chairman of the Board be elected.
5.07 Secretary: The Secretary shall keep full minutes of all meetings
of the shareholders and Directors; he/she shall be EX-OFFICIO Secretary of the
Board of Directors; he/she shall attend all sessions of the Board, shall act as
clerk thereof, and record all votes and the minutes of all proceedings in a book
to be kept for that purpose; and shall perform like duties for the standing
committees when required. He/she shall give or cause to be given, notices of all
meetings of the shareholders of the Corporation and the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he/she shall be.
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5.08 Chief Financial Officer: The Chief Financial Officer shall keep,
or cause to be kept, the books and records of account of the Corporation. The
Chief Financial Officer shall deposit all monies and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
from time to time by resolution of the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and the Board, whenever they request
it, an account of all of his transactions as Chief Financial Officer and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed from time to time by the Board or
as the President may from time to time delegate.
5.09 Treasurer: The Treasurer shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors. He/she shall disburse the funds of the Corporation as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render to
the President and Directors, at the regular meetings of the Board, or whenever
they may require it, an account of all his/her transactions as Treasurer and of
the financial condition of the Corporation, and shall submit a full financial
report at the annual meeting of the shareholders.
5.10 Assistant Secretary or Assistant Treasurer: Any Assistant
Secretary or Assistant Treasurer, if one has been appointed, shall be vested
with all the powers and be required to perform all the duties of the Secretary
or Treasurer, respectively, in his/her absence or refusal to act. He/she shall
also exercise such powers and perform such duties as may be properly delegated
by the President or the Board of Directors.
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ARTICLE VI
VACANCIES
6.01 Directors: Any directorship not filled at the annual meeting, any
vacancy, however caused, occurring in the Board, and newly created directorships
resulting from an increase in the authorized number of Directors, may be filled
by the affirmative vote of a majority of the remaining Directors even though
less than a quorum of the Board, or by a sole remaining Director. A Director so
elected by the Board shall hold office until his successor shall have been
elected and qualified. If, for any reason, the Corporation shall at any time
have no Directors then in office, any shareholder may call a special meeting of
shareholders for the election of Directors and, over his/her signature, shall
give notice of such meeting in accordance with these By-laws.
6.02 Officers: Any vacancy occurring among the officers, however
caused, shall be filled by the Board of Directors.
6.03 Resignations: Any Director or other officer may resign by written
notice to the Corporation. The resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as shall be specified in
the notice of resignation.
ARTICLE VII
SHARE CERTIFICATES
7.01 Certificates: The share certificates of the Corporation shall be
in such form as the Board of Directors may from time to time prescribe and shall
be numbered consecutively and registered in the transfer records of the
Corporation as they are issued. When issued, they shall bear the holder's name,
the number of shares, the date of issue, and shall be signed by the
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President of the Corporation. The Share certificates may also be countersigned
by the Secretary of the Corporation and may be sealed with the corporate seal or
a facsimile thereof. Any or all signatures upon a certificate may be a
facsimile.
7.02 Uncertificated Shares: The Board of Directors may provide that
some or all of the shares of any class or series shall be represented by
uncertificated shares. Within a reasonable time after the issuance or transfer
of uncertificated shares, the Corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth or
stated on certificates as provided in Chapter 7 of the Act.
7.03 Transfer of Shares: Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, and cancel the old certificate. Every such transfer
shall be entered on the transfer book of the Corporation which shall be kept at
its principal office. No transfer shall be made within fifteen days next
preceding the annual meeting of shareholders.
7.04 Fractional Shares. The Corporation may, but shall not be required
to, issue certificates for fractions of a share where necessary to effect
authorized transactions, or the Corporation may pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder except as therein
provided.
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7.05 Loss of Certificates: In the event that a share certificate shall
be lost, destroyed or mutilated, a new certificate may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
ARTICLE VIII
BOOKS AND ACCOUNTS
8.01 Records: The Corporation shall keep books and records of account
and minutes of the proceedings of the shareholders, Board of Directors and
executive committee, if any. Such books, records and minutes may be kept outside
this State. The Corporation shall keep at its principal office, its registered
office, or at the office of its transfer agent, a record or records containing
the names and addresses of all shareholders, the number, class and series of
shares held by each and the dates when they respectively became the owners of
record thereof. Any of the foregoing books, minutes or records may be in written
form or in any other form capable of being converted into readable form within a
reasonable time.
8.02 Inspection: Any person who shall have been a shareholder of record
of the Corporation for at least six months immediately preceding his demand, or
any person holding, or so authorized in writing by the holders of, at least five
percent of the outstanding shares of any class or series, upon at least five
days written demand shall have the right for any proper purpose to examine in
person or by agent or attorney, during usual business hours, the minutes of the
proceedings of the shareholders and record of shareholders and to make extracts
therefrom at the places where the same are kept.
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<PAGE> 50
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Monetary Disbursements: All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
9.02 Fiscal Year: The Board of Directors shall be authorized to choose
the initial fiscal year of the Corporation, and to change that fiscal year from
time to time.
9.03 Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the Corporation from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
9.04 Reserve: Before payment of any dividend there may be set aside
such sum or sums as the Directors, from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall think conducive to
the interests of the Corporation, and the Directors may abolish any such reserve
in the manner in which it was created.
9.05 Giving Notice: Whenever written notice is required to be given to
any person, it may be given to such person, either personally or by sending a
copy thereof through the mail. If notice is given by mail, the notice shall be
deemed to be given when deposited in the mail addressed to the person to whom it
is directed at his last address as it appears on the records of the Corporation,
with postage pre-paid thereon. Such notice shall specify the place, day and hour
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of the meeting and, in the case of a shareholders' meeting, the general nature
of the business to be transacted.
In computing the period of time for the giving of any notice required
or permitted by statute, or by the Certificate of Incorporation or these By-laws
or any resolution of Directors or shareholders, the day on which the notice is
given shall be excluded, and the day on which the matter noticed is to occur
shall be included.
9.06 Loans to Directors, Officers or Employees: The Corporation may
lend money to, or guarantee any obligation of, or otherwise assist, any
Director, officer or employee of the Corporation or of any subsidiary, whenever
it may reasonably be expected to benefit the Corporation.
9.07 Disallowed Compensation: Any payments made to an officer or
employee of the Corporation as salary, commission, bonus, interest or rent,
which shall be disallowed in whole or in part as a deductible expense by the
Internal Revenue Service, shall be reimbursed by such officer or employee to the
Corporation to the full extent of such disallowance. It shall be the duty of the
Directors, as a Board, to enforce payment of each such amount disallowed. In
lieu of payment by the officer or employee, subject to the determination of the
Directors, proportionate amounts may be withheld from his future compensation
payments until the amount owed to the Corporation has been recovered.
ARTICLE X
AMENDMENTS
10.01 Amendments: The Board of Directors shall have power to adopt,
amend or repeal these By-laws. By-laws adopted by the Board of Directors may be
repealed or changed, and new
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By-laws made, by the shareholders, and the shareholders may prescribe that any
By-law made by them shall not be altered, amended or repealed by the Board of
Directors. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-laws of the Corporation, subject, however, to any
limitation thereof contained in these By-laws. The shareholders also shall have
the power to adopt, amend or repeal the By-laws of the Corporation; provided,
however, that, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by the Certificate of Incorporation,
the affirmative vote of the holders of at least sixty six and two-thirds percent
(66 2/3%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be required to adopt, amend
or repeal any provision of the By-laws of the Corporation; and provided further
that in addition to any vote of the holders of any class or series of stock of
the Corporation required by law or by the Certificate of Incorporation, the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to adopt, amend or repeal any
provision of ARTICLE XI of the By-laws of the Corporation entitled
"INDEMNIFICATION AND INSURANCE."
ARTICLE XI
INDEMNIFICATION AND INSURANCE
11.01 Indemnification: The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action or
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suit, whether or not by or in the right of the Corporation, or proceeding,
whether civil, criminal, administrative or investigative (collectively, a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss, including
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement, incurred, suffered or paid by or on behalf of such person, and
expenses (including attorneys' fees) reasonably incurred by such person.
11.02 Payment of Expenses: The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance of
its final disposition, provided, however, that the payment of expenses incurred
by a Director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Director or officer to
repay all amounts advanced if it should be ultimately determined that the
Director or officer is not entitled to be indemnified under this Article or
otherwise.
11.03 Claims: The right to indemnification and payment of expenses
under the Certificate of Incorporation, these By-laws or otherwise shall be a
contract right. If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefor has
been received by the Corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
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11.04 Non-Exclusivity of Rights: The rights conferred on any person by
this Article shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these By-laws, agreement, vote of shareholders or disinterested
Directors or otherwise.
11.05 Other Indemnification: The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a Director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
11.06 Insurance: The Board of Directors may cause the Corporation to
purchase and maintain insurance on behalf of any person who is or was a Director
or officer of the Corporation or is or was serving at the request of the
Corporation as a Director or officer of another Corporation, or as its
representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the Corporation would
have the power to indemnify such person.
11.07 Amendment or Repeal: Any repeal or modification of the foregoing
provisions of this Article XI shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
* * * * * * * *
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SCHEDULE 3.1(xi)
OPINION OF ARTHUR ANDERSEN LLP
RELATING TO TAX-FREE DISTRIBUTION
<PAGE> 56
March 3, 2000 ARTHUR ANDERSEN
Board of Directors Arthur Andersen LLP
Intelligroup, Inc. 101 Eisenhower Parkway
499 Thornall Street Roseland NJ 07068-1099
Edison, New Jersey 08837 Tel 973 403 6100
Dear Ladies and Gentlemen:
You have requested our opinion as to certain U.S. federal income tax
consequences under the Internal Revenue Code of 1986, as amended ("the Code"),
resulting from the proposed contribution (the "Contribution") of the "Internet
Solutions Group Division" by Intelligroup, Inc. ("ITIG") to SeraNova, Inc.
("SeraNova") followed by the distribution by ITIG of SeraNova stock pro rata to
the shareholders of ITIG (the "Distribution") under Sections 368(a)(1)(D) and
3551 pursuant to a plan described in the Contribution Agreement and the
Distribution Agreement dated January 1, 2000 (the "Principal Agreements").2 All
other terms used herein and not otherwise defined have the meanings ascribed to
them in the Principal Agreements.
In rendering our opinion, we have assumed that the Contribution and the
Distribution will occur in accordance with the Principal Agreements, and that
there are no other formal or informal arrangements between ITIG, any parties to
the Distribution, any parties to the Principal Agreements, or any shareholders
thereof. In addition, we have assumed the due authorization, execution and
delivery by each party thereto of all documents, the genuineness of all
signatures, the authority of all persons signing such documents on behalf of
each party thereto, the legal capacity of all natural persons, the authenticity
of all documents submitted to us as originals and the conformity to the original
document of any document submitted to us as a certified, conformed, or photostat
copy. Further, we have relied on and assumed to be accurate, as of the date
hereof and as of the date of the Distribution, and without further inquiry (and
without limitation as to knowledge and belief), the certifications and
representations made by, and on behalf of, ITIG, SeraNova, and the stockholders,
and all other parties contained in the representation letter addressed to us. We
have not audited or otherwise attempted to verify the accuracy or completeness
of any of the foregoing.
(a) Premise of Opinion
Our opinion is limited to the federal income tax matters addressed herein, and
no other opinions are rendered with respect to other federal tax matters or to
any issues arising under the tax laws of any
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1 Unless otherwise indicated, all section references are to the Internal Revenue
Code and the Treasury Regulations promulgated thereunder.
2 The term Principal Agreements refers to the Contribution Agreement dated
January 1, 2000 and the Distribution Agreement dated January 1, 2000. Any
reference to the "Principal Agreements" also includes Registration Statement
filed on Form 10 by SeraNova with the Securities and Exchange Commission on
January 27, 2000.
<PAGE> 57
foreign country, state, or locality. The opinion expressed herein is based on
our interpretation of the Code, income tax regulations thereunder, court
decisions, rulings and procedures issued by the Internal Revenue Service (the
"Service") as of the date of this letter, and other authorities that we deemed
relevant. Should there be any change, including any change having retroactive
effect, in the Code, the regulations and rulings issued thereunder, judicial
interpretations thereof, or in current understanding and interpretation of tax
accounting practices, the opinion expressed herein would necessarily have to be
reevaluated in light of any such changes. Additionally, should any of the
representations or facts set forth herein prove to be either incomplete or
inaccurate, as of the date hereof, our opinion may change. We have no
responsibility to update our opinion for changes in facts, assumptions,
representations, or technical authorities that arise after the date of our tax
opinion.
We have not considered any non-income tax or any state, local, foreign, or other
income tax consequences, and therefore we express no opinion regarding the
treatment that would be accorded the Distribution for such purposes. We also
express no opinion on non-tax issues, such as corporate or securities law
matters, including whether any tax disclosures included in documents made
available to the shareholders of ITIG or the public are adequate within the
requirements of the securities or corporate laws that govern the issuance of
such documents and disclosures. Further, our opinion does not address the
potential tax ramifications to the parties named herein or the stockholders of
any transaction other than the Distribution and Contribution described herein.
Our opinion does not address the tax consequences of the Distribution to a ITIG
stockholder that has a special status, including insurance companies; tax-exempt
entities; financial institutions or broker-dealers; foreign corporations;
estates and trusts not subject to U.S. federal income tax on their income
regardless of source; persons who are not citizens or residents of the United
States; and persons who acquired their ITIG common stock as a result of the
exercise of an employee stock option, pursuant to an employee stock purchase
plan, or otherwise as compensation.
Opinion
We are of the opinion, based upon our interpretation of the Code, the Treasury
regulations, existing administrative and judicial interpretations thereof and
the foregoing facts, information, assumptions and representations, all assumed
to be accurate as of the date hereof, that for U.S. federal income tax purposes:
1. The transfer by ITIG to SeraNova of the assets of the Internet Solutions
Group Division in exchange for all the stock of SeraNova, plus the
assumption by SeraNova of liabilities associated with the Internet
Solutions Group Division, followed by the pro rata distribution of all of
the stock of SeraNova to ITIG's shareholders should qualify as a
reorganization within the meaning of Section 368(a)(1)(D) of the Code. ITIG
and SeraNova should each be a "party to the reorganization" within the
meaning of Section 368(b).
2. ITIG should recognize no gain or loss on the transfer of assets to, and the
assumption of the liabilities referred to above by, SeraNova in exchange
for the stock of SeraNova. Sections 361(a) and 357(a) of the Code.
3. SeraNova should recognize no gain or loss on the receipt of the assets from
ITIG in exchange for SeraNova stock. Section 1032(a) of the Code.
4. SeraNova's basis in the assets received from ITIG should be equal to the
basis of such assets in the hands of ITIG immediately before such transfer.
Section 362(b) of the Code.
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5. SeraNova's holding period of each asset received from ITIG should include
the period during which ITIG held such asset. Section 1223(2) of the Code.
6. ITIG should recognize no gain or loss upon its distribution of all the
SeraNova stock to the ITIG shareholders. Section 361(c)(1) of the Code.
7. The ITIG shareholders should recognize no gain or loss (and no amount
should be included in the income of the ITIG shareholders) upon the receipt
of SeraNova stock in the Distribution. Section 355(a)(1) of the Code.
8. The aggregate basis of the ITIG stock and the SeraNova stock in the hands
of each ITIG shareholder after the Distribution should be the same as the
aggregate basis of the ITIG stock held by each ITIG shareholder immediately
before the Distribution, allocated between the ITIG stock and the SeraNova
stock in proportion to the fair market value of each in accordance with
Treas. Reg. Section1.358-2(a)(2). Section 358(a)(1), (b)(2), and (c) of the
Code.
9. The holding period of the SeraNova stock received by the each ITIG
shareholder should include the period that the ITIG shareholder has held
the ITIG stock as of the date of the Distribution, provided that the ITIG
stock is held as a capital by such shareholder on the date of the
Distribution. Section 1223(1) of the Code.
10. As provided in section 312(h), proper allocation of earnings and
profits between ITIG and SeraNova should be made in accordance with
Treas. Reg. Section1.312-10(a).
This opinion is not binding on the Service, and there can be no assurance that
the Service will not take positions contrary to the opinion expressed herein.
However, if the Service challenges the tax treatment of the Distribution, the
opinion expressed herein reflects our assessment of the probable outcome of
litigation based solely on an analysis of the existing tax authorities relating
to the issues that are the subject of this opinion.
This opinion is solely for the benefit of ITIG, SeraNova, and their stockholders
and is not intended to be relied upon by any other party. Except to the extent
expressly permitted hereby, and without the prior written consent of this firm,
our opinion may not be quoted in whole or in part, or otherwise referred to in
any documents or delivered to any person or entity. Any such authorized other
party receiving a copy of our opinion must consult and rely upon the advice of
their own counsel, accountant, or other advisor.
Very truly yours,
ARTHUR ANDERSEN LLP
By
----------------------
Richard D. Moriarty
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SCHEDULE 8.8
SURVIVING AGREEMENTS
1. Distribution Documents
<PAGE> 1
Exhibit 10.1
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "AGREEMENT") is entered into as of
January 1, 2000 by and between Intelligroup, Inc., a New Jersey corporation
("INTELLIGROUP"), and SeraNova, Inc., a New Jersey corporation ("SERANOVA").
BACKGROUND
WHEREAS, on September 9, 1999, Intelligroup formed SeraNova (formerly
known as Infinient, Inc.), for the purpose of operating independently a business
which provides strategic Internet consulting services, interactive Internet
solutions, application management services and management consulting services
then conducted by Intelligroup, Azimuth, NetPub and Intelligroup India Private
Limited as part of their respective business operations (the "SERANOVA
BUSINESS");
WHEREAS, the Board of Directors of Intelligroup has determined that it is
in the best interests of Intelligroup and its shareholders to separate the
SeraNova Business from the Intelligroup Group;
WHEREAS, to implement such separation, Intelligroup desires to contribute
and transfer, and SeraNova desires to accept and assume, certain of the assets
and certain of the liabilities of Intelligroup that are necessary to enable
SeraNova to conduct the SeraNova Business (the "CONTRIBUTION"), as more fully
described in this Agreement and the Ancillary Agreements;
WHEREAS in consideration for the Contribution, Intelligroup shall receive
an aggregate of nine hundred (900) shares of the common stock, $.01 par value
per share, of SeraNova.
WHEREAS the parties desire to set forth the principal transactions
required to effect the separation of SeraNova from Intelligroup and to govern
the relationship of SeraNova and Intelligroup following the Contribution.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings:
1.1 "ACTION" means any demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation by or before any federal,
state, local, foreign or international Governmental Authority or any arbitration
or mediation tribunal.
1.2 "AFFILIATE" of any Person means any Person that controls, is
controlled by, or is under common control with such Person, where control means
the possession, directly or indirectly of the power to direct or cause the
direction of the
<PAGE> 2
management and policies of such entity whether through ownership of voting
securities or other interests, by contract or otherwise.
1.3 "ANCILLARY AGREEMENTS" means the agreements set forth on EXHIBIT
A hereto.
1.4 "ASSETS" means assets, property and rights (including goodwill),
wherever located (including in the possession of vendors or other third
parties), whether real, personal or fixed, tangible, intangible or contingent,
in each case whether or not recorded or reflected or required to be recorded or
reflected on the books and records or financial statements of any Person.
1.5 "AZIMUTH" means Azimuth Consulting Limited, a corporation formed
pursuant to the laws of New Zealand and a wholly-owned subsidiary of
Intelligroup, Azimuth Corporation Limited, a corporation formed pursuant to the
laws of New Zealand and a wholly-owned subsidiary of Intelligroup, Azimuth
Holdings Limited, a corporation formed pursuant to the laws of New Zealand and a
wholly-owned subsidiary of Intelligroup, Braithwaite Richmond Limited, a
corporation formed pursuant to the laws of New Zealand and a wholly-owned
subsidiary of Intelligroup, and each Subsidiary of Azimuth.
1.6 "CLOSING DATE" means the date of the Contribution.
1.7 "CONTRACT" means any written or oral contract, agreement,
commitment, lease, license, consulting agreement, supply contract, repair
contract, distribution agreement, purchase order, technology and know-how
agreement, instrument, or any other contractual commitment that is binding on
any Person or its property.
1.8 "DELAYED TRANSFER ASSETS" means any SeraNova Assets that are
expressly enumerated in this Agreement or any Ancillary Agreement to be
transferred after the Closing Date.
1.9 "ENVIRONMENTAL LAW" means any federal, state, local, foreign or
international law (including tort and environmental nuisance law), regulation,
license, permit, order, judgment or agreement with any Governmental Authority
relating to health, safety, pollution or the environment or to emissions,
discharges or releases of any substance currently or hereafter designated as
hazardous, toxic, waste, radioactive or dangerous.
1.10 "ENVIRONMENTAL LIABILITIES" means all Liabilities relating to,
arising out of or resulting from any Environmental Law or contract or agreement
relating to environmental, health or safety matters.
1.11 "GAAP" means generally accepted accounting principles in effect
in the United States consistently applied throughout the periods involved.
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<PAGE> 3
1.12 "GOVERNMENTAL AUTHORITY" means any federal, state, local,
foreign or international court, government, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
1.13 "GROUP" means either the SeraNova Group or the Intelligroup
Group, as applicable.
1.14 "INFORMATION" means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs, software, marketing plans, customer names, communication by
or to attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product) and other technical, financial, employee or business
information or data.
1.15 "INTELLIGROUP GROUP" means, collectively, Intelligroup, and
each Subsidiary of Intelligroup and each other Person that is controlled
directly or indirectly by Intelligroup immediately after the Closing Date;
provided, however, that the Intelligroup Group shall not include SeraNova,
Azimuth, NetPub, Intelligroup India Private Limited or any other Subsidiary of
SeraNova.
1.16 "INTELLIGROUP INDIA PRIVATE LIMITED" means Intelligroup India
Private Limited, a corporation formed pursuant to the laws of India and a
wholly-owned subsidiary of Intelligroup, and each subsidiary of Intelligroup
India Private Limited.
1.17 "JOINT BANK FACILITY" means any loan, credit, financing or
other similar agreement among a bank or other financial institution, any member
of the SeraNova Group and any member of the Intelligroup Group, with the members
of the SeraNova Group and the Intelligroup Group being co-borrowers, co-obligors
or guarantors, whether entered into prior to or after the Closing Date.
1.18 "LIABILITIES" means any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, sums of money, accounts, bonds, indemnities and similar
obligations, covenants, contracts, agreements, promises, omissions, variances,
guarantees, make whole agreements and similar obligations, and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all costs and
expenses, whatsoever reasonably incurred in investigating, preparing or
defending against any such Action or threatened or contemplated Action), order
or consent decree of any
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<PAGE> 4
Governmental Authority or any award of any arbitrator or mediator of any kind,
and those arising under any contract, commitment or undertaking, including those
arising under this Agreement or any Ancillary Agreement, in each case, whether
or not recorded or reflected or required to be recorded or reflected on the
books and records or financial statements of any Person.
1.19 "LIEN" means any mortgage, pledge, hypothecation, right of
others, claim, security interest, encumbrance, lease, sublicense, license,
occupancy agreement, adverse claim or interest, easement, covenant,
encroachment, burden, title defect right or title retention, voting trust
agreement, interest, equity, option, lien, right of first refusal, charge or
other restrictions or limitations of any nature whatsoever (whether consensual,
statutory or otherwise).
1.20 "NETPUB" means Network Publishing, Inc., a Utah corporation and
wholly-owned subsidiary of Intelligroup.
1.21 "PERMITTED LIENS" includes liens for taxes, assessments or
other governmental charges or levies not yet delinquent or which are being
contested in good faith by appropriate action and as to which adequate reserves
shall have been set aside in conformity with GAAP; liens of mechanics,
materialmen, landlords, warehousemen, carriers and similar liens arising in the
future in the ordinary course of business for sums not yet delinquent, or being
contested in good faith if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor; statutory liens incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance, social security and similar items for sums not yet
delinquent or being contested in good faith, if a reserve or other appropriate
provision in accordance with GAAP shall have been made therefor; lessor's liens
arising from operating leases entered into in the ordinary course of business;
and consensual liens granted on Assets contributed to SeraNova with respect to
financing obligations assumed by SeraNova.
1.22 "PERSON" means an individual, a general or limited partnership,
a corporation, a trust, a joint venture, an unincorporated organization, a
limited liability corporation or entity, any other entity and any Governmental
Authority.
1.23 "PROMISSORY NOTE" shall mean Promissory Note dated the date
hereof issued by SeraNova to Intelligroup, in an aggregate principal amount
equal to the intercompany debt set forth on EXHIBIT H hereto.
1.24 "SECURITY INTEREST" means any mortgage, security interest,
pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer or other encumbrance of any nature whatsoever.
1.25 "SERANOVA ASSETS" means the items listed in EXHIBIT B hereto.
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1.26 "SERANOVA BALANCE SHEET" means the consolidated balance sheet
of the SeraNova Group as of September 30, 1999, a copy which is attached hereto
as EXHIBIT C.
1.27 "SERANOVA BANK FACILITY" means any loan, credit, financing or
other similar agreement between a bank or other financial institution and any
member of the SeraNova Group, as the borrower or obligor, which any member of
the Intelligroup Group has guaranteed, whether prior to or after the Closing
Date.
1.28 "SERANOVA CONTRACTS" means the contracts and agreements
assigned, transferred and delivered from Intelligroup to the SeraNova Group to
which SeraNova or any of its Subsidiaries is or shall be a party following the
Contribution, which are listed or described in EXHIBIT D hereto.
1.29 "SERANOVA GROUP" means SeraNova, each Subsidiary of SeraNova
and each other Person that is controlled directly or indirectly by SeraNova
immediately after the Closing Date.
1.30 "SERANOVA LIABILITIES" includes the Liabilities listed on
EXHIBIT E hereto.
1.31 "SUBSIDIARY" of any Person means any corporation or other
organization whether incorporated or unincorporated of which at least a majority
of securities or interest having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries; provided,
however, that no person that is not directly or indirectly wholly owned by any
other Person shall be a Subsidiary of such other Person unless such other Person
controls, or has the right, power and ability to control, that Person.
1.32 "TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated
as of the date hereof between Intelligroup and SeraNova.
1.33 "TAXES" has the meaning set forth in the Tax Sharing Agreement.
2. CONTRIBUTION.
2.1 TRANSFER OF ASSETS AND CONTRACTS; ASSUMPTION OF LIABILITIES
RELATED TO CONDUCT OF SERANOVA BUSINESS.
(a) Subject to the conditions contained herein, as of the
Closing Date, Intelligroup shall have contributed, transferred, conveyed and
delivered to the SeraNova Group, and the SeraNova Group shall have accepted from
Intelligroup, all of Intelligroup's right, title and interest in the SeraNova
Assets, including the intellectual property set forth on EXHIBIT B attached
hereto, free and clear of all Liens (other than
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Permitted Liens listed on EXHIBIT F attached hereto) related to the conduct of
the SeraNova Business, other than any Delayed Transfer Assets.
(b) As of the Closing Date, subject to Section 3.1
Intelligroup shall have assigned, transferred and delivered to the SeraNova
Group, and the SeraNova Group shall have accepted from Intelligroup, all of
Intelligroup's right, title and interest in and to all SeraNova Contracts
pertaining to the SeraNova Business as identified on EXHIBIT D hereto and the
SeraNova Group hereby accepts and agrees to perform and comply with the SeraNova
Contracts as if an original signatory thereunder.
(c) The SeraNova Group hereby assumes only those SeraNova
Liabilities listed on EXHIBIT E attached hereto related to the conduct of the
SeraNova Business, in accordance with their respective terms. Except as set
forth on EXHIBIT E, the SeraNova Group shall not otherwise acquire, discharge,
assume or become responsible for any Liabilities of Intelligroup. Intelligroup
agrees to pay and satisfy when due the Liabilities not expressly assumed
hereunder by the SeraNova Group.
(d) Upon the execution hereof, Intelligroup hereby grants to
SeraNova a non-exclusive, royalty free, fully paid, irrevocable right and
license to sell, assign, copy, distribute, sub-license, use and otherwise
commercially exploit the intellectual property rights set forth on EXHIBIT G
hereto (the "Licensed Intellectual Property"). Such license includes the right
to modify and enhance the Licensed Intellectual Property and to own such
modifications and enhancements, including all intellectual property related
thereto.
2.2 TRANSFER OF SERANOVA ASSETS CONSISTING OF STOCK OR OTHER
EQUITY INTERESTS.
(a) To the extent that any of the SeraNova Assets consists of
shares of stock of any corporate entity (collectively, the "Stock"), upon the
execution hereof, the certificates representing the Stock, if any, shall be
delivered to SeraNova, duly endorsed in blank, or accompanied by stock powers
duly executed in blank, with all necessary transfer tax and other revenue
stamps, acquired at the expense of Intelligroup, affixed and canceled.
Intelligroup agrees to cure any deficiencies with respect to the endorsement of
the certificates representing the Stock owned by Intelligroup or with respect to
the stock power accompanying any such certificates.
(b) To the extent that any of SeraNova Assets consists of
uncertificated securities, Intelligroup agrees to make such ledger entries, or
instruct appropriate agents or government agencies to make such entries, and to
otherwise take such steps as reasonably necessary to transfer such
uncertificated securities to SeraNova, including without limitation the payment
of any transfer fees or taxes.
2.3 ADJUSTMENT OF ASSETS AND LIABILITIES. The parties acknowledge
and agree that the information set forth in the Exhibits and Schedules hereto,
including
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the SeraNova Balance Sheet, is as of September 30, 1999. No later than March 31,
2000, the parties shall appropriately adjust and amend the information set forth
on the Exhibits and Schedules hereto as of December 31, 1999. Such adjustments
and amendments shall be made to reflect the closing of the respective books of
the parties (and their respective Subsidiaries) and the preparation of audited
financial statements for each of parties for the year ended December 31, 1999.
2.4 DELAYED TRANSFER ASSETS. Each of the parties hereto agrees that
the Delayed Transfer Assets will be contributed, transferred, conveyed and
delivered in accordance with the terms of any and all agreements that provide
for such contribution, transfer, conveyance and delivery after the date of this
Agreement or as otherwise set forth on SCHEDULE 2.4. Following such
contribution, transfer, conveyance and delivery of any Delayed Transfer Asset
the applicable Delayed Transfer Asset shall be treated for all purposes of this
Agreement and the Ancillary Agreements as a SeraNova Asset. Each applicable
member of the Intelligroup Group shall use commercially reasonable efforts to
safeguard and preserve the Delayed Transfer Assets until the applicable date of
transfer to SeraNova, normal wear and tear excepted.
2.5 HOLDING ASSETS IN TRUST. In the event that at any time or from
time to time (whether prior to or after the Closing Date), any party hereto (or
any member of such party's respective Group), shall receive or otherwise possess
any Asset that is allocated to any other Person pursuant to this Agreement or
any Ancillary Agreement, including, but not limited to, accounts receivable and
other cash payments, such party shall promptly transfer, or cause to be
transferred, such Asset to the Person so entitled thereto. Prior to any such
transfer, the Person receiving or possessing such Asset shall hold such Asset in
trust for such other Person.
2.6 TERMINATION OF AGREEMENTS.
(a) Except for the Ancillary Agreements, SeraNova, on behalf
of itself and each member of the SeraNova Group, on the one hand, and
Intelligroup, on behalf of itself and each member of the Intelligroup Group, on
the other hand, hereby terminates effective as of the Closing Date, any and all
agreements, arrangements, commitments or understandings, whether or not in
writing, between or among any member of the SeraNova Group, on the one hand, and
any member of the Intelligroup Group, on the other hand; provided, however, to
the extent any such agreement, arrangement, commitment or understanding is
inconsistent with any Ancillary Agreement, such termination shall be effective
as of the date of effectiveness of the applicable Ancillary Agreement. No such
terminated agreement, arrangement, commitment or understanding (including any
provision thereof which purports to survive termination) shall be of any further
force or effect after the Closing Date (or, to the extent contemplated by the
proviso to the immediately preceding sentence, after the effective date of the
applicable Ancillary Agreement). Each party shall, at the reasonable request of
any other party, take, or cause to be taken, such other actions as may be
necessary to effect the foregoing.
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(b) The provisions of Section 2.6(a) shall not apply to any of
the following agreements, arrangements, commitments or understandings (or to any
of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and
each other agreement or instrument expressly contemplated by this Agreement or
any Ancillary Agreement to be entered into by any member of the SeraNova Group
or the Intelligroup Group); (ii) any agreements, arrangements, commitments or
understandings to which any Person other than the parties hereto and their
respective Affiliates is a party (it being understood that to the extent that
the rights and obligations of the members of the SeraNova Group or the
Intelligroup Group under any such agreements, arrangements, commitments or
understandings constitute SeraNova Assets or SeraNova Liabilities, they shall be
assigned pursuant to the other provisions of this Section 2); (iii) any
intercompany accounts payable or accounts receivable accrued as of the Closing
Date that are reflected in the books and records of the parties or otherwise
documented in writing in accordance with past practices; (iv) any written Tax
sharing or Tax allocation agreements to which any member of any Group is a
party; and (v) any other agreements, arrangements, commitments or understandings
that this Agreement or any Ancillary Agreement expressly contemplates will
survive the Closing Date.
2.7 DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY INTERESTS AND
TANGIBLE PROPERTY LOCATED THEREON. In furtherance of the contribution, transfer,
conveyance and delivery of the SeraNova Assets and the assumption of SeraNova
Liabilities set forth in Section 2.1, simultaneously with the execution and
delivery of this Agreement or as promptly as practicable thereafter, each of
Intelligroup and SeraNova or their applicable Subsidiaries, shall execute and
deliver lease assignments and assumptions, leases, subleases and sub-subleases
with respect to the properties set forth on SCHEDULE 2.7 with such changes as
may be necessary to conform to any laws, regulations or usage applicable in the
jurisdiction in which the relevant real property is located.
2.8 DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION
OF LIABILITIES. In furtherance of the contribution, transfer, conveyance and
delivery of the SeraNova Assets and the assumption of SeraNova Liabilities set
forth in Section 2.1, as promptly as practicable after each such transfer: (i)
Intelligroup shall execute and deliver, and shall cause its Subsidiaries to
execute and deliver, such bills of sale, stock powers, certificates of title,
assignments of contracts and other instruments of transfer, conveyance and
assignment as and to the extent necessary to evidence the transfer, conveyance
and assignment of all of Intelligroup's and its Subsidiaries' right, title and
interest in and to the SeraNova Assets to SeraNova and its Subsidiaries; and
(ii) SeraNova shall execute and deliver, and shall cause its Subsidiaries to
execute and deliver to Intelligroup and its Subsidiaries such bills of sale,
stock powers, certificates of title, assumptions of contracts and other
instruments of assumption as and to the extent necessary to evidence the valid
and effective assumption of the SeraNova Liabilities by SeraNova and its
Subsidiaries.
2.9 ANCILLARY AGREEMENTS. Prior to the Closing Date, Intelligroup
and SeraNova will execute and deliver all Ancillary Agreements to which it is a
party.
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2.10 FINANCING ARRANGEMENTS. On a case-by-case basis, Intelligroup
and SeraNova may agree to enter into a Joint Bank Facility or a SeraNova Bank
Facility with respect to operations of the SeraNova Business in specific
jurisdictions. In such event, Intelligroup and SeraNova agree to take all such
reasonable action as may be necessary to permit the applicable members of the
Intelligroup Group or the SeraNova Group to borrow such amount as is mutually
agreed. Intelligroup and SeraNova shall participate in the preparation of all
materials and presentations as may be reasonably necessary to secure funding
pursuant to a Joint Bank Facility or a SeraNova Bank Facility, including rating
agency presentations necessary to obtain the requisite ratings needed to secure
the financing. SeraNova shall pay (or reimburse Intelligroup for) all expenses
associated with any SeraNova Bank Facility.
2.11 OTHER GUARANTEES. On a case-by-case basis, Intelligroup shall
consider in good faith any request by SeraNova to have Intelligroup or any other
member of the Intelligroup Group provide a contractual guaranty of a lease or
other contractual obligation of any member of the SeraNova Group. SeraNova shall
use its best good faith efforts to arrange for the release and discharge of
Intelligroup and any other member of the Intelligroup Group of all of its
obligations under any such guaranty as soon as possible, consistent with the
smooth transition of the SeraNova Business to SeraNova. SeraNova shall take all
reasonable steps necessary to arrange for the complete release and discharge of
Intelligroup and any other member of the Intelligroup Group of all of its
obligations under any such guaranty, in no event later than the spin-off
transaction contemplated by that certain Distribution Agreement by and between
Intelligroup and SeraNova of even date herewith.
2.12 GOVERNMENTAL APPROVALS AND CONSENTS.
(a) To the extent that the Contribution requires any
Governmental Authority approvals or consents, the parties will use their
commercially reasonable efforts to obtain any such approvals and consents.
(b) If and to the extent that the valid, complete and
perfected transfer or conveyance to the SeraNova Group of any SeraNova Assets
would be a violation of applicable laws or require any consent or approval of a
Governmental Authority in connection with the Contribution, then, unless
Intelligroup shall otherwise determine, the transfer or conveyance to the
SeraNova Group of such SeraNova Assets shall be automatically deemed deferred
and any such purported transfer or assignment shall be null and void until such
time as all legal impediments are removed and/or such consents or approvals have
been obtained.
(c) If the transfer or assignment of any Asset intended to be
transferred or conveyed hereunder is not consummated prior to or at the Closing
Date, then the Person retaining such Asset shall thereafter hold such Asset for
its use and benefit, insofar as reasonably possible, at the expense of the
Person entitled thereto. In addition, the Person retaining such Asset shall take
such other actions as may be reasonably requested by the Person to whom such
Asset is to be transferred in order to
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place such Person, insofar as reasonably possible, in the same position as if
such Asset had been transferred as contemplated hereby and so that all the
benefits and burdens relating to such SeraNova Assets, including possession,
use, risk of loss, potential for gain, and dominion, control and command over
such Assets, are to inure from and after the Closing Date to the SeraNova Group.
(d) If and when the consents or approvals of a Governmental
Authority, the absence of which caused the deferral of transfer of any Asset,
are obtained, the transfer of the applicable Asset shall be effected in
accordance with the terms of this Agreement or the applicable Ancillary
Agreement.
2.13 NOVATION OF ASSUMED SERANOVA LIABILITIES.
(a) Each of Intelligroup and SeraNova, at the request of the
other, shall use its commercially reasonable efforts to obtain, or to cause to
be obtained, any consent, substitution, approval or amendment required to novate
(including with respect to any federal government contract) or assign all
obligations under agreements, leases, licenses and other obligations or
Liabilities of any nature whatsoever that constitute SeraNova Liabilities, or to
obtain in writing the unconditional release of all parties to such arrangements
other than any member of the SeraNova Group, so that, in any such case, SeraNova
and its Subsidiaries will be solely responsible for such Liabilities; provided,
however, that no member of the Intelligroup Group or the SeraNova Group, as the
case may be, shall be obligated to pay any consideration therefor to any third
party from whom such consents, approvals, substitutions and amendments are
requested. Without limiting the foregoing, Intelligroup and SeraNova shall use
their commercially reasonable efforts to obtain, prior to the Closing Date, a
release of any and all guarantees provided by any member of the Intelligroup
Group in connection with the SeraNova Contracts, SeraNova Assets, SeraNova
Liabilities and the SeraNova Business.
(b) If Intelligroup or SeraNova is unable to obtain, or to
cause to be obtained, any such required consent, approval, release, substitution
or amendment, the applicable member of the Intelligroup Group shall continue to
be bound by such agreements, leases, licenses and other obligations and, unless
not permitted by law or the terms thereof, SeraNova shall, as agent or
subcontractor for Intelligroup or such other Person, as the case may be, pay,
perform and discharge fully all the obligations or other Liabilities of
Intelligroup or such other Person, as the case may be, thereunder from and after
the date hereof. SeraNova shall indemnify each Intelligroup Indemnitee (as
defined in Section 4.1), and hold each of them harmless against any Liabilities
arising in connection therewith. If and when any such consent, approval,
release, substitution or amendment is obtained or such agreement, lease, license
or other rights or obligations otherwise becomes assignable or able to be
novated, Intelligroup shall thereafter assign, or cause to be assigned, all its
rights, obligations and other Liabilities thereunder or any rights or
obligations of any member of its respective Group to SeraNova without payment of
further consideration and SeraNova shall, without the payment of any further
consideration, assume such rights and obligations.
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2.14 INTERCOMPANY DEBT. Intelligroup and SeraNova agree that, as a
result of the transactions contemplated hereby, SeraNova shall be indebted to
Intelligroup as set forth on EXHIBIT H. Such debt shall be evidenced by the
Promissory Note.
3. REPRESENTATIONS AND WARRANTIES.
3.1 REPRESENTATIONS AND WARRANTIES OF INTELLIGROUP.
Intelligroup represents and warrants to SeraNova and its
Subsidiaries as follows:
(a) CORPORATE POWER AND AUTHORITY. Intelligroup has the
requisite power and authority to execute, deliver, and perform its obligations
under this Agreement, any applicable Ancillary Agreement and to contribute,
transfer, convey and deliver to SeraNova and its Subsidiaries the SeraNova
Assets. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action (corporate or otherwise) on the part of Intelligroup.
This Agreement constitutes the legal, valid and binding obligation of
Intelligroup, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally.
(b) VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not: (i) violate, breach or
contravene any of the terms, conditions or provisions of the Certificate of
Incorporation or By-laws (or the equivalent thereof) of Intelligroup; (ii)
violate, or constitute a default under, any material Contract by which
Intelligroup or its property is bound; or (iii) violate any material provision
of law.
(c) TITLE TO CONTRIBUTED ASSETS. Intelligroup is in possession
of and has good, valid and marketable title to, or has valid leasehold interests
in or valid rights under contract to use, all of the SeraNova Assets in which it
has an interest and Intelligroup has such title, interests or rights to all of
the SeraNova Assets that are being contributed by Intelligroup. All of the
SeraNova Assets are free and clear of all Liens, other than Permitted Liens. All
tangible personal property comprising the SeraNova Assets is in good operating
condition (ordinary wear and tear excepted) and will be usable by SeraNova and
its Subsidiaries for its intended purposes.
(d) ACCOUNTS RECEIVABLE. The accounts receivable that are
included in the SeraNova Assets (the "Accounts Receivable") constitute valid
receivables, have arisen in the ordinary course of business consistent with past
practices. No part of the Accounts Receivable is contingent upon performance by
any member of the Intelligroup Group, as applicable, or any other party of any
obligation, and no agreements for deductions or discounts have been made with
respect to any part of such Accounts Receivable.
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(e) BUSINESS. Upon consummation of this Agreement, SeraNova
shall be the sole and exclusive owner of the SeraNova Business, the SeraNova
Assets received by SeraNova from Intelligroup are all of the assets necessary to
operate the SeraNova Business.
(f) REQUIRED CONSENTS. Intelligroup, SeraNova and the
applicable member or members of their respective Group shall use their or its
reasonable best efforts to obtain all necessary consents from applicable third
parties in order to assign, transfer and deliver the SeraNova Contracts unless
the failure to obtain one or more consents would not be material and except for
contracts under which Intelligroup has a right to subcontract without the
consent of the other party or parties to the contract.
(g) SERANOVA BALANCE SHEET. The SeraNova Balance Sheet set
forth on EXHIBIT C is true and accurate in all material respects.
3.2 REPRESENTATIONS AND WARRANTIES OF THE SERANOVA GROUP.
SeraNova and its Subsidiaries represent and warrant to Intelligroup
as follows:
(a) CORPORATE POWER AND AUTHORITY. SeraNova and its
Subsidiaries have the requisite power and authority to execute, deliver and
perform this Agreement, the Ancillary Agreements and to accept the SeraNova
Assets. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action (corporate or otherwise) on the part of SeraNova and its
Subsidiaries. This Agreement constitutes the legal, valid and binding obligation
of SeraNova and its Subsidiaries, enforceable in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws affecting the enforcement of creditors' rights
generally.
(b) VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not: (i) violate, breach or
contravene any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or By-laws (or the equivalent thereof) of SeraNova and
its Subsidiaries; (ii) violate, or constitute a default under, any material
Contract by which such entity or its property is bound; or (iii) violate any
material provision of law.
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY SERANOVA. Subject to the provisions of
Section 4.3, SeraNova shall indemnify, defend and hold harmless each member of
the Intelligroup Group and each of their respective directors, officers and
employees, and
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each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "INTELLIGROUP INDEMNITEES") from and against any and all
Liabilities of the Intelligroup Indemnitees, relating to, arising out of or
resulting from any of the following items:
(a) the failure of any member of the SeraNova Group to pay,
perform or otherwise promptly discharge any SeraNova Liabilities or any SeraNova
Contract in accordance with their respective terms, after the Closing Date;
(b) the employment or termination of employment of any
employee of Intelligroup working in the SeraNova Business;
(c) conduct of the SeraNova Business after the Closing Date;
and
(d) any breach by any member of the SeraNova Group of this
Agreement or any of the Ancillary Agreements.
4.2 INDEMNIFICATION BY INTELLIGROUP. Subject to the provisions of
Section 4.3, Intelligroup shall indemnify, defend and hold harmless SeraNova,
each member of the SeraNova Group and each of their respective directors,
officers and employees, and each of the heirs, executors, successors and assigns
of any of the foregoing (collectively, the "SERANOVA INDEMNITEES"), from and
against any and all Liabilities of the SeraNova Indemnitees relating to, arising
out of or resulting from any of the following items:
(a) the failure of Intelligroup to pay, perform or otherwise
promptly discharge any Liabilities of Intelligroup, whether prior to or after
the Closing Date;
(b) the failure of Intelligroup to pay, perform or otherwise
promptly discharge any SeraNova Liabilities or any SeraNova Contract in
accordance with their respective terms, prior to the Closing Date;
(c) conduct of the SeraNova Business prior to the Closing
Date; and
(d) any breach by Intelligroup of this Agreement or any of the
Ancillary Agreements.
4.3 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER
AMOUNTS.
(a) The parties intend that any Liability subject to
indemnification or reimbursement pursuant to this Section 4 will be net of
insurance proceeds. Accordingly, the amount which any party (an "INDEMNIFYING
PARTY") is required to pay to any Person entitled to indemnification hereunder
(an "INDEMNITEE")
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will be reduced by any insurance proceeds theretofore actually recovered by or
on behalf of the Indemnitee in reduction of the related Liability. If an
Indemnitee receives a payment (an "INDEMNITY PAYMENT") required by this
Agreement from an Indemnifying Party in respect of any Liability and
subsequently receives insurance proceeds, then the Indemnitee will pay to the
Indemnifying Party an amount equal to the Indemnity Payment received less the
amount of the Indemnity Payment that would have been due if the insurance
proceeds had been received, realized or recovered before the Indemnity Payment
was made.
(b) An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a "windfall" (i.e., a
benefit they would not be entitled to receive in the absence of the
indemnification provisions) by virtue of the indemnification provisions hereof.
Nothing contained in this Agreement or any Ancillary Agreement shall obligate
any member of any Group to seek to collect or recover any insurance proceeds.
4.4 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
(a) If an Indemnitee shall receive notice or otherwise learn
of the assertion by a Person (including any Governmental Authority) who is not a
member of the Intelligroup Group or the SeraNova Group of any claim or of the
commencement by any such Person of any Action (collectively, a "THIRD PARTY
CLAIM") with respect to which an Indemnifying Party may be obligated to provide
indemnification to such Indemnitee pursuant to Section 4.1 or 4.2, or any other
Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give
such Indemnifying Party written notice thereof within twenty (20) days after
becoming aware of such Third Party Claim. Any such notice shall describe the
Third Party Claim in reasonable detail. Notwithstanding the foregoing, the
failure of any Indemnitee or other Person to give notice as provided in this
Section 4.4(a) shall not relieve the related Indemnifying Party of its
obligations under this Section 4, except to the extent that such Indemnifying
Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an Indemnitee in accordance with Section 4.4(a)
(or sooner, if the nature of such Third Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee whether the Indemnifying Party
will assume responsibility for defending such Third Party Claim, which election
shall specify any reservations or exceptions. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and
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expenses of such counsel shall be paid by such Indemnitee except as set forth in
subsection (c).
(c) If an Indemnifying Party elects not to assume
responsibility for defending a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in Section 4.4(b), such Indemnitee may
defend such Third Party Claim at the cost and expense of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the
defense of the Third Party Claim in accordance with the terms of this Agreement,
no Indemnitee may settle or compromise any Third Party Claim without the consent
of the Indemnifying Party.
(e) In the case of a Third Party Claim, no Indemnifying Party
shall consent to entry of any judgment or enter into any settlement of the Third
Party Claim without the consent of the Indemnitee if the effect thereof is to
permit any injunction, declaratory judgment, other order or other nonmonetary
relief to be entered, directly or indirectly, against any Indemnitee.
(f) The provisions of Section 4.4 and Section 4.5 shall not
apply to Taxes (which are covered by the Tax Sharing Agreement).
4.5 ADDITIONAL MATTERS.
(a) Any claim on account of a Liability which does not result
from a Third Party Claim shall be asserted by written notice given by the
Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have
a period of thirty (30) days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 30-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 30-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party as contemplated by this Agreement and the Ancillary Agreements.
(b) In the event of payment by or on behalf of any
Indemnifying Party to any Indemnitee in connection with any Third Party Claim,
such Indemnifying Party shall be subrogated to and shall stand in the place of
such Indemnitee as to any events or circumstances in respect of which such
Indemnitee may have any right, defense or claim relating to such Third Party
Claim against any claimant or plaintiff asserting such Third Party Claim or
against any other person. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party
is not a named defendant, if the Indemnifying Party shall so request, the
parties shall
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endeavor to substitute the Indemnifying Party for the named defendant. If such
substitution cannot be achieved for any reason or is not requested, the named
defendant shall allow the Indemnifying Party to manage the Action as set forth
in this Section and the Indemnifying Party shall fully indemnify the named
defendant against all costs of defending the Action (including court costs,
sanctions imposed by a court, attorneys' fees, experts' fees and all other
external expenses), the costs of any judgment or settlement, and the cost of any
interest or penalties relating to any judgment or settlement.
4.6 REMEDIES CUMULATIVE. The remedies provided in this Section 4
shall be cumulative and, subject to the provisions of Section 6, shall not
preclude assertion by any Indemnitee of any other rights or the seeking of any
and all other remedies against any Indemnifying Party.
4.7 SURVIVAL OF INDEMNITIES. The rights and obligations of each of
Intelligroup and SeraNova and their respective Indemnitees under this Section 4
shall survive the sale or other transfer by any party of any Assets or
businesses or the assignment of any Liabilities.
4.8 ALLEGED INFRINGEMENT OR MISAPPROPRIATION.
(a) Notwithstanding any other provision of this Agreement or
any Ancillary Agreement, in the event of any claim, action, proceeding or suit
by a third party against any member of the SeraNova Group or the Intelligroup
Group alleging an infringement of any patent, copyright, trademark or
misappropriation of a trade secret (each a "Claim") with respect to any of the
transferred intellectual property or the Licensed Intellectual Property set
forth on EXHIBIT A and EXHIBIT G, respectively (for purposes of this Section
4.8, the "Disputed Intellectual Property"), the parties agree to adhere to the
procedures set forth in paragraphs (b), (c) and (d) below.
(b) If the use or distribution by any member of the SeraNova
Group or the Intelligroup Group, as applicable, of any of the Disputed
Intellectual Property is enjoined or in the opinion of such member of the
applicable Group is likely to be enjoined, SeraNova and Intelligroup shall, use
their reasonable best efforts to jointly: (i) replace the Disputed Intellectual
Property with a substitute free of any infringement; (ii) modify the Disputed
Intellectual Property so that it will be free of the infringement; or (iii)
procure for such member of the applicable Group or its distributees a license or
other right to use the Disputed Intellectual Property.
(c) Each of Intelligroup and SeraNova, on behalf of its
respective Group, agrees to provide, or cause to be provided, prompt written
notice to the other party of any Claim and Intelligroup and SeraNova shall
jointly assume the defense thereof, including appeals, and to settle the same.
Each party shall, upon request, furnish all information and provide assistance
to the appropriate members of the SeraNova Group or the Intelligroup Group, as
applicable, and cooperate in every reasonable way to facilitate the defense
and/or settlement of any such Claim.
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(d) The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities or expenses in connection with the
remediation efforts set forth in Section (b) above, or the defense,
adjudication, or settlement referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any Claim. Intelligroup and SeraNova agree that
it would not be just and equitable if the expenses incurred in connection with
the remediation efforts set forth in Section (b) above, or the defense,
adjudication, or settlement of a Claim under this Section 4.8 were apportioned
on a pro rata basis without regard to the liability of each respective party
according a relative finding of fault. The relative fault of the applicable
member or members of the Intelligroup Group, on the one hand, and the applicable
member or members of the SeraNova Group, on the other hand, shall be apportioned
as is appropriate to reflect not only the relative benefits achieved but also
the relative fault assessed with respect to the Disputed Intellectual Property.
(e) The foregoing indemnity will not apply to any alleged
infringement or misappropriation if and to the extent such alleged infringement
or misappropriation arises from: (i) the use by any member of the SeraNova Group
or the Intelligroup Group of any of the Disputed Intellectual Property in
combination with any product, software or other material provided by a third
party after the Closing Date; or (ii) any changes made by any member of the
SeraNova Group or the Intelligroup Group in the Disputed Intellectual Property
after the Closing Date.
5. EXCHANGE OF INFORMATION; CONFIDENTIALITY.
5.1 AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES.
(a) Each of Intelligroup and SeraNova, on behalf of its
respective Group, agrees to provide, or cause to be provided, to each member of
the other Group, as soon as reasonably practicable after written request
therefor, any Information in the possession or under the control of such
respective Group which the requesting party reasonably needs: (i) to comply with
reporting, disclosure, filing or other requirements imposed on the requesting
party (including under applicable securities or tax laws) by a Governmental
Authority having jurisdiction over the requesting party; (ii) for use in any
judicial, regulatory, administrative, tax or other proceeding or in order to
satisfy audit, accounting, claims, regulatory, litigation, tax or other similar
requirements; or (iii) to comply with its obligations under this Agreement or
any Ancillary Agreement; provided, however, that in the event that any party
determines that any such provision of Information could be commercially
detrimental, violate any law or agreement, or waive any attorney-client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.
(b) After the Closing Date, SeraNova shall have access during
regular business hours (as in effect from time to time) to the documents that
relate to the SeraNova Business that are in the possession or control of any
member of the Intelligroup Group. SeraNova may obtain copies (but not originals)
of documents for bona fide
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business purposes. Nothing herein, however, shall be deemed to restrict the
access of any member of the Intelligroup Group to any such documents or to
impose any liability on any member of the Intelligroup Group if any such
documents are not maintained or preserved by Intelligroup.
(c) After the date hereof SeraNova shall: (i) maintain in
effect at its own cost and expense adequate systems and controls to the extent
necessary to enable the members of the Intelligroup Group to satisfy their
respective reporting, accounting, audit and other obligations; and (ii) provide,
or cause to be provided, to Intelligroup in such form as Intelligroup shall
request, at no charge to Intelligroup, all financial and other data and
Information as Intelligroup determines necessary or advisable in order to
prepare Intelligroup financial statements and reports or filings with any
Governmental Authority.
5.2 OWNERSHIP OF INFORMATION. Any Information owned by one Group
that is provided to a requesting party pursuant to Section 5.1 shall be deemed
to remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.
5.3 RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Section 5 and other provisions of this Agreement,
the parties agree to use their reasonable best efforts to retain all Information
in their respective possession or control in accordance with the policies of
Intelligroup as in effect on the Closing Date. No party will destroy, or permit
any of its Subsidiaries to destroy, any Information which the other party may
have the right to obtain pursuant to this Agreement prior to the tenth (10th)
anniversary of the date hereof without first using its reasonable best efforts
to notify the other party of the proposed destruction and giving the other party
the opportunity to take possession of such Information prior to such
destruction; provided, however, that in the case of any Information relating to
Taxes or to Environmental Liabilities, such period shall be extended to the
expiration of the applicable statute of limitations (giving effect to any
extensions thereof).
5.4 LIMITATION OF LIABILITY. No party shall have any liability to
any other party in the event that any Information exchanged or provided pursuant
to this Agreement which is an estimate or forecast, or which is based on an
estimate or forecast, is found to be inaccurate, in the absence of willful
misconduct by the party providing such Information. No party shall have any
liability to any other party if any Information is destroyed after reasonable
best efforts by such party to comply with the provisions of Section 5.3.
5.5 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The
rights and obligations granted under this Section 5 are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in any Ancillary Agreement.
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5.6 PRODUCTION OF WITNESSES; RECORDS; COOPERATION.
(a) After the Closing Date, except in the case of an
adversarial Action by one party against another party (which shall be governed
by such discovery rules as may be applicable under Section 6 or otherwise), each
party hereto shall use its reasonable best efforts to make available to each
other party, upon written request, the former, current and future directors,
officers, employees, other personnel and agents of the members of its respective
Group as witnesses (giving consideration to the business demands of such
individuals) and any books, records or other documents within its control or
which it otherwise has the ability to make available or as may reasonably be
required in connection with any Action in which the requesting party may from
time to time be involved, regardless of whether such Action is a matter with
respect to which indemnification may be sought hereunder. The requesting party
shall bear all costs and expenses in connection therewith.
(b) If an Indemnifying Party (Intelligroup or SeraNova as the
case may be) chooses to defend or to seek to compromise or settle any Third
Party Claim, or if any party chooses to prosecute or otherwise evaluate or to
pursue any claim against a third party, the other party shall use its best
efforts to make available to such Indemnifying Party (Intelligroup or SeraNova
as the case may be), upon written request, the former, current and future
directors, officers, employees, other personnel and agents of the members of its
respective Group as witnesses (giving consideration to the business demands of
such individuals) and any books, records or other documents within its control
or which it otherwise has the ability to make available or as may reasonably be
required in connection with such defense, settlement or compromise, or such
prosecution, evaluation or pursuit, as the case may be, and shall otherwise
cooperate in such defense, settlement or compromise, or such prosecution,
evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall
cooperate and consult to the extent reasonably necessary with respect to any
Actions, contingent Liabilities and contingent gains.
(d) Without limiting any provision of this Section, each of
the parties agrees to cooperate, and to cause each member of its respective
Group to cooperate, with each other in the defense of any infringement or
similar claim with respect to any intellectual property and shall not claim to
acknowledge, or permit any member of its respective Group to claim to
acknowledge, the validity or infringing use of any intellectual property of a
third Person in a manner that would hamper or undermine the defense of such
infringement or similar claim.
(e) The obligation of the parties to provide witnesses
pursuant to this Section 5.6 is intended to be interpreted in a manner so as to
facilitate cooperation and shall include the obligation to provide as witnesses
inventors and other officers without regard to whether the witness or the
employer of the witness could assert a possible business conflict (subject to
the exception set forth in the first sentence of Section 5.6(a)).
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(f) In connection with any matter contemplated by this Section
5.6, the parties will enter into a mutually acceptable joint defense agreement
so as to maintain to the extent practicable any applicable attorney-client
privilege or work product immunity of any member of any Group.
5.7 CONFIDENTIALITY.
(a) Subject to Section 5.8, each of Intelligroup and SeraNova,
on behalf of itself and each other member of its respective Group, agrees to
hold, and to cause its respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives to hold, in strict
confidence, with at least the same degree of care that applies to Intelligroup's
confidential and proprietary information pursuant to policies in effect as of
the Closing Date, all Information concerning each such other Group that is
either in its possession (including Information in its possession prior to the
date hereof or the Closing Date) or furnished by any such other Group or its
respective directors, officers, employees, agents, accountants, counsel and
other advisors and representatives at any time pursuant to this Agreement, any
Ancillary Agreement or otherwise, and shall not use any such Information other
than for such purposes as shall be expressly permitted hereunder or thereunder,
except, in each case, to the extent that such Information has been: (i) in the
public domain through no fault of such party or any member of such Group or any
of their respective directors, officers, employees, agents, accountants, counsel
and other advisors and representatives; (ii) later lawfully acquired from other
sources by such party (or any member of such party's Group) which sources are
not themselves bound by a confidentiality obligation; or (iii) independently
generated without reference to any proprietary or confidential Information of
the other party.
(b) Each party agrees not to release or disclose, or permit to
be released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 5.8. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement
or any Ancillary Agreement, each party will promptly after request of the other
party either return to the other party all Information in a tangible form
(including all copies thereof and all notes, extracts or summaries based
thereon) or certify to the other party that it has destroyed such Information
(and such copies thereof and such notes, extracts or summaries based thereon).
5.8 PROTECTIVE ARRANGEMENTS. In the event that any party or any
member of its Group either determines on the advice of its counsel that it is
required to disclose any Information pursuant to applicable law or receives any
demand under lawful process or from any Governmental Authority to disclose or
provide Information of any other party (or any member of any other party's
Group) that is subject to the confidentiality provisions hereof, such party
shall notify the other party prior to disclosing or providing such Information
and shall cooperate at the expense of the requesting party in seeking any
reasonable protective arrangements requested by such other party. Subject
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to the foregoing, the Person that received such request may thereafter disclose
or provide Information to the extent required by such law (as so advised by
counsel) or by lawful process or such Governmental Authority.
6. ARBITRATION; DISPUTE RESOLUTION.
6.1 AGREEMENT TO ARBITRATE.
(a) Except as otherwise specifically provided in any Ancillary
Agreement, the procedures for discussion, negotiation and arbitration set forth
in this Section 6.1 hereto shall apply to all disputes, controversies or claims
(each a "Dispute") that may arise out of or relate to, or arise under or in
connection with this Agreement or any Ancillary Agreement, or the transactions
contemplated hereby or thereby (including all actions taken in furtherance of
the transactions contemplated hereby or thereby on or prior to the date hereof),
or the commercial or economic relationship of the parties relating hereto or
thereto, between or among any member of the Intelligroup Group and the SeraNova
Group. Each party agrees on behalf of itself and each other member of its
respective Group that any Dispute shall be submitted to binding arbitration, in
accordance with the dispute resolution procedures specified in this Section. If
any of these procedures are determined to be invalid or unenforceable, the
remaining procedures shall remain in effect and binding on the parties to the
fullest extent permitted by law.
(b) The arbitration shall be held in Edison, New Jersey before
a panel of three arbitrators. Any member or members of the SeraNova Group or the
Intelligroup Group, as applicable, may by notice to the applicable member or
members of the SeraNova Group or the Intelligroup Group, as applicable, demand
arbitration, by serving on the other party a statement of the Dispute and the
facts relating or giving rise thereto, in reasonable detail, and the name of the
arbitrator selected by it. Within fifteen (15) days after receipt of such
notice, the other party shall name its arbitrator, and the two arbitrators named
by the parties shall, within fifteen (15) days after the date of such notice,
select the third arbitrator.
(c) The arbitration shall be conducted in accordance with the
procedures specified in this Section and shall be governed by the Commercial
Arbitration Rules of the American Aribitration Association, as may be amended
from time to time. In the event of a conflict, the provisions of this Section
shall control.
(d) Any issue concerning the extent to which any Dispute is
subject to arbitration, or concerning the applicability, interpretation, or
enforceability of these procedures, including any contention that all or part of
these procedures are invalid or unenforceable, shall be governed by the Federal
Arbitration Act and resolved by the arbitrators. No potential arbitrator may
serve on the panel unless first agreeing in writing to abide and be bound by
these procedures. The arbitrators may not award non-monetary or equitable relief
of any sort. They shall have no power to award damages inconsistent with this
Agreement or punitive damages or any other damages not measured by the
prevailing party's actual damages, and the parties expressly waive their right
to obtain
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such damages in arbitration or in any other forum. In no event, even if any
other portion of these procedures is adjudged invalid or unenforceable, shall
the arbitrators have power to make an award or impose a remedy that could not be
made or imposed by a court deciding the matter in the same jurisdiction.
(e) No discovery shall be permitted in connection with the
arbitration unless expressly authorized by the arbitration panel upon a showing
of substantial need by the party seeking discovery. All aspects of the
arbitration shall be treated as confidential. Neither the parties nor the
arbitrators may disclose the existence, content or results of the arbitration,
except as necessary to comply with legal or regulatory requirements. Before
making any such disclosure, a party shall give written notice to all other
parties and afford such parties a reasonable opportunity to protect their
interest. The result of the arbitration shall be a final decision that is
binding on the parties, and judgment on the arbitrators' award may be entered in
any court having jurisdiction. The cost of such arbitration shall be borne
equally by the parties.
(f) This Section shall not apply to any Dispute arising out of
or relating to the ownership of intellectual property. The application of this
Section to any other Dispute shall be waived only by written agreement of
Intelligroup and SeraNova. This Section shall be terminated only by written
agreement of Intelligroup and SeraNova.
6.2 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed
in writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Section with respect to
all matters not subject to such dispute, controversy or claim.
6.3 LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Section, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the Federal
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 10.2.
7. EMPLOYEE RELATED MATTERS.
7.1 EMPLOYEE OFFERS. Prior to the Closing Date, SeraNova or one of
its Subsidiaries shall have made a written offer of employment or engagement to
each employee, independent contractor or consultant working in the SeraNova
Business listed on SCHEDULE 7.1 hereto. Such employment offers shall provide
that such individual shall commence work for SeraNova or the named Subsidiary on
or before the Closing Date. Such employment offers shall also require that such
individual shall, prior to the Closing Date, inform SeraNova of his or her
intention to accept or decline such offer and, if such individual intends to
accept such offer, to resign his or her employment with Intelligroup prior to or
as of the Closing Date.
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7.2 BENEFITS. As soon as practicable after the Closing Date,
Intelligroup shall perform and undertake all acts as may be necessary to
rollover or otherwise transfer the vested interests of employees in the
qualified and non-qualified pension plans and Section 401(k) plans of
Intelligroup to the corresponding plans maintained by SeraNova. Intelligroup
shall be responsible for any COBRA coverage continuation notices required to be
provided with respect to any employee who accepts employment with SeraNova. On
or prior to the Closing Date, Intelligroup and SeraNova shall take all actions
as may be necessary to approve the stock-based employee benefit plans of
SeraNova in order to satisfy the requirement of Rule 16b-3 under the Exchange
Act of 1934, as amended, and Section 162(m) of the Internal Revenue Code of
1986, as amended.
7.3 NO SOLICITATION OF EMPLOYEES. For a period of two (2) years
after the Closing Date, neither Intelligroup nor SeraNova or any member of their
respective Groups shall solicit any employee of the other to terminate his or
her employment to become an employee of the soliciting party, without the prior
written consent of the other party.
7.4 NO RIGHTS CONFERRED UPON EMPLOYEES. Nothing in this Agreement
shall be deemed to confer any rights or remedies of any employees, independent
contractors or consultants of any member of the Intelligroup Group or the
SeraNova Group (including individuals to whom SeraNova is to offer employment
pursuant to Section 7.1). No Person shall be a third party beneficiary with
respect to the provisions of this Section 7.
8. FURTHER ASSURANCES AND ADDITIONAL COVENANTS.
(a) In addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto shall use its reasonable
best efforts, prior to, on and after the Closing Date, to take, or cause to be
taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate and make effective the transactions contemplated by this Agreement
and the Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the
Closing Date, each party hereto shall cooperate with the other party, and
without any further consideration, but at the expense of the requesting party,
to execute and deliver, or use its reasonable best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other
instrument, and to take all such other actions as such party may reasonably be
requested to take by any other party hereto from time to time, consistent with
the terms of this Agreement and the Ancillary Agreements, in order to effectuate
the provisions and purposes of this Agreement and the Ancillary Agreements and
the transfers of the SeraNova Assets and the assignment and assumption of the
SeraNova Liabilities and the
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other transactions contemplated hereby and thereby. Without limiting the
foregoing, each party will, at the reasonable request, cost and expense of any
other party, take such other actions as may be reasonably necessary to vest in
such other party good and marketable title, if and to the extent it is
practicable to do so.
(c) On or prior to the Closing Date, Intelligroup and SeraNova
in their respective capacities as direct and indirect stockholders of their
respective Subsidiaries, shall each ratify any actions which are reasonably
necessary or desirable to be taken by Intelligroup, SeraNova or any Subsidiary
of Intelligroup or SeraNova, as the case may be, to effectuate the transactions
contemplated by this Agreement.
(d) Prior to the Closing Date, if one or more of the parties
identifies any commercial or other service that is needed to assure a smooth and
orderly transition of the businesses in connection with the consummation of the
transactions contemplated hereby that is not otherwise governed by the
provisions of this Agreement or any Ancillary Agreement, the parties will
cooperate in determining whether there is a mutually acceptable arm's-length
basis on which the other party will provide such service.
9. TERMINATION.
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
at any time prior to the date of the Closing Date by the mutual consent of
Intelligroup and SeraNova.
9.2 EFFECT OF TERMINATION. In the event of any termination of this
Agreement prior to the Closing Date, no party to this Agreement (or any of its
directors or officers) shall have any Liability or further obligation to any
other party.
10. MISCELLANEOUS.
10.1 COUNTERPARTS; ENTIRE AGREEMENT.
(a) This Agreement and each Ancillary Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other party.
(b) This Agreement, the Ancillary Agreements and the Exhibits,
Schedules and Appendices hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof, supersede all previous
agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter and there are no agreements or
understandings between the parties other than those set forth or referred to
herein or therein.
10.2 GOVERNING LAW. Except as set forth in Section 6.3, this
Agreement and, unless expressly provided therein, each Ancillary Agreement,
shall be
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governed by and construed and interpreted in accordance with the laws of the
State of New Jersey (other than as to its laws of arbitration which shall be
governed under the Federal Arbitration Act or other applicable federal law
pursuant to Section 6.3), irrespective of the choice of laws principles of the
State of New Jersey, as to all matters, including matters of validity,
construction, effect, enforceability, performance and remedies.
10.3 ASSIGNABILITY. Except as set forth in any Ancillary Agreement,
this Agreement and each Ancillary Agreement shall be binding upon and inure to
the benefit of the parties hereto and thereto, respectively, and their
respective successors and assigns; provided, however, that no party hereto or
thereto may assign its respective rights or delegate its respective obligations
under this Agreement or any Ancillary Agreement without the express prior
written consent of the other parties hereto or thereto.
10.4 THIRD PARTY BENEFICIARIES. Except for the indemnification
rights under this Agreement of any Intelligroup Indemnitee or SeraNova
Indemnitee in their respective capacities as such: (a) the provisions of this
Agreement and each Ancillary Agreement are solely for the benefit of the parties
and are not intended to confer upon any Person except the parties any rights or
remedies hereunder; and (b) there are no third party beneficiaries of this
Agreement or any Ancillary Agreement and neither this Agreement nor any
Ancillary Agreement shall provide any third person with any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement or any Ancillary Agreement. No
party hereto shall have any right, remedy or claim with respect to any provision
of this Agreement or any Ancillary Agreement to the extent such provision
relates solely to the other party hereto or the members of such other party's
Group.
10.5 NOTICES. All notices or other communications under this
Agreement or any Ancillary Agreement, except as may be specifically provided in
an Ancillary Agreement, shall be in writing and shall be deemed to be duly given
when: (a) delivered in person; or (b) deposited in the United States mail or
internationally recognized courier service, postage prepaid, addressed as
follows:
If to Intelligroup, to:
Intelligroup, Inc.
499 Thornall Street
Edison, New Jersey 08837
Attn: President
If to SeraNova, to:
SeraNova, Inc.
499 Thornall Street
Edison, NJ 08837
Attn: President
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Any party may, by notice to the other party, change the address to which such
notices are to be given.
10.6 SEVERABILITY. If any provision of this Agreement or any
Ancillary Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to Persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby or thereby, as the case may be, is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision to effect the original intent of the parties.
10.7 HEADINGS. The article, section and paragraph headings contained
in this Agreement and in the Ancillary Agreements are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement or any Ancillary Agreement.
10.8 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this Agreement or any Ancillary Agreement shall
not be deemed a waiver by the waiving party of any subsequent or other default,
nor shall it prejudice the rights of the other party.
10.9 AMENDMENTS. No provisions of this Agreement or any Ancillary
Agreement shall be deemed waived, amended, supplemented or modified by any
party, unless such waiver, amendment, supplement or modification is in writing
and signed by the authorized representative of the party against whom it is
sought to enforce such waiver, amendment, supplement or modification.
10.10 LATE PAYMENTS. Except as expressly provided to the contrary in
this Agreement or in any Ancillary Agreement, any amount not paid when due
pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or
otherwise invoiced or demanded and properly payable that are not paid within
thirty (30) days of such bill, invoice or other demand) shall accrue interest at
a rate per annum equal to six percent (6%).
* * * * *
-26-
<PAGE> 27
IN WITNESS WHEREOF, the parties have caused this Contribution Agreement to
be executed by their duly authorized representatives.
INTELLIGROUP, INC.
By: /s/ Ashok Pandey
------------------------
Name:
Title
SERANOVA, INC.
By: /s/ Raj Koneru
------------------------
Name: Raj Koneru
Title CEO
[Signature Page to Contribution Agreement]
-27-
<PAGE> 28
LIST OF EXHIBITS AND SCHEDULES
SCHEDULES
2.4 - Delayed Asset Transfers
2.7 - List or Properties
3.1 - Excluded Consents
7.1 - Individuals to Whom Offers Shall Be Made
EXHIBITS
A - Ancillary Agreements
B - SeraNova Assets
C - SeraNova Balance Sheet
D - SeraNova Contracts
E - SeraNova Liabilities
F - Permitted Liens
G - Licensed Intellectual Property
H - Intercompany Debt
-28-
<PAGE> 29
SCHEDULE 2.4
DELAYED ASSET TRANSFERS
o All assets of Intelligroup Asia Private Limited relating to its Internet
services and solutions business shall be transferred to Intelligroup India
Private Limited, a corporation organized under the laws of India, as soon as
practicable after the Closing Date.
o All of the equity interest owned by Intelligroup, Inc. or any of its
subsidiaries in Intelligroup India Private Limited and each of its
subsidiaries, if any, shall be transferred to SeraNova, Inc. as soon as
practicable after the Closing Date.
<PAGE> 30
SCHEDULE 2.7
LIST OF PROPERTIES
<PAGE> 31
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
PERCENTAGE OF PREMISES
LOCATION AND/OR BRANCH ALLOCATED TO SERANOVA
----------------------------------------------------------------------------
<S> <C>
499 Thornall Street 33.65%
Edison, New Jersey
----------------------------------------------------------------------------
10210 North 25th Avenue 100.0%
Phoenix, Arizona
----------------------------------------------------------------------------
9013 North 25th Avenue 100.0%
Suite 6
Phoenix, Arizona
----------------------------------------------------------------------------
9014 North 23rd Avenue 100.0%
Suite 1
Phoenix, Arizona
----------------------------------------------------------------------------
950 Tower Lane 70.0%
Suite 300
Foster City, California
----------------------------------------------------------------------------
9399 West Higgins Building 50.0%
Suite 810, 8th Floor
Rosemont, Illinois
----------------------------------------------------------------------------
691 North Squirrel Road 100.0%
Suite 175
Auburn Hills, Michigan
----------------------------------------------------------------------------
</TABLE>
<PAGE> 32
SCHEDULE 3.1
EXCLUDED CONSENTS
<PAGE> 33
EXCLUDED CONSENTS
<TABLE>
<CAPTION>
------------------------------------------
CONTRACT DATE
------------------------------------------
<S> <C>
AMERICAN EXPRESS 3/22/98
------------------------------------------
AUDI 1/1/99
------------------------------------------
HEWLETT PACKARD 2/4/99
------------------------------------------
LIQUIDPRICE INC. 8/13/99
------------------------------------------
VIGNETTE CORPORATION 9/29/99
------------------------------------------
VOLKSWAGEN OF AMERICA 1/1/99
------------------------------------------
</TABLE>
<PAGE> 34
SCHEDULE 7.1
INDIVIDUALS TO WHOM OFFERS SHALL BE MADE
<PAGE> 35
NA - NORTH AMERICA, IND - INDIA, AP - ASIA PACIFIC, EUR - EUROPE
<TABLE>
<CAPTION>
Organiz-
Number ation Code EMPLOYEE NAME Title
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 IND A KESHAV NARSIPUR TEAM LEADER
2 IND A MANI KANDAN PROGRAMMER
3 IND A SUNEETHA MADHUKAR PROGRAMMER
4 NA PHD ABHIJIT BARDE ASSOCIATE SOFTWARE ENGINEER
5 NA PHD AKSHAY SHAH ASSOCIATE SOFTWARE ENGINEER
6 NA PHA ALAN MATSUMOTO TEMPORARY
7 AP MC ALEXANDER FRATER MANAGER
8 AP MC ALISTAIR MCLEOD TENNANT PRINCIPAL CONSULTANT
9 IND ALLAM BHARATH REDDY PROGRAMMER
10 NA PRD ALLISON ADMIN
11 AP APA AMANDA LOUISE TALBOT TYPIST RECEPTIONIST
12 IND AMIT AGARWAL CONTENT ENTRY ANALYST
13 NA PHD ANAND MANI SOFTWARE ENGINEER
14 NA NJD ANAND REDDY YEDULLA SOFTWARE ENGINEER
15 IND ANAND V KOTHAMANGALAM CONTENT ENTRY ANALYST
16 IND ANAND VENKATESHAN TESTING ANALYST
17 NA PRA ANDELIN, BRIAN D. FINANCE
18 NA PRD ANDERSON, DAN PRINCIPAL CONSULTANT MC
19 AP MC ANGELA MARY REYNOLDS PRINCIPAL CONSULTANT
20 IND ANIESH CHAWLA PROGRAMMER
21 IND ANIL OGGI PROGRAMMER
22 NA PHD ANIL SINGH MANAGER
23 IND ANITA SUBBIAH CONTENT ENTRY ANALYST
24 AP MC ANTHONY IAN CULLODEN PRINCIPAL CONSULTANT
25 AP MC ANTHONY JOHN BOOTH MANAGER
26 AP APA ANTHONY MICHAEL DUFFIN CORPORATE SERVICES EXECUTIVE
27 NA PHD ANURADHA PANDEY ASSOCIATE SOFTWARE ENGINEER
28 NA PHD ARATI MADHINENI ASSOCIATE SOFTWARE ENGINEER
29 IND ARATIKATLA SHANTI PROGRAMMER
30 IND ARJUN MUKHERJEE TEAM LEADER
31 IND ARUN GUPTA PROGRAMMER
32 NA PRD ASAY, TAYLOR SOFTWARE ENGINEER
33 IND ASHOK NATRAJAN PROGRAMMER
34 IND DEL ASHUTOSH YADAV VP - DELIVERY
35 NA OPS ASHWIN ROYADURG RECRUITING MANAGER
36 IND BABANBHAI ABDUL RAHEEM PROGRAMMER
37 NA PRD BAIRD, J. RUSSELL MANAGER
38 NA DEL BALAJI KODALI ASSOCIATE SOFTWARE ENGINEER
39 NA PRD BALAJI KRISHNAMURTHY SOFTWARE ENGINEER
40 IND OPS BALAJI VENKATACHALAM VP - OPERATIONS
41 IND BALASUBRAMANIAN MARISWARAN PROGRAMMER
42 IND BALU HERBERT PROGRAMMER
43 NA PHD BALU SRINIVASAN SOFTWARE ENGINEER
44 AP MC BAREND KEITH CRAIG MANAGER
45 AP MC BARNEY HESLOP MANAGER
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
46 AP MC BARRY DENNIS MAWER MANAGER
47 AP APS BARRY JOHN OLD REGIONAL ACCOUNT DIRECTOR
48 AP APA BELINDA JANE BOETTCHER OFFICE MANAGER
49 IND BENOY JOSE PROGRAMMER
50 AP VL BERNADINE CLARE MARWICK KNOWLEDGE MANAGER
51 AP APA BEVERLEY ANNE ELLIS RECEPTIONIST
52 NA PHD BHARAT AGARWAL SOFTWARE ENGINEER
53 NA OPS BHARAT RAJU RECRUTING MANAGER
54 IND BHASKAR PRASAD MULUGU PROGRAMMER
55 IND BHASKAR RAJAGOPAL TEAM LEADER
56 IND BHASKAR REDDY B V PROGRAMMER
57 IND BHEEMI KRISHNA MOHAN PROGRAMMER
58 NA PHD BIJU NAIR SOFTWARE ENGINEER
59 IND BIJU RUHAMMA L PROGRAMMER
60 NA PHD BISWAJIT SARKAR SOFTWARE ENGINEER
61 AP MC BRIAN CHARLES BERNON PRINCIPAL CONSULTANT
62 AP MC BRIAN FAIR PRINCIPAL CONSULTANT
63 AP MC BRUCE TINSLEY PRINCIPAL CONSULTANT
64 AP MC BRUCE WOOD MANAGER
65 AP MC BRYCE JAMES POTTINGER MANAGER
66 IND BULUSU MONMOHANAMURALI S CONTENT ENTRY ANALYST
67 NA PHD BURTON MACHADO SOFTWARE ENGINEER
68 NA PRD BUTLER MELISSA K. INTERACTIVE DESIGNER
69 IND C LEENA RANI PROGRAMMER
70 IND CANDIDA ADMIN
71 NA PHA CAROL WRIGHT PEOPLE SERVICES MANAGER
72 NA PHD CAROLYN LIM SOFTWARE ENGINEER
73 NA FCD CHAKIB JABER SOFTWARE ENGINEER
74 IND CHANDAN MISHRA PROGRAMMER
75 NA PHD CHANDRAMOHAN LINGAM ASSOCIATE SOFTWARE ENGINEER
76 IND CHIRENJEEVI MIS
77 EUR EUR CHRIS MANAGING DIRECTOR - EUROPE
78 AP APA CHRISTINE ELIZABETH BOONZAIER EXECUTIVE ASSISTANT
79 AP APA CHRISTINE JOAN NESBIT OFFICE MANAGER
80 NA DC CHRISTOPHER AROKIRAJ ASSOCIATE SOFTWARE ENGINEER
81 AP MC CHRISTOPHER ARTHUR MARSHALL PRINCIPAL CONSULTANT
82 NA PHD CHRISTOPHER BRINSON ASSOCIATE SOFTWARE ENGINEER
83 AP MC CLARE LOUISE ENGEL PRINCIPAL CONSULTANT
84 NA MKT CLAUDIO BURGOS CREATIVE DIRECTOR
85 AP MC CLIFFORD JOHN BLAKELY PRINCIPAL CONSULTANT
86 AP MC COLIN DINN MANAGER
87 AP APS COLIN GRAHAM BUTLER REGIONAL ACCOUNT DIRECTOR
88 NA SOL COOPER, TYLER B. MANAGER
89 NA PRD CORONEL, CARLOS ASSOCIATE INTERACTIVE DESIGNER
90 NA PRD CRAGUN, BRIAN B. ASSOCIATE CONTENT ANALYST
91 IND D KALYAN CHAKRAVARTHI PROGRAMMER
92 NA VLM D.K. CHAKRAVARTHY METHODOLOGIST
93 IND DASARADHI AGNIHOTRAM V S PROGRAMMER
94 NA OPS DAVE FERGUSON RECRUITING MANAGER
95 AP MC DAVID GEORGE GALE PRINCIPAL CONSULTANT
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C>
96 AP MC DAVID HAWKINS PRINCIPAL CONSULTANT
97 AP MC DAVID JOHN KELLY PRINCIPAL CONSULTANT
98 NA PHD DAVID LYONS SOFTWARE ENGINEER
99 AP MC DAVID NIGEL NIVEN PRINCIPAL CONSULTANT
100 AP MC DAVID RAINE OSWALD PRINCIPAL CONSULTANT
101 NA DAVID ROGERS CONTROLLER
102 NA PRD DAVIS, MATTHEW M. INTERACTIVE DESIGNER
103 IND DEBIPRASAD BENERJEE PROGRAMMER
104 NA DEL DEEP VASWANI SOFTWARE ENGINEER
105 NA NJD DEEPA BALAJI ASSOCIATE SOFTWARE ENGINEER
106 IND DEEPAK S AGARWAL PROGRAMMER
107 AP APS DENIS ALLAN PARKINSON REGIONAL ACCOUNT MANAGER
108 NA PHD DEREK AU SOFTWARE ENGINEER
109 AP MC DEREK PAUL LISTER PRINCIPAL CONSULTANT
110 NA PHD DEVANATH DESIKAN ASSOCIATE SOFTWARE ENGINEER
111 NA PHD DEVENDRA KUMAR ASSOCIATE SOFTWARE ENGINEER
112 NA PHD DHANANJAY NANIWADEKAR ASSOCIATE SOFTWARE ENGINEER
113 IND DHANASEKARAN. K PROGRAMMER
114 NA SOL DHARMA KATKURI PRINCIPAL CONSULTANT
115 NA SOL DONAHUE, MICHAEL P. DIRECTOR - SOLUTIONS
116 AP APM DONALD TRISTRAM MOORE SVP - INTERNATIONAL
117 NA PHD DUANE MATSEN SOFTWARE ENGINEER
118 IND EDWARD SAMRAJ N PROGRAMMER
119 AP APS EILEEN WILD PRINCIPAL CONSULTANT
120 NA NAM ELIZABETH MASSIMO ADMIN. ASSISTANT
121 NA PHD ERIC ECKERT PRINCIPAL SOFTWARE ENGINEER
122 NA PHD FARIZA AHSANUDDIN ASSOCIATE SOFTWARE ENGINEER
123 NA PRM FARR, RICHARD L. DIRECTOR
124 NA MGT FERESHTEH AZAD PRINCIPAL CONSULTANT
125 AP MC FIONA ALLAN OFFICE MANAGER
126 AP MC FRANCIS BENEDICT KELLY PRINCIPAL CONSULTANT
127 AP MC FRANCISCO ALMEDA TANKING PRINCIPAL CONSULTANT
128 AP MC FREDERICK GEOFFREY FURKERT PRINCIPAL CONSULTANT
129 AP APS FREDRICK JOHN PETER (BILL) BOYD DIRECTOR - AUSTRALIA
130 NA SOL G.VENKAT PRINCIPAL CONSULTANT
131 IND GADDE RAMESH PROGRAMMER
132 NA NJD GAJAPATHY SENTHIL KUMAR SOFTWARE ENGINEER
133 NA NJD GANESH NEMMANI ASSOCIATE SOFTWARE ENGINEER
134 NA PHD GANESHBABU SUBRAMANIAN SOFTWARE ENGINEER
135 IND GANTI SUBBA RAO ADMIN
136 AP MC GARY PARKER PRINCIPAL CONSULTANT
137 IND GAUTAM DESHPANDE PROGRAMMER
138 NA PRD GEARY, MICHAEL INTERACTIVE ARCHITECT
139 AP APA GENEVIEVE RUTH FRASER ACCOUNTANT
140 EUR EUR GEOFF BAKER DIRECTOR SOLUTIONS - EUROPE
141 AP MC GEOFFREY ALLEN SMITH PRINCIPAL CONSULTANT
142 AP MC GEORGE HEATHERWICK FINDLAY PRINCIPAL CONSULTANT
143 IND GEORGE KORAH MIS
144 NA AU GEORGE MORAETES PRINCIPAL CONSULTANT
145 NA PRD GIBBONS, THOMAS W. MANAGER
146 NA OPS GREG KILLPACK RECRUITING MANAGER
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C> <C> <C>
147 NA PRA GUILBERT, DERRILL E. IS
148 NA PHD GUNILLA SUNDSTROM MANAGER
149 NA PHD GUNJAN VIJAYVERGIA SOFTWARE ENGINEER
150 IND GURU PRASAD VINJAMURI PROGRAMMER
151 IND GURUBACHAN SINGH SARDAR PROGRAMMER
152 NA VLM GURURAJ MANAGULI DIRECTOR - METHODOLOGY
153 NA PRD HALL, CRAIG ASSOCIATE CONTENT ANALYST
154 IND HARI BABU PROGRAMMER
155 IND HARILAL KANAKAVALLI PROGRAMMER
156 AP MC HARRY CHOPRA DIRECTOR SOLUTIONS PRACTICE
157 IND HARSHA KIRAN ADMIN
158 AP APS HARVEY DAVID CALDER ASSOCIATE DIRECTOR
159 NA PHD HIMANSHU KOHLI SOFTWARE ENGINEER
160 NA SOL HITESH SETH PRINCIPAL CONSULTANT
161 NA PRA HOKANSON, AMIE FINANCE
162 NA PRD HOKANSON, NATHAN D. SOFTWARE ENGINEER
163 IND I STEPHEN MOSSES PROGRAMMER
164 AP MC IAIN MICHAEL BARRACLOUGH PRINCIPAL CONSULTANT
165 AP MC IAN HAMISH RODERIK MCFADYEN PRINCIPAL CONSULTANT
166 AP APM IAN HUGH TAYLOR MANAGING DIRECTOR - ASIA PACIFIC
167 AP APS IAN JOHNSON DIRECTOR, BANKING AND FINANCE
168 AP MC IAN STEWART MAWSON PRINCIPAL CONSULTANT
169 IND J SABESAN PROGRAMMER
170 IND J V N D PRASAD TEAM LEADER
171 AP MC JACK EGON BOETTCHER PRINCIPAL CONSULTANT
172 NA MKT JACOBSON, RACHEL L. MARKETING EXECUTIVE
173 IND JAFFAR SULAIMANI PROGRAMMER
174 NA NJD JAGANADDA ELURI SOFTWARE ENGINEER
175 NA FCD JAGANNATH JAYAPAUL SOFTWARE ENGINEER
176 IND JAGANNATHAN GIRIDHAR TESTING ANALYST
177 IND JAMES ROZARIO TEAM LEADER
178 AP MC JAN JEREMIA OLIVIER PRINCIPAL CONSULTANT
179 NA OPS JAN JOHNSON RECRUITING MANAGER
180 IND JANDHYALA KALYAN CHARAVARTHY
181 NA PRA JANELLE JACKSON FINANCE
182 IND JASMIT SINGH RECRUITER
183 NA AU JAY KRALL ASSOCIATE DIRECTOR
184 IND JAYA SHANKAR REDDY P CONTENT ENTRY ANALYST
185 IND JAYARAM GOLI PROGRAMMER
186 IND JAYENDARAJ RAMAMURTHI PROGRAMMER
187 NA MKT JEFF PASTERNAK
188 NA NAS JEFF SCHULMANN ASSSOCIATE DIRECTOR
189 AP APS JEFFREY GORDON ROBERTS DIRECTOR - ASIA
190 NA PRA JENNIFER RECEPTIONIST
191 AP APA JENNIFER JANE WYNNE-JONES PAYROLL ADMINISTRATOR
192 NA PRA JENSEN, BREA HUMAN RESOURCES
193 IND JEROME AMIRTHARAJ UA TEAM LEADER
194 AP MC JILLIAN KUCH HUMAN RESOURCE MANAGER
195 IND JITENDRA KUMAR RAI PROGRAMMER
196 NA PRD JOCHETZ, CHRISTOPHER INTERACTIVE ARCHITECT
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C> <C> <C>
197 NA PHD JOE JENKINS SOFTWARE ENGINEER
198 NA SOL JOE POSTIGLIONE VICE PRESIDENT - EPROCUREMENT
199 AP MC JOHN CLIVE EMANUEL PRINCIPAL CONSULTANT
200 AP MC JOHN EDWARD CRISP PRINCIPAL CONSULTANT
201 NA NAS JOHN HARDIN PRINCIPAL CONSULTANT
202 NA SOL JOHN KIMBOROUGH MANAGER
203 AP MC JOHN LESLIE CALLCUT DIRECTOR, PROJECTS
204 NA SOL JOHN LLOYD JONES PRINCIPAL CONSULTANT
205 AP APS JOHN MURRAY DOWNES REGIONAL ACCOUNT MANAGER
206 NA AU JOHN PAS PRINCIPAL CONSULTANT
207 NA PRD JOHNSON, CLIFFORD N. CONTENT ANALYST
208 AP MC JONATHAN MARK ASHBY PRINCIPAL CONSULTANT
209 NA PRD JORDAN, CHRIS IS
210 JUDITH ROGERSON ADMIN TO CEO & VP BUSS DEV
211 NA DEL JYOTI NIGAM BUSINESS ANALYST
212 IND K SHRAVAN KUMAR PROGRAMMER
213 NA KALA BHATT ACCOUNTING
214 NA SOL KALYAN SUBRAMAIAN DIRECTOR
215 NA SOL KANTH MIRIYALA ASSOCIATE DIRECTOR
216 IND KATHIRESAN PALRAJ MIS
217 AP APA KATHLEEN ANN WARREN EXECUTIVE ASSISTANT
218 AP APA KATHRYN YOUNG PRINCIPAL CONSULTANT
219 NA PHD KAUSTUBH KUNTE SOFTWARE ENGINEER
220 NA PHD KAUSTUBH MULE SOFTWARE ENGINEER
221 IND KAVITHA V PROGRAMMER
222 IND KAVITHA VARAHABHATLA PROGRAMMER
223 AP APA KENNETH GEORGE FOULNER MANAGER
224 AP MC KERRY ANNE TROTTER REGIONAL ACCOUNT MANAGER
225 AP MC KEVAN MORAN PRINCIPAL CONSULTANT
226 IND KHAIRUNISA BEGUM PROGRAMMER
227 IND KILAMBI.V. RAMANUJAM TESTING ANALYST
228 AP APS KIMBERLY MICHELLE KLASBEEK PAYROLL ADMINISTRATOR
229 IND KIRAN KUMAR GUNDIMEDA PROGRAMMER
230 IND KIRAN KUMAR PALADUGU PROGRAMMER
231 NA PRD KIRKPATRICK, SAM PRINCIPAL SOFTWARE ENGINEER
232 IND KISHORE LAKSHMAN RAJETI PROGRAMMER
233 NA PRD KNAPP, STEVEN PRINCIPAL CONSULTANT MC
234 IND KOPPISETTI SURESH KUMAR PROGRAMMER
235 IND KRISHNA KANTH JANDHYALA PROGRAMMER
236 IND KRISHNA KOSURI PROGRAMMER
237 NA PHD KRISHNAMURTHY RAJAGOPAL ASSOCIATE SOFTWARE ENGINEER
238 NA NAS KRISTEN COSTA ADMIN ASSISTANT
239 IND KUMETA VIKRAM PROGRAMMER
240 NA PRD LAIDIG, ROBERT J. SOFTWARE ENGINEER
241 NA DEL LAKSHMI NARASIMHA KOTA SOFTWARE ENGINEER
242 IND LAKSHMIN NARASIMHAN SRIVATHS
243 NA PRD LARSON, BRENT ASSOCIATE CONTENT ANALYST
244 AP MC LAURENCE MILLAR DIRECTOR - TELECOMM
245 NA PHD LAXMIKANT DASH ASSOCIATE SOFTWARE ENGINEER
246 AP APA LESLIE FEARNLEY PRINCIPAL CONSULTANT
</TABLE>
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C>
247 LISA CARNATO ACCOUNTING
248 AP MC LISA JENNIFER RICKMAN TYPIST
249 NA PRD LONO, ERIK N. INTERACTIVE DESIGNER
250 NA PRD LUBEAN, AARON R. SOFTWARE ENGINEER
251 NA PRD LUBEAN, JASON I. PRINCIPAL SOFTWARE ENGINEER
252 IND M LAXMI NARAYANA MIS
253 IND MADAN MOHAN REDDY B PROGRAMMER
254 NA NJD MADHUSMITA GUPTE ASSOCIATE SOFTWARE ENGINEER
255 IND MADHUSUDANA CHITTIBHATTA PROGRAMMER
256 NA DEL MAHENDRA BAIRAGI ASSOCIATE SOFTWARE ENGINEER
257 IND MAHESH KUMAR NAVALE PROGRAMMER
258 IND MALLESH KOTA PROGRAMMER
259 IND MANINDER SINGH CONTENT ENTRY ANALYST
260 NA PHD MANJULA TEKAL SOFTWARE ENGINEER
261 IND MANOJ BALRAJ BSA
262 NA MC MARCUS BURROWS MANAGER
263 AP MC MARGERY JANE ALLISON PRINCIPAL CONSULTANT
264 AP APA MARIA ANN MCKINLEY MANAGER
265 NA PHD MARK BI SOFTWARE ENGINEER
266 AP MC MARK RAYMOND GORDON PRINCIPAL CONSULTANT
267 NA NAS MARK SMITH REGIONAL ACCT MGR
268 AP MC MARK THOMAS TURKINGTON REGIONAL ACCOUNT MANAGER
269 AP MC MARTIN WILLIAM CHAMBERS PRINCIPAL CONSULTANT
270 NA NAS MATSON, JR. JAMES E. REGIONAL ACCOUNT MANAGER
271 NA PHD MATTHEW CRONIN SOFTWARE ENGINEER
272 AP MCS MATTHEW TAYLOR PRINCIPAL CONSULTANT
273 NA PRA MAW, KRISTIN FINANCE
274 NA PRM MAW, RICHARD W. DIRECTOR
275 NA PRD MECHAM, DAVID R. ASSOCIATE DIRECTOR
276 NA PHD MEENA GOPAKUMAR PRINCIPAL CONSULTANT MC
277 IND MEKALA SRINIVAS PROGRAMMER
278 NA PHA MELODY VOSGIER ADMIN. ASSISTANT
279 AP MC MICHAEL CARTLIDGE DIRECTOR - SOLUTIONS ASIA PACIFIC
280 AP MC MICHAEL COLIN CAMPBELL CONTROLLER - ASIA PACIFIC
281 AP MC MICHAEL JOHN WALLS PRINCIPAL CONSULTANT
282 AP APA MICHELE RUTH WEST PRINCIPAL CONSULTANT
283 NA PHD MIKE DUNN ASSOCIATE SOFTWARE ENGINEER
284 IND MOHAN KANNAPA PROGRAMMER
285 NA AU MORRELL, GREGORY D. MANAGER
286 NA PRD MOSS, NICOLAS ASSOCIATE CONTENT ANALYST
287 IND MOTHUKURI SRIDHAR CONTENT ENTRY ANALYST
288 IND MOTUPALLI SRINIVAS RAO PROGRAMMER
289 IND MRUDULA MADDIPATI PROGRAMMER
290 NA PHD MUBASHER AHMED SOFTWARE ENGINEER
291 IND MUDASSIR HUSSAIN MD PROGRAMMER
292 NA DEL MUNISH ARORA ASSOCIATE SOFTWARE ENGINEER
293 IND MURALI KRISHNA ERRAMILLI PROGRAMMER
294 NA PHD MURALI PALLIKONDA ASSOCIATE SOFTWARE ENGINEER
295 NA DEL MURLI SUBRAMANI SOFTWARE ENGINEER
296 AP MC MURRAY OSBORNE MANAGER
297 IND MUTHIAH PALANIAPPA PROGRAMMER
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C>
298 IND NAGA LANKA MIS
299 IND NAGA RAJU PARSA PROGRAMMER
300 NA SOL NAGARAJA SRIVATSAN DIRECTOR
301 IND NAGARAJU M PROGRAMMER
302 NA DEL NAGESHWAR RAO SANNIDHANAM SOFTWARE ENGINEER
303 IND NAGESWARA RAO PAIDI PROGRAMMER
304 NA PHD NANCY CSERVAK PRINCIPAL CONSULTANT MC
305 IND NARASIMHA MURTHY UPADHYAYULA S R
306 IND NARASIMHAIAH NARAHARI PROGRAMMER
307 NA PHD NARDESH KATOCH ASSOCIATE SOFTWARE ENGINEER
308 IND NARESH KUMAR G PROGRAMMER
309 NA NAS NEAL BISCHEL REGIONAL ACCOUNT DIRECTOR
310 IND NEERAJ VADDADI BSA
311 IND NEERAJA A. PROGRAMMER
312 AP MC NEIL NORMAN MCDOUGALL PRINCIPAL CONSULTANT
313 AP MC NEVILLE MERCER PRINCIPAL CONSULTANT
314 NA PHD NICHOLAS MORISSEAU PRINCIPAL CONSULTANT MC
315 AP MC NICOLA CHARLOTTE YOUNG ASSISTANT OFFICE MANAGER
316 NA MKT NICOLE ALTOBELLO MARKETING ASSISTANT
317 AP MC NIGEL EDWARDS REGIONAL ACCOUNT MANAGER
318 IND NITIN KUMAR BHATIA TESTING ANALYST
319 NA PHD NOOR HAQ SOFTWARE ENGINEER
320 IND NUTHIKATTU SAILAJA PROGRAMMER
321 NA PHD OSMON SUKHERA SOFTWARE ENGINEER
322 IND P.V.U.PAVAN KUMAR CONTENT ENTRY ANALYST
323 IND PAGUTHARIVU S PROGRAMMER
324 NA PRD PAINTER, TIMOTHY D. PRINCIPAL SOFTWARE ENGINEER
325 IND PANKAJ HEMNANI PROGRAMMER
326 NA PHD PARAG MATAPURKAR SOFTWARE ENGINEER
327 IND PARDHASARDHI V NEELISHETTY
328 IND PARDHASARDHI V NEELISHETTY PROGRAMMER
329 IND PARUL GUPTA PROGRAMMER
330 NA NAS PAT GARDNER ASSSOCIATE DIRECTOR
331 NA PHA PATRICK KELLY SYSTEM ADMIN
332 IND PAWAN KUMAR RAMSASTRY PROGRAMMER
333 AP APA PETER CHARLES BASHFORD MANAGER
334 NA NAS PETER EVANS ASSSOCIATE DIRECTOR
335 AP APS PETER JAMES HICKS REGIONAL ACCOUNT MANAGER
336 AP MC PETER LINDSAY SMITH PRINCIPAL CONSULTANT
337 IND PRABHAKAR K.M. PROGRAMMER
338 IND PRABHAKAR KOMPELLA TEAM LEADER
339 IND PRADEEP RAMNATH IYER PROGRAMMER
340 IND PRADEEP SUDHAKAR JOSHI PROGRAMMER
341 NA PHD PRASAD SAMAK SOFTWARE ENGINEER
342 IND PRASANN V.NADGIR TEAM LEADER
343 IND PRASANNA KARMARKAR PROGRAMMER
344 NA NJD PRASHANT GUPTE SENIOR SOFTWARE ENGINEER
345 NA PHD PRASHANTH CHAKRAPANI SOFTWARE ENGINEER
346 IND PRASHANTH MALLIKARJUN PROGRAMMER
347 IND PRAVAS RANJAN PATTNAYAK PROGRAMMER
348 NA PHD PRAVEEN JHURANI ASSOCIATE SOFTWARE ENGINEER
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C>
349 IND PRAVEENA SRIDHARA CONTENT ENTRY ANALYST
350 NA AU PREM VEDAMUTHU PRINCIPAL CONSULTANT
351 IND PULLAMRAJU HARISH TESTING ANALYST
352 IND R RAJASHREE PATHIPAKA CONTENT ENTRY ANALYST
353 IND R SUBHA PROGRAMMER
354 NA PHD RAGHU NEELAGIRI ASSOCIATE SOFTWARE ENGINEER
355 NA RAJ KONERU CEO
356 IND RAJAGOPALAN KASIRAMAN PROGRAMMER
357 IND RAJARATHINAM SINGARAVELU PROGRAMMER
358 IND RAJASHEKAR REDDY PROGRAMMER
359 NA PHD RAJASHEKHAR MUKKAVILLI ASSOCIATE SOFTWARE ENGINEER
360 IND RAJENDRA PRASAD CHADALAVADA
361 IND RAJESH BABU SV PROGRAMMER
362 NA OPS RAJESH IYER RECRUITING MANAGER
363 IND RAJESH K TEAM LEADER
364 IND RAJESH YADALI PROGRAMMER
365 NA PHD RAJMOHAN KARTHA ASSOCIATE SOFTWARE ENGINEER
366 IND RAMAA RAGHAVAN TESTING ANALYST
367 IND RAMACHANDRAN DITTAVI.J. TESTING ANALYST
368 IND RAMAKANTH P B S V PROGRAMMER
369 IND RAMAKRISHNAN PROGRAMMER
370 IND RAMANA MURTHY PROGRAMMER
371 IND RAMANUJ SINGH PROGRAMMER
372 NA PHD RAMBABU GONUGUNTLA ASSOCIATE SOFTWARE ENGINEER
373 IND RAVI GOJE TEAM LEADER
374 IND RAVI KIRAN G PROGRAMMER
375 IND RAVI SHANKAR LOLLA PROGRAMMER
376 NA RAVI SINGH CFO
377 NA PHD RAVINDRA MAHAJAN SOFTWARE ENGINEER
378 IND RAVINDRA REDDY KATUKURI PROGRAMMER
379 IND RAVINDRAKUMAR RASAMSETTI TESTING ANALYST
380 IND RAVINDRANATH Y.V. PROGRAMMER
381 NA RICHARD BEVIS VP, MARKETING
382 NA SOL RICHARD MCLAREN MANAGER
383 NA PHD RICHARD REESE SOFTWARE ENGINEER
384 AP APS RICHARD SHENTON RICE PRINCIPAL CONSULTANT
385 AP MC RICHARD STEPHEN HATFIELD PRINCIPAL CONSULTANT
386 NA PHA RICHARD VERDUGO SYSTEM ADMIN
387 NA PRD RICHEY, RONALD H. PRINCIPAL CONSULTANT MC
388 NA PRD RICHMOND, JOE INTERACTIVE DESIGNER
389 AP MC ROBERT ARTHUR BARCLAY PRINCIPAL CONSULTANT
390 AP MC ROBERT IAN LE GRICE PRINCIPAL CONSULTANT
391 AP MC ROBERT OWEN BARNES PRINCIPAL CONSULTANT
392 NA NAS ROGER COMORA REGIONAL ACCOUNT MANAGER
393 NA NJD ROGER THOMPSON ASSOCIATE SOFTWARE ENGINEER
394 IND ROKALA TARKESH REDDY PROGRAMMER
395 NA OPS RONY DANIEL RECRUITING MANAGER
396 AP MC RUSSELL JOHN ROLLAND PRINCIPAL CONSULTANT
397 NA PRA RYMER, RANDY L. PRINCIPAL SOFTWARE ENGINEER
398 IND S M KARTHIK PROGRAMMER
399 IND S PRAVEEN PROGRAMMER
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C>
400 IND S RAJESH PROGRAMMER
401 IND SAINATH P CHAWLA PROGRAMMER
402 NA PHD SAIRAM VENKATARAMAN ASSOCIATE SOFTWARE ENGINEER
403 IND SAMUEL JOHNSON PROGRAMMER
404 NA DEL SANDEEP GINDE SOFTWARE ENGINEER
405 IND SANGEETA KOUR TESTING ANALYST
406 IND SANJAY CHASWAL PROGRAMMER
407 NA PHD SANJAY MADAAN SOFTWARE ENGINEER
408 NA PHD SANJAY RAO SOFTWARE ENGINEER
409 NA DEL SANJAY SINHA SOFTWARE ENGINEER
410 NA DEL SANTOSH RAVINDRAN SOFTWARE ENGINEER
411 NA PHD SAPTARSHI SEN SOFTWARE ENGINEER
412 IND SATHYANARAYANA REDDY V PROGRAMMER
413 IND SATHYAPRASAD K PROGRAMMER
414 NA DEL SATISH ADITIWAR SOFTWARE ENGINEER
415 NA NAS SCOFFIELD, LANCE REGIONAL ACCOUNT MANAGER
416 NA AU SCOTT CROMPTON DIRECTOR
417 IND SELVI ARULRAJ TESTING ANALYST
418 NA PHD SENDHIL CHOKKALINGAM SOFTWARE ENGINEER
419 NA SOL SENTHIL KUNCHITHAPATHAM ASSOCIATE DIRECTOR
420 IND SHAIK ALTAFF MOHIDDIN PROGRAMMER
421 IND SHAIK MAHAMMAD ABBAS ALI TESTING ANALYST
422 AP MC SHARON ANN TAIT PRINCIPAL CONSULTANT
423 SHARON BARRIEN ACCOUNTING
424 NA DEL SHARON GLASER PRINCIPAL CONSULTANT
425 NA PHM SHASHI JASTHI DIRECTOR
426 IND SHASHIKANTH HANUMANTA RAO PROGRAMMER
427 IND SHIBU MATHEW PROGRAMMER
428 IND SHIRMILA RANI THOTA PROGRAMMER
429 NA PHD SHYAM CHALLAPALLI ASSOCIATE SOFTWARE ENGINEER
430 NA PHD SIVA CHILUKURI SOFTWARE ENGINEER
431 NA PHD SIVA PRASAD MARELLA ASSOCIATE SOFTWARE ENGINEER
432 NA PRD SMITH, RANDALL K. PRINCIPAL CONSULTANT MC
433 IND SMITHA PURANIK PROGRAMMER
434 IND SOMAYAJULU KOLLI.S.S.S TESTING ANALYST
435 IND SONAL J. ASHTIKAR PROGRAMMER
436 IND SOWMYA KATRAGADDA PROGRAMMER
437 NA PRD SPEARS, KRISTIN PRINCIPAL SOFTWARE ENGINEER
438 IND SREEJAY MULLAKANDY RECRUITING AND OPERATIONS MANAGER
439 IND SREEKANT GOTTIMUKKALA PROGRAMMER
440 IND SRI LAKSHMI DRONAMRAJU PROGRAMMER
441 IND SRIDHAR REDDY PROGRAMMER
442 NA DC SRIDHAR REDDY SOFTWARE ENGINEER
443 IND SRIDHAR VAMARAJU PROGRAMMER
444 NA PHD SRIKANTH KATAKAM SOFTWARE ENGINEER
445 IND SRIKANTH MURTHY PROGRAMMER
446 IND SRIKANTH S KONERU CONTENT ENTRY ANALYST
447 IND SRINATH VAMARAJU CONTENT ENTRY ANALYST
448 NA PHD SRINIVAS AKKINENI ASSOCIATE SOFTWARE ENGINEER
449 IND SRINIVAS GULLIPALLI PROGRAMMER
450 IND SRINIVAS KUMAR MUKKAMALA PROGRAMMER
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C>
451 NA PHD SRINIVAS NANDAMURI SOFTWARE ENGINEER
452 IND SRINIVAS PEDIREDLA PROGRAMMER
453 IND SRINIVAS RAO GANTI PROGRAMMER
454 IND SRINIVAS TATAVARTHY TEAM LEADER
455 IND SRINIVAS VEERAMACHANENI S CONTENT ENTRY ANALYST
456 NA PHD SRINIVASAN RAJAMANICKAM SOFTWARE ENGINEER
457 IND SRIRAM MUTHUGI PROGRAMMER
458 IND SRIRAM S CHARI TESTING ANALYST
459 IND SRIRAM SWAMINATHAN PROGRAMMER
460 IND SRIRANJANI VARADARAJAN Z PROGRAMMER
461 NA PHD STEFANIE SICARD ASSOCIATE SOFTWARE ENGINEER
462 NA SOL STEVEN HAGLER DIRECTOR
463 AP APA STEVEN HEATH SOLUTION PRACTICE MANAGER
464 NA PRD STOCKETT, Z. TED PRINCIPAL SOFTWARE ENGINEER
465 NA PRD STRINGHAM, MARK D. ASSOCIATE CONTENT ANALYST
466 IND SUBBA RAO A.S.V TEAM LEADER
467 IND SUBBU UPPULURI PROJECT MANAGER
468 NA PHD SUBHAJIT BHATTACHERJEE SOFTWARE ENGINEER
469 NA PHD SUDHEER MAHANKALI ASSOCIATE SOFTWARE ENGINEER
470 IND SUMAN SRINIVAS POTHULA PROGRAMMER
471 IND SUMATHI ATHULURI PROGRAMMER
472 NA PHD SUMIT SOOD SOFTWARE ENGINEER
473 NA PRD SUMNER, RICHARD E. PRINCIPAL CONSULTANT MC
474 IND SUNDAR RAJAN S TESTING ANALYST
475 NA PHD SUNIL FERNANDES PROGRAMMER
476 IND SUNITA CHARY RECRUITER
477 IND SURAJ PRABHU PROGRAMMER
478 IND SURENDER RAO KATIKINENI PROGRAMMER
479 IND SUSHANTO MUKHERJEE TEAM LEADER
480 IND SUSHEEL NAIR PROGRAMMER
481 NA PRD SWENSON, DAWNA S. PRINCIPAL CONSULTANT MC
482 IND SYED AMANULLAH KHAN TEAM LEADER
483 AP MC TADEUSZ JOZEF GAWOR MANAGER
484 NA TARUN CHANDRA VP, CORP STRATEGY
485 NA NAS TERI GALLO ASSSOCIATE DIRECTOR
486 AP MC TERRY ADAMS REGIONAL ACCOUNT MANAGER
487 NA AU TERRY BRADSHAW PRINCIPAL CONSULTANT
488 NA AU TERRY, STEPHANIE A. PRINCIPAL CONSULTANT
489 AP MC THOMAS MICHAEL HUNTER PRINCIPAL CONSULTANT
490 AP MC THOMAS WARD BRADSHAW OPERATIONS MANAGER
491 NA PRD THOMAS, JENNIFER MANAGER
492 NA FCD TIM LUPTON SOFTWARE ENGINEER
493 NA DEL TIRUMALESH KOWDLAY SOFTWARE ENGINEER
494 NA TOM BERNETICH SVP, NORTH AMERICA SALES
495 NA AU TROY MCLEAN MANAGER
496 IND TUMMALA SURESH PROGRAMMER
497 NA PHD UDAY POTHAKAMURY ASSOCIATE SOFTWARE ENGINEER
498 NA DEL UDIPI CHARYA SOFTWARE ENGINEER
499 IND UGRAPPA VINAY.K. PROGRAMMER
500 IND INDA UNNAMED CONTROLLER
501 IND INDA UNNAMED DIRECTOR - HR
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C>
502 IND UPADYAULA RAGHU PROGRAMMER
503 IND UPPALA SRIKANTH TESTING ANALYST
504 AP APS UTAM SINGH PANNU PRINCIPAL CONSULTANT
505 IND V MAHESH YADAV PROGRAMMER
506 IND V S PAVAN KUMAR PROGRAMMER
507 IND VAMSEE KRISHNA KARUMUDI CONTENT ENTRY ANALYST
508 NA PRD VARKALA, VENKAT SOFTWARE ENGINEER
509 IND VARUN KUMAR BSA
510 NA DC VENKATESH KUMAR KIRUPAKARAN ASSOCIATE SOFTWARE ENGINEER
511 NA PHD VENKATESH RAO SOFTWARE ENGINEER
512 IND VENKATESH SADAGOPAN BSA
513 NA PHD VENKATESH SRINIVAS RAO SOFTWARE ENGINEER
514 NA PHD VENKATESH THIRUMALISAMY SOFTWARE ENGINEER
515 IND VENKATESHWARA RAO PROGRAMMER
516 NA NAS VENU RAGHAVAN ACCOUNT MANAGER
517 VERONICA SOTO ADMIN TO FINANCE
518 AP MC VICTOR IAN WARDROP PRINCIPAL CONSULTANT
519 NA NAS VICTORIA HEDRICK ACCOUNT MANAGER
520 IND VIDHYA M R PROGRAMMER
521 NA OPS VIDYA SHAKER RECRUITING MANAGER
522 NA PHA VIJAY PULSANI SYSTEM ADMIN
523 IND VIJAYA KUMAR RAO PROGRAMMER
524 IND VIJAYA SARATHI TVR PROGRAMMER
525 IND VIJAYABHASKAR Reddy Talugula
526 IND VIKRANTH PATHAK PROGRAMMER
527 NA PHD VINAY BHAT SOFTWARE ENGINEER
528 NA DEL VINAYAK PADAKI SOFTWARE ENGINEER
529 IND VINEESH DEGAPUDI PROGRAMMER
530 NA DEL VINOD MANDHANA SOFTWARE ENGINEER
531 IND VISWESHWAR RAO M PROGRAMMER
532 AP MC WARREN TOPP PRINCIPAL CONSULTANT
533 AP OPS WILLEM ABRAHAM GEERTS PRINCIPAL CONSULTANT
534 AP MC WILLIAM JOHNSON DIRECTOR - PHILLIPINES
535 NA PRD WIMMER, JASON CONTENT ANALYST
536 NA PRD WING, BRENT PRINCIPAL CONSULTANT MC
537 NA PRA WUEHLER, MICHAEL T. IS
538 IND YERUKALA CHANDRA PROGRAMMER
539 NA PHD YOGENDRA YADAV SOFTWARE ENGINEER
540 NA DEL YUVRAJ JOSHI SOFTWARE ENGINEER
541 IND ZEENAT VASTAD PROGRAMMER
542 NA PRD ZIMMERMAN, JOEL PRINCIPAL CONSULTANT MC
543 NA FCA ZINA ALBANO ADMIN. ASSISTANT
</TABLE>
<PAGE> 46
EXHIBIT A
ANCILLARY AGREEMENTS
The term "ANCILLARY AGREEMENTS" includes the following agreements:
(i) Services Agreement;
(ii) Tax Sharing Agreement;
(iii) Space Sharing Agreement;
(iv) Distribution Agreement; and
(v) Promissory Note.
<PAGE> 47
EXHIBIT B
SERANOVA ASSETS
The term "SERANOVA ASSETS" includes:
- - Assets Related to the Conduct of the SeraNova Business in the United
States by Intelligroup, Inc. (attached hereto):
- - All of the equity interests of Intelligroup in the following companies:
1. NetPub;
2. Azimuth and each of its subsidiaries; and
3. Intelligroup India Private Limited and each of its subsidiaries.
<PAGE> 48
SERANOVA ASSETS
AS OF DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
ASSETS VALUE RECIPIENT CONTRIBUTING
ENTITY
SERANOVA INTELLIGROUP
<S> <C> <C> <C>
Current Assets:
Cash $ --
Accounts receivable, net of
allowance for doubtful
accounts of $225 3,289
Unbilled services 2,872
Other current assets 185
------
Total Current Assets 6,346
Property and equipment, net 1,072
Intangible assets, net --
Other assets --
Total Assets $7,418
======
</TABLE>
<TABLE>
<CAPTION>
ASSETS VALUE RECIPIENT CONTRIBUTING
ENTITY
NETWORK NETWORK (1)
PUBLISHING PUBLISHING
<S> <C> <C> <C>
Current Assets:
Cash $ 380
Accounts receivable, net of
allowance for doubtful
accounts of $128 2,164
Unbilled services --
Other current assets 49
------
Total Current Assets 2,593
Property and equipment, net 529
Intangible assets, net 3,492
Other assets --
Total Assets $6,614
======
</TABLE>
(1)Intelligroup will contribute 100% of outstanding
Common Stock of Network Publishing.
<TABLE>
<CAPTION>
ASSETS VALUE RECIPIENT CONTRIBUTING
ENTITY
AZIMUTH AZIMUTH (2)
<S> <C> <C> <C>
Current Assets:
Cash $ 219
Accounts receivable, net of
allowance for doubtful
accounts of $0 2,003
Unbilled services 808
Other current assets 117
------
Total Current Assets 3,147
------
Property and equipment, net 253
Intangible assets, net
Other assets 9
Total Assets $3,409
======
</TABLE>
(2)Intelligroup, Inc will contribute 100%
of outstanding Common Stock of Azimuth.
<PAGE> 49
<TABLE>
<CAPTION>
ASSETS VALUE RECIPIENT CONTRIBUTING
ENTITY
INDIA INTELLIGROUP
<S> <C> <C> <C>
Current Assets:
Cash $ 12
Accounts
receivable, net of
allowance for
doubtful accounts of $0
Unbilled services
Other current assets 379
------
Total Current Assets 391
Property and equipment, net
intangible assets, net other assets 1,009
------
Total Assets $1,400
======
</TABLE>
<TABLE>
<CAPTION>
ASSETS VALUE RECIPIENT CONTRIBUTING
ENTITY
UK INTELLIGROUP
<S> <C> <C> <C>
Current Assets:
Cash
Accounts
receivable, net of allowance for
doubtful accounts of $0
Unbilled services
Other current assets 39
------
Total Current Assets 39
Property and equipment, net intangible
assets, net other assets
------
Total Assets $ 39
======
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
COMPUTERS
DATE DESCRIPTION PRICE
<S> <C> <C>
4/8/98 Scanner for Sastry & Zip Drive for Rajan Nair 287.45
4/30/98 Laptop for Bharat Raju
3,133.00
8/5/98 Desktops for ISS Projects 10,432.20
8/28/98 Desktops for Phoenix 22,174.44
8/28/98 Server for Phoenix 16,443.32
9/2/98 Laptop Accessories for Phoenix 2,244.29
9/2/98 Laptops, Memory, SW, Server, Licenses, Catalyst, Media Pack for 6,751.15
Phoenix
9/14/98 Laptops for Phoenix 15,982.72
9/17/98 Desktops for Phoenix 22,865.37
10/19/98 Desktops for Phoenix 31,649.23
10/29/98 PostOffice Upgrade and Maintenance for Phoenix 2,295.00
11/11/98 Desktops for Phoenix 40,716.09
1/15/99 Desktops for Phoenix 22,207.81
1/19/99 Printer for Phoenix 1,573.70
1/25/99 Laptop Accessories for Sastry 557.84
3/10/99 Adtran CSU/DSU for Phoenix 671.00
3/11/99 Swiftsite Hardware Equipment for Phoenix
9,876.20
3/31/99 Server for Dharma 18,991.87
4/15/99 Laptops for Phoenix 9,052.53
4/26/99 Desktop for Phoenix 6,409.90
5/18/99 Laptops for Phoenix 29,441.87
5/24/99 Laptop for Scott Crompton 4,064.95
6/2/99 Laptop for Roger Comora 3,162.54
6/9/99 Token Ring Cards for Phoenix 964.24
6/10/99 Laptop for Arvind Ramachandran 3,841.21
6/11/99 Memory for Phoenix 1,227.56
6/15/99 PC Cards for Phoenix 616.06
6/21/99 Laptops for Phoenix 19,806.00
7/8/99 Desktops for Phoenix 20,260.90
7/8/99 Hub, Printer, Mice, Cartridges for Phoenix 1,626.15
7/12/99 Desktops for Phoenix 20,260.90
7/13/99 Hub for Phoenix 914.06
7/29/99 Desktop for Security System in Phoenix 563.99
7/29/99 Hard Drives for Phoenix 965.20
7/30/99 Turbo and Lan Cards for Phoenix 868.73
7/31/99 Laptop Purchase for ATD 3,572.00
8/4/99 Ethernet Cards for Phoenix 186.99
8/10/99 Laptop for Scott Crompton 3,762.22
8/13/99 Desktops for Phoenix 9,599.00
8/13/99 3Com Hub for Phoenix 955.39
8/16/99 CD Recorder for Arvind Ramamchandran 426.00
8/21/99 Memory for Laptops for ISS Consultants (3) 421.58
8/31/99 Laptop Purchase for ATD 2,156.00
8/31/99 Ethernet Card for ATD 616.20
9/8/99 Desktops for Phoenix Office 8,557.22
9/13/99 Desktops for Phoenix Office 17,114.42
9/16/99 Printer for Phoenix Office 1,468.41
9/22/99 Laptops for Phoenix Office 21,960.15
9/23/99 Laptop for Chakib Jaber 4,076.75
9/24/99 Memory for Phoenix Office 1,800.99
9/24/99 Token Ring Cards for Phoenix Office 230.00
9/24/99 Docking Station for Chakib Jaber 144.41
9/28/99 Server for ISS 5,039.01
9/29/99 Hub/PCI Cards for Phoenix Office 2,809.20
9/30/99 Port Switches/Mouse/Transceiver for Phoenix 3,503.30
TOTAL COMPUTERS 441,298.71
</TABLE>
FURNITURE INVENTORY
<TABLE>
<CAPTION>
QUANTITY PURCHASE
COUNT TOTAL
<S> <C> <C>
Executive Desks* 6 35,880
Manager Desks* 19 79,610
Workstation/Desks** 49 131,320
Conference 3 21,750
Tables***
Sofa 1 894
Armchair 1 894
Total Edison 270,347
</TABLE>
<TABLE>
<CAPTION>
QUANTITY PURCHASE
COUNT TOTAL
<S> <C> <C>
Managers Office 4 15,860
Support Workstations 59 146,910
Conference/Training Area 1 3,200
Conference Rooms 3 4,800
Additional Furniture 1 16,480
Total Phoenix 187,250
TOTAL FURNITURE & FIXTURES 457,597
</TABLE>
<PAGE> 51
TRANSFERRED INTELLECTUAL PROPERTY
1. All processes and methodologies related to SeraNova's Time-to-Market
approach.
2. All documents relating to SPEC Solution Frameworks, including I-Discover,
I-Supplier, I-Partner, I-Employee and I-Customer.
3. All documents outlining application development standards: (a) Java Coding
Standard; (b) Visual Basic Standard; (c) GUI Standard; and (d)
PowerBuilder Standard.
<PAGE> 52
EXHIBIT C
SERANOVA COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
FOR THE PERIOD
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
1999 1998 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 611 $ 677 $ 368 $ 635
Accounts receivable, net of
allowance for doubtful
accounts of $353, $200,
$207, $127, $0, respectively 7,456 3,096 2,169 1,230
Unbilled services 3,680 900 252 4
Other current assets 769 286 112 41
-------- ------- ------- -------
Total Current Assets 12,516 4,959 2,901 1,910
Property and equipment, net 2,863 816 315 492
Intangible assets, net 3,492 -- -- --
Other assets 9 -- -- --
-------- ------- ------- -------
Total Assets $ 18,880 $ 5,775 $ 3,216 $ 2,402
======== ======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term
debt $ 120 $ -- $ -- $ --
Notes payable to Parent 8,397 1,541 816 --
Accounts payable 872 526 276 137
Accrued payroll and
related Costs 1,551 1,039 965 997
Accrued expenses and other
liabilities 2,352 2,352 2,277 699 211
-------- ------- ------- -------
Total Current Liabilities 13,292 5,383 2,756 1,345
Long-Term Debt, net of
current portion 618 -- 219 521
-------- ------- ------- -------
Total Liabilities 13,910 5,383 2,975 1,866
Shareholders' Equity:
Preferred stock $.01 par value,
5,000,000 shares authorized,
none issued or outstanding -- -- -- --
Common stock, $.01 par value,
40,000,000 shares authorized,
1,000 shares issued and
outstanding as of
December 31, 1999 -- -- -- --
Parent company investment 7,250 1,353 727 701
Currency Translation
Adjustment (34) 24 (53) 15
Accumulated deficit (2,246) (985) (433) (180)
-------- ------- ------- -------
Total Shareholders' Equity 4,970 392 241 536
-------- ------- ------- -------
Total Liabilities and
Shareholder's Equity $ 18,880 $ 5,775 $ 3,216 $ 2,402
======== ======= ======= =======
</TABLE>
<PAGE> 53
EXHIBIT D
SERANOVA CONTRACTS
<PAGE> 54
SERANOVA CONTRACTS
<TABLE>
<CAPTION>
CUSTOMER NAME DATE
- ------------- ----
<S> <C>
Accident Compensation Corp 9/6/99
Agilent Inc. 12/6/99
Air New Zealand Limited 6/29/98
Altiris 2/5/99
American Express 3/22/98
Armstrong Inc. 9/15/99
Asian Terminals Inc 11/22/99
Aspect Telecommunications 5/23/99
Auckland City 10/12/99
Audi 1/1/99
Berli Jucker Public Company Ltd 12/19/99
Big Planet 3/9/99
Canterbury Meat Packers Ltd 10/12/99
Cedenco Australia Limited 8/25/99
Cerebos Gregg's Limited 8/25/99
College Enterprises, Inc. 9/15/99
Deloitte Touche Tomatsu 12/7/99
Department of Defence 8/5/99
Department of Labour 9/30/99
Department of Lands 11/18/99
Dominion Salt Limited 8/25/99
EMI Music Publishing 1/4/99
Fragomen, Del Rey & Bernsen 1/7/99
Genesis Power 4/6/99
Globe Telecoms 12/7/99
Heinz Wattie's Australasia 8/26/99
Hewlett Packard 2/4/99
IAccess.com 3/22/99
IBM, Cable&Wireless A/c 10/18/99
IHomeroom.com Corporation 9/17/99
Inland Revenue 8/30/99
Intermountain Health Care 9/14/99
J.R. Simplot Company 6/9/99
Liquidprice Inc. 8/13/99
LWR Industries Limited 9/11/99
McKesson Corporation 1/1/99
Medical Assurance Society 11/15/99
Merrill, Scott and Associate 2/3/99
Mighty River Power 9/20/99
Net Seed Development 5/11/99
New Zealand Dairy Board 10/12/99
New Zealand Police 11/8/99
North Shore City Council 9/8/99
Novell Electronic Marketing 6/28/99
Novell, Inc. 2/9/99
Ohgolly.com 9/16/99
Palmerston North CC 4/20/99
Penreco 3/8/99
Philippine National Oil 12/3/99
Philippines Long Distance 1/15/98
Phillip Morris Philippines 12/10/99
Powerco 10/21/99
PricewaterhouseCoopers 7/16/99
Rio Bravo Entertainment 2/5/99
Royal Canadian Government 9/28/99
Santa Cruz Operations 3/1/99
Sento Corporation 7/15/99
Simplot 4/1/99
Tacit Group 11/15/99
Telecom New Zealand Limited 10/4/99
Telecom New Zealand Ltd 10/11/99
Telephone Authority of Thailand 12/15/99
Television New Zealand 8/2/99
The Forums Group 1/29/99
The Slaymaker Group, Inc. 6/17/99
The University of Auckland 10/18/99
TransAlta New Zealand Ltd 4/15/98
US Cellular Corporation 10/6/99
Utah.com 1/6/99
Vignette Corporation 9/29/99
Vilas Development Corporation 10/20/99
Volkswagen of America 1/1/99
WebMethods, Inc. 9/16/99
Work and Income NZ 11/12/99
Zuellig Pharma 7/30/99
Zuellig Pharma Corporation 12/6/98
</TABLE>
<PAGE> 55
EXHIBIT E
SERANOVA LIABILITIES
The term "SERANOVA LIABILITIES" includes:
Liabilities assumed from Intelligroup, Inc. with respect to the conduct of
SeraNova Business in the United States (attached hereto):
<PAGE> 56
SERANOVA LIABILITIES
<TABLE>
<CAPTION>
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY
SeraNova Intelligroup
<S> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt $ --
Notes payable to Parent
6,880
Accounts payable --
------
Accrued payroll and related costs
836
Accrued expenses and other liabilities
682
------
Total Current Liabilities
8,398
Long-Term Debt, net of current portion --
------
Total Liabilities $8,398
======
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY
Network Publishing Network Publishing (1)
<S> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt $ 120
Notes payable to Parent
45
Accounts payable
53
Accrued payroll and related costs
206
Accrued expenses and other liabilities
591
------
Total Current Liabilities
1,015
Long-Term Debt, net of current portion
618
------
Total Liabilities $1,633
======
</TABLE>
(1) Intelligroup will contribute 100% of outstanding Common Stock of
Network Publishing.
<TABLE>
<CAPTION>
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY
Azimuth Azimuth (2)
<S> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt $ --
Notes payable to Parent
1,389
Accounts payable
573
Accrued payroll and related costs
505
Accrued expenses and other liabilities
1,079
------
Total Current Liabilities
3,546
Long-Term Debt, net of current portion --
Total Liabilities $3,546
======
</TABLE>
(2) Intelligroup, Inc will contribute 100% of outstanding Common Stock of
Azimuth.
<PAGE> 57
<TABLE>
<CAPTION>
LIABILITIES VALUE RECIPIENT CONTRIBUTING
ENTITY
INDIA INTELLIGROUP
<S> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt
Notes payable to Parent
Accounts payable 195
----
Accrued payroll and related costs
Accrued expenses and other
liabilities
Total Current Liabilities
195
Long-Term Debt, net of current
portion --
Total Liabilities $195
====
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY
UK INTELLIGROUP
<S> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt
Notes payable to Parent 83
Accounts payable 51
Accrued payroll and related costs 4
Accrued expenses and other
liabilities --
----
Total Current Liabilities
138
Long-Term Debt, net of current
portion --
----
Total Liabilities $138
====
</TABLE>
<PAGE> 58
EXHIBIT F
PERMITTED LIENS
- - Liens granted to PNC Bank N.A. pursuant to that certain Revolving
Credit Loan Agreement dated January 29, 1999 and the First Amendment to
Revolving Credit Loan Agreement dated January 26, 2000.
<PAGE> 59
EXHIBIT G
LICENSED INTELLECTUAL PROPERTY
1. All processes and tools related to 4 Sight Methodology.
2. All documents outlining the software selection process including,
Business Process Templates, Flow Process Diagrams and Organizational
Chart Templates.
<PAGE> 60
EXHIBIT H
INTERCOMPANY DEBT
<PAGE> 61
INTERCOMPANY DEBT
SeraNova has a loan payable to Intelligroup as of December 31, 1999, in
the amount of $8,397,000. Additional amounts may become payable to Intelligroup
stemming from income taxes and/or cash flow requirements for the periods
subsequent to December 31, 1999 and prior to proposed spin-off. A note bearing
an interest rate equal to the current prime rate will be negotiated prior to the
proposed spin-off.
<PAGE> 1
Exhibit 10.2
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made and entered into as of
the 1st day of January, 2000, by and between INTELLIGROUP, INC., a New Jersey
corporation ("ITIG") and SERANOVA, INC., a New Jersey corporation ("SERANOVA").
The parties agree to be legally bound as follows:
1. SERVICES. ITIG will provide SERANOVA with various types of services
("Services") listed in Exhibit A, which is attached hereto and incorporated by
reference. Such Exhibit A may be amended from time to time by written agreement
between the parties. The Retained Employees (as defined in Section 5(a)(ii))
shall exclusively provide Services to SERANOVA and/or SERANOVA's clients as
directed by SERANOVA and pursuant to Exhibit A.
2. TERMS OF AGREEMENT. This Agreement shall become effective on January 1, 2000
(the "Effective Date"), and shall remain in full force and effect for a period
of one (1) year thereafter, unless earlier terminated pursuant to the provisions
of this Agreement. This Agreement shall automatically renew for additional
consecutive renewal terms of one (1) year unless either ITIG or SERANOVA gives
written notice of its intent not to renew the terms of this Agreement sixty (60)
days prior to the expiration of the then expiring term. The initial one year
term and any renewal period(s) thereafter shall collectively be referred to as
the "Term."
3. TERMINATION OF AGREEMENT.
(a) This Agreement or any portion thereof may be terminated by
either party, for any reason, with thirty (30) days prior
written notice to the other party.
(b) This Agreement or any portion thereof may be terminated by
either party (the "non-defaulting party") if any of the
following events occur by or with respect to the other party
(the "defaulting party"): (i) the defaulting party commits a
material breach of any of its obligations hereunder and fails
to cure such breach within thirty (30) days of receipt of
written notice from non-defaulting party; or (ii) any
insolvency of the defaulting party, any filing of a petition
in bankruptcy by or against the defaulting party, any
appointment of a receiver for the defaulting party, or any
assignment for the benefit of the defaulting party's
creditors; provided, however, that in the case of any
involuntary bankruptcy proceeding such right to terminate
shall only become effective if the proceeding is not dismissed
within sixty (60) days after the filing thereof.
Termination under this Section 3 or otherwise shall have no effect on the
respective obligations to make any payment required to be made pursuant to the
terms of this Agreement or any other obligation hereunder that survives the
termination of this Agreement. Neither party shall have any liability to the
other party for terminating the Agreement pursuant to this Section 3.
4. TRANSITION ASSISTANCE. Other than for termination by SERANOVA pursuant to
Section 3(a) or by ITIG under Section 3(b)(ii), ITIG agrees to provide SERANOVA
with transition
<PAGE> 2
assistance for up to 180 days (or such shorter period as SERANOVA may elect)
after the expiration of the Term, or upon the termination of this Agreement by
either ITIG or SERANOVA. Transition assistance shall include the following: (i)
ITIG shall reasonably cooperate with SERANOVA or any relevant third party for
transferring of the Services to SERANOVA or any such third party that SERANOVA
selects; (ii) ITIG shall perform any new types of services, at a fee agreed upon
in writing by the parties, that are reasonably required to assist in
transferring of the Services to SERANOVA or any such third party that SERANOVA
selects; (iii) ITIG shall provide to SERANOVA, upon SERANOVA's reasonable
request, any records or other information relating to said Services; and (iv)
comply with SERANOVA's reasonable requests for assistance in engaging or
training another person or persons to provide the Services rendered by ITIG. So
long as ITIG is providing SERANOVA with transition assistance, SERANOVA shall be
obligated to provide compensation to ITIG pursuant to Exhibit A.
5. INVOICING AND PAYMENTS.
(a) (i) SERANOVA shall remit payment of the monthly fee set forth
on Exhibit A to ITIG on or before the first day of each month
for the preceding month's Services. The first such payment
shall commence on the first day of the first month following
the Effective Date. Payment for any Services provided for a
partial month period preceding or following the initial
payment shall be prorated accordingly based on the number of
days in a given month. Notwithstanding any other provision of
this Section 5, ITIG shall make all payments to third parties
as necessary to ensure continued Services of the types
contemplated in this Agreement.
(ii) ITIG shall pay wages, provide benefits and make employer
contributions on behalf of the ITIG employees listed on
Exhibit B, which is attached hereto and incorporated by
reference ("Retained Employees") until each Retained Employee
resigns his/her employment with ITIG or is transferred and
becomes an employee of SERANOVA (the "Transfer Date") and
SERANOVA shall reimburse ITIG for all such wages, benefits and
employer contributions paid by ITIG from the Effective Date
until the Transfer Date. ITIG's obligations to continue to pay
wages, provide benefits and make employer's contributions
shall terminate on each individual Retained Employee's
Transfer Date or upon termination or resignation of employment
of such Retained Employee. In light of SERANOVA's total
control over the terms and conditions of such Retained
Employees, SERANOVA retains the right to request the
termination of any Retained Employee when necessary and
appropriate. All amounts payable to any Retained Employee
terminates under this Section 5(a)(ii) by virtue of such
termination, including but not limited to severance pay,
accrued wages, accrued vacation or leave pay, shall be
reimbursed to ITIG by SERANOVA. Such Exhibit B may be amended
from time to time.
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<PAGE> 3
(b) SERANOVA agrees to pay amounts equal to any Federal, state or
local sales, use, excise, privilege or other taxes or
assessments, however designated or levied, relating to any
amounts payable by SERANOVA to ITIG hereunder, this Agreement
or any Services provided by ITIG to SERANOVA pursuant hereto
and any taxes or amounts in lieu thereof paid or payable by
ITIG, exclusive of taxes based on ITIG's net income for the
Services or for any employees, agents or subcontractor of
ITIG. ITIG will invoice SERANOVA for any taxes payable by
SERANOVA that are required to be collected by ITIG pursuant to
any applicable law, rule, regulation or other requirement of
law.
6. OBLIGATIONS.
(a) Certain Information. SERANOVA shall provide to ITIG any
information needed by ITIG to perform the Services. If the
failure to provide such information renders the performance of
any requested Services impossible or unreasonably difficult,
ITIG may upon reasonable prior written notice to SERANOVA and
without incurring any liability refuse to provide such
Services until such time as SERANOVA has provided ITIG with
the requisite information.
(b) Further Assurances. During the term of this Agreement, ITIG
and SERANOVA shall use commercially reasonable efforts to: (i)
preserve their respective and mutual reputations and market
positions in strategic markets; (ii) promote their mutual
businesses and cause the retention and expansion of their
customers; (iii) refrain from taking any action which may
jeopardize any such customer relationship without the prior
written consent of the other party; and (iv) execute and
deliver any further legal instruments which may become
necessary to effect the purposes of this Agreement.
(c) Scope of Services. If ITIG and SERANOVA agree that it is
functionally impossible to continue to provide a Service under
this Agreement, or otherwise agree to eliminate or reduce one
or more Services provided hereunder, then ITIG shall
discontinue said Service at the time and in the manner agreed
to by the parties. In the event ITIG discontinues a Service
provided hereunder, SERANOVA's Service fee shall be prorated
based on a reasonable allocation of the costs as mutually
agreed by the parties. In the event that SERANOVA requires a
reasonable increase of the Services, ITIG shall increase the
amount of Services accordingly. The parties agree to negotiate
in good faith relating to ITIG's rendering of increased
services to SERANOVA and if the parties cannot agree on a
price, ITIG has no obligation to perform such increased
services.
7. OWNERSHIP. All deliverables generated pursuant to the Services as set forth
in Exhibit A ("Work Product") shall be deemed works made for hire under the
applicable copyright laws, and that all Work Product shall be the sole and
exclusive property of SERANOVA. To the extent that any Work Product is not
considered a work for hire under the applicable copyright laws, ITIG hereby
assigns all of its rights, title or interest in the Work Product and in all
related
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<PAGE> 4
patents, copyrights, trademarks, trade secrets, rights of priority and other
proprietary rights to SERANOVA. ITIG shall make full disclosure to SERANOVA of
all such Work Product, and reasonably assist and cooperate with SERANOVA, at
SERANOVA's expense, in all respects and will execute documents, give testimony,
and take all further acts requested by SERANOVA to obtain, maintain, perfect and
enforce for SERANOVA patent, copyright, trademark, trade secret or other legal
protection for the Work Product, as well as all reissues, renewals and
extensions thereof.
8. SUBCONTRACTING SERVICES. ITIG may, with the consent or approval of SERANOVA,
subcontract certain Services, in whole or in part, provided to SERANOVA pursuant
to this Agreement. To the extent that ITIG subcontracts certain or all Services,
ITIG shall remain solely responsible to SERANOVA for the execution and quality
of said Services.
9. RECORD KEEPING.
(a) Processing. Upon ten (10) days prior written notice from
SERANOVA, ITIG shall provide SERANOVA and/or its
representatives or any regulatory agency having jurisdiction
reasonable access during normal business hours to ITIG's
facilities for the purpose of performing audits or inspections
of the business of ITIG relating to the Services. ITIG shall
provide any reasonable assistance as may be required by
SERANOVA and/or its representatives or any regulatory agency
having jurisdiction. ITIG shall not be required to provide
SERANOVA and/or its representatives or any regulatory agency
having jurisdiction access to ITIG's data of ITIG's customer's
data other than SERANOVA. If any audit by an auditor
designated by SERANOVA or any regulatory agency having
jurisdiction finds ITIG not in compliance with any audit
requirement relating to the Services, ITIG shall meet with
SERANOVA and the parties will agree on what actions ITIG must
take to be in compliance with the audit requirements. SERANOVA
shall be responsible for the cost of such audit.
(b) Charges. Upon ten (10) days prior written notice from
SERANOVA, ITIG shall provide SERANOVA and/or its
representatives reasonable access during normal business hours
to ITIG's facilities for the purpose of performing audits or
inspections to verify the accuracy of the amounts charged by
ITIG to SERANOVA for the Services. If, as a result of such
audit, it is determined that ITIG has overcharged SERANOVA,
SERANOVA shall notify ITIG of the amount of such overcharge
and ITIG shall promptly pay to SERANOVA the amount of the
overcharge, plus interest of one percent (1%) per month, but
in no event to exceed the highest lawful rate of interest,
calculated from the date of receipt by ITIG of the overcharged
amount until the date of payment to SERANOVA. In addition, in
the event any such audit reveals an overcharge to SERANOVA by
ITIG of five percent (5%) or more, ITIG shall reimburse
SERANOVA for cost of such audit.
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<PAGE> 5
10. WARRANTY.
(a) ITIG represents and warrants that during the performance of
and for a period of sixty (60) days after performance, the
Services will be provided in a professional and workmanlike
manner in accordance with industry standards and the Services
will materially conform to Exhibit A. In the event the Service
fails to conform to the foregoing warranties in any material
respect, the sole and exclusive remedy of SERANOVA, and ITIG's
liability, as a result thereof will be for ITIG, at its
expense, to use its commercially reasonable efforts to cure or
correct such failure as soon as reasonably practical or refund
any monies paid by SERANOVA to ITIG for the nonconforming
portion of the Services.
(b) ITIG represents and warrants that to its knowledge, the
rendering of Services will not infringe on any US patents,
copyrights or trademarks.
(c) Each party represents and warrants that it shall comply with
all applicable federal, state and local laws and regulations
applicable to the Services and shall obtain all applicable
permits, registrations and licenses required of it in
connection with its obligations under this Agreement.
(d) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ITIG DOES NOT
MAKE ANY REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER SUCH
WARRANTY BE EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY
WARRANTY FROM COURSE OF DEALING OR USAGE OF TRADE.
11. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, EXEMPLARY, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, LOST REVENUES, PROFITS, SAVINGS OR BUSINESS), WHETHER IN AN ACTION
BASED ON CONTRACT, WARRANTY, STRICT LIABILITY, TORT (INCLUDING, WITHOUT
LIMITATION, NEGLIGENCE) OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN INFORMED IN
ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES OR SUCH DAMAGES COULD HAVE BEEN
REASONABLY FORESEEN BY SUCH PARTY. In no event shall either party's aggregate
liability to the other party exceed the total fees paid by SERANOVA to ITIG for
the twelve (12) month period immediately preceding the event that gave rise to
the liability, whether such liability is based on an action in contract,
warranty, strict liability or tort (including, without limitation, negligence)
or otherwise. Each party's entire liability under this Agreement shall be as set
out in this Section 11. The parties have agreed that the limitations specified
in this Section 11 will survive and apply even if any limited remedy specified
in this Agreement is found to have failed of its essential purpose.
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<PAGE> 6
12. INDEMNIFICATION.
(a) Indemnity by SERANOVA. SERANOVA shall indemnify ITIG from and
defend ITIG against, any liability or expenses (including
reasonable attorneys' fees) arising out of or relating to any
claim, loss, damage, cost, liability, or expense ("Claim"):
1. Relating to the employment or termination thereof of
any Retained Employee;
2. Relating to (a) a violation of Federal, state, or other
laws (including common law) or regulations, including
but not limited to a violation of Federal, state, or
other laws (including common law) or regulations for the
protection of persons or members of a protected class or
category of persons by SERANOVA, its employees, or
agents, (b) sexual discrimination or harassment by
SERANOVA, its employees, or agents, and (c) work-related
injury except as maybe covered by SERANOVA's worker's
compensation or death caused by SERANOVA, its employees,
or agents;
3. Relating to amounts, including taxes, interest, and
penalties, assessed against ITIG which are the
obligations of SERANOVA pursuant to Section 5(b); and
4. the extent directly related to personal injury or
tangible personal property, damage resulting from any
Retained Employee's (prior to such Retained Employee's
Transfer Date but after SERANOVA becomes a publicly held
entity) and SERANOVA's negligent acts or omissions.
(b) Indemnity by ITIG. ITIG shall indemnify SERANOVA from and
defend SERANOVA against, any liability or expenses (including
reasonable attorneys' fees) arising out of or relating to any
Claim:
1. Relating to (a) a violation of Federal, state, or other
laws (including common law) or regulations, including
but not limited to a violation of Federal, state, or
other laws or regulations for the protection of persons
or members of a protected class or category of persons
by ITIG, its employees, or agents, (b) sexual
discrimination or harassment by ITIG, its employees, or
agents, and (c ) work-related injury except as may be
covered by ITIG's worker's compensation or death caused
by ITIG, its employees, or agents;
2. Relating to amounts, including taxes, interest, and
penalties, assessed against SERANOVA which are the
obligations of ITIG pursuant to Section 5(b);
3. Relating to ITIG's non-compliance with legal or
regulatory requirements applicable to ITIG; and
4. To the extent directly related to personal injury or
tangible personal property damage resulting from ITIG's
negligent acts or omissions excluding the acts or
omissions of any Retained Employees (prior to such
Retained Employee's Transfer Date but after SERANOVA
becomes a publicly held entity).
(c) The party seeking indemnification under any provision of this
Agreement shall promptly notify the party against whom the
indemnification is sought in writing of any claim for
indemnification, specifying in detail the basis of such claim,
the
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<PAGE> 7
facts pertaining thereto and, if known, the amount, or an
estimate of the amount, of the liability arising therefrom;
provided however, that failure to give such notice shall not
affect the indemnification provided hereunder except to the
extent that the indemnifying party can demonstrate actual
monetary prejudice as a direct result of such failure. The
indemnified party shall provide to the indemnifying party as
promptly as practicable thereafter all information and
documentation necessary to support and verify the claim
asserted and the indemnifying party shall be given reasonable
access to all books and records in the possession or control
of the indemnified party or any of its affiliates which the
indemnifying party reasonably determines to be related to such
claim.
(d) The indemnifying party shall have sole control over the
defense and/or settlement of any claim and the indemnified
party will, at the indemnifying party's sole expense, provide
reasonable assistance to the indemnifying party. If the
indemnified party takes any overt action that unreasonably
compromises the indemnifying party's defense or settlement of
any claim, the indemnifying party shall be relieved of its
indemnification obligations for such particular claim.
13. PARTIES' RELATIONSHIP.
(a) Independent. The parties are independent entities with each
having sole authority and control of the manner of, and is
responsible for, its performance of this Agreement. This
Agreement does not create or evidence a partnership or joint
venture between the parties. Neither party has the right or
authority to enter into any contract, warranty, guaranty or
other undertaking in the name or for the account of the other
party, or to assume or create any obligation or liability of
any kind, express or implied, on behalf of the other party, or
to bind the other party in any manner whatsoever, or to hold
itself out as having any right, power or authority to create
any such obligation or liability on behalf of the other or to
bind the other party in any manner whatsoever (except as
otherwise provided by this Agreement or as to any other
actions taken by either party at the express written request
and direction of the other party).
(b) Employees. Except as otherwise described herein, for the
purposes of this Agreement each party is solely responsible
for its own employees or agents, including the actions or
omissions and the payment of compensation, taxes and benefits
of those employees and agents.
(c) Access. To the extent reasonably required for SERANOVA's
personnel to perform their job functions, ITIG shall provide
SERANOVA's personnel with reasonable access to its equipment,
office facilities and any other areas and equipment for which
SERANOVA has provided compensation to ITIG under the terms of
this Agreement. In addition, the employees of SERANOVA shall
have reasonable access to those employees of ITIG who perform
any of the Services.
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<PAGE> 8
(d) Non Solicitation. During the Term hereof and for a period of
twelve (12) months thereafter, neither party shall, directly
or indirectly, solicit for employment or employ, or accept
services provided by, any employee, officer or independent
contractor of the other party who performed any work in
connection with or related to the Services without the prior
written consent of the other party and such consent shall not
be unreasonably withheld.
14. DISPUTE RESOLUTION PROCEDURE. Except as otherwise stated in this Agreement,
the parties shall resolve all disputes in accordance with the following
procedure:
(a) Each party shall promptly negotiate in good faith to resolve
all disputes, controversies or claims arising out of or
relating to this Agreement or the performance hereunder (a
"Dispute"). In the event that the parties cannot resolve the
Dispute in such manner, they shall immediately refer the
Dispute to each party's CFO or such other senior executives as
may be mutually agreed upon by the parties from time to time.
If such executives do not agree upon a decision within a
reasonable amount of time after referral of the Dispute to
them (but in no event more than thirty (30) days from the date
the party that determines there is a Dispute becomes aware of
such dispute) they shall submit the Dispute to the following
binding arbitration procedures:
1. Any Dispute shall be submitted to binding arbitration,
in accordance with the dispute resolution procedures specified
in this Section 14. If any of these procedures are determined
to be invalid or unenforceable, the remaining procedures shall
remain in effect and binding on the parties to the fullest
extent permitted by law.
2. The arbitration shall be conducted in accordance with
the procedures specified in this Section 14 and the
Arbitration Rules for Professional Accounting and Related
Services Disputes of the AAA ("AAA Rules"). In the event of a
conflict, the provisions of this Section 14 shall control. The
arbitration shall be conducted before a panel of three
arbitrators, regardless of the size of the Dispute, to be
selected as provided in the AAA Rules.
3. Any issue concerning the extent to which any Dispute is
subject to arbitration, or concerning the applicability,
interpretation, or enforceability of these procedures,
including any contention that all or part of these procedures
are invalid or unenforceable, shall be governed by the Federal
Arbitration Act and resolved by the arbitrators. No potential
arbitrator may serve on the panel unless first agreeing in
writing to abide and be bound by these procedures. The
arbitrators may not award non-monetary or equitable relief of
any sort. They shall have no power to award damages
inconsistent with the Agreement or punitive damages or any
other damages not measured by the prevailing party's actual
damages, and the parties expressly waive their right to obtain
such damages in arbitration or in any other forum. In no
event, even if any other portion of these procedures is
adjudged invalid or unenforceable, shall the arbitrators have
power
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<PAGE> 9
to make an award or impose a remedy that could not be made or
imposed by a court deciding the matter in the same
jurisdiction.
4. No discovery shall be permitted in connection with the
arbitration unless expressly authorized by the arbitration
panel upon a showing of substantial need by the party seeking
discovery. All aspects of the arbitration shall be treated as
confidential. Neither the parties nor the arbitrators may
disclose the existence, content or results of the arbitration,
except as necessary to comply with legal or regulatory
requirements. Before making any such disclosure, a party shall
give written notice to all other parties and afford such
parties a reasonable opportunity to protect their interest.
The result of the arbitration shall be a final decision that
is binding on the parties, and judgment on the arbitrators'
award may be entered in any court having jurisdiction.
15. CONFIDENTIALITY.
(a) SERANOVA and ITIG shall each (i) hold the Confidential
Information (as defined below) of the other in trust and
confidence and avoid the disclosure or release thereof to any
other person or entity by using the same degree of care as it
uses to avoid unauthorized use, disclosure, or dissemination
of its own Confidential Information of a similar nature, but
not less than reasonable care, and (ii) not use the
Confidential Information of the other party for any purpose
whatsoever except as expressly contemplated under this
Agreement. Each party shall disclose the Confidential
Information of the other only to those of its employees having
a need to know such Confidential Information and shall take
all reasonable precautions to ensure that its employees comply
with the provisions of this Section 15.
(b) The term "Confidential Information" shall mean any and all
information or proprietary materials (in every form and media)
not generally known in the relevant trade or industry and
which has been or is hereafter disclosed or made available by
either party (the "disclosing party") to the other (the
"receiving party") in connection with the efforts contemplated
hereunder, including (i) all trade secrets, (ii) existing or
contemplated products, services, designs, technology,
processes, technical data, engineering, techniques,
methodologies and concepts and any information related
thereto, and (iii) information relating to business plans,
sales or marketing methods and customer lists or requirements.
(c) The obligations of either party under this Section 15 will not
apply to information that the receiving party can demonstrate
(i) was in its possession at the time of disclosure and
without restriction as to confidentiality, (ii) at the time of
disclosure is generally available to the public or after
disclosure becomes generally available to the public through
no breach of agreement or other wrongful act by the receiving
party, (iii) has been received from a third party without
restriction on disclosure and without breach of agreement or
other
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<PAGE> 10
wrongful act by the receiving party, (iv) is independently
developed by the receiving party without regard to the
Confidential Information of the other party, or (v) is
required to be disclosed by law or order of a court of
competent jurisdiction or regulatory authority, provided that
the receiving party shall furnish prompt written notice of
such required disclosure and reasonably cooperate with the
disclosing party, at the disclosing party's cost and expense,
in any effort made by the disclosing party to seek a
protective order or other appropriate protection of its
Confidential Information.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto
without the prior written consent of the other party except ITIG may, upon prior
written notice to SERANOVA (but without any obligation to obtain the consent of
SERANOVA), assign this Agreement or any of its rights hereunder to any affiliate
of ITIG, or to any entity who succeeds (by purchase, merger, operation of law or
otherwise) to all or substantially all of the capital stock, assets or business
of ITIG, if such entity agrees in writing to assume and be bound by all of the
obligations of ITIG under this Agreement.
17. NO THIRD-PARTY BENEFICIARIES. Nothing expressed or implied in this Agreement
shall be construed to give any person or entity other than the parties any legal
or equitable rights under this Agreement.
18. WAIVERS. No term or provision hereof shall be deemed waived and no breach
excused unless such waiver or consent shall be in writing and signed by an
authorized representative of the party claiming to have waived or consented. No
consent by either party to, or waiver of, a breach by the other, whether express
or implied, shall constitute a consent to, waiver of, or excuse for any
different or subsequent breach.
19. NOTICES. All notices given in connection with this Agreement shall be in
writing and transmitted by (i) hand delivery; (ii) courier delivery; (iii) U.S.
certified mail, return receipt requested, postage prepaid; or (iv) telecopier to
the addressed listed below. Delivery of said notices shall be deemed given upon
the date of (a) receipt of courier delivery; (b) certified mail return receipt
is signed or delivery is rejected; or (c) receipt of written confirmation of
telecopier transmittal.
If to ITIG: Intelligroup, Inc.
499 Thornall Street
Edison, New Jersey 08837
Attn: President
Fax No.: (732) 362-2100
If to SERANOVA: SeraNova, Inc.
499 Thornall Street
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Edison, New Jersey 08837
Attn: President
Fax No.: (732) 362-2100
20. FORCE MAJEURE. No delay or failure of a party to perform any of its
obligations, other than payment obligations, under this Agreement due to causes
beyond its reasonable control shall constitute a breach of this Agreement or
render that party liable for that delay or failure. Causes beyond a party's
reasonable control include, but are not limited to: (i) events or circumstances
that the party, even though using all, reasonable efforts, is unable to prevent
or overcome; or (ii) labor disputes, strikes, or other similar disturbances,
acts of God, utilities or communications failures, acts of the public enemy,
riots, insurrections, sabotage or vandalism.
21. SEVERABILITY. The invalidity, illegality or unenforceability of any
provision in this Agreement shall not in any way affect the validity, legality
or enforceability of any other provision of this Agreement. This Agreement shall
be reformed and construed in all respects as if such invalid or unenforceable
provision had never been in the Agreement and such provision shall be reformed
so that it will be valid, legal and enforceable to the extent possible.
22. GOVERNING LAW, VENUE AND JURISDICTION. This Agreement shall be construed in
accordance with and governed by the laws of the State of New Jersey, without
regard to its conflict of laws principles. Subject to Section 14, the parties
consent to jurisdiction and venue in the state courts of Middlesex County, New
Jersey, or if there is exclusive federal jurisdiction, the U.S. District Court
for the District of New Jersey, shall have exclusive jurisdiction and venue over
any dispute arising out of this Agreement.
23. HEADINGS. Headings in this Agreement are included for convenience of
reference only and do not constitute a part of this Agreement for any other
purpose.
24. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties with respect to the subject matter contained herein and
supersedes all prior communications, representations and agreements. It shall
not be varied except by a modification in writing which is duly executed by
authorized representatives of the parties subsequent to the date first appearing
herein
25. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original and of equal force and effect.
26. INSURANCE. ITIG and SERANOVA (after SERANOVA becomes a publicly held
entity) agree to maintain insurance in accordance with the following:
- Workers Compensation & Employer's Liability: As required under the
law of the state in which the work is performed with each party's
liability limit not less than $500,000 per occurrence/annual
aggregate.
- Commercial General Liability: Covering all operations
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of each party including product and completed operations and
contractual liability against claims for personal bodily injury and
property damage with a liability limit not less than $1,000,000 per
occurrence/annual aggregate.
- Errors & Omission Insurance: Covering loss or damage arising out of
negligent acts or errors or omissions which arise from professional
Services provided by ITIG under this Agreement and any services
provided by SERANOVA (using the Retained Employees after SERANOVA
becomes a publicly held entity but prior to such employee's Transfer
Date) with limits no less than $1,000,000 per occurrence.
Such insurance coverage as is required under this Agreement shall be in
form and with insurance carriers licensed to do business in the state
where the services are provided, unless otherwise provided herein. As
evidence of said coverage, ITIG shall forward Certificates of
Insurance, or copies of insurance policies, to SERANOVA, which shall
contain a provision to endeavor to notify SERANOVA in writing of a
cancellation or nonrenewal of said coverages not less than thirty (30)
days before its effective date. The foregoing statements as to the
types and limits of insurance coverage to be maintained by ITIG, is not
intended to and shall not in any manner limit or qualify the
liabilities and obligations otherwise assumed by ITIG pursuant to this
Agreement, including but not limited to the provisions concerning
indemnification.
27. PUBLICITY. Neither party shall use the name of the other party in any
materials, statements or press releases without the prior written consent of the
other party.
IN WITNESS WHEREOF, this Agreement has been executed effective as of
the date first above written.
WITNESSES INTELLIGROUP, INC.
_____________________________
_____________________________ BY: /s/ Ashok Pandey
_____________________________
Ashok Pandey
Co-Chief Executive Officer
SERANOVA, INC.
_____________________________
_____________________________ By: Raj Koneru
_____________________________
Raj Koneru, CEO
-12-
<PAGE> 13
EXHIBIT A
DESCRIPTION OF SUPPORT SERVICES AND APPLICABLE FEES
INFORMATION SYSTEMS & SUPPORT
Monthly Access and Support Fee for SAP system:
- - Fixed charge of $4,000 per month;
- - Includes application support and consultation;
- - Does not include enhancement or modification of the underlying software or
configuration, except as needed to correct for system malfunction or
programming "bugs".
PC Applications and Hardware Support Services/Procurement:
- - Fixed monthly charge of $10,000 for January; $8,000 per month thereafter;
- - Support for desktop systems and network management applications for
Edison, N.J. location o Ordering, receiving and configuring of new PC's
and Laptops as needed (exclusive of actual cost of hardware and software
components).
- - Continued access and support for Lotus Notes e-mail system currently
installed;
- - Additional charges may be invoiced for the actual cost incurred to extend
or add user licenses should these be required (based upon increases in
registered users over baseline number, determined as of December 31,
1999).
The parties acknowledge that Intelligroup has entered into contractual
relationships with various software vendors for use of the software.
Intelligroup will permit SeraNova a right to use the software or provide
services to SeraNova to the extent Intelligroup is permitted under its
applicable agreements with the software vendors. SeraNova will take all
reasonable actions requested by Intelligroup, so that SeraNova may use the
software or receive services from Intelligroup. Upon SeraNova becoming a
publicly held entity, SeraNova, at its sole cost and expense, may have to enter
into separate agreements with such software vendors and may no longer have the
right to use the software or receive services from Intelligroup.
GENERAL ADMINISTRATIVE SUPPORT
Mail Delivery & Facilities Management
- - Fixed charge of $3,000 per month, adjustable upon mutual agreement to
reflect changes in usage or underlying costs to Intelligroup;
- - Monthly charge includes handling and distribution of mail and other
deliveries, incidental office supplies, copy machine usage, and general
facilities management;
- - Additional charges will be invoiced for actual costs of "expressmails"
(including but not limited to Federal Express, U.S. Postal Service Exerts
Mail, Airborne Express);
- - Additional charge of $1,000 per month for postage, adjustable upon mutual
agreement to reflect changes in usage or underlying costs to Intelligroup;
Receptionist
- - Fixed charge of $1,700 per month.
<PAGE> 14
Human Resources
- - Fixed charge of $2,500 per month, adjustable upon mutual agreement to
reflect changes in underlying employee mix;
- - Administrative support related to 401(k) Plans, applicable medical benefit
plans, employee manual; o Employee orientation and hiring support will be
invoiced at a rate of $100 per new "in-house" employee hired (covers such
incidentals as key cards, name plates, etc
Billing Support
- - Fixed monthly charge of $1,000;
- - Provides assistance with setting up and transferring A/R, and Billing
functions from Intelligroup; o Covers the cost of continued invoice
processing by Intelligroup required to clear historical amounts.
Payroll Support
- - Fixed charge of $1,500 per month for the months of January through March,
2000; then at a rate of $500 per month thereafter;
- - Provides administrative and processing assistance for the months of
January through March, 2000, including assistance with quarterly tax
reporting;
- - Also provides for on-going advisory support in connection with payroll
processing; o External charges (such as Ceridian Payroll Service) are to
be directly billed to SeraNova.
Immigration
- - Per case charge of $100 to cover administrative costs and access to
Immigration Staff;
- - All external charges, including but not limited to legal (Fragomen) and
I.N.S. fees are to be directly billed to SeraNova.
Other Support and Administrative Costs
The above assumes that certain external costs will be directly invoiced to
SeraNova. In the event that any such costs, directly attributable to SeraNova,
are invoiced by a third party to Intelligroup, these will be recoverable by
Intelligroup upon presentment of such costs to SeraNova in the form of an
invoice or other written request for payment (which will detail the costs and
purposes for such costs).
Certain other costs may be incurred by Intelligroup on behalf of both parties,
which may include but are not be limited to (i) cost of general liability,
property and casualty, and other business insurance coverages (prior to SeraNova
becoming a publicly held entity); and (ii) costs of outside retained recruiting
firms. Intelligroup may recover a proportionate share of such costs from
SeraNova upon presentment to SeraNova in the form of an invoice or other written
request for payment (which will detail the costs and purposes for such costs).
Such proportion will be determined by mutual agreement of the parties.
<PAGE> 15
INTELLIGROUP MONTHLY BILLING SCHEDULE FOR 2000
FOR CHARGES UNDER EXHIBIT A OF THE SERVICES AGREEMENT
<TABLE>
<CAPTION>
Jan-00 Feb-00 Mar-00 Apr-00 May-00
------ ------ ------ ------ ------
Monthly Fixed Charges
Information Systems and Support
<S> <C> <C> <C> <C> <C>
SAP systems access and support $5,500 $5,500 $5,500 $5,500 $5,500
PC applications and H/W support $11,000 $11,000 $11,000 $11,000 $11,000
General Administrative Support
Mail room and facilities $3,000 $3,000 $3,000 $3,000 $3,000
Postage $1,000 $1,000 $1,000 $1,000 $1,000
Receptionist $1,700 $1,700 $1,700 $1,700 $1,700
H/R support $3,500 $3,500 $3,500 $3,500 $3,500
Billing support $1,000 $1,000 $1,000 $1,000 $1,000
Payroll support $1,500 $1,500 $1,500 $500 $500
===================================================================
Total Fixed Charges for Services $28,200 $28,200 $28,200 $27,200 $27,200
===================================================================
Variable ("Per drink") charges
H/R support - $100 per new in-house hire
Immigration support - $100 per case
</TABLE>
<TABLE>
<CAPTION>
Jun-00 Jul-00 Aug-00 Sep-00 Oct-00
------ ------ ------ ------ ------
Monthly Fixed Charges
Information Systems and Support
<S> <C> <C> <C> <C> <C>
SAP systems access and support $5,500 $5,500 $5,500 $5,500 $5,500
PC applications and H/W support $11,000 $11,000 $11,000 $11,000 $11,000
General Administrative Support
Mail room and facilities $3,000 $3,000 $3,000 $3,000 $3,000
Postage $1,000 $1,000 $1,000 $1,000 $1,000
Receptionist $1,700 $1,700 $1,700 $1,700 $1,700
H/R support $3,500 $3,500 $3,500 $3,500 $3,500
Billing support $1,000 $1,000 $1,000 $1,000 $1,000
Payroll support $500 $500 $500 $500 $500
================================================================
Total Fixed Charges for Services $27,200 $27,200 $27,200 $27,200 $27,200
================================================================
Variable ("Per drink") charges
H/R support - $100 per new in-house hire
Immigration support - $100 per case
</TABLE>
<TABLE>
<CAPTION>
Nov-00 Dec-00
------ ------
Monthly Fixed Charges
Information Systems and Support
<S> <C> <C>
SAP systems access and support $5,500 $5,500
PC applications and H/W support $11,000 $11,000
General Administrative Support
Mail room and facilities $3,000 $3,000
Postage $1,000 $1,000
Receptionist $1,700 $1,700
H/R support $3,500 $3,500
Billing support $1,000 $1,000
Payroll support $500 $500
========================
Total Fixed Charges for Services $27,200 $27,200
========================
Variable ("Per drink") charges
H/R support - $100 per new in-house hire
Immigration support - $100 per case
</TABLE>
<TABLE>
<CAPTION>
INTELLIGROUP MONTHLY BILLING SCHEDULE
FOR RENT AND UTILITIES CHARGES UNDER THE SPACE SHARING AGREEMENT
Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
INTELLIGROUP MONTHLY BILLING SCHEDULE
FOR RENT AND UTILITIES CHARGES UNDER THE SPACE SHARING AGREEMENT
<TABLE>
<CAPTION>
Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 16
EXHIBIT B
RETAINED EMPLOYEES
<TABLE>
<CAPTION>
NAME ID# NAME ID#
<S> <C> <C> <C>
Badola, Anil # 2280 Natarajan, Sambamoorthy # 228
Balakrishnan, Sridhar # 2036 Nath, Mohan # 706
Boghra, Arunkumar # 479 Padmala, Srinivas Rao # 1816
Chandran, Karthikeyan # 2010 Palvai, Sreedhar # 1898
Dasari, Nageswararao # 2251 Parekh, Hitesh # 1683
Desai, Sheetal # 2221 Pavuluri, Kiran # 1509
Errangutla, Mahesh # 606 Prasani, Vineet Rayroth # 159
Gadre, Veerdhaval # 761 Rajagopal, Raghu # 326
Gaur, Harish # 1970 Ramachandran, Aravind # 1554
Gorde, Ajay # 285 Ramaswamy, Prakash # 2300
Guduru, Vidyasaagar # 2298 Rao, Shashikant # 1859
Kalapatapu, Rama Sastry # 827 Ray, Pragnesh # 1813
Kalvit, Hemant # 910 Reddy, Venugopal # 97
Kanyan, Mathew # 1847 Roche, Conrad # 2290
Kelwalkar, Anil Balakrishna # 1931 Roy, Ashok # 1596
Keswani, Haresh # 1635 Sahoo, Rabi Narayan # 1877
Kolukuluri, Trivikram # 808 Sahu, Gajendra Kumar # 2163
Koneru, Padma # 628 Sawant, Sudhir # 535
Krishnan, Vilayanur P. # 2155 Sheth, Tushar # 1592
Kumar, Manish # 2128 Sindhwani, Manesh # 1846
Kumar, Raj # 629 Soman, Kshitish # 708
Kuttalingam, Vannamuthu # 1524 Srinivasan, Girish # 1958
Lanka , Kutumba # 413 Srinivasan, Sridhar # 562
Madhavi, Nandyala # 767 Suki, Geetanjali # 2023
Madhineni, Madhukar # 684 Sunkam, Sreehari # 638
Mathur, Praveen # 1932 Susarla, Bharat # 1710
Mohammad, Asif # 348 Thirugnanam, Gomathi # 1963
Mopati, Krishna # 369 Vedavyas, Balram # 725
Morarji, Dhirendra # 1522 Wahi, Saurabh # 181
Mysore, Prashanth # 1924 Zentelis , Nicolas # 1927
Nagwekar, Suraj # 1508 Kanthi, Hanumanth not assigned
Nair, Rajan # 732 Guntupalli, Bharat not assigned
Nallapaneni, Netaji # 831 Aruminathan, William S not assigned
Narne, Aravind # 2327 Sharan, Jaya not assigned
</TABLE>
<PAGE> 1
10.11
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the
"Company") and Evansville, Ltd. (the "Initial Investor" and together with any
additional permitted investors who become signatories hereof under the terms of
Section 12 hereto and their respective permitted transferees under Section 11
hereto, if any, being herein collectively referred to as the "Investors" ).
WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement,
dated as of the date hereof, between the Company and such Initial Investor (the
"Purchase Agreement"), and the Company and the Initial Investor have agreed to
enter into this Agreement in connection therewith;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Certain Definitions. For purposes of this Agreement:
(a) "Common Stock" means the Common Stock, par value $.01 per share, of
the Company.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act.
(d) "Person" means any individual, partnership, corporation,
unincorporated organization or association, limited liability company, trust or
other firm or entity.
(e) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document.
(f) "Registrable Securities" means any shares of Common Stock sold to
an Investor pursuant to the Purchase Agreement or the terms of Section 12 hereof
or transferred by the Initial Investor (or any additional permitted investors
under Section 12 hereto) to permitted transferees pursuant to Section 11 hereto;
provided, however, that any Registrable Securities sold by the Investors in a
transaction in which such Investors' rights under this Agreement are not
assigned pursuant to Section 12 below shall cease to be Registrable Securities
from and after the time of such sale. Notwithstanding the foregoing, securities
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Act" means the Securities Act of 1933, as amended.
1
<PAGE> 2
(i) "Violation" means any of the following statements, omissions or
violations: (i) any untrue statement or alleged untrue statement of a material
fact contained in a registration statement under this Agreement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading.
2. Request for Registration.
(a) If the Company shall receive, at any time after the earlier of (i)
five years after the date hereof or (ii) four (4) months after the closing of
the Spin-Off (as defined in the Purchase Agreement), from one or more Investors
cumulatively holding at least 30% of the Registrable Securities not previously
registered (the "Initiating Investors") a written request that the Company file
a registration statement under the Securities Act covering the registration of
at least 25% of the Registrable Securities not previously registered (or any
lesser number of shares if the anticipated aggregate offering price, without
regard to underwriting discounts and commissions, is reasonably expected to
exceed $5,000,000) (a "Qualifying Request"), then the Company shall, subject to
Section 2(b) below:
(i) Promptly give written notice of the proposed registration
to all other Investors (if any); and
(ii) As soon as practicable, use its reasonable diligent
efforts to effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws, and appropriate compliance with the Securities
Act) as would permit or facilitate the sale and distribution of the portion of
the Registrable Securities as are specified in the Qualifying Request, together
with the portion of the Registrable Securities of any Investor joining in such
Qualifying Request as are specified in a written request made by such
Investor(s) and received by the Company within 20 days after the written notice
from the Company described in clause (i) above is received by such Investor(s).
(b) The Company shall not be obligated to effect, or to take any action
to effect, any registration pursuant to this Section 2: (i) after the Company
has initiated one such registration pursuant to this Section 2 (counting for
these purposes only registrations which have been declared or ordered effective
and pursuant to which securities have been sold), (ii) during any period
starting 60 days prior to the proposed filing date of a registration statement
of the Company and ending 180 days after the effective date of such registration
statement or (iii) if the Registrable Securities requested to be included in a
registration pursuant to this Section 2 may be registered on Form S-3 pursuant
to Section 4 hereof.
(c) Subject to Section 2(b) above, the Company shall file a
registration statement covering the Registrable Securities requested to be
registered pursuant to Section 2(a) as soon as practicable after receipt of the
Qualifying Request; provided, however, that if (i) in the good faith judgment of
the Board of Directors of the Company such registration would not be in the best
interests of the Company at such time, and (ii) the Company shall furnish to the
Initiating Investors a certificate signed by an authorized officer of the
Company to such effect, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Qualifying
Request; and, further provided, that the Company shall not defer its obligation
in this manner more than once in any twelve-month period.
(d) The registration statement required to be filed pursuant to a
Qualifying Request may, subject to the provisions of Section 2(e) hereof,
include other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
2
<PAGE> 3
(e) If the Initiating Investors intend to distribute the Registrable
Securities covered by their Qualifying Request by means of an underwriting, they
shall so advise the Company as part of their Qualifying Request made pursuant to
Section 2(a), and the Company shall include such information in its written
notice referred to in Section 2(a)(i). In such event, the right of any Investor
to registration pursuant to this Section 2 shall be conditioned upon such
Investor's participation in such underwriting and the inclusion of such
Investor's Registrable Securities in the underwriting to the extent provided
herein. If the Company requests inclusion in any registration pursuant to this
Section 2 of securities being sold for its own account, or if other Persons
shall request inclusion in any registration pursuant to this Section 2, the
Initiating Investors shall, on behalf of all Investors, offer to include such
securities in the underwriting and may condition such offer on the Company's and
such Persons' acceptance of the applicable provisions of this Agreement. The
Company shall (together with all Investors and other Persons proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Registrable Securities held by the Initiating Investors, which
underwriters must be reasonably acceptable to the Company. Notwithstanding any
other provision of this Section 2, if the representative of the underwriters
advises the Initiating Investors and the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, then
the number of shares sought to be included by the Company and any Persons other
than the Investors requesting inclusion in such registration shall be reduced to
the extent required by the representative of the underwriters and the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all such other securities are first entirely excluded;
thereafter, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 8 hereof. If a Person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such Person shall be excluded
therefrom by written notice from the Company, and the securities so excluded
shall also be withdrawn from such registration. If shares are so withdrawn from
the registration and if the number of Registrable Securities to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 2(e), then the Company shall offer to all Investors who
have retained rights to include Registrable Securities in the registration the
right to include additional Registrable Securities (that were initially
requested to be included in such registration) in such registration in an
aggregate amount equal to the number of shares so withdrawn, with such shares to
be allocated among such Investors in accordance with Section 8.
3. Company Registration.
(a) Subject to Section 3(e) below, if at any time or times after the
date hereof the Company determines to register any of its equity securities
either for its own account or the account of a security holder or holders
exercising its or their demand registration rights, the Company will:
(i) Promptly give to each Investor written notice thereof; and
(ii) Use its reasonable diligent efforts to include in such
registration (and any related qualifications under applicable blue sky or other
state securities laws and other compliance with the Securities Act), except as
set forth in Section 3(c) below, and in any underwriting involved therein, all
the Registrable Securities specified in a written request made by any Investor
and received by the Company within 20 days after the written notice from the
Company described in clause (i) above is received by such Investor. Such written
request may specify all or a part of an Investor's Registrable Securities.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to Section
3(a)(i) above. In such event, the right of any Investor to registration
3
<PAGE> 4
pursuant to this Section 3 shall be conditioned upon such Investor's
participation in such underwriting and the inclusion of such Investor's
Registrable Securities in the underwriting to the extent provided herein. All
Investors proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company that have exercised their registration rights to participate therein and
are distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) Notwithstanding any other provision of this Section 3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
Company shall so advise all Investors holding Registrable Securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated (i) first to
the Company for securities being sold for its own account and to security
holders that have exercised their demand registration rights with respect to
such registration, (ii) then to all other holders of equity securities of the
Company included in such registration, including any Investors, on a pro rata
basis. If any Person does not agree to the terms of any such underwriting, such
Person shall be excluded therefrom by written notice from the Company, and the
securities so excluded shall also be withdrawn from such registration.
(d) If shares are so withdrawn from the registration and if the number
of Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to any
Investors who have retained the right to include Registrable Securities in the
registration the right to include additional Registrable Securities (that were
initially requested to be included in such registration) in such registration,
provided that the number of shares of Registrable Securities, and the other
securities entitled to be included in such registration in respect of such
withdrawn shares, shall be allocated in accordance with the first sentence of
Section 3(c).
(e) This Section 3 shall not apply to a registration on any
registration form that does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities or to registrations relating solely to (i) any Company
employee benefit plan or (ii) transactions pursuant to Rule 145 or any other
similar rule promulgated under the Securities Act.
4. Registration on Form S-3.
(a) After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Agreement,
the Investors holding at least 10% of the Registrable Securities not previously
registered shall have the right to request a registration on Form S-3 (such
requests shall be in writing and shall state the number of Registrable
Securities to be sold by such Investors and the intended method of disposition).
As soon as practicable after receiving such request, the Company shall effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws, and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of the Registrable Securities
requested to be included in such registration; provided, however, that the
Company shall not be obligated to effect, or take any action to effect, any such
registration if (i) Form S-3 is not then available for use in such offering;
(ii) the anticipated aggregate offering price, without regard to underwriting
discounts and commissions, is not reasonably expected to exceed $3,000,000;
(iii) the Company shall furnish to the requesting Investors the certification
described in Section 2(c) (but subject to the limitations set forth therein);
(iv) the Company shall have already completed two registrations on Form S-3
during the prior 12 months (counting for this purpose only registrations which
have been declared or ordered effective); (v) the sale of Registrable Securities
in such offering would occur in any
4
<PAGE> 5
jurisdiction in which the Company would be required to qualify to do business
(and in which it would not otherwise be required to qualify but for the sale of
such Registrable Securities) or to file a general consent to service of process;
or (vi) the sale of Registrable Securities in such offering would occur during
any period starting on the effective date of any registration statement of the
Company (other than such Form S-3) and ending 180 days after the effective date
of such registration statement.
(b) Regardless of whether any Investor has completed the sale of its
Registrable Securities covered by a Form S-3, if, at any time after the
effective date of such Form S-3, the Company notifies such Investor that such
Form S-3 includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, then the
Company may require such Investor to cease such Investor's sales of Registrable
Securities covered by such Form S-3 until such time as the Company files an
amendment to such Form S-3 correcting such untrue statement or including such
material fact, which amendment shall be filed by the Company no later than 90
days after the date of the Company's notice given to such Investor under this
Section 4(b).
5. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
soon as practicable:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its reasonable efforts to cause such
registration statement to become effective, and, upon the request of any of the
Investors holding Registrable Securities being registered thereunder, keep such
registration statement effective for up to 90 days or until the Investors have
completed the distribution referred to in such registration statement, whichever
occurs first; provided, however, that before filing such registration statement
or any amendment thereto, the Company will furnish to the Investors holding
Registrable Securities covered by such registration statement copies of all such
documents proposed to be filed.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement.
(c) Furnish to the Investors holding Registrable Securities covered by
such registration statement such number of copies of such registration statement
and of each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other documents
as the Investors holding Registrable Securities covered by such registration
statement may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the representative of the underwriters of such offering.
(e) Notify each Investor holding Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact
5
<PAGE> 6
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(f) Notify each Investor holding Registrable Securities covered by such
registration statement: (i) when the registration statement has become
effective; (ii) when any post-effective amendment to the registration statement
becomes effective; and (iii) of any request by the SEC for any amendment or
supplement to the registration statement or prospectus or for additional
information.
(g) Notify each Investor holding Registrable Securities covered by such
registration statement if at any time the SEC should institute or threaten to
institute any proceedings for the purpose of issuing, or should issue, a stop
order suspending the effectiveness of such registration statement. Upon the
occurrence of any of the events mentioned in the preceding sentence, the Company
will use its reasonable efforts to prevent the issuance of any such stop order
or to obtain the withdrawal thereof as soon as reasonably possible. The Company
will advise each Investor holding Registrable Securities covered by such
registration statement promptly of any order or communication of any public
board or body addressed to the Company suspending or threatening to suspend the
qualification of any Registrable Securities for sale in any jurisdiction.
(h) As soon as practicable after the effective date of such
registration statement, and in any event within 16 months thereafter, have "made
generally available to its security holders" (within the meaning of Rule 158
under the Securities Act) an earnings statement (which need not be audited)
covering a period of at least 12 months beginning after the effective date of
such registration statement and otherwise complying with Section 11(a) of the
Securities Act.
6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of such Registrable
Securities as shall be required to effect the registration of such Investor's
Registrable Securities.
7. Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions relating to Registrable Securities,
incurred in connection with registrations pursuant to this Agreement (for this
purpose only registrations which have been declared or ordered effective),
including, without limitation, all registration, filing and qualification fees,
printers' and accounting fees relating or apportionable thereto, the fees and
disbursements of one counsel for the security holders of the Company
participating in such registration up to a maximum amount of $15,000 and the
fees and disbursements of counsel to the Company shall be borne by the Company.
8. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities requested to be included in a
registration on behalf of the Investors cannot be so included as a result of
limitations imposed by any underwriter or underwriters of the aggregate number
of Registrable Securities that may be so included, the number of Registrable
Securities that may be so included shall be allocated among the Investors
requesting inclusion pro rata on the basis of the number of Registrable
Securities that would be held by such Investors; provided, however, that if any
Investor does not request inclusion of the minimum number of shares of
Registrable Securities allocated to such Investor pursuant to the
above-described procedure, the remaining portion of such Investor's allocation
shall be reallocated among those requesting Investors whose allocations did not
satisfy their requests, pro rata on the basis of the number of Registrable
Securities that would be held by such Investors, and this procedure shall be
repeated until all of the Registrable Securities which may be included in the
registration on behalf of the requesting Investors have been so allocated.
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9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Investor and each
Investor's officers and directors, any underwriter (as defined in the Securities
Act) for such Investor and each Person, if any, who controls (within the meaning
of the Securities Act or the Exchange Act) such Investor or underwriter against
any losses, claims, damages or liabilities, whether or not involving a third
party, to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon a
Violation by the Company (provided, however, that the Company will not be
required to indemnify any of the foregoing Persons on account of any losses,
claims, damages or liabilities arising out of or based upon a Violation by the
Company if and to the extent that such Violation was made in a preliminary
prospectus and was corrected in a subsequent prospectus that was required by law
to be delivered to the Person making the claim with respect to which
indemnification is sought hereunder (and such subsequent prospectus was made
available by the Company to permit delivery of such prospectus in a timely
manner) and such subsequent prospectus was not so delivered to such Person); and
the Company will pay to each indemnified party under this Section 9(a), as
incurred, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case to a particular
indemnified party for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation by the Company which
occurs in reliance upon and in conformity with written information furnished by
or on behalf of such indemnified party expressly for use in connection with any
registration.
(b) Each selling Investor will indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the registration
statement, each Person, if any, who controls (within the meaning of the
Securities Act or the Exchange Act) the Company, any underwriter (as defined in
the Securities Act), any other Investor or other Person selling securities
covered by such registration statement and each Person, if any, who controls
(within the meaning of the Securities Act or the Exchange Act) such underwriter
or other Investor or Person, against any losses, claims, damages or liabilities,
whether or not involving a third party, to which any of the foregoing Persons
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon a Violation by the selling
Investor, in each case to the extent that such Violation by the selling Investor
occurs in reliance upon and in conformity with written information furnished by
or on behalf of the indemnifying Investor expressly for use in connection with
any registration; and each indemnifying Investor will pay to each indemnified
party under this Section 9(b), as incurred, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the indemnifying
Investor (which consent shall not be unreasonably withheld); and further
provided, that in no event shall the liability of any Investor under this
Section 9(b) exceed the net proceeds from the offering received by such
Investor.
(c) Promptly after receipt by an indemnified party under this Section 9
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9, deliver to the indemnifying party a
written notice of the commencement of such action, and the indemnifying party
shall have the right to participate in and, to the extent the indemnifying party
so desires, jointly with any
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other indemnifying party similarly noticed, to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party. The failure to
deliver written notice to the indemnifying party within a reasonable time after
the commencement of any such action shall not relieve such indemnifying party of
any liability to the indemnified party under this Section 9 except if, and only
to the extent that, the indemnifying party is actually prejudiced thereby; and
such failure to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 9.
(d) The obligations of the Company to any particular Investor and of
such Investor to the Company shall survive for a period of two (2) years from
the completion of any offering of Registrable Securities of such Investor
pursuant to the last registration statement under this Agreement in which such
Investor's Registrable Securities were included.
(e) If for any reason the foregoing indemnity is unavailable, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by or on behalf of the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person that was not guilty of fraudulent misrepresentation. Notwithstanding
anything to the contrary in this Section 9, no Investor shall be required,
pursuant to this Section 9, to contribute any amount in excess of the net
proceeds received by such Investor from the sale of Registrable Securities in
the offering to which the losses, claims, damages, liabilities or expenses of
the indemnified party relate.
10. Termination. The rights of any Investor to request registration or
inclusion in any registration pursuant to this Agreement shall terminate upon
the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii)
such time when Rule 144(k) or another similar exception under the Securities Act
is available for the sale of all of the Registrable Securities of the Investors
during any three-month period without registration; provided, however, that the
obligations of the parties contained in Section 9 hereof shall survive as
contemplated by Section 9(d).
11. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned in
whole or in part only by an Investor to one or more transferees or assignees
permitted under the Stockholders' Agreement dated as of the date hereof by and
among the Company, the Initial Investor and Intelligroup, Inc. (the
"Stockholders' Agreement"); provided that, in each case, as a condition to such
transfer or assignment, the transferring Investor shall give prior written
notice to the Company of such transfer or assignment (which notice shall set
forth the identity of the transferee or assignee) and such transferee or
assignee shall deliver to the Company a written instrument by which such
transferee or assignee agrees to be bound by the obligations imposed on the
transferring Investor under this Agreement, to the same extent as if such
transferee or assignee was a party hereto.
12. Additional Investors. The Initial Investor acknowledges and agrees
that: (i) following the date of this Agreement, the Company may sell additional
Common Stock (as defined in the Purchase Agreement) to other parties (the
"Additional Purchasers") on the same terms and conditions as are contained in
the Purchase Agreement, the Stockholders' Agreement and this Agreement,
including but not limited to under the terms of the Option Letter (as defined in
the Purchase Agreement), (ii) promptly
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<PAGE> 9
following such sale, this Agreement may be amended to add such Additional
Purchasers of Common Stock as parties hereto or such Additional Purchasers may
enter into Registration Rights Agreements with the Company with terms and
conditions which are the same as the terms and conditions of this Agreement, and
(iii) following such actions, such Additional Purchasers of Common Stock, shall
be deemed "Investors" with the same registration and other rights hereunder as
the Initial Investor and their securities shall be deemed "Registrable
Securities" hereunder.
13. Changes in Registrable Securities. If, and as often as, there are
any changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement as
a condition to any such merger or consolidation.
14. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement.
15. Amendment; Waiver. Any term, covenant, agreement or condition of
this Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), (i) as to the Company, by a written instrument signed by the
Company, and (ii) as to the Investors, by one or more written instruments signed
by all the Investors. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Investors and the Company.
16. Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or (i)
forty-eight (48) hours after being deposited in the U.S. mail in the case of
mail sent within the United States and (ii) five (5) days after being deposited
in the mail in the case of mail sent to or from a location outside the United
States, as certified or registered mail, with postage prepaid, as follows:
If to the Company to:
499 Thornall Street
Edison, New Jersey 08837
Attention: President
with a copy to:
Carter, Ledyard & Milburn
Two Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
If to an Investor:
At the address set forth on the signature page hereof
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<PAGE> 10
or at such other address or facsimile number as shall be designated by such
party in a notice to the other party provided in accordance with this Section
16.
17. Severability. In the event one or more of the provisions of this
Agreement should for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and by facsimile, each of which shall be deemed an original and
enforceable against the parties actually executing such counterpart, and all of
which together shall constitute one instrument.
19. Entire Agreement. This Agreement, the Stockholders' Agreement and
the Purchase Agreement constitute the entire agreement among the parties
relative to the specific subject matter hereof. Any previous agreement among the
parties relative to the specific subject matter hereof is superseded by this
Agreement, the Stockholders' Agreement and the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 11
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be duly executed and delivered as of the date first written above.
SERANOVA, INC.
By: /s/ Ravi Singh
_______________________________
Name:
Title:
INVESTOR
Evansville Limited
By: /s/ Alan G. Quasha
_______________________________
Name: Alan G. Quasha
Title:
Address: PO Box 438
Roadtown, Tortola
British Virgin Islands
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<PAGE> 1
Exhibit 10.12
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the
"Company") and Ampal-American Israel Corporation (the "Initial Investor" and
together with any additional permitted investors who become signatories hereof
under the terms of Section 12 hereto and their respective permitted transferees
under Section 11 hereto, if any, being herein collectively referred to as the
"Investors").
WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement,
dated as of the date hereof, between the Company and such Initial Investor (the
"Purchase Agreement"), and the Company and the Initial Investor have agreed to
enter into this Agreement in connection therewith;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Certain Definitions. For purposes of this Agreement:
(a) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(b) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(c) "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act.
(d) "Person" means any individual, partnership, corporation,
unincorporated organization or association, limited liability company, trust or
other firm or entity.
(e) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document.
(f) "Registrable Securities" means any shares of Common Stock
sold to an Investor pursuant to the Purchase Agreement or the terms of Section
12 hereof or transferred by the Initial Investor (or any additional permitted
investors under Section 12 hereto) to permitted transferees pursuant to Section
11 hereto; provided, however, that any Registrable Securities sold by the
Investors in a transaction in which such Investors' rights under this Agreement
are not assigned pursuant to Section 12 below shall cease to be Registrable
Securities from and after the time of such sale. Notwithstanding the foregoing,
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Act" means the Securities Act of 1933, as
amended.
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<PAGE> 2
(i) "Violation" means any of the following statements,
omissions or violations: (i) any untrue statement or alleged untrue statement of
a material fact contained in a registration statement under this Agreement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading.
2. Request for Registration.
(a) If the Company shall receive, at any time after the
earlier of (i) five years after the date hereof or (ii) four (4) months after
the closing of the Spin-Off (as defined in the Purchase Agreement), from one or
more Investors cumulatively holding at least 30% of the Registrable Securities
not previously registered (the "Initiating Investors") a written request that
the Company file a registration statement under the Securities Act covering the
registration of at least 25% of the Registrable Securities not previously
registered (or any lesser number of shares if the anticipated aggregate offering
price, without regard to underwriting discounts and commissions, is reasonably
expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall,
subject to Section 2(b) below:
(i) Promptly give written notice of the proposed
registration to all other Investors (if any); and
(ii) As soon as practicable, use its reasonable
diligent efforts to effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with the
Securities Act) as would permit or facilitate the sale and distribution of the
portion of the Registrable Securities as are specified in the Qualifying
Request, together with the portion of the Registrable Securities of any Investor
joining in such Qualifying Request as are specified in a written request made by
such Investor(s) and received by the Company within 20 days after the written
notice from the Company described in clause (i) above is received by such
Investor(s).
(b) The Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 2: (i) after the
Company has initiated one such registration pursuant to this Section 2 (counting
for these purposes only registrations which have been declared or ordered
effective and pursuant to which securities have been sold), (ii) during any
period starting 60 days prior to the proposed filing date of a registration
statement of the Company and ending 180 days after the effective date of such
registration statement or (iii) if the Registrable Securities requested to be
included in a registration pursuant to this Section 2 may be registered on Form
S-3 pursuant to Section 4 hereof.
(c) Subject to Section 2(b) above, the Company shall file a
registration statement covering the Registrable Securities requested to be
registered pursuant to Section 2(a) as soon as practicable after receipt of the
Qualifying Request; provided, however, that if (i) in the good faith judgment of
the Board of Directors of the Company such registration would not be in the best
interests of the Company at such time, and (ii) the Company shall furnish to the
Initiating Investors a certificate signed by an authorized officer of the
Company to such effect, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Qualifying
Request; and, further provided, that the Company shall not defer its obligation
in this manner more than once in any twelve-month period.
(d) The registration statement required to be filed pursuant
to a Qualifying Request may, subject to the provisions of Section 2(e) hereof,
include other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
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(e) If the Initiating Investors intend to distribute the
Registrable Securities covered by their Qualifying Request by means of an
underwriting, they shall so advise the Company as part of their Qualifying
Request made pursuant to Section 2(a), and the Company shall include such
information in its written notice referred to in Section 2(a)(i). In such event,
the right of any Investor to registration pursuant to this Section 2 shall be
conditioned upon such Investor's participation in such underwriting and the
inclusion of such Investor's Registrable Securities in the underwriting to the
extent provided herein. If the Company requests inclusion in any registration
pursuant to this Section 2 of securities being sold for its own account, or if
other Persons shall request inclusion in any registration pursuant to this
Section 2, the Initiating Investors shall, on behalf of all Investors, offer to
include such securities in the underwriting and may condition such offer on the
Company's and such Persons' acceptance of the applicable provisions of this
Agreement. The Company shall (together with all Investors and other Persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Registrable Securities held by the Initiating Investors, which
underwriters must be reasonably acceptable to the Company. Notwithstanding any
other provision of this Section 2, if the representative of the underwriters
advises the Initiating Investors and the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, then
the number of shares sought to be included by the Company and any Persons other
than the Investors requesting inclusion in such registration shall be reduced to
the extent required by the representative of the underwriters and the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all such other securities are first entirely excluded;
thereafter, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 8 hereof. If a Person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such Person shall be excluded
therefrom by written notice from the Company, and the securities so excluded
shall also be withdrawn from such registration. If shares are so withdrawn from
the registration and if the number of Registrable Securities to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 2(e), then the Company shall offer to all Investors who
have retained rights to include Registrable Securities in the registration the
right to include additional Registrable Securities (that were initially
requested to be included in such registration) in such registration in an
aggregate amount equal to the number of shares so withdrawn, with such shares to
be allocated among such Investors in accordance with Section 8.
3. Company Registration.
(a) Subject to Section 3(e) below, if at any time or times
after the date hereof the Company determines to register any of its equity
securities either for its own account or the account of a security holder or
holders exercising its or their demand registration rights, the Company will:
(i) Promptly give to each Investor written notice
thereof; and
(ii) Use its reasonable diligent efforts to include
in such registration (and any related qualifications under applicable blue sky
or other state securities laws and other compliance with the Securities Act),
except as set forth in Section 3(c) below, and in any underwriting involved
therein, all the Registrable Securities specified in a written request made by
any Investor and received by the Company within 20 days after the written notice
from the Company described in clause (i) above is received by such Investor.
Such written request may specify all or a part of an Investor's Registrable
Securities.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to Section
3(a)(i) above. In such event, the right of any Investor to registration
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<PAGE> 4
pursuant to this Section 3 shall be conditioned upon such Investor's
participation in such underwriting and the inclusion of such Investor's
Registrable Securities in the underwriting to the extent provided herein. All
Investors proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company that have exercised their registration rights to participate therein and
are distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) Notwithstanding any other provision of this Section 3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise all Investors holding Registrable
Securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated (i) first to the Company for securities being sold for its own account
and to security holders that have exercised their demand registration rights
with respect to such registration, (ii) then to all other holders of equity
securities of the Company included in such registration, including any
Investors, on a pro rata basis. If any Person does not agree to the terms of any
such underwriting, such Person shall be excluded therefrom by written notice
from the Company, and the securities so excluded shall also be withdrawn from
such registration.
(d) If shares are so withdrawn from the registration and if
the number of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to any Investors who have retained the right to include Registrable
Securities in the registration the right to include additional Registrable
Securities (that were initially requested to be included in such registration)
in such registration, provided that the number of shares of Registrable
Securities, and the other securities entitled to be included in such
registration in respect of such withdrawn shares, shall be allocated in
accordance with the first sentence of Section 3(c).
(e) This Section 3 shall not apply to a registration on any
registration form that does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities or to registrations relating solely to (i) any Company
employee benefit plan or (ii) transactions pursuant to Rule 145 or any other
similar rule promulgated under the Securities Act.
4. Registration on Form S-3.
(a) After the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of this
Agreement, the Investors holding at least 10% of the Registrable Securities not
previously registered shall have the right to request a registration on Form S-3
(such requests shall be in writing and shall state the number of Registrable
Securities to be sold by such Investors and the intended method of disposition).
As soon as practicable after receiving such request, the Company shall effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws, and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of the Registrable Securities
requested to be included in such registration; provided, however, that the
Company shall not be obligated to effect, or take any action to effect, any such
registration if (i) Form S-3 is not then available for use in such offering;
(ii) the anticipated aggregate offering price, without regard to underwriting
discounts and commissions, is not reasonably expected to exceed $3,000,000;
(iii) the Company shall furnish to the requesting Investors the certification
described in Section 2(c) (but subject to the limitations set forth therein);
(iv) the Company shall have already completed two registrations on Form S-3
during the prior 12 months (counting for this purpose only registrations which
have been declared or ordered effective); (v) the sale of Registrable Securities
in such offering would occur in any
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jurisdiction in which the Company would be required to qualify to do business
(and in which it would not otherwise be required to qualify but for the sale of
such Registrable Securities) or to file a general consent to service of process;
or (vi) the sale of Registrable Securities in such offering would occur during
any period starting on the effective date of any registration statement of the
Company (other than such Form S-3) and ending 180 days after the effective date
of such registration statement.
(b) Regardless of whether any Investor has completed the sale
of its Registrable Securities covered by a Form S-3, if, at any time after the
effective date of such Form S-3, the Company notifies such Investor that such
Form S-3 includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, then the
Company may require such Investor to cease such Investor's sales of Registrable
Securities covered by such Form S-3 until such time as the Company files an
amendment to such Form S-3 correcting such untrue statement or including such
material fact, which amendment shall be filed by the Company no later than 90
days after the date of the Company's notice given to such Investor under this
Section 4(b).
5. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
soon as practicable:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective, and, upon the request of
any of the Investors holding Registrable Securities being registered thereunder,
keep such registration statement effective for up to 90 days or until the
Investors have completed the distribution referred to in such registration
statement, whichever occurs first; provided, however, that before filing such
registration statement or any amendment thereto, the Company will furnish to the
Investors holding Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement.
(c) Furnish to the Investors holding Registrable Securities
covered by such registration statement such number of copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus contained
in such registration statement (including each preliminary prospectus and any
summary prospectus) and any prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents as the Investors holding Registrable Securities covered by such
registration statement may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the representative of the underwriters of such offering.
(e) Notify each Investor holding Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact
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<PAGE> 6
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(f) Notify each Investor holding Registrable Securities
covered by such registration statement: (i) when the registration statement has
become effective; (ii) when any post-effective amendment to the registration
statement becomes effective; and (iii) of any request by the SEC for any
amendment or supplement to the registration statement or prospectus or for
additional information.
(g) Notify each Investor holding Registrable Securities
covered by such registration statement if at any time the SEC should institute
or threaten to institute any proceedings for the purpose of issuing, or should
issue, a stop order suspending the effectiveness of such registration statement.
Upon the occurrence of any of the events mentioned in the preceding sentence,
the Company will use its reasonable efforts to prevent the issuance of any such
stop order or to obtain the withdrawal thereof as soon as reasonably possible.
The Company will advise each Investor holding Registrable Securities covered by
such registration statement promptly of any order or communication of any public
board or body addressed to the Company suspending or threatening to suspend the
qualification of any Registrable Securities for sale in any jurisdiction.
(h) As soon as practicable after the effective date of such
registration statement, and in any event within 16 months thereafter, have "made
generally available to its security holders" (within the meaning of Rule 158
under the Securities Act) an earnings statement (which need not be audited)
covering a period of at least 12 months beginning after the effective date of
such registration statement and otherwise complying with Section 11(a) of the
Securities Act.
6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of such Registrable
Securities as shall be required to effect the registration of such Investor's
Registrable Securities.
7. Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions relating to Registrable Securities,
incurred in connection with registrations pursuant to this Agreement (for this
purpose only registrations which have been declared or ordered effective),
including, without limitation, all registration, filing and qualification fees,
printers' and accounting fees relating or apportionable thereto, the fees and
disbursements of one counsel for the security holders of the Company
participating in such registration up to a maximum amount of $15,000 and the
fees and disbursements of counsel to the Company shall be borne by the Company.
8. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities requested to be included in a
registration on behalf of the Investors cannot be so included as a result of
limitations imposed by any underwriter or underwriters of the aggregate number
of Registrable Securities that may be so included, the number of Registrable
Securities that may be so included shall be allocated among the Investors
requesting inclusion pro rata on the basis of the number of Registrable
Securities that would be held by such Investors; provided, however, that if any
Investor does not request inclusion of the minimum number of shares of
Registrable Securities allocated to such Investor pursuant to the
above-described procedure, the remaining portion of such Investor's allocation
shall be reallocated among those requesting Investors whose allocations did not
satisfy their requests, pro rata on the basis of the number of Registrable
Securities that would be held by such Investors, and this procedure shall be
repeated until all of the Registrable Securities which may be included in the
registration on behalf of the requesting Investors have been so allocated.
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<PAGE> 7
9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Investor
and each Investor's officers and directors, any underwriter (as defined in the
Securities Act) for such Investor and each Person, if any, who controls (within
the meaning of the Securities Act or the Exchange Act) such Investor or
underwriter against any losses, claims, damages or liabilities, whether or not
involving a third party, to which they may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon a Violation by the Company (provided, however, that the Company
will not be required to indemnify any of the foregoing Persons on account of any
losses, claims, damages or liabilities arising out of or based upon a Violation
by the Company if and to the extent that such Violation was made in a
preliminary prospectus and was corrected in a subsequent prospectus that was
required by law to be delivered to the Person making the claim with respect to
which indemnification is sought hereunder (and such subsequent prospectus was
made available by the Company to permit delivery of such prospectus in a timely
manner) and such subsequent prospectus was not so delivered to such Person); and
the Company will pay to each indemnified party under this Section 9(a), as
incurred, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case to a particular
indemnified party for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation by the Company which
occurs in reliance upon and in conformity with written information furnished by
or on behalf of such indemnified party expressly for use in connection with any
registration.
(b) Each selling Investor will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each Person, if any, who controls (within the meaning of
the Securities Act or the Exchange Act) the Company, any underwriter (as defined
in the Securities Act), any other Investor or other Person selling securities
covered by such registration statement and each Person, if any, who controls
(within the meaning of the Securities Act or the Exchange Act) such underwriter
or other Investor or Person, against any losses, claims, damages or liabilities,
whether or not involving a third party, to which any of the foregoing Persons
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon a Violation by the selling
Investor, in each case to the extent that such Violation by the selling Investor
occurs in reliance upon and in conformity with written information furnished by
or on behalf of the indemnifying Investor expressly for use in connection with
any registration; and each indemnifying Investor will pay to each indemnified
party under this Section 9(b), as incurred, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the indemnifying
Investor (which consent shall not be unreasonably withheld); and further
provided, that in no event shall the liability of any Investor under this
Section 9(b) exceed the net proceeds from the offering received by such
Investor.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement of such action, and
the indemnifying party shall have the right to participate in and, to the extent
the indemnifying party so desires, jointly with any
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<PAGE> 8
other indemnifying party similarly noticed, to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party. The failure to
deliver written notice to the indemnifying party within a reasonable time after
the commencement of any such action shall not relieve such indemnifying party of
any liability to the indemnified party under this Section 9 except if, and only
to the extent that, the indemnifying party is actually prejudiced thereby; and
such failure to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 9.
(d) The obligations of the Company to any particular Investor
and of such Investor to the Company shall survive for a period of two (2) years
from the completion of any offering of Registrable Securities of such Investor
pursuant to the last registration statement under this Agreement in which such
Investor's Registrable Securities were included.
(e) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by or on behalf of the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person that was not guilty of fraudulent misrepresentation. Notwithstanding
anything to the contrary in this Section 9, no Investor shall be required,
pursuant to this Section 9, to contribute any amount in excess of the net
proceeds received by such Investor from the sale of Registrable Securities in
the offering to which the losses, claims, damages, liabilities or expenses of
the indemnified party relate.
10. Termination. The rights of any Investor to request registration or
inclusion in any registration pursuant to this Agreement shall terminate upon
the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii)
such time when Rule 144(k) or another similar exception under the Securities Act
is available for the sale of all of the Registrable Securities of the Investors
during any three-month period without registration; provided, however, that the
obligations of the parties contained in Section 9 hereof shall survive as
contemplated by Section 9(d).
11. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned in
whole or in part only by an Investor to one or more transferees or assignees
permitted under the Stockholders' Agreement dated as of the date hereof by and
among the Company, the Initial Investor and Intelligroup, Inc. (the
"Stockholders' Agreement"); provided that, in each case, as a condition to such
transfer or assignment, the transferring Investor shall give prior written
notice to the Company of such transfer or assignment (which notice shall set
forth the identity of the transferee or assignee) and such transferee or
assignee shall deliver to the Company a written instrument by which such
transferee or assignee agrees to be bound by the obligations imposed on the
transferring Investor under this Agreement, to the same extent as if such
transferee or assignee was a party hereto.
12. Additional Investors. The Initial Investor acknowledges and agrees
that: (i) following the date of this Agreement, the Company may sell additional
Common Stock (as defined in the Purchase Agreement) to other parties (the
"Additional Purchasers") on the same terms and conditions as are contained in
the Purchase Agreement, the Stockholders' Agreement and this Agreement,
including but not limited to under the terms of the Option Letter (as defined in
the Purchase Agreement), (ii) promptly
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<PAGE> 9
following such sale, this Agreement may be amended to add such Additional
Purchasers of Common Stock as parties hereto or such Additional Purchasers may
enter into Registration Rights Agreements with the Company with terms and
conditions which are the same as the terms and conditions of this Agreement, and
(iii) following such actions, such Additional Purchasers of Common Stock, shall
be deemed "Investors" with the same registration and other rights hereunder as
the Initial Investor and their securities shall be deemed "Registrable
Securities" hereunder.
13. Changes in Registrable Securities. If, and as often as, there are
any changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement as
a condition to any such merger or consolidation.
14. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement.
15. Amendment; Waiver. Any term, covenant, agreement or condition of
this Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), (i) as to the Company, by a written instrument signed by the
Company, and (ii) as to the Investors, by one or more written instruments signed
by all the Investors. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Investors and the Company.
16. Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or (i)
forty-eight (48) hours after being deposited in the U.S. mail in the case of
mail sent within the United States and (ii) five (5) days after being deposited
in the mail in the case of mail sent to or from a location outside the United
States, as certified or registered mail, with postage prepaid, as follows:
If to the Company to:
499 Thornall Street
Edison, New Jersey 08837
Attention: President
with a copy to:
Carter, Ledyard & Milburn
Two Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
If to an Investor:
At the address set forth on the signature page hereof
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<PAGE> 10
or at such other address or facsimile number as shall be designated by such
party in a notice to the other party provided in accordance with this Section
16.
17. Severability. In the event one or more of the provisions of this
Agreement should for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and by facsimile, each of which shall be deemed an original and
enforceable against the parties actually executing such counterpart, and all of
which together shall constitute one instrument.
19. Entire Agreement. This Agreement, the Stockholders' Agreement and
the Purchase Agreement constitute the entire agreement among the parties
relative to the specific subject matter hereof. Any previous agreement among the
parties relative to the specific subject matter hereof is superseded by this
Agreement, the Stockholders' Agreement and the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 11
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be duly executed and delivered as of the date first written above.
SERANOVA, INC.
By: /s/ Ravi Singh
_______________________________
Name:
Title:
INVESTOR
Ampal-American Israel Corporation
By: /s/ Eli Goldberg
_______________________________
Name: Eli Goldberg
Title: Secretary
Address: 1177 Ave Americas
NY, NY 10056
11
<PAGE> 1
Exhibit 10.13
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the
"Company") NSA Investments, Inc. (the "Initial Investor" and together with any
additional permitted investors who become signatories hereof under the terms of
Section 12 hereto and their respective permitted transferees under Section 11
hereto, if any, being herein collectively referred to as the "Investors" ).
WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement,
dated as of the date hereof, between the Company and such Initial Investor (the
"Purchase Agreement"), and the Company and the Initial Investor have agreed to
enter into this Agreement in connection therewith;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Certain Definitions. For purposes of this Agreement:
(a) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(b) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(c) "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act.
(d) "Person" means any individual, partnership, corporation,
unincorporated organization or association, limited liability company, trust or
other firm or entity.
(e) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document.
(f) "Registrable Securities" means any shares of Common Stock
sold to an Investor pursuant to the Purchase Agreement or the terms of Section
12 hereof or transferred by the Initial Investor (or any additional permitted
investors under Section 12 hereto) to permitted transferees pursuant to Section
11 hereto; provided, however, that any Registrable Securities sold by the
Investors in a transaction in which such Investors' rights under this Agreement
are not assigned pursuant to Section 12 below shall cease to be Registrable
Securities from and after the time of such sale. Notwithstanding the foregoing,
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Act" means the Securities Act of 1933, as
amended.
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<PAGE> 2
(i) "Violation" means any of the following statements,
omissions or violations: (i) any untrue statement or alleged untrue statement of
a material fact contained in a registration statement under this Agreement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading.
2. Request for Registration.
(a) If the Company shall receive, at any time after the
earlier of (i) five years after the date hereof or (ii) four (4) months after
the closing of the Spin-Off (as defined in the Purchase Agreement), from one or
more Investors cumulatively holding at least 30% of the Registrable Securities
not previously registered (the "Initiating Investors") a written request that
the Company file a registration statement under the Securities Act covering the
registration of at least 25% of the Registrable Securities not previously
registered (or any lesser number of shares if the anticipated aggregate offering
price, without regard to underwriting discounts and commissions, is reasonably
expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall,
subject to Section 2(b) below:
(i) Promptly give written notice of the proposed
registration to all other Investors (if any); and
(ii) As soon as practicable, use its reasonable
diligent efforts to effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with the
Securities Act) as would permit or facilitate the sale and distribution of the
portion of the Registrable Securities as are specified in the Qualifying
Request, together with the portion of the Registrable Securities of any Investor
joining in such Qualifying Request as are specified in a written request made by
such Investor(s) and received by the Company within 20 days after the written
notice from the Company described in clause (i) above is received by such
Investor(s).
(b) The Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 2: (i) after the
Company has initiated one such registration pursuant to this Section 2 (counting
for these purposes only registrations which have been declared or ordered
effective and pursuant to which securities have been sold), (ii) during any
period starting 60 days prior to the proposed filing date of a registration
statement of the Company and ending 180 days after the effective date of such
registration statement or (iii) if the Registrable Securities requested to be
included in a registration pursuant to this Section 2 may be registered on Form
S-3 pursuant to Section 4 hereof.
(c) Subject to Section 2(b) above, the Company shall file a
registration statement covering the Registrable Securities requested to be
registered pursuant to Section 2(a) as soon as practicable after receipt of the
Qualifying Request; provided, however, that if (i) in the good faith judgment of
the Board of Directors of the Company such registration would not be in the best
interests of the Company at such time, and (ii) the Company shall furnish to the
Initiating Investors a certificate signed by an authorized officer of the
Company to such effect, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Qualifying
Request; and, further provided, that the Company shall not defer its obligation
in this manner more than once in any twelve-month period.
(d) The registration statement required to be filed pursuant
to a Qualifying Request may, subject to the provisions of Section 2(e) hereof,
include other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
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<PAGE> 3
(e) If the Initiating Investors intend to distribute the
Registrable Securities covered by their Qualifying Request by means of an
underwriting, they shall so advise the Company as part of their Qualifying
Request made pursuant to Section 2(a), and the Company shall include such
information in its written notice referred to in Section 2(a)(i). In such event,
the right of any Investor to registration pursuant to this Section 2 shall be
conditioned upon such Investor's participation in such underwriting and the
inclusion of such Investor's Registrable Securities in the underwriting to the
extent provided herein. If the Company requests inclusion in any registration
pursuant to this Section 2 of securities being sold for its own account, or if
other Persons shall request inclusion in any registration pursuant to this
Section 2, the Initiating Investors shall, on behalf of all Investors, offer to
include such securities in the underwriting and may condition such offer on the
Company's and such Persons' acceptance of the applicable provisions of this
Agreement. The Company shall (together with all Investors and other Persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Registrable Securities held by the Initiating Investors, which
underwriters must be reasonably acceptable to the Company. Notwithstanding any
other provision of this Section 2, if the representative of the underwriters
advises the Initiating Investors and the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, then
the number of shares sought to be included by the Company and any Persons other
than the Investors requesting inclusion in such registration shall be reduced to
the extent required by the representative of the underwriters and the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all such other securities are first entirely excluded;
thereafter, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 8 hereof. If a Person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such Person shall be excluded
therefrom by written notice from the Company, and the securities so excluded
shall also be withdrawn from such registration. If shares are so withdrawn from
the registration and if the number of Registrable Securities to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 2(e), then the Company shall offer to all Investors who
have retained rights to include Registrable Securities in the registration the
right to include additional Registrable Securities (that were initially
requested to be included in such registration) in such registration in an
aggregate amount equal to the number of shares so withdrawn, with such shares to
be allocated among such Investors in accordance with Section 8.
3. Company Registration.
(a) Subject to Section 3(e) below, if at any time or times
after the date hereof the Company determines to register any of its equity
securities either for its own account or the account of a security holder or
holders exercising its or their demand registration rights, the Company will:
(i) Promptly give to each Investor written notice
thereof; and
(ii) Use its reasonable diligent efforts to include
in such registration (and any related qualifications under applicable blue sky
or other state securities laws and other compliance with the Securities Act),
except as set forth in Section 3(c) below, and in any underwriting involved
therein, all the Registrable Securities specified in a written request made by
any Investor and received by the Company within 20 days after the written notice
from the Company described in clause (i) above is received by such Investor.
Such written request may specify all or a part of an Investor's Registrable
Securities.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to Section
3(a)(i) above. In such event, the right of any Investor to registration
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<PAGE> 4
pursuant to this Section 3 shall be conditioned upon such Investor's
participation in such underwriting and the inclusion of such Investor's
Registrable Securities in the underwriting to the extent provided herein. All
Investors proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company that have exercised their registration rights to participate therein and
are distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) Notwithstanding any other provision of this Section 3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise all Investors holding Registrable
Securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated (i) first to the Company for securities being sold for its own account
and to security holders that have exercised their demand registration rights
with respect to such registration, (ii) then to all other holders of equity
securities of the Company included in such registration, including any
Investors, on a pro rata basis. If any Person does not agree to the terms of any
such underwriting, such Person shall be excluded therefrom by written notice
from the Company, and the securities so excluded shall also be withdrawn from
such registration.
(d) If shares are so withdrawn from the registration and if
the number of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to any Investors who have retained the right to include Registrable
Securities in the registration the right to include additional Registrable
Securities (that were initially requested to be included in such registration)
in such registration, provided that the number of shares of Registrable
Securities, and the other securities entitled to be included in such
registration in respect of such withdrawn shares, shall be allocated in
accordance with the first sentence of Section 3(c).
(e) This Section 3 shall not apply to a registration on any
registration form that does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities or to registrations relating solely to (i) any Company
employee benefit plan or (ii) transactions pursuant to Rule 145 or any other
similar rule promulgated under the Securities Act.
4. Registration on Form S-3.
(a) After the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of this
Agreement, the Investors holding at least 10% of the Registrable Securities not
previously registered shall have the right to request a registration on Form S-3
(such requests shall be in writing and shall state the number of Registrable
Securities to be sold by such Investors and the intended method of disposition).
As soon as practicable after receiving such request, the Company shall effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws, and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of the Registrable Securities
requested to be included in such registration; provided, however, that the
Company shall not be obligated to effect, or take any action to effect, any such
registration if (i) Form S-3 is not then available for use in such offering;
(ii) the anticipated aggregate offering price, without regard to underwriting
discounts and commissions, is not reasonably expected to exceed $3,000,000;
(iii) the Company shall furnish to the requesting Investors the certification
described in Section 2(c) (but subject to the limitations set forth therein);
(iv) the Company shall have already completed two registrations on Form S-3
during the prior 12 months (counting for this purpose only registrations which
have been declared or ordered effective); (v) the sale of Registrable Securities
in such offering would occur in any
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jurisdiction in which the Company would be required to qualify to do business
(and in which it would not otherwise be required to qualify but for the sale of
such Registrable Securities) or to file a general consent to service of process;
or (vi) the sale of Registrable Securities in such offering would occur during
any period starting on the effective date of any registration statement of the
Company (other than such Form S-3) and ending 180 days after the effective date
of such registration statement.
(b) Regardless of whether any Investor has completed the sale
of its Registrable Securities covered by a Form S-3, if, at any time after the
effective date of such Form S-3, the Company notifies such Investor that such
Form S-3 includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, then the
Company may require such Investor to cease such Investor's sales of Registrable
Securities covered by such Form S-3 until such time as the Company files an
amendment to such Form S-3 correcting such untrue statement or including such
material fact, which amendment shall be filed by the Company no later than 90
days after the date of the Company's notice given to such Investor under this
Section 4(b).
5. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
soon as practicable:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective, and, upon the request of
any of the Investors holding Registrable Securities being registered thereunder,
keep such registration statement effective for up to 90 days or until the
Investors have completed the distribution referred to in such registration
statement, whichever occurs first; provided, however, that before filing such
registration statement or any amendment thereto, the Company will furnish to the
Investors holding Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement.
(c) Furnish to the Investors holding Registrable Securities
covered by such registration statement such number of copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus contained
in such registration statement (including each preliminary prospectus and any
summary prospectus) and any prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents as the Investors holding Registrable Securities covered by such
registration statement may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the representative of the underwriters of such offering.
(e) Notify each Investor holding Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
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<PAGE> 6
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(f) Notify each Investor holding Registrable Securities
covered by such registration statement: (i) when the registration statement has
become effective; (ii) when any post-effective amendment to the registration
statement becomes effective; and (iii) of any request by the SEC for any
amendment or supplement to the registration statement or prospectus or for
additional information.
(g) Notify each Investor holding Registrable Securities
covered by such registration statement if at any time the SEC should institute
or threaten to institute any proceedings for the purpose of issuing, or should
issue, a stop order suspending the effectiveness of such registration statement.
Upon the occurrence of any of the events mentioned in the preceding sentence,
the Company will use its reasonable efforts to prevent the issuance of any such
stop order or to obtain the withdrawal thereof as soon as reasonably possible.
The Company will advise each Investor holding Registrable Securities covered by
such registration statement promptly of any order or communication of any public
board or body addressed to the Company suspending or threatening to suspend the
qualification of any Registrable Securities for sale in any jurisdiction.
(h) As soon as practicable after the effective date of such
registration statement, and in any event within 16 months thereafter, have "made
generally available to its security holders" (within the meaning of Rule 158
under the Securities Act) an earnings statement (which need not be audited)
covering a period of at least 12 months beginning after the effective date of
such registration statement and otherwise complying with Section 11(a) of the
Securities Act.
6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of such Registrable
Securities as shall be required to effect the registration of such Investor's
Registrable Securities.
7. Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions relating to Registrable Securities,
incurred in connection with registrations pursuant to this Agreement (for this
purpose only registrations which have been declared or ordered effective),
including, without limitation, all registration, filing and qualification fees,
printers' and accounting fees relating or apportionable thereto, the fees and
disbursements of one counsel for the security holders of the Company
participating in such registration up to a maximum amount of $15,000 and the
fees and disbursements of counsel to the Company shall be borne by the Company.
8. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities requested to be included in a
registration on behalf of the Investors cannot be so included as a result of
limitations imposed by any underwriter or underwriters of the aggregate number
of Registrable Securities that may be so included, the number of Registrable
Securities that may be so included shall be allocated among the Investors
requesting inclusion pro rata on the basis of the number of Registrable
Securities that would be held by such Investors; provided, however, that if any
Investor does not request inclusion of the minimum number of shares of
Registrable Securities allocated to such Investor pursuant to the
above-described procedure, the remaining portion of such Investor's allocation
shall be reallocated among those requesting Investors whose allocations did not
satisfy their requests, pro rata on the basis of the number of Registrable
Securities that would be held by such Investors, and this procedure shall be
repeated until all of the Registrable Securities which may be included in the
registration on behalf of the requesting Investors have been so allocated.
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<PAGE> 7
9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Investor
and each Investor's officers and directors, any underwriter (as defined in the
Securities Act) for such Investor and each Person, if any, who controls (within
the meaning of the Securities Act or the Exchange Act) such Investor or
underwriter against any losses, claims, damages or liabilities, whether or not
involving a third party, to which they may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon a Violation by the Company (provided, however, that the Company
will not be required to indemnify any of the foregoing Persons on account of any
losses, claims, damages or liabilities arising out of or based upon a Violation
by the Company if and to the extent that such Violation was made in a
preliminary prospectus and was corrected in a subsequent prospectus that was
required by law to be delivered to the Person making the claim with respect to
which indemnification is sought hereunder (and such subsequent prospectus was
made available by the Company to permit delivery of such prospectus in a timely
manner) and such subsequent prospectus was not so delivered to such Person); and
the Company will pay to each indemnified party under this Section 9(a), as
incurred, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case to a particular
indemnified party for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation by the Company which
occurs in reliance upon and in conformity with written information furnished by
or on behalf of such indemnified party expressly for use in connection with any
registration.
(b) Each selling Investor will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each Person, if any, who controls (within the meaning of
the Securities Act or the Exchange Act) the Company, any underwriter (as defined
in the Securities Act), any other Investor or other Person selling securities
covered by such registration statement and each Person, if any, who controls
(within the meaning of the Securities Act or the Exchange Act) such underwriter
or other Investor or Person, against any losses, claims, damages or liabilities,
whether or not involving a third party, to which any of the foregoing Persons
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon a Violation by the selling
Investor, in each case to the extent that such Violation by the selling Investor
occurs in reliance upon and in conformity with written information furnished by
or on behalf of the indemnifying Investor expressly for use in connection with
any registration; and each indemnifying Investor will pay to each indemnified
party under this Section 9(b), as incurred, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the indemnifying
Investor (which consent shall not be unreasonably withheld); and further
provided, that in no event shall the liability of any Investor under this
Section 9(b) exceed the net proceeds from the offering received by such
Investor.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement of such action, and
the indemnifying party shall have the right to participate in and, to the extent
the indemnifying party so desires, jointly with any
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<PAGE> 8
other indemnifying party similarly noticed, to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party. The failure to
deliver written notice to the indemnifying party within a reasonable time after
the commencement of any such action shall not relieve such indemnifying party of
any liability to the indemnified party under this Section 9 except if, and only
to the extent that, the indemnifying party is actually prejudiced thereby; and
such failure to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 9.
(d) The obligations of the Company to any particular Investor
and of such Investor to the Company shall survive for a period of two (2) years
from the completion of any offering of Registrable Securities of such Investor
pursuant to the last registration statement under this Agreement in which such
Investor's Registrable Securities were included.
(e) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by or on behalf of the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person that was not guilty of fraudulent misrepresentation. Notwithstanding
anything to the contrary in this Section 9, no Investor shall be required,
pursuant to this Section 9, to contribute any amount in excess of the net
proceeds received by such Investor from the sale of Registrable Securities in
the offering to which the losses, claims, damages, liabilities or expenses of
the indemnified party relate.
10. Termination. The rights of any Investor to request registration or
inclusion in any registration pursuant to this Agreement shall terminate upon
the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii)
such time when Rule 144(k) or another similar exception under the Securities Act
is available for the sale of all of the Registrable Securities of the Investors
during any three-month period without registration; provided, however, that the
obligations of the parties contained in Section 9 hereof shall survive as
contemplated by Section 9(d).
11. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned in
whole or in part only by an Investor to one or more transferees or assignees
permitted under the Stockholders' Agreement dated as of the date hereof by and
among the Company, the Initial Investor and Intelligroup, Inc. (the
"Stockholders' Agreement"); provided that, in each case, as a condition to such
transfer or assignment, the transferring Investor shall give prior written
notice to the Company of such transfer or assignment (which notice shall set
forth the identity of the transferee or assignee) and such transferee or
assignee shall deliver to the Company a written instrument by which such
transferee or assignee agrees to be bound by the obligations imposed on the
transferring Investor under this Agreement, to the same extent as if such
transferee or assignee was a party hereto.
12. Additional Investors. The Initial Investor acknowledges and agrees
that: (i) following the date of this Agreement, the Company may sell additional
Common Stock (as defined in the Purchase Agreement) to other parties (the
"Additional Purchasers") on the same terms and conditions as are contained in
the Purchase Agreement, the Stockholders' Agreement and this Agreement,
including but not limited to under the terms of the Option Letter (as defined in
the Purchase Agreement), (ii) promptly
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<PAGE> 9
following such sale, this Agreement may be amended to add such Additional
Purchasers of Common Stock as parties hereto or such Additional Purchasers may
enter into Registration Rights Agreements with the Company with terms and
conditions which are the same as the terms and conditions of this Agreement, and
(iii) following such actions, such Additional Purchasers of Common Stock, shall
be deemed "Investors" with the same registration and other rights hereunder as
the Initial Investor and their securities shall be deemed "Registrable
Securities" hereunder.
13. Changes in Registrable Securities. If, and as often as, there are
any changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement as
a condition to any such merger or consolidation.
14. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement.
15. Amendment; Waiver. Any term, covenant, agreement or condition of
this Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), (i) as to the Company, by a written instrument signed by the
Company, and (ii) as to the Investors, by one or more written instruments signed
by all the Investors. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Investors and the Company.
16. Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or (i)
forty-eight (48) hours after being deposited in the U.S. mail in the case of
mail sent within the United States and (ii) five (5) days after being deposited
in the mail in the case of mail sent to or from a location outside the United
States, as certified or registered mail, with postage prepaid, as follows:
If to the Company to:
499 Thornall Street
Edison, New Jersey 08837
Attention: President
with a copy to:
Carter, Ledyard & Milburn
Two Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
If to an Investor:
At the address set forth on the signature page hereof
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or at such other address or facsimile number as shall be designated by such
party in a notice to the other party provided in accordance with this Section
16.
17. Severability. In the event one or more of the provisions of this
Agreement should for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and by facsimile, each of which shall be deemed an original and
enforceable against the parties actually executing such counterpart, and all of
which together shall constitute one instrument.
19. Entire Agreement. This Agreement, the Stockholders' Agreement and
the Purchase Agreement constitute the entire agreement among the parties
relative to the specific subject matter hereof. Any previous agreement among the
parties relative to the specific subject matter hereof is superseded by this
Agreement, the Stockholders' Agreement and the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be duly executed and delivered as of the date first written above.
SERANOVA, INC.
By: /s/ Ravi Singh
----------------------------------------
Name:
Title:
INVESTOR
By: /s/ Prashanth Rao Palakurthy
----------------------------------------
Name: Prashanth Rao Palakurthy
Title: Managing Partner
Address: NSA Investments LLC
1420 Providence Hwy
Suite #266
Norwood
MA - 02062
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<PAGE> 1
Exhibit 10.14
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the
"Company") SSB, Ltd. (the "Initial Investor" and together with any additional
permitted investors who become signatories hereof under the terms of Section 12
hereto and their respective permitted transferees under Section 11 hereto, if
any, being herein collectively referred to as the "Investors" ).
WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement,
dated as of the date hereof, between the Company and such Initial Investor (the
"Purchase Agreement"), and the Company and the Initial Investor have agreed to
enter into this Agreement in connection therewith;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Certain Definitions. For purposes of this Agreement:
(a) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(b) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(c) "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act.
(d) "Person" means any individual, partnership, corporation,
unincorporated organization or association, limited liability company, trust or
other firm or entity.
(e) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document.
(f) "Registrable Securities" means any shares of Common Stock
sold to an Investor pursuant to the Purchase Agreement or the terms of Section
12 hereof or transferred by the Initial Investor (or any additional permitted
investors under Section 12 hereto) to permitted transferees pursuant to Section
11 hereto; provided, however, that any Registrable Securities sold by the
Investors in a transaction in which such Investors' rights under this Agreement
are not assigned pursuant to Section 12 below shall cease to be Registrable
Securities from and after the time of such sale. Notwithstanding the foregoing,
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Act" means the Securities Act of 1933, as
amended.
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(i) "Violation" means any of the following statements,
omissions or violations: (i) any untrue statement or alleged untrue statement of
a material fact contained in a registration statement under this Agreement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading.
2. Request for Registration.
(a) If the Company shall receive, at any time after the
earlier of (i) five years after the date hereof or (ii) four (4) months after
the closing of the Spin-Off (as defined in the Purchase Agreement), from one or
more Investors cumulatively holding at least 30% of the Registrable Securities
not previously registered (the "Initiating Investors") a written request that
the Company file a registration statement under the Securities Act covering the
registration of at least 25% of the Registrable Securities not previously
registered (or any lesser number of shares if the anticipated aggregate offering
price, without regard to underwriting discounts and commissions, is reasonably
expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall,
subject to Section 2(b) below:
(i) Promptly give written notice of the proposed
registration to all other Investors (if any); and
(ii) As soon as practicable, use its reasonable
diligent efforts to effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with the
Securities Act) as would permit or facilitate the sale and distribution of the
portion of the Registrable Securities as are specified in the Qualifying
Request, together with the portion of the Registrable Securities of any Investor
joining in such Qualifying Request as are specified in a written request made by
such Investor(s) and received by the Company within 20 days after the written
notice from the Company described in clause (i) above is received by such
Investor(s).
(b) The Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 2: (i) after the
Company has initiated one such registration pursuant to this Section 2 (counting
for these purposes only registrations which have been declared or ordered
effective and pursuant to which securities have been sold), (ii) during any
period starting 60 days prior to the proposed filing date of a registration
statement of the Company and ending 180 days after the effective date of such
registration statement or (iii) if the Registrable Securities requested to be
included in a registration pursuant to this Section 2 may be registered on Form
S-3 pursuant to Section 4 hereof.
(c) Subject to Section 2(b) above, the Company shall file a
registration statement covering the Registrable Securities requested to be
registered pursuant to Section 2(a) as soon as practicable after receipt of the
Qualifying Request; provided, however, that if (i) in the good faith judgment of
the Board of Directors of the Company such registration would not be in the best
interests of the Company at such time, and (ii) the Company shall furnish to the
Initiating Investors a certificate signed by an authorized officer of the
Company to such effect, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Qualifying
Request; and, further provided, that the Company shall not defer its obligation
in this manner more than once in any twelve-month period.
(d) The registration statement required to be filed pursuant
to a Qualifying Request may, subject to the provisions of Section 2(e) hereof,
include other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
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<PAGE> 3
(e) If the Initiating Investors intend to distribute the
Registrable Securities covered by their Qualifying Request by means of an
underwriting, they shall so advise the Company as part of their Qualifying
Request made pursuant to Section 2(a), and the Company shall include such
information in its written notice referred to in Section 2(a)(i). In such event,
the right of any Investor to registration pursuant to this Section 2 shall be
conditioned upon such Investor's participation in such underwriting and the
inclusion of such Investor's Registrable Securities in the underwriting to the
extent provided herein. If the Company requests inclusion in any registration
pursuant to this Section 2 of securities being sold for its own account, or if
other Persons shall request inclusion in any registration pursuant to this
Section 2, the Initiating Investors shall, on behalf of all Investors, offer to
include such securities in the underwriting and may condition such offer on the
Company's and such Persons' acceptance of the applicable provisions of this
Agreement. The Company shall (together with all Investors and other Persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Registrable Securities held by the Initiating Investors, which
underwriters must be reasonably acceptable to the Company. Notwithstanding any
other provision of this Section 2, if the representative of the underwriters
advises the Initiating Investors and the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, then
the number of shares sought to be included by the Company and any Persons other
than the Investors requesting inclusion in such registration shall be reduced to
the extent required by the representative of the underwriters and the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all such other securities are first entirely excluded;
thereafter, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 8 hereof. If a Person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such Person shall be excluded
therefrom by written notice from the Company, and the securities so excluded
shall also be withdrawn from such registration. If shares are so withdrawn from
the registration and if the number of Registrable Securities to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 2(e), then the Company shall offer to all Investors who
have retained rights to include Registrable Securities in the registration the
right to include additional Registrable Securities (that were initially
requested to be included in such registration) in such registration in an
aggregate amount equal to the number of shares so withdrawn, with such shares to
be allocated among such Investors in accordance with Section 8.
3. Company Registration.
(a) Subject to Section 3(e) below, if at any time or times
after the date hereof the Company determines to register any of its equity
securities either for its own account or the account of a security holder or
holders exercising its or their demand registration rights, the Company will:
(i) Promptly give to each Investor written notice
thereof; and
(ii) Use its reasonable diligent efforts to include
in such registration (and any related qualifications under applicable blue sky
or other state securities laws and other compliance with the Securities Act),
except as set forth in Section 3(c) below, and in any underwriting involved
therein, all the Registrable Securities specified in a written request made by
any Investor and received by the Company within 20 days after the written notice
from the Company described in clause (i) above is received by such Investor.
Such written request may specify all or a part of an Investor's Registrable
Securities.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to Section
3(a)(i) above. In such event, the right of any Investor to registration
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<PAGE> 4
pursuant to this Section 3 shall be conditioned upon such Investor's
participation in such underwriting and the inclusion of such Investor's
Registrable Securities in the underwriting to the extent provided herein. All
Investors proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company that have exercised their registration rights to participate therein and
are distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) Notwithstanding any other provision of this Section 3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise all Investors holding Registrable
Securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated (i) first to the Company for securities being sold for its own account
and to security holders that have exercised their demand registration rights
with respect to such registration, (ii) then to all other holders of equity
securities of the Company included in such registration, including any
Investors, on a pro rata basis. If any Person does not agree to the terms of any
such underwriting, such Person shall be excluded therefrom by written notice
from the Company, and the securities so excluded shall also be withdrawn from
such registration.
(d) If shares are so withdrawn from the registration and if
the number of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to any Investors who have retained the right to include Registrable
Securities in the registration the right to include additional Registrable
Securities (that were initially requested to be included in such registration)
in such registration, provided that the number of shares of Registrable
Securities, and the other securities entitled to be included in such
registration in respect of such withdrawn shares, shall be allocated in
accordance with the first sentence of Section 3(c).
(e) This Section 3 shall not apply to a registration on any
registration form that does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities or to registrations relating solely to (i) any Company
employee benefit plan or (ii) transactions pursuant to Rule 145 or any other
similar rule promulgated under the Securities Act.
4. Registration on Form S-3.
(a) After the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of this
Agreement, the Investors holding at least 10% of the Registrable Securities not
previously registered shall have the right to request a registration on Form S-3
(such requests shall be in writing and shall state the number of Registrable
Securities to be sold by such Investors and the intended method of disposition).
As soon as practicable after receiving such request, the Company shall effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws, and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of the Registrable Securities
requested to be included in such registration; provided, however, that the
Company shall not be obligated to effect, or take any action to effect, any such
registration if (i) Form S-3 is not then available for use in such offering;
(ii) the anticipated aggregate offering price, without regard to underwriting
discounts and commissions, is not reasonably expected to exceed $3,000,000;
(iii) the Company shall furnish to the requesting Investors the certification
described in Section 2(c) (but subject to the limitations set forth therein);
(iv) the Company shall have already completed two registrations on Form S-3
during the prior 12 months (counting for this purpose only registrations which
have been declared or ordered effective); (v) the sale of Registrable Securities
in such offering would occur in any
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<PAGE> 5
jurisdiction in which the Company would be required to qualify to do business
(and in which it would not otherwise be required to qualify but for the sale of
such Registrable Securities) or to file a general consent to service of process;
or (vi) the sale of Registrable Securities in such offering would occur during
any period starting on the effective date of any registration statement of the
Company (other than such Form S-3) and ending 180 days after the effective date
of such registration statement.
(b) Regardless of whether any Investor has completed the sale
of its Registrable Securities covered by a Form S-3, if, at any time after the
effective date of such Form S-3, the Company notifies such Investor that such
Form S-3 includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, then the
Company may require such Investor to cease such Investor's sales of Registrable
Securities covered by such Form S-3 until such time as the Company files an
amendment to such Form S-3 correcting such untrue statement or including such
material fact, which amendment shall be filed by the Company no later than 90
days after the date of the Company's notice given to such Investor under this
Section 4(b).
5. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
soon as practicable:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective, and, upon the request of
any of the Investors holding Registrable Securities being registered thereunder,
keep such registration statement effective for up to 90 days or until the
Investors have completed the distribution referred to in such registration
statement, whichever occurs first; provided, however, that before filing such
registration statement or any amendment thereto, the Company will furnish to the
Investors holding Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement.
(c) Furnish to the Investors holding Registrable Securities
covered by such registration statement such number of copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus contained
in such registration statement (including each preliminary prospectus and any
summary prospectus) and any prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents as the Investors holding Registrable Securities covered by such
registration statement may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the representative of the underwriters of such offering.
(e) Notify each Investor holding Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact
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<PAGE> 6
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(f) Notify each Investor holding Registrable Securities
covered by such registration statement: (i) when the registration statement has
become effective; (ii) when any post-effective amendment to the registration
statement becomes effective; and (iii) of any request by the SEC for any
amendment or supplement to the registration statement or prospectus or for
additional information.
(g) Notify each Investor holding Registrable Securities
covered by such registration statement if at any time the SEC should institute
or threaten to institute any proceedings for the purpose of issuing, or should
issue, a stop order suspending the effectiveness of such registration statement.
Upon the occurrence of any of the events mentioned in the preceding sentence,
the Company will use its reasonable efforts to prevent the issuance of any such
stop order or to obtain the withdrawal thereof as soon as reasonably possible.
The Company will advise each Investor holding Registrable Securities covered by
such registration statement promptly of any order or communication of any public
board or body addressed to the Company suspending or threatening to suspend the
qualification of any Registrable Securities for sale in any jurisdiction.
(h) As soon as practicable after the effective date of such
registration statement, and in any event within 16 months thereafter, have "made
generally available to its security holders" (within the meaning of Rule 158
under the Securities Act) an earnings statement (which need not be audited)
covering a period of at least 12 months beginning after the effective date of
such registration statement and otherwise complying with Section 11(a) of the
Securities Act.
6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of such Registrable
Securities as shall be required to effect the registration of such Investor's
Registrable Securities.
7. Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions relating to Registrable Securities,
incurred in connection with registrations pursuant to this Agreement (for this
purpose only registrations which have been declared or ordered effective),
including, without limitation, all registration, filing and qualification fees,
printers' and accounting fees relating or apportionable thereto, the fees and
disbursements of one counsel for the security holders of the Company
participating in such registration up to a maximum amount of $15,000 and the
fees and disbursements of counsel to the Company shall be borne by the Company.
8. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities requested to be included in a
registration on behalf of the Investors cannot be so included as a result of
limitations imposed by any underwriter or underwriters of the aggregate number
of Registrable Securities that may be so included, the number of Registrable
Securities that may be so included shall be allocated among the Investors
requesting inclusion pro rata on the basis of the number of Registrable
Securities that would be held by such Investors; provided, however, that if any
Investor does not request inclusion of the minimum number of shares of
Registrable Securities allocated to such Investor pursuant to the
above-described procedure, the remaining portion of such Investor's allocation
shall be reallocated among those requesting Investors whose allocations did not
satisfy their requests, pro rata on the basis of the number of Registrable
Securities that would be held by such Investors, and this procedure shall be
repeated until all of the Registrable Securities which may be included in the
registration on behalf of the requesting Investors have been so allocated.
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9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Investor
and each Investor's officers and directors, any underwriter (as defined in the
Securities Act) for such Investor and each Person, if any, who controls (within
the meaning of the Securities Act or the Exchange Act) such Investor or
underwriter against any losses, claims, damages or liabilities, whether or not
involving a third party, to which they may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon a Violation by the Company (provided, however, that the Company
will not be required to indemnify any of the foregoing Persons on account of any
losses, claims, damages or liabilities arising out of or based upon a Violation
by the Company if and to the extent that such Violation was made in a
preliminary prospectus and was corrected in a subsequent prospectus that was
required by law to be delivered to the Person making the claim with respect to
which indemnification is sought hereunder (and such subsequent prospectus was
made available by the Company to permit delivery of such prospectus in a timely
manner) and such subsequent prospectus was not so delivered to such Person); and
the Company will pay to each indemnified party under this Section 9(a), as
incurred, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case to a particular
indemnified party for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation by the Company which
occurs in reliance upon and in conformity with written information furnished by
or on behalf of such indemnified party expressly for use in connection with any
registration.
(b) Each selling Investor will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each Person, if any, who controls (within the meaning of
the Securities Act or the Exchange Act) the Company, any underwriter (as defined
in the Securities Act), any other Investor or other Person selling securities
covered by such registration statement and each Person, if any, who controls
(within the meaning of the Securities Act or the Exchange Act) such underwriter
or other Investor or Person, against any losses, claims, damages or liabilities,
whether or not involving a third party, to which any of the foregoing Persons
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon a Violation by the selling
Investor, in each case to the extent that such Violation by the selling Investor
occurs in reliance upon and in conformity with written information furnished by
or on behalf of the indemnifying Investor expressly for use in connection with
any registration; and each indemnifying Investor will pay to each indemnified
party under this Section 9(b), as incurred, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the indemnifying
Investor (which consent shall not be unreasonably withheld); and further
provided, that in no event shall the liability of any Investor under this
Section 9(b) exceed the net proceeds from the offering received by such
Investor.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement of such action, and
the indemnifying party shall have the right to participate in and, to the extent
the indemnifying party so desires, jointly with any
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<PAGE> 8
other indemnifying party similarly noticed, to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party. The failure to
deliver written notice to the indemnifying party within a reasonable time after
the commencement of any such action shall not relieve such indemnifying party of
any liability to the indemnified party under this Section 9 except if, and only
to the extent that, the indemnifying party is actually prejudiced thereby; and
such failure to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 9.
(d) The obligations of the Company to any particular Investor
and of such Investor to the Company shall survive for a period of two (2) years
from the completion of any offering of Registrable Securities of such Investor
pursuant to the last registration statement under this Agreement in which such
Investor's Registrable Securities were included.
(e) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by or on behalf of the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person that was not guilty of fraudulent misrepresentation. Notwithstanding
anything to the contrary in this Section 9, no Investor shall be required,
pursuant to this Section 9, to contribute any amount in excess of the net
proceeds received by such Investor from the sale of Registrable Securities in
the offering to which the losses, claims, damages, liabilities or expenses of
the indemnified party relate.
10. Termination. The rights of any Investor to request registration or
inclusion in any registration pursuant to this Agreement shall terminate upon
the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii)
such time when Rule 144(k) or another similar exception under the Securities Act
is available for the sale of all of the Registrable Securities of the Investors
during any three-month period without registration; provided, however, that the
obligations of the parties contained in Section 9 hereof shall survive as
contemplated by Section 9(d).
11. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned in
whole or in part only by an Investor to one or more transferees or assignees
permitted under the Stockholders' Agreement dated as of the date hereof by and
among the Company, the Initial Investor and Intelligroup, Inc. (the
"Stockholders' Agreement"); provided that, in each case, as a condition to such
transfer or assignment, the transferring Investor shall give prior written
notice to the Company of such transfer or assignment (which notice shall set
forth the identity of the transferee or assignee) and such transferee or
assignee shall deliver to the Company a written instrument by which such
transferee or assignee agrees to be bound by the obligations imposed on the
transferring Investor under this Agreement, to the same extent as if such
transferee or assignee was a party hereto.
12. Additional Investors. The Initial Investor acknowledges and agrees
that: (i) following the date of this Agreement, the Company may sell additional
Common Stock (as defined in the Purchase Agreement) to other parties (the
"Additional Purchasers") on the same terms and conditions as are contained in
the Purchase Agreement, the Stockholders' Agreement and this Agreement,
including but not limited to under the terms of the Option Letter (as defined in
the Purchase Agreement), (ii) promptly
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following such sale, this Agreement may be amended to add such Additional
Purchasers of Common Stock as parties hereto or such Additional Purchasers may
enter into Registration Rights Agreements with the Company with terms and
conditions which are the same as the terms and conditions of this Agreement, and
(iii) following such actions, such Additional Purchasers of Common Stock, shall
be deemed "Investors" with the same registration and other rights hereunder as
the Initial Investor and their securities shall be deemed "Registrable
Securities" hereunder.
13. Changes in Registrable Securities. If, and as often as, there are
any changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement as
a condition to any such merger or consolidation.
14. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement.
15. Amendment; Waiver. Any term, covenant, agreement or condition of
this Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), (i) as to the Company, by a written instrument signed by the
Company, and (ii) as to the Investors, by one or more written instruments signed
by all the Investors. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Investors and the Company.
16. Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or (i)
forty-eight (48) hours after being deposited in the U.S. mail in the case of
mail sent within the United States and (ii) five (5) days after being deposited
in the mail in the case of mail sent to or from a location outside the United
States, as certified or registered mail, with postage prepaid, as follows:
If to the Company to:
499 Thornall Street
Edison, New Jersey 08837
Attention: President
with a copy to:
Carter, Ledyard & Milburn
Two Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
If to an Investor:
At the address set forth on the signature page hereof
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or at such other address or facsimile number as shall be designated by such
party in a notice to the other party provided in accordance with this Section
16.
17. Severability. In the event one or more of the provisions of this
Agreement should for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and by facsimile, each of which shall be deemed an original and
enforceable against the parties actually executing such counterpart, and all of
which together shall constitute one instrument.
19. Entire Agreement. This Agreement, the Stockholders' Agreement and
the Purchase Agreement constitute the entire agreement among the parties
relative to the specific subject matter hereof. Any previous agreement among the
parties relative to the specific subject matter hereof is superseded by this
Agreement, the Stockholders' Agreement and the Purchase Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be duly executed and delivered as of the date first written above.
SERANOVA, INC.
By: /s/ Ravi Singh
-------------------------------
Name:
Title:
INVESTOR
By: /s/ Ashok Pamani
-------------------------------
Name: Ashok Pamani
Title:
Address: SSB Investments Ltd.
79 Wyndham Street
2nd FL, Hong Kong
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<PAGE> 1
Exhibit 10.15
March 15, 2000
SeraNova, Inc.
499 Thornall Street
Edison, New Jersey 08837
Re: Common Stock Purchase
Dear Sirs:
You have provided us with copies of the form of Stock Purchase Agreement,
Stockholders Agreement and Registration Rights Agreement (the "Investment
Agreements"), pursuant to which certain investors are on the date hereof
purchasing 50 shares of Common Stock of SeraNova, Inc. (the "Company"). In
consideration of the payment of $10,000 and other valuable consideration,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, Global Emerging Markets North America Inc. ("GEM") hereby covenants and
agrees that, at the Company's option exercisable by written notice to GEM at any
time prior to April 15, 2000, GEM will, or will cause its affiliates to,
purchase from the Company up to 25 shares of Company Common Stock (the number of
shares, up to but not exceeding 25, to be designated by the Company in its
exercise notice to GEM). Such purchase and sale of Company Common Stock will be
completed at the price and on the other terms and conditions as are contained in
the Investment Agreements, and the parties hereto agree to execute and deliver
comparable agreements upon the closing of the investment by GEM or its
affiliates (which shall occur as promptly as practicable) if the Company
exercises its option hereunder.
Confirmed and Agreed:
GLOBAL EMERGING MARKETS
NORTH AMERICA INC.
By: /s/ Sanjay Pai
--------------------
Name: Sanjay Pai
Title: Director
Confirmed and Agreed:
SERANOVA, INC.
By: /s/ Ravi Singh
--------------------------------
Name: Ravi Singh
Title: Executive Vice President and
Chief Financial Officer
