<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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.
--------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
NEW JERSEY 22-3677719
- -------------------------------------------- --------------------------------------------
(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
------------------------------------------------------
(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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 wholly-owned
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 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, which is and will be the sole shareholder of
SeraNova, until the distribution has been completed.
(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 1,655,825 shares of its common stock under the
1999 Stock Plan at a weighted average exercise price of $6.51 per share.
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.
<TABLE>
<S> <C> <C>
(a) Financial Statements
1. See the Index to Financial Statements on page F-1 of the
Information Statement.
(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.
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C> <C>
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.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ The schedules or exhibits to this document are not being filed herewith
because SeraNova believes that the information contained therein should not be
considered material or such information is otherwise adequately disclosed in
this Registration Statement on Form 10 or may otherwise be filed as an Exhibit
to this Registration Statement. SeraNova agrees to furnish supplementally a
copy of any schedule or exhibit to the Commission upon request.
3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
SERANOVA, INC.
By: /s/ RAJKUMAR KONERU
------------------------------------
Rajkumar Koneru
President and Chairman
DATE: January 27, 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 the outstanding shares of common stock of
Intelligroup's wholly-owned subsidiary, SeraNova, Inc. ("SeraNova"). SeraNova is
a leading provider of strategic eBusiness services, including business to
business solutions.
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 JANUARY 27, 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 8 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 call 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers about the Spin-Off.................... ii
Forward-Looking Statements.................................. iii
Summary..................................................... 1
Risk Factors................................................ 8
The Spin-Off................................................ 19
Capitalization.............................................. 22
Selected Historical Financial Data.......................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 33
Management.................................................. 46
Relationship with Intelligroup.............................. 52
Certain Transactions........................................ 55
Principal Shareholders...................................... 55
Description of Capital Stock................................ 57
Where You Can Find More Information......................... 61
Index to Financial Statements............................... F-1
</TABLE>
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 SeraNova's shares of
common stock, all of which currently are 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
Intelligroup's receipt of an opinion from
Arthur Andersen LLP, its independent public
accountants, to the effect that the spin-off
should be tax-free to Intelligroup's
shareholders and to Intelligroup.
ARE THERE TAX CONSEQUENCES? Intelligroup is seeking an opinion from Arthur
Andersen LLP 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
20.
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. This means that you will give up your
right to receive our stock if you sell your
Intelligroup stock during this time and you
will have to deliver the certificate for our
stock to the buyer of your Intelligroup stock
once you receive our stock certificate.
Beginning on , 2000 we expect
that regular way trading in our stock will
begin on the Nasdaq National Market.
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."
Readers are cautioned not to place undue reliance on these forward-looking
statements which 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 is a leading provider of strategic eBusiness services, including
business to business (B2B) solutions. eBusiness includes a full range of
Internet-based transactions and communications among the enterprise and its
customers, suppliers and partners. Our services include strategic consulting,
design, implementation and management of eBusiness systems. In our client
engagements we apply our proprietary methodology, or Time-to-Market (TTM)
approach to all phases of our solutions offerings, including strategic
consulting, implementation and management of applications. We focus on bringing
our clients' B2B eBusiness initiatives to the market in a rapid time-frame. Our
services enable traditional businesses to combine the scope and efficiencies of
the Internet with their existing business practices to provide an integrated
eBusiness. We also work with emerging Internet-based companies that conduct
their business exclusively through the Internet. During the last three years, we
have performed Internet solutions services for over 80 clients in a variety of
industries. Our traditional business clients include American Express, Audi of
America, EMI Music Publishing, Hewlett-Packard, Novell and Volkswagen. Our
Internet-based clients include Liquidprice.com, Ihomeroom.com, Utah.com and
Medical Internet Solutions.
MARKET OPPORTUNITY
The Internet presents opportunities to transform businesses and entire
industries. Increasingly many companies are using the Internet as a platform for
universal communication and sophisticated global business transactions. Many
companies have capitalized on efficient and low-cost Internet-based technologies
to enhance traditional operations such as order fulfillment, customer relations,
record keeping and information distribution, while others have conducted
exclusive Internet businesses, maintaining only a limited physical presence.
Recently, the B2B market has emerged as a significantly larger industry segment.
According to International Data Corporation, worldwide B2B transactions on the
Internet is expected to reach $1.14 trillion by 2003.
The development and implementation of Internet-based services and solutions
requires the integration of strategic consulting, creative design and systems
engineering skills. Given the increasing pressure to bring products and
offerings to market quickly and the lack of in-house expertise, many companies
have chosen to outsource some or all of their Internet services requirements to
outside specialists with strategic, creative and technical expertise. These
outsourcing needs have generated worldwide demand for Internet professional
services, which International Data Corporation estimates will grow from $7
billion in 1998 to $78.5 billion in 2003.
Companies increasingly require a single-source, Internet professional
services provider with a comprehensive suite of service offerings, such as
strategy, implementation and management services. Furthermore, it is critical
for a service provider to have demonstrable knowledge of a client's business and
industry; to have appropriate technology expertise; and to leverage an
integrated methodology to rapidly deploy strategic B2B eBusiness solutions.
1
<PAGE> 7
OUR STRATEGY
Our strategy is to build upon our position as a leading B2B eBusiness
services provider. To be able to continue delivering significant value to our
clients, we are pursuing the following strategies:
- Establish and build recognition of the SeraNova name through an
aggressive marketing strategy which emphasizes our innovative B2B
eBusiness offerings and our Time-To-Market approach;
- Continue to expand our customer base and strengthen our relationships
with key clients;
- Further penetrate our vertical markets;
- Attract and retain outstanding professionals;
- Expand our sales force to gain new opportunities;
- Expand our geographic presence through a combination of internal growth
and acquisitions;
- Further enhance our end-to-end capabilities that span the entire spectrum
of services from strategy to design to implementation as well as
management of applications; and
- Continue to refine our Time-To-Market approach and solutions frameworks.
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 the
following conditions: Intelligroup's receipt of
an opinion from Arthur Andersen LLP to the
effect that the spin-off should be tax-free to
Intelligroup's shareholders and to Intelligroup
for federal income tax purposes.
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 stock will
trade on the Nasdaq National Market with due
bills attached. The due bills will entitle a
purchaser of Intelligroup stock during this
period to receive one share of our stock for
every one share purchased. 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 16.1 million shares of
Intelligroup common stock outstanding at the
close of business on , 2000
approximately 16.1 million shares of our stock
will be distributed in the spin-off. These
shares will constitute all of our capital stock
that will be outstanding immediately following
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
1,655,825 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................ It is a condition to the spin-off that
Intelligroup receives an opinion from Arthur
Andersen LLP 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 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
3
<PAGE> 9
"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 three-year period ended December 31, 1998, is derived
from our audited combined financial statements included elsewhere in this
information statement. The historical summary combined financial data for nine
months ended September 30, 1999 and 1998 are unaudited but, in our opinion, have
been prepared on a basis consistent with that of each of the fiscal years in the
three-year period ended December 31, 1998 (except for normal year-end
adjustments). The interim financial data include all adjustments that management
considers necessary for a fair presentation of interim results. 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 income (loss) per share. This is calculated by
dividing net income (loss) by the outstanding shares of common stock of
Intelligroup as of September 30, 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 NINE- MONTH PERIOD
MONTH PERIOD ENDED ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31,
------------------- ------------- -------------------
1999(2) 1998 1998(1) 1998 1997
-------- -------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $27,073 $10,567 $12,438 $ 8,995 $ 9,200
Cost of sales..................................... 15,606 6,062 7,315 4,797 4,949
Selling, general and administrative expenses...... 9,797 3,953 5,106 3,812 4,092
Depreciation and amortization..................... 630 76 102 133 150
Operating income (loss)........................... 1,040 476 (85) 253 9
Net income (loss)................................. 554 (55) (552) (253) (243)
Unaudited pro forma net income (loss) per common
share -- basic(3).............................. $ 0.04 $ 0.00 $ (0.04) $ (0.02) $ (0.02)
======= ======= ======= ======= =======
Shares used in per share calculation of unaudited
pro forma net income (loss) -- basic(3)........ 15,559 15,559 15,559 15,559 15,559
======= ======= ======= ======= =======
Unaudited pro forma net income (loss) per common
share -- diluted(3)............................ $ 0.03 $ 0.00 $ (0.04) $ (0.02) $ (0.02)
======= ======= ======= ======= =======
Shares used in per share calculation of unaudited
pro forma net income (loss) -- diluted(3)...... 16,803 15,559 15,559 15,559 15,559
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 321 $ 106 $ 677 $ 368 $ 635
Working capital (deficit)......................... 1,034 107 (424) 145 565
Total assets...................................... 17,433 4,286 5,775 3,216 2,402
Total liabilities................................. 11,766 3,854 5,383 2,975 1,866
Shareholder's equity.............................. 5,667 432 392 241 536
OTHER DATA:
Capital expenditures.............................. $ 659 $ 404 $ 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.
(3) See Note 2 to SeraNova's combined financial statements.
5
<PAGE> 11
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
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 September 30, 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 following unaudited pro forma combined statement of operations combines
the historical results of SeraNova for the nine months ended December 31, 1998
with the historical statement of operations of Network Publishing, Inc. as if
the acquisition occurred on April 1, 1998. The pro forma amounts are presented
for informational purposes only. These pro forma amounts are not necessarily
indicative of the results of operations of the combined SeraNova-Network
Publishing, Inc. which would have actually occurred.
6
<PAGE> 12
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
NETWORK
PUBLISHING, PRO FORMA PRO FORMA
SERANOVA INC. ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue......................................... $12,438 $3,138 $15,576
Cost of sales................................... 7,315 918 8,233
------- ------ -------
Gross profit.................................... 5,123 2,220 (a) 7,343
Selling, general and administrative expenses.... 5,208 1,774 214 7,196
------- ------ ----- -------
Operating income (loss)......................... (85) 446 (214) 147
Other income (expense), net..................... (66) (73) (139)
------- ------ ----- -------
Income (loss) before provision for income
taxes......................................... (151) 373 (214) 8
Provision for income taxes...................... 401 178 -- 579
------- ------ ----- -------
Net income (loss)............................... $ (552) $ 195 $(214) $ (571)
======= ====== ===== =======
Unaudited pro forma net income (loss) per common
share -- basic................................ $ (0.04) -- -- $ (0.04)
======= =======
Shares used in per share calculation of
unaudited pro forma net income (loss) basic... 15,559 -- -- 15,559
======= =======
Unaudited pro forma net income (loss) per common
share -- diluted.............................. $ (0.04) -- -- $ (0.04)
======= =======
Shares used in per share calculation of
unaudited pro forma net income
(loss) -- diluted............................. 15,559 -- -- 15,559
======= =======
</TABLE>
- ---------------
(a) Pro Forma Adjustments:
The excess of the purchase price over net tangible assets acquired was
approximately $4.1 million. This amount has been allocated to intangible
assets and goodwill. Amortization expense for the nine months ended December
31, 1998 would have been $214,000.
7
<PAGE> 13
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 strategic eBusiness services,
including business to business solutions. You should not place undue reliance on
those forward-looking statements. 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.
The spin-off is conditioned upon receipt by Intelligroup of an opinion from
Arthur Andersen LLP 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 22.9% of our total revenues for the nine months
ended September 30, 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.
8
<PAGE> 14
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.
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.
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 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.
RISK FACTORS RELATING TO OUR BUSINESS AND OUR SECURITIES
OUR LIMITED OPERATING HISTORY AS A SEPARATE COMPANY MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS.
We were not operated as a separate company prior to January 1, 2000. You
should consider the risks and uncertainties frequently encountered by companies
in the early stages of development, particularly those faced by companies in our
industry. These risks are magnified by the fact that we are operating in the new
and expanding Internet professional services market. These risks include our
need to:
- 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; and
- Develop our own internal operating and financial reporting procedures.
9
<PAGE> 15
The uncertainty of our future performance and the uncertainties regarding
the Internet, such as taxation, technical limitations and competition, increase
the risk that the value of your investment will decline. Our failure to
accurately address the issues facing our business could cause our business
results to significantly decline. We cannot assure you that the separation of
our business from Intelligroup will be successful.
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, business, 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
September 30, 1999, we were indebted to Intelligroup for approximately $4.7
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 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, some of which are not
within our control, may contribute to fluctuations in operating results. These
factors include the following:
- Variability in market demand for the Internet and for Internet
professional services;
- The number, size, scope and timing of our projects;
- Length of our sales cycle;
- Changes in pricing policies by us or our competitors;
10
<PAGE> 16
- Introduction of new services by us or our competitors;
- The efficiency with which we utilize our employees, including our ability
to move employees from completed projects to new engagements;
- Variations in billing margins and personnel utilization rates;
- Contract delays or cancellations;
- Short-term nature of customers' contractual commitments;
- Seasonal impact on projects for customers;
- Timing and integration of acquired businesses;
- Our hiring patterns;
- Costs and risks associated with fixed-price contracts;
- Market factors affecting the availability or costs of qualified technical
personnel;
- Timing and customer acceptance of our new services offerings; and
- General economic conditions.
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."
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
11
<PAGE> 17
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 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
12
<PAGE> 18
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."
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 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."
13
<PAGE> 19
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 on a time-and-materials
basis. 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
payroll, accounting, 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.
14
<PAGE> 20
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS.
Our future success is dependent, in part, upon our proprietary
implementation methodology, our Time-To-Market approach, 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 ecommerce 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.
15
<PAGE> 21
WE FACE RISKS BECAUSE WE HAVE INTERNATIONAL OPERATIONS.
Our international operations have been increased in recent years. For the
first nine months of 1999, approximately 31.9% 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. In addition, India has
experienced significant inflation, shortages of foreign exchange and has been
subject to civil unrest. 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.
Accord-
16
<PAGE> 22
ingly, we may be unable to obtain visas necessary to bring critical foreign
employees to the United States. Any 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
17
<PAGE> 23
- 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.
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
Bylaw Provisions."
ABSENCE OF DIVIDENDS.
We have never paid, and do not anticipate paying any cash dividends on our
common stock in the foreseeable future.
18
<PAGE> 24
THE SPIN-OFF
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. 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 16.1 million shares of common stock outstanding,
held by approximately 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 "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).
19
<PAGE> 25
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.
The spin-off is conditioned upon receipt by Intelligroup of an opinion from
Arthur Andersen 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 income, gain or loss
as a result of the spin-off.
- 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.
20
<PAGE> 26
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 other wise 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.
21
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on an actual and as adjusted basis. The as adjusted information reflects the
spin-off as if the spin-off had occurred on September 30, 1999.
Notes payable to parent represents $4.7 million payable to Intelligroup as
of September 30, 1999. As of such date, our long-term debt was $647,000. 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 SEPTEMBER 30, 1999
(IN THOUSANDS)
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Notes payable to parent..................................... $ 4,737 $ 4,737
------- -------
Long-term debt.............................................. 647 647
------- -------
Shareholder's equity........................................ --
Common stock: $0.01 par value 40,000,000 shares authorized:
outstanding as adjusted(1)................................ -- 159
Additional paid-in capital.................................. -- 5,941
Parent company investment(2)................................ 6,100 --
Accumulated comprehensive loss.............................. (433) (433)
------- -------
Total shareholder's equity............................. 5,667 5,667
------- -------
Total capitalization................................... $11,051 $11,051
======= =======
</TABLE>
- ---------------
(1) Excludes 2,966,000 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999 and shares issuable upon exercise of any
options to be issued in substitution of existing Intelligroup options as of
the date of the spin-off, the number of which will not be ascertainable
until the spin-off. (See Note 10 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.
22
<PAGE> 28
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, 1998 and March 31, 1998 and for the nine months ended December 31,
1998 and the years ended March 31, 1998 and 1997. Their report relating to such
audit appears on page F-2 of this information statement. The historical
financial data set forth below for each of the fiscal years in the two year
period ended March 31, 1996 and the nine months ended September 30, 1999 and
1998 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.
23
<PAGE> 29
SERANOVA, INC. AND AFFILIATES
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
FOR THE NINE MONTHS ENDED
ENDED SEPTEMBER 30, DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
-------------------- ------------ ------------------------------------
1999 1998 1998 1998 1997 1996 1995
-------- -------- ------------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues........................ $27,073 $10,567 $12,438 $8,995 $9,200 $9,347 $7,406
Cost of sales................... 15,606 6,062 7,315 4,797 4,949 4,664 3,130
------- ------- ------- ------ ------ ------ ------
Gross profit.................... 11,467 4,505 5,123 4,198 4,251 4,683 4,276
Selling, general and
administrative expenses....... 9,797 3,953 5,106 3,812 4,092 3,576 3,322
Depreciation and amortization... 630 76 102 133 150 119 57
------- ------- ------- ------ ------ ------ ------
Total operating
expenses............. 10,427 4,029 5,208 3,945 4,242 3,695 3,379
------- ------- ------- ------ ------ ------ ------
Operating income (loss)......... 1,040 476 (85) 253 9 988 897
Other income (expense), net..... (37) 137 (66) 13 (80) 13 (25)
------- ------- ------- ------ ------ ------ ------
Income (loss) before income
taxes......................... 1,003 613 (151) 266 (71) 1,001 872
Provision for income taxes...... 449 668 401 519 172 470 323
------- ------- ------- ------ ------ ------ ------
Net income (loss)............... $ 554 $ (55) $ (552) $ (253) $ (243) $ 531 $ 549
======= ======= ======= ====== ====== ====== ======
Unaudited pro forma net income
(loss) per common share --
basic(1)...................... $ 0.04 $ 0.00 $ (0.04) $(0.02) $(0.02) $ 0.03 $ 0.04
======= ======= ======= ====== ====== ====== ======
Shares used in per share
calculation of unaudited pro
forma net income
(loss) -- basic(1)............ 15,559 15,559 15,559 15,559 15,559 15,559 15,559
======= ======= ======= ====== ====== ====== ======
Unaudited pro forma net income
(loss) per common share --
diluted(1).................... $ 0.03 $ 0.00 $ (0.04) $(0.02) $(0.02) $ 0.03 $ 0.04
======= ======= ======= ====== ====== ====== ======
Shares used in per share
calculation of unaudited pro
forma net income
(loss) -- diluted(1).......... 16,803 15,559 15,559 15,559 15,559 15,559 15,559
======= ======= ======= ====== ====== ====== ======
BALANCE SHEET DATA: (AT PERIOD
END)
Cash............................ $ 321 $ 106 $ 677 $ 368 $ 635 $1,237 $1,159
Working capital (deficit)....... 1,034 107 (424) 145 565 1,152 522
Total assets.................... 17,443 4,286 5,775 3,216 2,402 4,026 3,579
Long-term debt.................. 647 -- -- 219 521 523 196
Shareholder's equity............ 5,667 432 392 241 536 925 617
</TABLE>
- ---------------
(1) See Note 2 to SeraNova's combined financial statements.
24
<PAGE> 30
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 is a leading provider of B2B eBusiness professional services. B2B
eBusiness refers to business transactions that are conducted among companies
over the Internet. SeraNova's services include strategic consulting, creative
design, implementation and management of eBusiness 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 a 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. Strategic consulting, which includes business analysis
and project definition, is typically performed at the client's site. A
significant part of creative design and implementation is provided from one of
our delivery centers located within the United States or elsewhere. See
"Business" for further discussion of our services offerings. Most of the
services we deliver 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 provide our services on a time and materials basis. For the
nine months ended September 30, 1999, approximately 95% of our revenues were
derived from 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 nine-month period ended September 30,
1999, only one client accounted for more than 10% of our revenues. American
Express accounted for 22.9% of the total revenue for the nine-month period ended
September 30, 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 eBusiness 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 significant
negative impact on our business and operations. Our results from quarter to
quarter may vary based upon such factors as the number of projects, billing
rate, length of the sales cycle, our ability to recruit technical personnel 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 client professionals 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 corporate costs. Beginning in
the fourth quarter of 1999, we made and anticipate making, significant marketing
25
<PAGE> 31
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' 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 B2B 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 6 to 15 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 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.
26
<PAGE> 32
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE-MONTH FOR THE
PERIOD ENDED NINE-MONTH FOR THE YEARS ENDED
SEPTEMBER 30, PERIOD ENDED MARCH 31,
-------------------------- DECEMBER 31, -------------------
1999 1998 1998 1998 1997
----------- ----------- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $27,073 $10,567 $12,438 $8,995 $9,200
Cost of sales....................... 15,606 6,062 7,315 4,797 4,949
------- ------- ------- ------ ------
Gross profit...................... 11,467 4,505 5,123 4,198 4,251
Operating expenses:
Selling, general and administrative
expenses.......................... 9,797 3,953 5,106 3,812 4,092
Depreciation and amortization....... 630 76 102 133 150
------- ------- ------- ------ ------
Total operating expenses....... 10,427 4,029 5,208 3,945 4,242
------- ------- ------- ------ ------
Operating income (loss)........ 1,040 476 (85) 253 9
Other income (expenses), net:
Interest expense.................... (64) (24) (14) (10) --
Other income (expense), net......... 27 161 (52) 23 (80)
------- ------- ------- ------ ------
Total other income (expenses),
net.......................... (37) 137 (66) 13 (80)
------- ------- ------- ------ ------
Income (loss) before income taxes... 1,003 613 (151) 266 (71)
Provision for income taxes.......... 449 668 401 519 172
------- ------- ------- ------ ------
Net income (loss)................. $ 554 $ (55) $ (552) $ (253) $ (243)
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE-MONTH FOR THE
PERIOD ENDED NINE-MONTH FOR THE YEARS ENDED
SEPTEMBER 30, PERIOD ENDED MARCH 31,
------------------ DECEMBER 31, --------------------
1999 1998 1998 1998 1997
------ ------ ------------ ------- -------
<S> <C> <C> <C> <C> <C>
As a Percentage of Revenues:
Revenues............................ 100.0% 100.0% 100.0 % 100.0% 100.0%
Cost of sales....................... 57.6 57.4 58.8 53.3 53.8
----- ----- ----- ----- -----
Gross profit...................... 42.4 42.6 41.2 46.7 46.2
Operating expenses:
Selling, general and administrative
expenses.......................... 36.2 37.4 41.1 42.4 44.5
Depreciation and amortization....... 2.3 0.7 0.8 1.5 1.6
----- ----- ----- ----- -----
Total operating expenses....... 38.5 38.1 41.9 43.9 46.1
----- ----- ----- ----- -----
Operating income (loss)........ 3.9 4.5 (0.7) 2.8 0.0
Other income (expenses), net:
Interest expense.................. (0.2) (0.2) (0.1) (0.1) 0.0
Other income (expense)............ 0.1 1.5 (0.4) 0.3 (0.9)
----- ----- ----- ----- -----
Total other income (expenses),
net.......................... (0.1) 1.3 (0.5) 0.2 (0.9)
----- ----- ----- ----- -----
Income (loss) before income taxes... 3.8 5.8 (1.2) 3.0 (0.8)
Provision for income taxes.......... 1.7 6.3 3.2 5.8 1.9
----- ----- ----- ----- -----
Net income (loss)................. 2.1% (0.5)% (4.4)% (2.8)% (2.7)%
===== ===== ===== ===== =====
</TABLE>
27
<PAGE> 33
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenues. Revenues increased $16.5 million, or 156.2%, to $27.1 million in
the first nine months of 1999 from $10.6 million in the first nine months of
1998. This increase in revenue is the result of an increase in the number of
clients and the increased size of engagements, as well as the acquisition of
Network Publishing, Inc. on January 8, 1999. Network Publishing, Inc. accounted
for approximately $3.5 million or 12.8% of the first nine months revenue in
1999. The Azimuth Companies' revenue increased by $2.8 million in the first nine
months of 1999 as compared with the first nine months of 1998.
Gross profit. Gross profit represents our revenues less our 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. During the first nine months of 1999,
gross profit increased $7.0 million, or 154.5%, to $11.5 million, from $4.5
million in the first nine months of 1998. This increase is attributable to 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. Gross profit as a percentage of total revenues remained relatively
constant at 42.4% for the first nine months of 1999 as compared to 42.6% for the
same period in 1998. Gross profit percentage is determined by the overall
utilization of consulting personnel and the billing 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 $5.8 million, or 147.9%, to $9.8 million in the first nine
months of 1999 from $4.0 million in the same period in 1998 but decreased as a
percentage of total revenue to 36.2% for the first nine months of 1999 from
37.4% for the first nine months of 1998. The acquisition of Network Publishing,
Inc. and the additional investment in the expansion of SeraNova's U.S.
operations contributed to the increase in actual expenses. The decrease as a
percentage of total revenue is attributable to better leverage of management and
marketing across different regions within the U.S.
Depreciation and amortization. Depreciation and amortization increased
$553,000, or 725.2%, to $630,000 in the first nine months of 1999 from $76,000
in the first nine months of 1998. Depreciation and amortization also increased
as a percentage of total revenues to 2.3% in the first nine months of 1999 from
0.7% in the first nine months of 1998. Both the actual and percentage increases
were primarily due to the amortization of the intangible assets and goodwill
related to the acquisition of Network Publishing, Inc. and the depreciation
related to the increased investment in capital assets.
Other income (expense), net. Other income (expense), net decreased
$174,000, or 127.0%, to a net expense of $37,000 in the first nine months of
1999 from net income of $137,000 in the first nine months of 1998. The decrease
is primarily a result of losses on currency fluctuations relating to the Azimuth
Companies' operations in the first nine months of 1999 as compared with a net
gain for the first nine months of 1998.
Provision for income taxes. Income tax expense represents combined
federal, state and foreign taxes. Our income tax provision of $449,000 on pretax
profits of $1.0 million for the first nine months of 1999 compared with a
$668,000 provision on pretax profits of $613,000 for the comparable period in
1998. The effective tax rate for the first nine month period of 1999 was 44.9%
as compared with 109.0% in the similar period in 1998. The high effective tax
rate for 1998 was due to income taxes incurred by the Azimuth Companies in
certain foreign countries that were not able to be offset against losses in
other foreign jurisdictions.
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
28
<PAGE> 34
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 24.1% 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 to streamline operations of the Azimuth Companies
during the nine-month period ended December 31, 1998.
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. Annualization of
the nine-month period, depreciation and amortization would increase $3,000, or
1.9% to approximately $136,000. This increase in depreciation and amortization
expense 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 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.
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
Revenues. Revenues decreased $205,000, or 2.2%, to $9.0 million in the
fiscal year ended March 31, 1998 from $9.2 million for the fiscal year ended
March 31, 1997. The Azimuth Companies instituted a realignment of certain
operations during fiscal year 1998. This included consolidation of office space,
staff reductions and terminating low margin sales contracts. The realignment
resulted in a decrease in revenue for fiscal year 1998 compared to 1997 that was
partially offset by revenues generated from the Internet operations in the U.S.
during the full year of 1998 versus only a portion of the year in 1997.
29
<PAGE> 35
Gross profit. Gross profit decreased $52,000, or 1.2%, to $4.2 million for
the fiscal year ended March 31, 1998 from $4.3 million in the comparable fiscal
year 1997. This decrease is due to the realignment of foreign operations
partially offset by the gross profit generated from the Internet operations in
the U.S. during the full year of 1998 versus only a portion of the year in 1997.
Gross profit as a percentage of total revenues increased slightly to 46.7% of
total revenues for the year ended March 31, 1998 as compared to 46.2% for the
same period in 1997. This increase is primarily due to the lower utilization
rates achieved during the development and expansion of U.S. operations offset by
higher utilization rates on foreign operations as a result of the realignment.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $280,000, or 6.8%, to $3.8 million in fiscal
year 1998 from $4.1 million in the same period in 1997. Selling, general and
administrative expenses also decreased as a percentage of total revenues by 2.1%
to 42.4% for fiscal year 1998 from 44.5% for the fiscal year 1997. The decreases
in both absolute dollars and as a percentage of total revenues reflect the
reduction in expenses from foreign operations due to the realignment previously
discussed, somewhat offset by an increase in U.S. expenses to expand operations.
Depreciation and amortization. Depreciation and amortization decreased by
$17,000, or 11.3%, to $133,000 in the year ended March 31, 1998 from $150,000 in
the comparable period in 1997. The decrease represents the decrease in foreign
expense due to the realignment previously discussed during the fiscal year ended
March 31, 1998 offset by the increase in depreciation related to the purchase of
capital assets for the U.S. operations.
Other income (expense), net. Other income (expense), net increased by
$93,000, or 116.5%, to income, net of $13,000 in the fiscal year ended March 31,
1998 from a net expense of $80,000 in the fiscal year ended March 31, 1997. The
increase is due to net gains on currency exchange fluctuations relating to
foreign operations during fiscal year 1998 compared with net losses incurred
during fiscal year 1997.
Provision for income taxes. Income tax expense represents combined
federal, state and foreign taxes. Our income tax provision was $519,000 on
pretax profits of $266,000 for fiscal year ended March 31, 1998 compared with
$172,000 on pretax losses of $71,000 for the comparable period in 1997. The high
effective tax rate for the year ended March 31, 1997 was due to losses incurred
in Australia by the Azimuth Companies that was unable to offset against income
generated by New Zealand. This resulted in a tax liability even though combined
foreign operations had pretax losses. The high effective tax rate for the year
ended March 31, 1998 primarily relates to the Azimuth Companies taxable profits
derived in jurisdictions outside of New Zealand that were not claimable in New
Zealand. Prior to June 1998, the Azimuth Companies operated a branch in the
Philippines, versus a separate subsidiary, which resulted in a higher tax rate.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly
financial information for each of the seven most recent quarters in the period
ended September 30, 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
30
<PAGE> 36
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
----------------------------------------------------------------------------------
SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $10,471 $8,614 $7,988 $4,811 $4,169 $3,525 $2,873
Cost of sales...................... 6,091 4,866 4,649 2,898 2,534 1,924 1,604
------- ------ ------ ------ ------ ------ ------
Gross profit..................... 4,380 3,748 3,339 1,913 1,635 1,601 1,269
Operating expenses:
Selling, general and
administrative expenses........ 3,698 3,373 2,726 2,327 1,525 1,250 1,178
Depreciation and amortization.... 350 145 135 75 2 45 29
------- ------ ------ ------ ------ ------ ------
Total operating expenses......... 4,048 3,518 2,861 2,402 1,527 1,295 1,207
------- ------ ------ ------ ------ ------ ------
Operating income (loss).......... 332 230 478 (489) 108 306 62
Other (expenses) income, net....... (5) (13) (19) (156) 106 (12) 43
------- ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes............................ 327 217 459 (645) 214 294 105
Provision for income taxes......... 205 65 179 (69) 420 67 181
------- ------ ------ ------ ------ ------ ------
Net income (loss).................. $ 122 $ 152 $ 280 $ (576) $ (206) $ 227 $ (76)
======= ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- --------
<S> <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%
Cost of sales...................... 58.2 56.5 58.2 60.2 60.8 54.6 55.8
------- ------ ------ ------ ------ ------ ------
Gross profit..................... 41.8 43.5 41.8 39.8 39.2 45.4 44.2
Operating expenses:
Selling, general and
administrative expenses........ 35.3 39.2 34.1 48.3 36.6 35.5 41.0
Depreciation and amortization.... 3.3 1.7 1.7 1.6 0.1 1.2 1.0
------- ------ ------ ------ ------ ------ ------
Total operating expenses......... 38.6 40.9 35.8 49.9 36.7 36.7 42.0
------- ------ ------ ------ ------ ------ ------
Operating income (loss).......... 3.2 2.6 6.0 (10.1) 2.5 8.7 2.2
Other (expenses) income, net....... (0.1) (0.2) (0.2) (3.3) 2.5 (0.3) 1.5
------- ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes............................ 3.1 2.4 5.8 (13.4) 5.0 8.4 3.7
Provision for income taxes......... 2.0 0.8 2.2 1.4 10.1 2.0 6.3
------- ------ ------ ------ ------ ------ ------
Net income (loss).................. 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 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."
In the first nine months of 1999, net cash used in operating activities
totaled $3.2 million. Cash was provided by $554,000 of net income, $630,000 from
depreciation and amortization, $420,000 from accrued payroll and related costs
increase and $1.8 million from an increase in accrued expenses and other
liabilities. This was offset by a $4.0 million increase in accounts receivable
and a $2.7 million increase in unbilled services. The increase in accounts
receivable and unbilled services was primarily due to the increased
31
<PAGE> 37
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 first nine months of 1999 and the nine
months ended December 31, 1998 of $659,000 and 603,000, respectively, for
computers, furniture, equipment and leasehold improvements. Capital expenditures
are expected to increase for the remainder 1999.
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 September 30, 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.
We intend to obtain external financing and are in the process of evaluating
various financing alternatives. We believe that the net proceeds of such
financing, along with the planned additional funding from Intelligroup which we
believe will be required until consummation of the spin-off, will be sufficient
to fund capital requirements for the foreseeable future. We believe that cash
flows expected to be generated from operations, together with 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.
32
<PAGE> 38
BUSINESS
OVERVIEW
SeraNova is a leading provider of strategic eBusiness services, including
business to business, or B2B, solutions. eBusiness includes a full range of
Internet-based transactions and communications among the enterprise and its
customers, suppliers and partners. We offer an array of eBusiness solutions,
including strategic consulting, design, implementation and management of
eBusiness systems. Our proprietary methodology, or Time-to-Market approach,
encompasses all phases relating to strategy, implementation and management of
applications. We focus on rapidly bringing our clients' B2B eBusiness
initiatives to the market. We believe that our eBusiness solutions allow our
clients to gain competitive advantages 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.
Our services enable traditional businesses to combine the scope and
efficiencies of the Internet with their existing business practices to provide
an integrated eBusiness. We also work with emerging Internet-based companies
that conduct their business exclusively through the Internet. During the last
three years, we have performed Internet solutions services for over 80 clients
in a variety of industries. Our traditional business clients include American
Express, Audi of America, EMI Music Publishing, Hewlett-Packard, Novell and
Volkswagen. Our Internet-based clients include Liquidprice.com, Ihomeroom.com,
Utah.com and Medical Internet Solutions.
INDUSTRY BACKGROUND
Internet As The Universal Platform for Business and Communication
The rapid growth in Internet usage and electronic commerce has enabled
companies to improve their core competencies, while identifying new offerings to
extend and complement their current business activities. As a result, businesses
have generated new sources of revenue, improved customer service and streamlined
internal operations.
The expanded use and broad acceptance of the Internet has been driven by:
- user friendly browsers;
- continued advancement in computing technologies;
- compelling Web-based content;
- increasingly sophisticated users; and
- emergence of electronic commerce.
In addition, the use of intranets, secure websites accessible solely within
a given company, and extranets, websites available to certain outsiders, has
further changed the manner in which businesses and their customers, employees,
suppliers and partners communicate and transact business.
Growth of B2B Electronic Commerce
Initially, companies used the Internet as an advertising medium to provide
information to potential customers and to promote their business. The resulting
websites structured in a "read only" format were commonly referred to as
"brochureware." From this origin, the Internet has evolved into a platform for
conducting sophisticated, global business transactions. Many companies have
capitalized on efficient and low-cost Internet-based technologies to enhance
traditional operations such as order fulfillment, customer relations, record
keeping and information distribution, while others have conducted exclusive
Internet businesses, maintaining only a limited physical presence. Recently, the
business-to-business, or B2B, market has emerged as a significantly larger
industry segment. According to International Data Corporation, worldwide B2B
transactions on the Internet are expected to reach $1.14 trillion by 2003.
33
<PAGE> 39
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. As a result, many companies are being forced to reevaluate their
business models to implement new or supplement current Internet-based business
solutions. The development and implementation of Internet-based services and
solutions requires the integration of strategic consulting, creative design and
systems engineering skills. 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
businesses have chosen to outsource some or all of their Internet services
requirements to outside specialists with strategic, creative and technical
expertise. These outsourcing needs have generated worldwide 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
As companies continue to outsource their Internet services requirements,
they seek creative, technologically advanced, cost effective and strategic
solutions necessary to remain competitive. Companies increasingly discover that
traditional information technology service providers lack the expertise to
design, develop and implement Internet-based solutions. For example, many
information technology service providers do not have the creative skills
required to create captivating web-based content and provide a favorable
customer experience. Advertising and marketing firms typically lack the
technical expertise 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 an array of comprehensive solutions.
Consequently, numerous Internet services companies have emerged to fulfill these
needs. Companies can retain several Internet services providers, each offering a
narrow range of specialized services, or one provider offering a full range of
services. Smaller providers are typically constrained by the amount of available
personnel, limited geographic scope and lack of capital resources. In addition,
many of these firms lack sufficient knowledge of their clients' industries and
businesses and have limited experience in delivering complex B2B projects.
Furthermore, companies realize that their Internet strategy is constantly
evolving, therefore managing multiple programs, and effectively maintaining and
updating these applications could significantly impact their ability to compete.
Companies increasingly require a single-source Internet professional
services provider with a comprehensive suite of service offerings, such as
strategy, implementation and management services. Furthermore, it is critical
for a service provider to have demonstrable knowledge of a client's business and
industry; to have appropriate technology expertise; and to leverage an
integrated methodology to rapidly deploy strategic B2B eBusiness solutions.
THE SERANOVA SOLUTION
We build strategic eBusiness solutions that enable our clients to achieve
competitive advantages. We believe we have the necessary assets to achieve
significant time-to-market benefits for our clients. These key assets include
our:
- 80 strategy consultants with strong vertical industry knowledge;
- information planning and program management experience;
- full spectrum of digital solutions which range from customer interaction
to electronic procurement solutions;
- intimate knowledge of existing Enterprise Resource Package (ERP),
Customer Relationship Management (CRM) and other legacy systems which is
an important element of B2B applications;
- interactive designers and creative professionals;
34
<PAGE> 40
- time-to-market approach which is an integrated methodology focused on
rapid execution; and
- application management capabilities.
Our core platform for B2B solutions development is the Enterprise
Information Portal (EIP). Our EIP for enterprises is a customized browser-based
interface which allows a company to aggregate all disparate systems within an
enterprise, such as ERP systems, workflow applications, customer relationship
management systems and other business applications as well as databases under a
common platform. Every constituent of the company, including senior management,
salespeople, engineers, suppliers or customers interact with the enterprise
through a single customized browser-based interface. An EIP integrates all the
internal systems, connects them to applications residing outside the company
while managing the security and access to content and applications. In summary,
it provides a flexible and scaleable platform for B2B activities on the web. To
maintain our leadership in the EIP market, SeraNova continues work with emerging
leaders in the EIP software market.
Our Time-to-Market approach is an integral part of our service offerings.
We offer strategic consulting services to formulate a comprehensive Internet
strategy closely aligned with the business objectives of our clients. We
leverage our solution frameworks to accelerate the implementation of our
complementary e-procurement solutions, channel management solutions, solutions
for management of presence on multiple online vertical exchanges, employee
enablement solutions and interactive customer solutions, to create intelligent
and empowered users and a competitively well-positioned enterprise. We also
offer an array of flexible application maintenance capabilities and application
hosting services. SeraNova works with a range of hardware and software vendors
to address a client's needs. We believe that our single-source service offering
saves critical time for our clients.
To further drive time-to-market gains, we have a network of global delivery
centers spanning multiple time zones, which uniquely enables us to engage in
concurrent development and have a virtual 24-hour work day on client projects.
We believe we have achieved significant time-to-market gains as a result of our
concurrent development expertise. We currently have delivery centers in
strategic locations, including, Edison, New Jersey; Phoenix, Arizona; Provo,
Utah; Foster City, California; Chicago, Illinois; and a state-of-the-art
Internet development center in Hyderabad, India.
We believe that our industry-specific focus also enables us to provide
time-to-market benefits as well as superior client-driven eBusiness solutions.
We currently focus on four industries, financial services, telecommunications,
high-technology, and automotive/manufacturing. We anticipate expanding our
industry focus to the healthcare, retail and utilities industries during the
next few months.
BUSINESS STRATEGY
Our goal is to be the leading B2B eBusiness services provider. To be able
to continue delivering significant value to our clients, we are pursuing the
following strategies:
- BRANDING OF SERANOVA. We plan to establish and build recognition of the
SeraNova name through an aggressive marketing strategy, which will
emphasize our innovative B2B e-services offerings and our time-to-market
approach. In addition, we intend to highlight our eBusiness leadership in
the areas of B2B solutions and enterprise information portals
specifically, by hosting and sponsoring seminars and roundtable
discussions. We also intend to develop Digital Vision Labs, which will
demonstrate some of our leading edge solutions for various industries to
our clients on a global basis. Through our Digital Vision Labs, we seek
to have our clients and potential clients associate cutting-edge
eBusiness solutions with SeraNova.
- BUILDING A HIGHLY SKILLED ORGANIZATION FOCUSED AROUND VERTICAL INDUSTRIES
AND HORIZONTAL OFFERINGS. We are investing in building the superior
practices along vertical industries and horizontal offerings. Our current
vertical focus is in the financial services, automotive/manufacturing,
telecommunications and high-technology sectors. Companies in these
industries are aggressively spending on their B2B eBusiness initiatives.
We intend to expand our vertical focus to include healthcare, retail and
utilities. Our B2B horizontal offerings are organized around suppliers,
partners, employees and customers. For
35
<PAGE> 41
example, our eProcurement offering focuses on the transactional and
communications needs of suppliers and our channel management offering is
targeted to the enterprise's partners.
- PROVIDING THOUGHT LEADERSHIP. The environment in which our clients
compete is being transformed rapidly. Enterprises must respond quickly to
new business opportunities and increased competition with eBusiness
solutions. Many of our clients rely on us to articulate a strategic path
to achieve a powerful Internet presence. We work very closely with our
clients in identifying their strategic business objectives and providing
guidance on a critical path to achieve those objectives. We have a strong
knowledge management function that captures our collective knowledge and
complements it with market knowledge. We have continuous internal
"eStrategy Sessions" where our strategy consultants analyze and discuss
new trends that they expect will develop over the next few years in their
respective industries. As a result, we develop strong and dynamic
industry-specific work product that anticipates market changes and
clients' future needs. We intend to continue to articulate a coherent
vision for our clients' business needs.
- ATTRACT AND RETAIN OUTSTANDING PROFESSIONALS. Our business depends upon
the experience and dedication of our professionals. As an integral part
of our service offerings, we offer our intellectual experience to
clients. Our future growth and our ability to provide a comprehensive
range of innovative Internet-related 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. Our business and technical professionals are driven by
the desire of working on our strategic and technically leading-edge
projects. We plan to retain and motivate our employees through
competitive compensation packages, stock option grants, and by fostering
a culture that rewards teamwork and customer-orientation. We aggressively
train and provide numerous career and personal improvement programs
within SeraNova and seek to reward employees based on merit.
- CONTINUE TO EXPAND OUR CUSTOMER BASE AND STRENGTHEN OUR RELATIONSHIPS
WITH KEY CLIENTS. We believe in becoming close eBusiness services
partners to our clients. By establishing close relationships with
clients, we believe we can together address challenges and seize
opportunities more effectively. 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. We are focused on delivering leading-edge solutions to help
our clients redefine and transform their businesses to leverage
opportunities presented by the Internet. To further expand our client
relationships, we will continue to assemble a superior portfolio of
client-driven service offerings. We believe this focus results in client
satisfaction, follow-on engagements with existing clients, and referrals
for engagements with new clients.
- EXPAND OUR SALES FORCE TO GAIN NEW OPPORTUNITIES. We intend to continue
to expand our direct sales force and expect it to increase from the
current 20 people to approximately 30 by middle of 2000. Such an
expansion would allow us to rapidly increase the number of our customer
relationships. Furthermore, there exists little customer overlap, of
approximately 10%, between SeraNova and currently our parent company,
Intelligroup, Inc. Through a cross-marketing arrangement, we will have
access to approximately 300 Intelligroup customers to whom we can market
our eBusiness solutions.
- EXPAND OUR GEOGRAPHIC PRESENCE. To continue supporting some of our
largest customers in the US, we need to establish a global organization
to support our global customers. In addition, we also believe that our
value-added service offerings are designed to meet the needs of global
enterprises. 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 potential
acquisitions. Currently, in addition to the US, we offer our services in
the United Kingdom, Australia, New Zealand, Thailand and Philippines.
These markets present us with significant new business opportunities.
- FURTHER ENHANCE OUR END-TO-END CAPABILITIES. We offer the entire
spectrum of services from strategy to design to implementation and then
management of applications. By offering a portfolio of
36
<PAGE> 42
integrated services, we minimize the time-to-market and maximize the
impact, quality, consistency and cost effectiveness of the solution that
our customers receive. Our focus is to continue enhancing our capabilities
to be able to deliver the best integrated offering. In addition, we
continue to invest in our B2B offerings within our Enterprise Information
Portal, or EIP initiative. Our end-to-end integrated offering also allows
us to increase the potential size of the opportunity within our client
base. We believe SeraNova is one of the very few eBusiness companies with
a comprehensive eBusiness application management offering. This offering
allows us to continue our engagement beyond the implementation phase. Our
application management offering becomes the gatekeeper to other eBusiness
opportunities at our client. We have been able to demonstrate multiple
projects that have been generated as a result of our continued involvement
at the application management phase.
- CONTINUE TO REFINE SERANOVA TIME-TO-MARKET APPROACH AND SOLUTIONS
FRAMEWORKS. In order to leverage our prior experience from numerous
strategic Internet services engagements, we have developed solution
frameworks, which incorporate our expertise into a formal integrated
process resulting in faster and more efficient solution implementations.
We believe that managing our knowledge, through consolidating the
institutional knowledge as well as capturing our experience, and
formalizing it all into repeatable frameworks allows us to maintain
leadership in our market. We currently utilize four solution frameworks,
I-Customer, I-Supplier, I-Employee and I-Partner to empower the four
primary user groups for an enterprise. Our unique methodology, SeraNova's
TTM approach, enables our team to deliver rapid strategy and solution
definition, design, implementation and maintenance. We plan to continue
to refine these processes in order to consistently accelerate the
delivery of our services and further leverage our industry experience. We
seek to maintain and enhance our technical expertise by identifying,
evaluating and testing new technologies which can be incorporated into
our solutions. We believe that developing new skill-sets is critical to
delivering quality services, increasing the effectiveness of our
solutions, and attracting and retaining quality professionals.
- PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We intend to pursue
acquisitions of complementary businesses or technologies and to continue
to establish strategic relationships in order to expand our service
offerings, increase our presence in existing markets, gain access to new
markets, add technical or sales personnel and obtain additional customer
relationships.
OUR SERVICES
Our service offerings can be grouped into three areas: Strategy, Solutions
and Management. These offerings have been assembled to deliver complete
integrated solutions, with a time-to-market imperative, and represent our view
of how successful Internet strategies and solutions are deployed. Our service
offerings are included in our proprietary time-to-market approach methodology,
which we believe enables us to deliver timely and innovative solutions.
Strategic Consulting Services
The first step in assuring a successful eBusiness initiative, is to
formulate a comprehensive strategy that recognizes the industry environment,
understands the current business dynamics, rules and organizational impact, and
then recommends a strategic path to an online business model. Our strategy and
vertical industry experts assist the clients in devising a strategic roadmap to
successfully compete in the online world. During this phase we also educate the
clients on our vision of an Enterprise Information Portal (EIP) and its role as
a B2B commerce enabler, the significant benefits of an EIP strategy, and how
their current projects can be executed within an EIP framework. By building
current solutions that are enabled for EIP, we believe, we are able to create an
intelligent solution implementation process that integrates well with other
applications and emerging technologies.
Solutions
Our Solutions group utilizes the strategic plan and recommendations from
our strategy consultants and develops a robust technology solution within a
defined time frame. Our Solutions offering is focused on four
37
<PAGE> 43
primary enterprise stakeholders: suppliers, partners, employees, and customers.
We collectively refer to them as the SPEC solutions, and they are integrated
with our EIP vision. Our horizontal service practices are an integral part of
the SPEC solutions.
SPEC -- Customer: 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.
We have combined our experience and expertise of implementing
customer-centric Internet solutions under our proprietary i-Customer solution
framework. This framework consists of assets or functions that we implement for
our clients within our Interactive Customer Solutions offering. Some of these
assets include: Customer Self-service; Personalization; Content Management and
Aggregation; E-Commerce Solutions; Product Catalogs; Secure Payment Processing;
Product launches; Product Configuration solutions; Product Comparitors/Locators;
Customer Surveys; Channel Integration
SPEC -- Supplier: eProcurement Solutions
The Internet has created an opportunity and an imperative 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 eProcurement Solutions deliver
massive direct cost-savings to customers as well as indirect savings resulting
from the streamlining of procurement processes, which have a direct impact on
the length of the production cycles. The potential cost savings are further
amplified by integration with online catalogs and workflow processes within
organizations. We believe that our eProcurement Solutions deliver cost savings
of up to 60 to 80 percent of the original procurement costs to organizations.
Our eProcurement Solutions' best practices and knowledge base are captured
within our proprietary i-Supplier solution framework. Some of the components
within the i-Supplier framework are: Web-based Procurement; Vendor Managed
Inventory; Vendor Integration and Workflow. We emphasize our eProcurement
solutions offering which is an integral part of our B2B online commerce
strategy.
SPEC -- Employee: Employee Enablement Solutions
We have substantial experience in implementing Intranet-based solutions,
which provide employees with the right information they need to effectively
perform their job. These solutions are grouped under the i-Employee solution
framework. Some of the components of i-Employee framework are: Employee Self-
service; Corporate Training; Report creation, distribution and dissemination;
Knowledge Management; Technology Enabled Selling; Sales Force Automation
SPEC -- Partner: Channel Management Solutions
We also build Internet-driven channel management solutions that enable
enterprises and their partners to work efficiently. 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.
38
<PAGE> 44
Our Channel Management Solutions and best practices are grouped under the
i-Partner solution framework. Some of the channel integration assets within the
i-Partner framework are: Partner Purchasing; Lead Management and Tracking;
Dealer Integration; Reseller Locator; Incentive Tracking; Pre-assessment;
Training and Certification
Application Management
Application Management is an integral part of our end-to-end eBusiness
offering. SeraNova can handle all aspects of content, application and systems
management relating to a customer's eBusiness solution. We can perform these
functions from our Solution 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 are sold with an
Application Management component.
Our clients can choose to have our application management teams at their
location or at our numerous support facilities, or provide 24-by-7 maintenance
and support from our offshore Internet Development Center. Most clients choose a
combination of the above options to provide the right set of services and cost
savings.
We typically do not host applications for our clients, unless requested to
do so. Regardless of where the customer's Internet applications are hosted,
SeraNova can perform the various Application Management services.
Enterprise Information Portals
Our SPEC solutions are components that we integrate within an Enterprise
Information Portal, or EIP. We believe an enterprise can take a strategic
technology path toward an EIP. While the EIP software market currently is
fragmented, certain emerging EIP software vendors have been working to develop
fully integrated solutions. SeraNova has been working with multiple industry
leaders to build the appropriate frameworks, best practices, integration
connectors and partnerships required to deliver an EIP solution. We provide the
integration expertise, custom-build certain functionalities, and assemble the
appropriate components from our reusable component library, to build an
effective EIP solution for customers.
OUR APPROACH AND SOLUTIONS FRAMEWORKS
We build leading-edge, end-to-end e-solutions to enable our customers to
stay ahead of competition. The markets are transforming fast, and often a
company's ability to bring its product and services to the market defines its
success. We offer a complete suite of end-to-end services across five phases of
our methodology: eStrategy, Discover, Plan, Implement and Optimize. These phases
are designed to deliver innovative solutions in the fastest time possible.
This strategy development often identifies multiple projects, which could
be executed simultaneously across the organization. Each of these projects then
goes through the four distinct phases: Discover, Plan, Implement and Optimize.
In addition, the Strategy practice is responsible for the overarching Program
Management function that spans all the phases of our methodology. The eStrategy
phase typically includes the following exercises: identify enterprise business
objectives; assess opportunities and risks; analyze market and competition;
build the business case; evaluate current state; assess impact across the
enterprise and suggest required transformation; define metrics for success;
evaluate Infrastructure and recommend a
39
<PAGE> 45
framework for technology architecture. The following graphic depicts our
proprietary Time-To-Market approach:
TIME-TO-MARKET APPROACH
[SERANOVA LOGO]
<TABLE>
<CAPTION>
PROGRAM MANAGEMENT
- -----------------------------------------------------------------------------------------------------------------------------
1-4 WEEKS 2-6 WEEKS 4-6 WEEKS 6-20 WEEKS ONGOING
ESTRATEGY DISCOVER PLAN IMPLEMENT OPTIMIZE
- ------------------------ ---------------------- ----------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
- - business objectives - user requirements - functional spec. - site design/branding - ROI Analysis
- - competitive analysis - project objectives - project plan - product implementation - Application Support
- - business case - package selection - testing plan - custom development - Maintenance
- - ROI definition - workshops - deployment plan - ERP/Legacy integration - Performance
- - risk assessment - primarily onsite - application roadmap - system deployment Review
- - infrastructure - onsite and offsite - primarily development - Predominantly
review centers onsite
constant innovation
</TABLE>
Our Solutions offering drives the Discover, Plan and Implement phases of
our SeraNova TTM Approach methodology. Some of the areas that we address during
these phases are: user requirements; project objectives; package selection;
workshops; functional specification; project plan; testing plan; deployment
plan; application roadmap; site design/branding; product implementation; custom
development; and ERP/Legacy integration.
The Optimize phase of our SeraNova Approach methodology coincides with the
Application Management offering. Some of the activities we engage in during our
Optimize phase are: Return on Investment Analysis; application support;
maintenance and performance review.
We deliver our solutions primarily from our multiple development centers
located within the United States and elsewhere around the world.
Solution Frameworks
In order to help our clients implement strategic Internet solutions in a
rapid timeframe, we have developed solution frameworks that represent best
practices, implementation templates, and guidelines. By incorporating our
experience in developing interactive and integrated Internet solutions for our
clients, these 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.
We focus on the time-to-market needs of our clients and have developed our
solution frameworks to compress the implementation cycle. We continue to invest
in building reusable component templates within our solution frameworks. These
frameworks incorporate best practices for both planning as well as implemen-
40
<PAGE> 46
tation. There are four key components within our Solution Frameworks: User
Profiles, Personalization, Interactions and Integration.
We use these frameworks to fulfill the vision of an Enterprise Information
Portal that is outlined as part of our Internet strategy. The focus of the
Solution Frameworks is to create intelligent and empowered users. We frame each
user's experience by understanding the following:
- Who is the user and what are their key attributes?
- What information and resources are important to them?
- How can we personalize those interactions?
- What core business systems are key to make available to the users?
We have identified four user groups that can benefit most from this
approach -- Customers, Suppliers, Employees and Business Partners. Four solution
frameworks have been created to address their needs: i-Customer, i-Partner,
i-Employee, and i-Supplier. Each one of them outlines the best practices to
implement solutions that will allow an organization to bridge the gap with the
corresponding constituents of its Enterprise. For each solution framework we
have identified assets that make up the solution. An asset is a piece of
functionality within the solution or is a component of the overall solution. An
example of an asset is the personalization feature necessary to develop an
interactive customer solution, which is outlined as part of the i-Customer
solution framework. Each asset is further broken down into the technologies
associated with it, the industry trends, implementation guidelines, cost
implications and organizational impact if any.
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 started 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, an online commerce platform and an innovative
configurator for the new Beetle. These applications were integrated with the
back-end processes such as product planning and inventory management. We believe
our work enabled Volkswagen to achieve a significant online milestone. Visits to
the Volkswagen site and time spent have doubled (almost 24,000 visits a day)
since the launch of new site.
As a result of the success in launching Beetle, Volkswagen has engaged us
to continue enhancing its Internet presence. At present, we are working on
multiple e-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 ad 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 Internet to
create a completely different customer experience.
41
<PAGE> 47
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 eStrategy was conceived, our team started
building www.emimusicpub.com for music professionals to interact with EMI
Publishing. We designed a Business Center where registered professional used
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 leverage
emimusicpub.com to proactively market to potential customers.
SeraNova and EMI continue to constantly bring new innovation to
emimusicpub.com. We are currently building a new generation environment to
enable customer-licensing process over the web.
LIQUIDPRICE.COM: ONLINE MARKET PLACE CONNECTING BUYERS, MERCHANTS,
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 also significantly
expand the presence of traditional merchants and add tremendous efficiency to
the manufacturers' channel management. Buyers would choose their target purchase
items from an extensive catalog of products; merchants and manufacturers would
bid for the buyer's business.
LiquidPrice.com was on a critical path to launch the site by the holiday
season in the United States. Engaged by LiquidPrice.com in August 1999, our team
moved quickly to outline the positioning and created a strategic framework to
take them from "idea" to "launch". A four-week eStrategy session yielded in a
complete set of functional requirements. In the following six weeks a team of
strategists, creative and technology professionals built and launched the first
version of the site.
While a mid November launch achieved the first mile-stone in time, it was
essential for LiquidPrice.com to constantly stay ahead of competition. The
Company has already engaged SeraNova to build upon its first launch; conceive
and build a second generation site with complete B2B integration among partner
merchants, manufacturers and distribution agents.
CLIENTS
We have provided professional services to a variety of clients worldwide in
a range of industries. Because of the strategic and sensitive nature of our
engagements we have agreed to keep some clients' identities confidential.
Following a partial list of our clients that we believe is representative of our
overall client base:
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Services Telecommunication Automotive
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
Technology Internet Manufacturing
Hewlett Packard Liquidprice.com Armstrong Industries
3 COM Medical Internet Solutions Joy Mining
Novell Ihomeroom.com
UTAH.COM
Utilities
Genesis Power
Pacific Gas & Electric
</TABLE>
42
<PAGE> 48
SALES AND MARKETING
Our sales process is strategic, targeted and comprehensive. Once an
opportunity is identified, a sales manager, accompanied by an appropriate
vertical industry specialist and a 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 targets. In addition, they are helping us extensively in
generating qualified leads and closing the 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.
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 college degrees as well as multiple
years of sales experience in the Internet services industry.
EMPLOYEES
As of December 31, 1999, we employed 550 technical professionals worldwide.
We seek to maintain and enhance our strategy, technology and creative expertise
by hiring and training highly qualified technical personnel. In our support
staff, approximately 20 are engaged in sales, 35 provide services support and 20
are engaged in administrative and management functions.
We have dedicated significant resources to our recruiting efforts and
manage it similar to 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.
None of our employees are covered by a collective bargaining agreement.
Substantially all of our employees have executed non-competition agreements. In
addition, we require that all new employees execute such agreements as a
condition of employment. We believe there is a worldwide shortage of, and
significant competition for, professionals with the advanced technical skills
necessary to perform the services we offer. Our future success will depend, to a
significant extent, on our ability to attract, train and retain highly qualified
personnel, particularly technical personnel. We consider our relationships with
our employees to be good.
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 be providing us 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
and Proxicom.
43
<PAGE> 49
- 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 service 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 service
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.
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 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, leading-edge, 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 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 Philippines
Phoenix, Arizona Thailand
Rosemont, Illinois India
Auburn Hills, Michigan
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.
44
<PAGE> 50
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 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.
45
<PAGE> 51
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 1999. 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 Dot
Com Private Limited and Visual Interactive, Inc. Mr. Koneru graduated from the
Birla Institute of Technology and Science, India 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, New York. Before joining Punk
Ziegel, Mr. Singh was Managing Director of Forbes & Walker Inc., a New York and
Toronto based private equity investment firm from 1996 to 1998. 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 Boards of Mangosoft Corporation, Westborough, MA, and Bacon Felt
Company, 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 SeraNova,
from August 1995 to February 1997, he was a Principal with Computer Sciences
Corporation's national SAP practice. Mr. Nair was a Senior Consultant with
Deloitte and Touche from February 1994 to August 1995. Mr. Nair received his
bachelor's degree from Bombay University in India.
46
<PAGE> 52
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 SeraNova, Mr. Bernetich was a Vice-President at Bluestone Software, where he
led the company's software sales effort from April 1998 to October 1999. 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 was also the Director of Marketing for
Intelligroup from February 1999 to September 1999. Prior to Intelligroup, 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 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 Azimuth 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 two independent directors, we expect that our
compensation committee will consist of Mr. Koneru and both 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 two independent directors, we expect that our audit committee
will consist of both 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
47
<PAGE> 53
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 such 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 26.5% $2.52 9/15/09 $1,232,887 $3,124,379
Ravi Singh.................. 466,763 15.9% $2.52 9/15/09 $ 739,732 $1,874,628
Rajan Nair.................. 466,763 15.9% $2.52 10/1/09 $ 739,732 $1,874,628
</TABLE>
- ---------------
(1) All options were granted are outside the 1999 Stock Plan as described
herein. The number of shares covered by such option, was established based
upon the assumption that such 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.
48
<PAGE> 54
(2) Based on 2,936,092 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 sale 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
49
<PAGE> 55
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 1,655,825 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 such
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 are $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 1,
2000 and the remaining options vest in equal monthly amounts thereafter over a
30 month period after March 1, 2000. 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 1, 2000, and the remaining
options vest in equal monthly amounts thereafter over a 30 month period after
March 1, 2000. 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
50
<PAGE> 56
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 two independent directors, we expect that our compensation committee will
consist of Mr. Koneru and both 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 Bylaws 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.
51
<PAGE> 57
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:
- Payroll services, including the use of Intelligroup's common paymaster;
- Accounting services, including reporting, account reconciliation, cash
management, bank account services, preparation of financial statements,
invoicing of customer accounts, collection of accounts receivable and
payment of accounts payable;
- Insurance and risk management services, including insurance coverage and
administration of risk management;
52
<PAGE> 58
- Tax services, including preparation and filing of all 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
- 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 $60,000 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
53
<PAGE> 59
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 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 services agreement with Intelligroup provides a procedure for resolving
any disputes arising out of or relating to the services agreement. This
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 within ten business days (or longer if both parties so agree), either
party may submit the dispute to mediation. If the parties fail to resolve the
dispute through mediation, either party may initiate arbitration proceedings. A
decision of the arbitrator(s) is conclusive and binding on both parties.
There is not an established procedure for resolving disputes between
Intelligroup and us relating to our other agreements with Intelligroup or
relating to matters not covered by any of our agreements. We expect that if any
such disputes could not be resolved by negotiations by management of the
respective companies in good faith, that we would attempt to resolve the dispute
in a manner similar to the procedure established under the services agreement.
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.
54
<PAGE> 60
CERTAIN TRANSACTIONS
We have a loan payable to Intelligroup as of September 30, 1999, in the
amount of $4,737,000. Additional amounts may become payable to Intelligroup
stemming from income taxes and/or cash flow requirements for the periods
subsequent to September 30, 1999 and prior to the proposed spin-off. A note
bearing an interest rate equal to the current prime rate will be negotiated
prior to the proposed spin-off.
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 January 15, 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 Executives; 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).......................................... 2,461,532 15.0%
Nagarjun Valluripalli....................................... 2,202,221 13.7
Ravi Singh(4)............................................... 155,587 *
Rajan Nair.................................................. 600 *
Ashok Pandey(5)............................................. 2,080,083 12.9
NSA Investments, Inc.(6).................................... 1,398,980 8.7
Capital Guardian Trust Company(7)........................... 876,000 5.5
All directors and executive officers as a group(4)(four
persons).................................................. 4,819,940 29.3
</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 January 15, 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 16,055,940 shares of Intelligroup common stock outstanding as of
January 15, 2000.
(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.
55
<PAGE> 61
(4) 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.
(5) The address for Ashok Pandey is c/o Intelligroup, Inc., 499 Thornall Street,
Edison, New Jersey 08837.
(6) 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.
(7) 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.
56
<PAGE> 62
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 Bylaws, 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 nonassessable.
As of January 15, 2000, based on the stock ownership of Intelligroup and
assuming a one share-for-one share spin-off ratio, there were approximately
16,055,940 shares of our common stock issued or outstanding,
57
<PAGE> 63
one stockholder of record and outstanding options to purchase an aggregate of
4,891,917 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.
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 Bylaws 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 Bylaws 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 66% of the entire board of directors.
However, there shall not be less than one director. In addition, the Bylaws
provide that any vacancies will be filled by the affirmative vote of:
- A majority of the remaining directors, even if less than a quorum;
- By a sole remaining director; or
- By shareholders if such vacancy was caused by the action of shareholders.
Generally, directors may be removed from office by the affirmative vote of
the holders of at least a majority of our voting power. Notwithstanding the
foregoing, whenever holders of preferred stock are entitled to elect one or more
directors pursuant to the terms of preferred stock, any such director so elected
may be removed only in accordance with the provision of such resolution or
resolutions.
58
<PAGE> 64
Special Meetings and Action by Written Consent
Our Bylaws provide that, special meetings of shareholders may be called
only by the Chairman, the board of directors or the holders of at least
two-thirds of our issued and outstanding capital stock. In addition, our
Certificate of Incorporation provides 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 Bylaws 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.
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.
59
<PAGE> 65
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.
60
<PAGE> 66
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.
61
<PAGE> 67
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> 68
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, 1998 and March 31,
1998, and the related statements of operations, shareholder's equity and cash
flows for the nine-month period ended December 31, 1998 and the years ended
March 31, 1998 and 1997. 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 SeraNova, Inc. and
affiliates as of December 31, 1998 and March 31, 1998, and the results of their
operations and their cash flows for the nine-month period ended December 31,
1998 and the years ended March 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 10, 2000
F-2
<PAGE> 69
SERANOVA, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1998 1998
------------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash................................................. $ 321 $ 677 $ 368
Accounts receivable, net of allowance for doubtful
accounts of $250, $207, and $127, respectively.... 7,764 3,096 2,169
Unbilled services.................................... 3,701 900 252
Other current assets................................. 367 286 112
------- ------ ------
Total Current Assets................................... 12,153 4,959 2,901
Property and equipment, net............................ 1,279 816 315
Intangible assets, net................................. 3,980 -- --
Other assets........................................... 21 -- --
------- ------ ------
Total Assets........................................... $17,433 $5,775 $3,216
======= ====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt.................... $ 120 $ -- $ --
Notes payable to Parent.............................. 4,737 1,779 886
Accounts payable..................................... 579 526 276
Accrued payroll and related costs.................... 1,562 1,039 965
Accrued expenses and other liabilities............... 4,121 2,039 629
------- ------ ------
Total Current Liabilities.............................. 11,119 5,383 2,756
Long-Term Debt, net of current portion................. 647 -- 219
------- ------ ------
Total Liabilities...................................... 11,766 5,383 2,975
------- ------ ------
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, 100 shares issued and outstanding as
of September 30, 1999............................. -- -- --
Parent company investment............................ 6,100 1,353 727
Accumulated deficit.................................. (431) (985) (433)
Currency translation adjustment...................... (2) 24 (53)
------- ------ ------
Total Shareholder's Equity............................. 5,667 392 241
------- ------ ------
Total Liabilities and Shareholder's Equity............. $17,433 $5,775 $3,216
======= ====== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-3
<PAGE> 70
SERANOVA, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH FOR THE NINE-
PERIOD ENDED MONTH FOR THE YEARS ENDED
SEPTEMBER 30, PERIOD ENDED MARCH 31,
------------------------- DECEMBER 31, -------------------
1999 1998 1998 1998 1997
----------- ----------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... $27,073 $10,567 $12,438 $ 8,995 $ 9,200
Cost of sales.............................. 15,606 6,062 7,315 4,797 4,949
------- ------- ------- ------- -------
Gross profit............................... 11,467 4,505 5,123 4,198 4,251
------- ------- ------- ------- -------
Selling, general and administrative
expenses................................. 9,797 3,953 5,106 3,812 4,092
Depreciation and amortization.............. 630 76 102 133 150
------- ------- ------- ------- -------
Total operating expenses................... 10,427 4,029 5,208 3,945 4,242
------- ------- ------- ------- -------
Operating income (loss).................... 1,040 476 (85) 253 9
Other income (expense), net................ (37) 137 (66) 13 (80)
------- ------- ------- ------- -------
Income (loss) before income taxes.......... 1,003 613 (151) 266 (71)
Provision for income taxes................. 449 668 401 519 172
------- ------- ------- ------- -------
Net income (loss).......................... $ 554 $ (55) $ (552) $ (253) $ (243)
======= ======= ======= ======= =======
Unaudited pro forma net income (loss) per
common share -- basic.................... $ 0.04 $ 0.00 $ (0.04) $ (0.02) $ (0.02)
======= ======= ======= ======= =======
Shares used in per share calculation of
unaudited pro forma net income
(loss) -- basic.......................... 15,559 15,559 15,559 15,559 15,559
======= ======= ======= ======= =======
Unaudited pro forma net income (loss) per
common share -- diluted.................. $ 0.03 $ 0.00 $ (0.04) $ (0.02) $ (0.02)
======= ======= ======= ======= =======
Shares used in per share calculation of
unaudited pro forma net income
(loss) -- diluted........................ 16,803 15,559 15,559 15,559 15,559
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-4
<PAGE> 71
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 -- APRIL 1, 1996......... $ 914 $ 63 $ -- $ 977
Shareholder dividends............ (697) -- -- (697)
Net loss......................... -- (243) -- (243)
Foreign currency translation..... -- -- 15 15
------
Comprehensive loss............... (228)
Reclassification of shareholders'
loans.......................... 484 -- -- 484
------ ----- ---- ------
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 income (unaudited)........... -- 554 -- 554
Foreign currency translation
(unaudited).................... -- -- (26) (26)
------
Comprehensive income
(unaudited).................... 528
Net transfers from Intelligroup,
Inc. (unaudited)............... 4,747 -- -- 4,747
------ ----- ---- ------
BALANCE -- SEPTEMBER 30, 1999
(unaudited).................... $6,100 $(431) $ (2) $5,667
====== ===== ==== ======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-5
<PAGE> 72
SERANOVA, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE-
FOR THE NINE-MONTH MONTH
PERIOD ENDED PERIOD ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31,
------------------------- ------------- -------------------
1999 1998 1998 1998 1997
----------- ----------- ------------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)................................ $ 554 $ (55) $ (552) $ (253) $ (243)
Adjustments to reconcile net income (loss) to net
cash used operating activities:
Depreciation and amortization................ 630 76 102 133 150
Provisions for doubtful receivables.......... 115 194 140 127 --
Changes in assets and liabilities, net of
acquired business:
Accounts receivable........................ (4,001) (2,776) (1,068) (1,066) 658
Unbilled services.......................... (2,683) (382) (648) (248) 149
Other current assets....................... (23) (429) (174) (71) 568
Other assets............................... (17) -- -- -- 2
Accounts payable........................... (5) 504 250 139 (136)
Accrued payroll and related costs.......... 420 1,000 74 (32) (492)
Accrued expenses and other
liabilities............................. 1,777 1,290 1,410 418 (779)
------- ------- ------- ------- ------
Net cash used in operating activities... (3,233) (578) (466) (853) (123)
------- ------- ------- ------- ------
Cash Flows from Investing Activities:
Purchase of business, net of cash acquired... (2,186) -- -- -- --
Capital expenditures......................... (659) (404) (603) (7) (328)
------- ------- ------- ------- ------
Net cash used in investing activities........ (2,845) (404) (603) (7) (328)
------- ------- ------- ------- ------
Cash Flows from Financing Activities:
Loans from Parent.......................... 2.958 639 894 886 --
Repayment of loans......................... (80) -- (219) (302) --
Proceeds from loans........................ -- -- -- -- 447
Net transfers from Parent.................. 2,870 449 626 26 --
Dividends paid............................. -- -- -- -- (697)
------- ------- ------- ------- ------
Net cash provided by (used in) financing
activities............................ 5,748 1,088 1,301 610 (250)
Effect of Exchange Rate Changes on Cash and Cash
Equivalents.................................... (26) -- 77 (17) 15
------- ------- ------- ------- ------
Increase (Decrease) in Cash and Cash
Equivalents.................................... (356) 106 309 (267) (686)
Cash and Cash Equivalents, Beginning of Period... 677 -- 368 635 1,321
------- ------- ------- ------- ------
Cash and Cash Equivalents, End of Period... $ 321 $ 106 $ 677 $ 368 $ 635
======= ======= ======= ======= ======
Supplementary disclosures of cash flow
information:
Cash paid for interest..................... $ 55 $ 3 $ 17 $ 6 $ 5
Cash paid for income taxes................. $ 8 $ 15 $ 361 $ 84 $ 211
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-6
<PAGE> 73
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 its Internet operations in India which commenced operations in
October 1999, the capital stock of Network Publishing, Inc., the capital stock
of Intelligroup India Private Limited, 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.
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.
Interim Financial Information
Information for the nine months ended September 30, 1999 and 1998 is
unaudited and has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting only of normal recurring
adjustments that management considers necessary for a fair presentation of the
Company's operating
F-7
<PAGE> 74
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
results for such periods. Results for the nine months ended September 30, 1999
are not necessarily indicative of results to be expected for the full fiscal
year 1999 or for any future period.
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.
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 September 30, 1999 include goodwill of $3,922,500
and other intangibles totaling $139,500, less accumulated amortization of
$82,000 that was attributable to the acquisition of Network Publishing, Inc.
(see Note 3). These intangible assets are being amortized over the estimated
useful lives (6 to 15 years) using the straight-line method. Amortization
expense was $82,000 for the nine-months ended September 30, 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 $115,000, $140,000,
$127,000 and $0 for the nine months ended September 30, 1999 and December 31,
1998, and for the years ended March 31, 1998 and 1997, respectively. Write-offs
of accounts receivable totaled $72,000, $60,000, $0 and $0 for the nine months
ended September 30, 1999 and December 31, 1998 and for the years ended March 31,
1998 and 1997, respectively.
Recoverability of Long-Lived Assets
The Company reviews the recoverability of its long-lived assets on a
periodic basis in order to identify whether 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.
F-8
<PAGE> 75
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 23% of the combined revenues of
SeraNova for the nine-month period ended September 30, 1999. Accounts receivable
as of September 30, 1999 attributable to this customer was $1,674,000. 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. There can be no assurance that revenues from
such customers will be sustained at this level. No other customer contributed in
excess of 10% of the combined revenues for any other period.
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 Income (Loss) Per Share (Unaudited)
Pro forma net income (loss) per share -- basic has been computed by
dividing the net income (loss) by the September 30, 1999 outstanding shares of
common stock of the Parent for all periods.
Pro forma net income (loss) per share -- diluted has been computed by
dividing the net income (loss) by the September 30, 1999 outstanding shares of
common stock of the Parent for all periods, adjusted for the dilutive effect of
stock options (248,940 as of September 30, 1999) using the treasury method.
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
F-9
<PAGE> 76
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 purchase method of 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 $139,000) with the remainder assigned to goodwill. In addition, the
purchase price includes 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 September 30, 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)
</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 Company believes that allocated costs
approximate the historical costs of SeraNova. 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 did not generate any revenue from such Company
during the nine months ended September 30, 1999.
Notes payable to Parent represents a calculation of net borrowings from the
Parent as of September 30, 1999, December 31, 1998 and March 31, 1998. Although
no formal note exists, SeraNova has agreed to repay such amounts. A formal note
will be entered into prior to the proposed spin-off.
SeraNova and the Parent have entered into the following agreements
effective January 1, 2000.
F-10
<PAGE> 77
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 $60,000 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. 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 $850,000 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 $416,000 and $195,000 for the nine-month periods
ended September 30, 1999 and 1998, respectively, $284,000 for the nine-month
period
F-11
<PAGE> 78
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1998 and $388,000 and $401,000 for the years ended March 31,
1998 and 1997, respectively. Future lease commitments are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C>
1999........................................... $ 383,000
2000........................................... 333,000
2001........................................... 190,000
2002........................................... 106,000
2003........................................... 33,000
Thereafter..................................... 47,000
----------
$1,092,000
==========
</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 $76,000 for the nine months ended September 30, 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 $1.2 million in the
fourth quarter ended December 31, 1999 and an additional amount of 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> 79
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
----------------------------------------------------------------
SEPT. 30, SEPT. 30, DECEMBER 31, MARCH 31, MARCH 31,
1999 1998 1998 1998 1997
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Current
Federal................. $(58,000) $109,000 $163,000 $ 76,000 $ --
State................... (5,000) 36,000 54,000 25,000 --
Foreign................. 510,000 572,000 386,000 450,000 172,000
-------- -------- -------- -------- --------
Current provision....... 447,000 717,000 603,000 551,000 172,000
-------- -------- -------- -------- --------
Deferred
Federal................. 1,500 (37,000) (37,000) (26,000) --
State................... 500 (12,000) (9,000) (6,000) --
-------- -------- -------- -------- --------
Deferred................ 2,000 (49,000) (46,000) (32,000) --
-------- -------- -------- -------- --------
Total provision........... $449,000 $668,000 $557,000 $519,000 $172,000
======== ======== ======== ======== ========
</TABLE>
The tax effects of the significant temporary differences which comprised
the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1998 1998
------------- ------------ ---------
<S> <C> <C> <C>
Tax Deferred Assets:
Allowance for doubtful accounts............. $ 102,500 $ 84,000 $ 52,000
Vacation accrual............................ 350,000 123,000 75,000
Foreign net operating loss carryforwards.... 190,000 75,000 100,000
Total deferred tax assets................... 642,500 282,000 227,000
Deferred Tax Liabilities:
Depreciation................................ (6,000) (4,000) (2,000)
--------- --------- ---------
Valuation allowance........................... (557,000) (198,000) (193,000)
--------- --------- ---------
Net deferred tax asset........................ $ 79,500 $ 80,000 $ 32,000
========= ========= =========
Current:...................................... $ 452,500 $ 207,000 $ 127,000
Non-current................................... 184,000 71,000 98,000
Valuation..................................... (557,000) (198,000) (193,000)
--------- --------- ---------
Net deferred tax asset........................ $ 79,500 $ 80,000 $ 32,000
========= ========= =========
</TABLE>
The Company has provided a valuation allowance for all deferred tax assets
of the Azimuth 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 amortization and non-deductible travel
expenses, totaled 3% of the effective rate. The remaining difference between the
statutory federal rate of 34% and the Company's effective rate relates to taxes
on income from foreign jurisdictions. Losses incurred in certain foreign
countries could not be offset by gains in other countries thus resulting in high
effective rate.
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%
F-13
<PAGE> 80
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
percent as of September 30, 1999) plus 2%, matures on April 25, 2007. Principal
and interest are payable in monthly installments. Interest expense for the
period ended September 30, 1999 was $122,345. Included in current portion of
long-term debt are other miscellaneous borrowings totaling approximately
$58,000. The aggregate amount of principal maturities of long-term debt as of
September 30, 1999 are as follows:
<TABLE>
<S> <C>
1999........................................................ $120,000
2000........................................................ 66,000
2001........................................................ 73,000
2002........................................................ 81,000
2003........................................................ 89,000
Thereafter.................................................. 338,000
--------
$767,000
========
</TABLE>
NOTE 8 -- PROPERTY AND EQUIPMENT
Property and Equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1998 1998
------------- ------------ ---------
<S> <C> <C> <C>
Computers and software......................... $ 1,941 $ 595 $ 478
Furniture and equipment........................ 852 796 395
------- ------ -----
2,793 1,391 873
Accumulated depreciation....................... (1,514) (575) (558)
------- ------ -----
$ 1,279 $ 816 $ 315
======= ====== =====
</TABLE>
Depreciation expense was $630, $102, $133 and $150 for the nine-month periods
ended September 30, 1999 and December 31, 1998 and the years ended March 31,
1998 and 1997, respectively.
NOTE 9 -- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1998 1998
------------- ------------ ---------
<S> <C> <C> <C>
Accrued expenses............................... $1,647 $1,779 $262
Advanced billings.............................. 1,620 64 53
Income taxes payable........................... 854 196 314
------ ------ ----
Total................................ $4,121 $2,039 $629
====== ====== ====
</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 determined by the Board of Directors of the Company as
described 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
F-14
<PAGE> 81
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options Outstanding, December 31, 1998................... -- --
Options Granted........................................ 1,244,701 $2.52
--------- -----
Options Outstanding, September 30, 1999 (none
exercisable)........................................... 1,244,701 $2.52
========= =====
</TABLE>
On October 1, 1999 stock options were granted to purchase 1,450,011 shares
of the Company's common stock at an exercise price of $2.52 per share. On
December 1, 1999 the Company granted stock options to purchase 541,381 shares of
the Company's common stock at an exercise price of $6.51 per share. On January
1, 2000, pursuant to the 1999 Stock Plan, stock options were granted to purchase
1,405,825 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 250,000 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 80%, risk-free interest rate of
6%, and expected lives of 10 years. The weighted-average fair value of options
granted during 1999 was $2.14. 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 the nine months ended September 30, 1999 would be as
follows:
<TABLE>
<S> <C>
Net income as reported........................ $ 554,000
Net loss pro forma............................ $(1,661,000)
</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 September 30, 1999 and December 31, 1998 and the years ended March
31, 1998 and 1997.
F-15
<PAGE> 82
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 UNITED STATES ASIA PACIFIC COMBINED TOTAL
- -------------------------------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Revenue.............................................. $18,444 $8,629 $27,073
Depreciation & amortization.......................... 579 51 630
Income (loss) from operations........................ (175) 1,215 1,040
Interest income...................................... 5 23 28
Interest expense..................................... 59 5 64
Other income (expense)............................... -- (1) (1)
Income (loss) before income taxes.................... (229) 1,232 1,003
Capital spending..................................... 266 393 659
Total assets......................................... 12,088 5,345 17,433
</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>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1997 UNITED STATES ASIA PACIFIC COMBINED TOTAL
- --------------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Revenue.............................................. $-- $9,200 $9,200
Depreciation & amortization.......................... -- 150 150
Income (loss) from operations........................ -- 9 9
Interest income...................................... -- 38 38
Interest expense..................................... -- -- --
Other income (expense)............................... -- (118) (118)
Income (loss) before income taxes.................... -- (71) (71)
Capital spending..................................... -- 328 328
Total assets......................................... -- 2,402 2,402
</TABLE>
Foreign revenue is based on the country in which SeraNova's operations
reside.
F-16
<PAGE> 83
SERANOVA, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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
Subsequent to September 30, 1999, the Parent expanded its operations in
India with the development of an Internet subsidiary, Intelligroup-India Private
Limited. The Parent intends to contribute 100% of the common stock of
Intelligroup-India Private Limited to SeraNova as of January 1, 2000 pending
India court approval.
Also, the Parent expanded its Internet operations into Europe by enlarging
its existing offices in the United Kingdom during the last quarter of 1999. The
Parent, also, intends to transfer all assets and employees relating to its
Internet operations at this location to SeraNova prior to the spin-off.
F-17
<PAGE> 84
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> 85
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> 86
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> 87
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> 88
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
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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
were purchased by Intelligroup, Inc., for a purchase price of approximately $4.5
million, consisting of cash and Intelligroup, Inc. common stock.
F-28
<PAGE> 1
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.
<PAGE> 2
"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.
-2-
<PAGE> 3
"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.
-3-
<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, 2000, 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
-4-
<PAGE> 5
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.
-5-
<PAGE> 6
"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
-6-
<PAGE> 7
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
-7-
<PAGE> 8
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.
-8-
<PAGE> 9
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
-9-
<PAGE> 10
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
-10-
<PAGE> 11
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
-11-
<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
-12-
<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.
-13-
<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.
-14-
<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
-15-
<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
-16-
<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
-17-
<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
-18-
<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.
-19-
<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.
-20-
<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
-21-
<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 8.8
SURVIVING AGREEMENTS
1. Distribution Documents
<PAGE> 1
EXHIBIT 3.1
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: /s/ Rajkumar Koneru
-------------------------------------
Rajkumar Koneru, Chairman,
Chief Executive Officer and President
<PAGE> 2
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.
<PAGE> 3
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.
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:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
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
</TABLE>
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
- 2 -
<PAGE> 4
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 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
- 3 -
<PAGE> 5
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.
(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.
- 4 -
<PAGE> 6
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
- 5 -
<PAGE> 1
EXHIBIT 3.2
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.
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.
<PAGE> 2
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
adjourned meeting shall be given to each shareholder of record on the new record
date entitled to notice.
-2-
<PAGE> 3
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
shareholders who would have been entitled to cast the minimum number of votes
which would
-3-
<PAGE> 4
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,
-4-
<PAGE> 5
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
-5-
<PAGE> 6
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
-6-
<PAGE> 7
(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.
-7-
<PAGE> 8
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
-8-
<PAGE> 9
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.
-9-
<PAGE> 10
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
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.
-10-
<PAGE> 11
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 organization of such Board of Directors and for
the transaction of any other business as may conveniently and properly be
brought before such meeting.
-11-
<PAGE> 12
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.
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
-12-
<PAGE> 13
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.
-13-
<PAGE> 14
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
-14-
<PAGE> 15
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.
-15-
<PAGE> 16
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.
-16-
<PAGE> 17
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
-17-
<PAGE> 18
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.
-18-
<PAGE> 19
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.
-19-
<PAGE> 20
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
-20-
<PAGE> 21
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 By-laws made, by the shareholders, and the
shareholders may prescribe that any By-law made by
-21-
<PAGE> 22
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 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
-22-
<PAGE> 23
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.
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
-23-
<PAGE> 24
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.
* * * * * * * *
-24-
<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.
-2-
<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
-3-
<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.
-4-
<PAGE> 5
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
-5-
<PAGE> 6
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 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
-6-
<PAGE> 7
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.
-7-
<PAGE> 8
(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.
-8-
<PAGE> 9
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
-9-
<PAGE> 10
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.
-10-
<PAGE> 11
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.
-11-
<PAGE> 12
(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
-12-
<PAGE> 13
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")
-13-
<PAGE> 14
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
-14-
<PAGE> 15
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
-15-
<PAGE> 16
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.
-16-
<PAGE> 17
(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
-17-
<PAGE> 18
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.
-18-
<PAGE> 19
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)).
-19-
<PAGE> 20
(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
-20-
<PAGE> 21
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
-21-
<PAGE> 22
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.
-22-
<PAGE> 23
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
-23-
<PAGE> 24
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
-24-
<PAGE> 25
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
-25-
<PAGE> 26
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> 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.
-2-
<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
-3-
<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.
-4-
<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.
-5-
<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. To 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
-6-
<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.
-7-
<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
-8-
<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
-9-
<PAGE> 10
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 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
-10-
<PAGE> 11
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 of each party including product and
completed operations
-11-
<PAGE> 12
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.
_____________________________
/s/ Ashok Pandey
_____________________________ BY: ________________________________
Ashok Pandey, Co-Chief
Executive Officer
SERANOVA, INC.
_____________________________
/s/ Raj Koneru
_____________________________ By: ________________________________
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 $5,500 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 $11,000 per month;
- - Support for desktop systems and network management applications for
Edison, N.J. location
- - 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 $5,000 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 $4,000 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;
- - 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 $2,000;
- - Provides assistance with setting up and transferring A/R, and Billing
functions from Intelligroup;
- - Covers the cost of continued invoice processing by Intelligroup required
to clear historical amounts.
Payroll Support
- - Fixed charge of $2,000 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;
- - 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 Jun-00 Jul-00 Aug-00 Sep-00
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Monthly Fixed Charges
Information Systems and Support
SAP systems access and support $ 5,500 $ 5,500 $ 5,500 $ 5,500 $ 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 $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 $ 3,000 $ 3,000 $ 3,000 $ 3,000
Postage $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Receptionist $ 1,700 $ 1,700 $ 1,700 $ 1,700 $ 1,700 $ 1,700 $ 1,700 $ 1,700 $ 1,700
H/R support $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 3,500 $ 3,500
Billing support $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Payroll support $ 1,500 $ 1,500 $ 1,500 $ 500 $ 500 $ 500 $ 500 $ 500 $ 500
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Fixed Charges for Services $28,200 $28,200 $28,200 $27,200 $27,200 $27,200 $27,200 $27,200 $27,200
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Oct-00 Nov-00 Dec-00
------- ------- -------
<S> <C> <C> <C>
Monthly Fixed Charges
Information Systems and Support
SAP systems access and support $ 5,500 $ 5,500 $ 5,500
PC applications and H/W support $11,000 $11,000 $11,000
General Administrative Support
Mail room and facilities $ 3,000 $ 3,000 $ 3,000
Postage $ 1,000 $ 1,000 $ 1,000
Receptionist $ 1,700 $ 1,700 $ 1,700
H/R support $ 3,500 $ 3,500 $ 3,500
Billing support $ 1,000 $ 1,000 $ 1,000
Payroll support $ 500 $ 500 $ 500
------- ------- -------
Total Fixed Charges for Services $27,200 $27,200 $27,200
======= ======= =======
</TABLE>
Variable ("Per drink") charges
H/R support - $100 per new
in-house hire
Immigration support - $100 per
case
INTELLIGROUP MONTHLY BILLING SCHEDULE
FOR RENT AND UTILITIES CHARGES UNDER THE SPACE
SHARING AGREEMENT
<TABLE>
<CAPTION>
Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 16
EXHIBIT B
RETAINED EMPLOYEES
<TABLE>
<CAPTION>
NAME ID#
- ---- ---
<S> <C>
Badola, Anil # 2280
Balakrishnan, Sridhar # 2036
Boghra, Arunkumar # 479
Chandran, Karthikeyan # 2010
Dasari, Nageswararao # 2251
Desai, Sheetal # 2221
Errangutla, Mahesh # 606
Gadre, Veerdhaval # 761
Gaur, Harish # 1970
Gorde, Ajay # 285
Guduru, Vidyasaagar # 2298
Kalapatapu, Rama Sastry # 827
Kalvit, Hemant # 910
Kanyan, Mathew # 1847
Kelwalkar, Anil Balakrishna # 1931
Keswani, Haresh # 1635
Kolukuluri, Trivikram # 808
Koneru, Padma # 628
Krishnan, Vilayanur P. # 2155
Kumar, Manish # 2128
Kumar, Raj # 629
Kuttalingam, Vannamuthu # 1524
Lanka , Kutumba # 413
Madhavi, Nandyala # 767
Madhineni, Madhukar # 684
Mathur, Praveen # 1932
Mohammad, Asif # 348
Mopati, Krishna # 369
Morarji, Dhirendra # 1522
Mysore, Prashanth # 1924
Nagwekar, Suraj # 1508
Nair, Rajan # 732
Nallapaneni, Netaji # 831
Narne, Aravind # 2327
Natarajan, Sambamoorthy # 228
Nath, Mohan # 706
Padmala, Srinivas Rao # 1816
Palvai, Sreedhar # 1898
Parekh, Hitesh # 1683
Pavuluri, Kiran # 1509
Prasani, Vineet Rayroth # 159
Rajagopal, Raghu # 326
Ramachandran, Aravind # 1554
Ramaswamy, Prakash # 2300
Rao, Shashikant # 1859
Ray, Pragnesh # 1813
Reddy, Venugopal # 97
Roche, Conrad # 2290
Roy, Ashok # 1596
Sahoo, Rabi Narayan # 1877
Sahu, Gajendra Kumar # 2163
Sawant, Sudhir # 535
Sheth, Tushar # 1592
Sindhwani, Manesh # 1846
Soman, Kshitish # 708
Srinivasan, Girish # 1958
Srinivasan, Sridhar # 562
Suki, Geetanjali # 2023
Sunkam, Sreehari # 638
Susarla, Bharat # 1710
Thirugnanam, Gomathi # 1963
Vedavyas, Balram # 725
Wahi, Saurabh # 181
Zentelis , Nicolas # 1927
Kanthi, Hanumanth not assigned
Guntupalli, Bharat not assigned
Aruminathan, William S not assigned
Sharan, Jaya not assigned
</TABLE>
<PAGE> 1
Exhibit 10.3
SPACE SHARING AGREEMENT
This Space Sharing Agreement (the "Agreement") is made as of January 1,
2000, by and between Intelligroup, Inc., a New Jersey corporation
("Intelligroup") and SeraNova, Inc., a New Jersey corporation ("SeraNova").
RECITALS
A. Intelligroup is a party to a lease agreement (the "Edison, NJ
Lease") pursuant to which Intelligroup leases certain office space for its
corporate headquarters (the "Premises").
B. Intelligroup is a party to leases and/or subleases (the
"Intelligroup Leases") for other facilities (such facilities, together with the
Premises, are collectively referred to herein as the "Intelligroup Facilities")
as listed on Exhibit A hereto.
C. SeraNova desires to use a portion of the Premises and portions of
the other Intelligroup Facilities and, subject to the terms and provisions
herein, Intelligroup agrees that SeraNova shall be permitted to use a portion of
the Premises and portions of the Intelligroup Facilities.
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Premises. Intelligroup agrees that SeraNova shall be permitted to
use a portion of the Premises for the purposes permitted under the Edison, NJ
Lease subject to the terms and conditions set forth in this Agreement.
SeraNova's right to use a portion of the Premises (and its obligation to pay
consideration therefore as required pursuant to Section 3 hereof) shall
terminate upon termination of the lease for the Premises.
2. Intelligroup Facilities. Intelligroup and SeraNova acknowledge that
as of the date hereof SeraNova is using space at the Intelligroup Facilities.
Intelligroup agrees that SeraNova shall be permitted to continue to use the
portion of the other Intelligroup Facilities described on Exhibit A for the
purposes permitted under the applicable Intelligroup Leases, subject to the
terms and conditions of this Agreement. SeraNova's right to use any Intelligroup
Facilities (and its obligation to pay consideration therefore as required
pursuant to Section 3 hereof) shall terminate upon termination of the applicable
Intelligroup Leases.
3. Consideration. So long as SeraNova uses the Premises or any
Intelligroup Facility, SeraNova shall pay to Intelligroup on the first day of
each calendar month the amount shown on Exhibit A with respect to the Premises
or such Intelligroup Facility as the "Monthly Allocable Rent." The Monthly
Allocable Rent set forth on Exhibit A is based upon the ratio of the number of
square feet occupied by SeraNova to the total number of square feet of the
Premises or such Intelligroup Facility. In addition to the Monthly Allocable
Rent, SeraNova shall pay to Intelligroup its proportionate share of any
operational costs, common area maintenance charges,
<PAGE> 2
utilities and similar items not included in the Monthly Allocable Rent
("Additional Rent"). During the term of this Agreement, such Monthly Allocable
Rent shall be adjusted, as to the Premises or any Intelligroup Facility, by the
same percentage as any rent adjustment (including without limitation, for rent
adjustments based on increases in operating expenses, common area maintenance
charges and similar items) provided under the terms of the applicable
Intelligroup Leases and/or Edison, NJ Lease, such increase to be effective on
the date such increase becomes effective under the applicable Intelligroup
Leases and/or Edison, NJ Lease. Payments for any partial calendar month shall be
prorated on a per diem basis.
4. Modification and Termination.
(a) Modification. If a party desires to increase or decrease
the portion of the Premises or any Intelligroup Facility used pursuant to this
Agreement, then SeraNova and Intelligroup will negotiate in good faith with
respect to such increase and decrease and the adjustment to the Monthly
Allocable Rent and Additional Rent resulting therefrom. Intelligroup covenants
and agrees to offer to SeraNova the opportunity to use a portion of any new or
expanded facilities leased by Intelligroup.
(b) Term; Termination Rights. This Agreement shall become
effective on the effective date of that certain Contribution Agreement dated the
date hereof, by and among the parties hereto, and shall terminate as to any of
the Intelligroup Facilities (including the Premises) on the effective date of
the termination contemplated by Section 1 or 2 hereof.
5. Compliance with Leases. Intelligroup has provided to SeraNova
a copy of the Edison, NJ Lease and each other Intelligroup Leases and SeraNova
acknowledges receipt thereof. Intelligroup and SeraNova hereby agrees not to
take any action or fail to take any action in connection with its use of a
portion of the Premises and the other Intelligroup Facilities a result of which
would be Intelligroup's violation of any of the terms and conditions of the
Edison, NJ Lease or such other Intelligroup Leases, the provisions of which are
hereby incorporated by reference. SeraNova agrees to comply with the terms and
provisions (other than with respect to payment of monies) of the Edison, NJ
Lease and any other Intelligroup Leases with respect to its use of a portion of
the applicable Intelligroup Facilities or Premises, it being understood,
acknowledged and agreed that SeraNova's obligations to make payments on account
of rent, additional rent, or operating expense or common area maintenance
surcharges with respect to any and all Intelligroup Facilities or the Premises
shall be governed the terms of this Agreement. Intelligroup represents and
warrants to SeraNova that Intelligroup shall use its best reasonable efforts to
obtain all landlord consents required to be obtained for Intelligroup to allow
SeraNova to use portions of the Premises and Intelligroup Facilities, as
provided herein, except where the failure to obtain such a consent would not be
material.
6. Modification of Leases. SeraNova acknowledges and agrees that
Intelligroup has the right to modify or otherwise amend the Edison, NJ Lease and
each other Intelligroup Leases without the consent of SeraNova; provided,
however, that in the event such modification results in an increase in the rent
or other amounts payable thereunder or a decrease or diminution of the services
or space provided therein, SeraNova's rights and obligations with respect to the
Premises
2
<PAGE> 3
or such Intelligroup Facility shall nonetheless remain as they were prior to
such modification unless SeraNova consents, in writing, to any such
modifications. Intelligroup will provide SeraNova with prior notice of, and a
copy of, any such amendment.
7. Indemnity.
(a) By SeraNova. SeraNova will indemnify and hold harmless
Intelligroup and their respective directors, shareholders, members, managers,
officers, employees and agents (collectively, the "Intelligroup Indemnitees")
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including without limitation reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
any one or more of the Intelligroup Indemnitees by reason of (a) any accident,
injury to or death of persons, (b) any failure on the part of SeraNova to
perform or comply with any of the terms of this Agreement, the Edison, NJ Lease
or the Intelligroup Leases, (c) any liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys' fees and expenses) due to SeraNova's use and occupancy of
the Premises or any Intelligroup Facility or (d) Intelligroup being held in
default under the terms and provisions of the Edison, NJ Lease or the
Intelligroup Leases, in any such case as a result of any act or omission on the
part of SeraNova.
(b) By Intelligroup. Intelligroup will indemnify and hold
harmless SeraNova and SeraNova's directors, officers, employees and agents
(collectively, the "SeraNova Indemnitees") from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including without limitation reasonable attorneys' fees and expenses) imposed
upon or incurred by or asserted against any one or more of the SeraNova
Indemnitees by reason of (a) any accident, injury to or death of persons, (b)
any failure on the part of any of Intelligroup to perform or comply with any of
the terms of this Agreement, the Edison, NJ Lease or any SeraNova leases or (c)
SeraNova being held in default under the terms and provisions of the Edison, NJ
Lease or any SeraNova leases, in any such case as a result of any act or
omission on the part of Intelligroup.
8. Insurance. The parties acknowledge that Intelligroup presently
maintains and will continue to maintain, pursuant to the terms of that certain
Services Agreement, of even date herewith, entered into by and between
Intelligroup and SeraNova (the "Services Agreement"), insurance coverage with
respect to Intelligroup's respective leasehold interests (and following the
effective date of this Agreement, SeraNova's interests) in any and all of the
Intelligroup Facilities and the contents (whether owned by Intelligroup or
SeraNova) of such Intelligroup Facilities until the earlier to occur of (i) the
termination of this Agreement; or (ii) notification in writing by SeraNova that
such coverage is no longer required. Intelligroup shall continue to maintain in
full force and effect (including, without limitation, the timely payment of
premiums therefor) such insurance coverage in amounts no less than, and for
coverages at least as comprehensive as, those maintained as of the date hereof.
Notwithstanding the foregoing, SeraNova shall reimburse Intelligroup with
respect to SeraNova's allocable share of the premiums for such insurance
coverage in accordance with the terms of the Services Agreement. In the event
that Intelligroup, using reasonable efforts, is unable to provide such insurance
coverage for SeraNova, as an
3
<PAGE> 4
additional insured or otherwise, through the insurance policies that
Intelligroup presently maintains, then SeraNova shall immediately obtain its own
insurance coverage in amounts no less than, and coverages at least as
comprehensive as, those maintained by Intelligroup as of the date hereof.
9. Notices. All notices given in connection with this Agreement shall
be in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business day
following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of written confirmation of successful transmission.
Such notices shall be addressed to the parties at the following addresses or at
such other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
If to Intelligroup:
499 Thornall Street
Edison, New Jersey 08837
Attention: Ashok Pandey, Co-Chief Executive Officer
Telecopy: (732) 362-2100
If to SeraNova:
c/o Intelligroup
499 Thornall Street
Edison, New Jersey 08837
Attention: Rajkumar Koneru, President and Chairman
Telecopy: (732) 362-2100
10. Governing Law. This Agreement shall be governed by, and be
construed in accordance with, the substantive laws of the State of New Jersey.
11. Amendment. This Agreement may be amended or supplemented at any
time provided that any such amendment or supplement shall be made in writing and
signed by each of the parties hereto.
12. Assignment. 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 and the rights, duties, obligations and
privileges hereunder may not be assigned by either party without the prior
written consent of the other party.
13. Entire Agreement. This Agreement constitutes the entire agreement
between parties relating to the subject matter hereof.
4
<PAGE> 5
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all which
together will constitute but one agreement.
15. Section Headings. The section headings contained herein are for
convenience only and shall not affect in any way the interpretation of any of
the provisions contained herein.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Space Sharing
Agreement as of the date first above written.
INTELLIGROUP, INC.
By: /s/ Ashok Pandey
---------------------------------
Ashok Pandey
Co-Chief Executive Officer
SERANOVA, INC.
By: /s/ Raj Koneru
---------------------------------
Rajkumar Koneru
President and Chairman
6
<PAGE> 7
EXHIBIT A
<TABLE>
<CAPTION>
- ------------------------------------------------------ ---------------------------------------------
LOCATION AND/OR BRANCH PERCENTAGE OF PREMISES 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>
7
<PAGE> 1
Exhibit 10.4
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT, dated as of January 1, 2000, is by and
between Intelligroup, Inc., a New Jersey corporation ("Intelligroup") and
SeraNova, Inc., a New Jersey corporation ("SeraNova").
WHEREAS, Intelligroup and SeraNova have executed that certain
Distribution Agreement dated as of January 1, 2000, pursuant to which
Intelligroup's existing business of providing internet solutions will be
separated into an independent public company; and
WHEREAS, it is appropriate and desirable to set forth the principles
and responsibilities of the parties to this Agreement regarding future
Adjustments with respect to Taxes, Tax Contests and other related Tax matters;
and
WHEREAS, the business operations of SeraNova were previously conducted
within Intelligroup as a division and, for purposes of this Tax Sharing
Agreement, the business operations of SeraNova shall include all past, present
and future SeraNova Subsidiaries (as hereinafter defined) regardless of whether
any such subsidiary was owned by the SeraNova Group at the time a tax benefit or
detriment may arise.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1. "Adjustment" means the deemed increase or decrease in a Tax,
determined on an issue-by-issue or transaction-by-transaction basis, as
appropriate, and using the assumptions set forth in the next sentence, resulting
from an adjustment made or proposed by a Taxing Authority with respect to any
amount reflected or required to be reflected on any Return relating to such Tax.
For purposes of determining such deemed increase or decrease in a Tax, the
following assumptions will be used: (a) in the case of any income Tax, the
highest marginal Tax rate or, in the case of any other Tax, the highest
applicable Tax rate, in each case in effect with respect to that Tax for the
Taxable period or any portion of the Taxable period to which the adjustment
relates; and (b) such determination shall be made without regard to whether any
actual increase or decrease in such Tax will in fact be realized with respect to
the Return to which such adjustment relates.
1.2. "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
<PAGE> 2
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 the other Group.
1.3. "Agreement" means this Tax Sharing Agreement, including any schedules,
exhibits and appendices attached hereto.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Consolidated Return" means, as appropriate, for any Taxable period or any
portion of a Taxable period ending or deemed to end on or prior to the
Distribution Date, any consolidated or combined Return that includes one or more
members of the Intelligroup Group and/or one or more members of the SeraNova
Group.
1.6. "Consolidation" means, as appropriate, any Taxable period or any portion of
a Taxable period during which one or more members of the SeraNova Group are
members of a Intelligroup Consolidated Return.
1.7. "Controlling Party" means Intelligroup or any other member of the
Intelligroup Group, SeraNova or any other member of the SeraNova Group, as the
case may be, that filed or, if no such Return has been filed, was required to
file, a Return that is the subject of any Tax Contest, or any successor and/or
assign of any of the foregoing; provided, however, that in the case of any
Consolidated Return, the Person that actually filed such Consolidated Return (or
any successor and/or assign of such Person) will be the Controlling Party,
unless such Tax Contest arises from the business activities of only SeraNova or
any other member of the SeraNova Group, in which case SeraNova will be the
Controlling Party.
1.8. "Correlative Adjustment" means, in the case of an Adjustment comprising a
Non-Line of Business Adjustment, the net present value of any future increases
or decreases in a Tax that would be realized, using the assumptions set forth in
the next sentence, by either Intelligroup or any other member of the
Intelligroup Group or SeraNova or any other member of the SeraNova Group, as the
case may be, in one or more Taxable periods (or any portion of a Taxable period)
but only if such increases or decreases (a) are a direct result of the Non-Line
of Business Adjustment and (b) will take effect or begin to take effect in the
Taxable period or portion of a Taxable period of or immediately following the
Taxable period or portion of a Taxable period in which the Non-Line of Business
Adjustment to such Tax is made. For purposes of determining the net present
value of any such future increases or decreases in a tax, the following
assumptions will be used: (i) a discount rate equal to the sum of the Federal
Short-Term Rate as of the date of the Final Determination relating to such
Non-Line of Business Adjustment plus 3.5%; (ii) in the case of any income Tax,
the highest marginal Tax rate or, in the case of any other Tax, the highest
applicable Tax rate, in each case in effect with respect to that Tax for the
Taxable period, or portion of the Taxable period, in which the Non-Line of
Business Adjustment was made; (iii) the depreciation, amortization or credit
rate or lives, if applicable, in effect for the Taxable period, or portion of
the Taxable period, in which the Non-Line of Business Adjustment was made; and
(iv) such determination shall be made without regard to whether any actual
increases or decreases in such Tax will in fact be realized with respect to the
future Returns to which such Correlative Adjustment relates.
-2-
<PAGE> 3
1.9. "Disputed Adjustment" has the meaning set forth in Section 3.4(b) hereof.
1.10. "Distribution" means the distribution by Intelligroup on the Distribution
Date of the SeraNova Common Stock, par value $.01 per share, owned by
Intelligroup to the shareholders of Intelligroup as of the Record Date.
1.11. "Distribution Date" means the business day as of which the Distribution
shall be effected.
1.12. "Distribution Documents" means all of the agreements and other documents
entered into in connection with the restructuring, the Distribution or the other
transactions contemplated hereby, including without limitation, this Agreement
and the Distribution Agreement.
1.13. "Federal Short-Term Rate" means the applicable federal short-term rate as
determined under Section 1274(d) of the Code.
1.14. "Final Determination" means (a) a decision, judgment, decree or other
order by any court of competent jurisdiction, which has become final and is
either no longer subject to appeal or for which a determination not to appeal
has been made; (b) a closing agreement made under Section 7121 of the Code or
any comparable foreign, state, local, municipal or other Taxing statute; (c) a
final disposition by any Tax Authority of a claim for refund; or (d) any other
written agreement relating to an Adjustment between any Taxing Authority and any
Controlling Party the execution of which is formal and prohibits such Taxing
Authority or the Controlling Party from seeking any further legal or
administrative remedies with respect to such Adjustment.
1.15. "Group" means, as the context requires, the Intelligroup Group or the
SeraNova Group.
1.16. "Indemnified Party" has the meaning set forth in Section 4.1(c) hereof.
1.17. "Indemnifying Party" has the meaning set forth in Section 4.1(c) hereof.
1.18. "Independent Third Party" means a nationally recognized law firm or any of
the following accounting firms or their successors: Arthur Andersen LLP; Ernst &
Young; KPMG Peat Marwick; Deloitte & Touche; PricewaterhouseCoopers LLP.
1.19. "Intelligroup Group" means Intelligroup and its Subsidiaries (other than
any member of the SeraNova Group). The members of the Intelligroup Group, as of
the date of this Agreement, are set forth on Schedule A attached hereto.
1.20. "Intelligroup Tax Benefit" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable, or
attributable by means of a reasonable apportionment, to the Intelligroup Group.
-3-
<PAGE> 4
1.21. "Intelligroup Tax Detriment" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable, or
attributable by means of a reasonable apportionment, to the Intelligroup Group.
1.22. "Interested Party" means Intelligroup or any other member of the
Intelligroup Group or SeraNova or any other member of the SeraNova Group
(including any successor and/or assign of any of each of the foregoing), as the
case may be, to the extent (a) such Person is not the Controlling Party with
respect to a Tax Contest; and (b) such Person (i) may be liable for, or required
to make, any indemnity payment, reimbursement or other payment pursuant to the
provisions of this Agreement with respect to such Tax Contest; or (ii) may be
entitled to receive any indemnity payment, reimbursement or other payment
pursuant to the provisions of this Agreement with respect to such Tax Contest.
1.23. "Interested Party Notice" has the meaning set forth in Section 3.4(b)
hereof.
1.24. "Non-Line of Business Adjustment" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase or decrease in each such Tax, as the case may be,
equal to the sum of all Adjustments made pursuant to a Final Determination with
respect to each such Tax for each such Taxable period or portion of a Taxable
period other than (a) any Tax Detriments or (b) any Tax Benefits.
Notwithstanding any other provisions of this Agreement (except Section 2.3(e))
or the Distribution Agreement to the contrary, Non-Line of Business Adjustments
shall include, but not be limited to, Restructuring Adjustments.
1.25. "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.
1.26. "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 shareholders of Intelligroup Common Stock
entitled to receive SeraNova Common Stock pursuant to the Distribution.
1.27. "Restructuring Adjustment" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase or decrease in each such Tax, as the case may be, equal to
the sum of all Adjustments made pursuant to a Final Determination with respect
to each such Tax for each Taxable period or portion of a Taxable period that are
attributable to, or as a result of, any transactions undertaken to effectuate
the separation of Intelligroup's existing business of providing internet
solutions into one independent business as contemplated under the Distribution
Agreement including, but not limited to, any transactions undertaken pursuant to
or relating to the Distribution, the SeraNova Stock Plan, and any offering of
equity or equity-linked instruments by Intelligroup within one year of the
Distribution Date.
-4-
<PAGE> 5
1.28. "Return" means any return, report, form or similar statement or document
(including, without limitation, any related or supporting information or
schedule attached thereto and any information return, claim for refund, amended
return and declaration of estimated tax) that has been or is required to be
filed with any Taxing Authority or that has been or is required to be furnished
to any Taxing Authority in connection with the determination, assessment or
collection of any Taxes or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
1.29. "Separate Return" means any Return other than a Consolidated Return.
1.30. "SeraNova Group" means SeraNova and the SeraNova Subsidiaries (other than
any member of the Intelligroup Group) including the predecessor operations of
SeraNova which were formerly a division of Intelligroup and which were
contributed to SeraNova and all SeraNova Subsidiaries for any historical periods
prior to the contribution of such subsidiaries to SeraNova. "SeraNova
Subsidiaries" means all past, present and future subsidiaries of SeraNova,
regardless of whether such subsidiary was directly owned by the SeraNova Group
at such time. As of the date of this Tax Sharing Agreement, such subsidiaries
include the SeraNova Limited, Azimuth Companies, NetPub, and Intelligroup India,
all as defined in the Distribution Agreement between SeraNova and Intelligroup,
executed contemporaneously with the execution of this Tax Sharing Agreement.
1.31. "SeraNova Stock Plan" means the SeraNova 1999 Stock Plan.
1.32. "SeraNova Tax Detriment" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable, or
attributable by means of a reasonable apportionment, to the SeraNova Group.
1.33. "SeraNova Tax Benefit" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable, or
attributable by means of a reasonable apportionment, to the SeraNova Group.
1.34. The "Shared Intelligroup Percentage" shall be such percentage as is
reasonably apportionable to Intelligroup based on the actual Tax at issue, or if
no such percentage is reasonably apportionable, then such percentage shall be
70%.
1.35. The "Shared SeraNova Percentage" shall be such percentage as is reasonably
apportionable to SeraNova based on the actual Tax at issue, or if no such
percentage is reasonably apportionable, then such percentage shall be 30%.
1.36. "Significant Obligation" means, in the case of an Interested Party, and
with respect to any Adjustment, an obligation to make or right to receive any
indemnity payment, reimbursement or other payment with respect to any such
Adjustment (including the effect of
-5-
<PAGE> 6
any Correlative Adjustment relating thereto) pursuant to the terms of this
Agreement that is greater than $10,000.
1.37. "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.
1.38. "Tax" (and, with correlative meanings, "Taxes" and "Taxable") means,
without limitation, and as determined on a jurisdiction-by-jurisdiction basis,
each foreign or U.S. federal, state, local or municipal income, alternative or
add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or any other tax, custom, tariff, impost, levy,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount related thereto, imposed by any Taxing Authority.
1.39. "Tax Benefits" means any Intelligroup Tax Benefit or any SeraNova Tax
Benefit, as the case may be.
1.40. "Tax Contest" means, without limitation, any audit, examination, claim,
suit, action or other proceeding relating to Taxes in which an Adjustment may be
proposed, collected or assessed and in respect of which an indemnity payment,
reimbursement or other payment may be sought under this Agreement.
1.41. "Tax Detriments" means any Intelligroup Tax Detriment or any SeraNova Tax
Detriment, as the case may be.
1.42. "Taxing Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof, or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or other
imposition of Taxes.
1.43. "Ultimate Determination" has the meaning set forth in Section 3.5(b)(i)
hereof.
ARTICLE II
ADJUSTMENTS
2.1. IN GENERAL. In determining any liability and/or obligation to make, or
right to receive, any indemnity payment, reimbursement or other payment to or
from any party to this Agreement pursuant to this Agreement, any Taxable period
or portion of a Taxable period that includes the Distribution Date shall be
deemed to include and end on such Distribution Date and no party to this
Agreement shall have any liability and/or obligation to make, or right to
receive, any such indemnity payment, reimbursement or other payment with respect
to any Taxable period or portion of a Taxable period that begins or is deemed to
begin after the Distribution Date.
-6-
<PAGE> 7
2.2. TAX DETRIMENTS AND BENEFITS. (a) SeraNova shall be liable for, and shall
indemnify and hold harmless, subject to Section 3.4 and Section 3.5 hereof, any
member of the Intelligroup Group against any and all SeraNova Tax Detriments for
any Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return which properly includes
any member of the SeraNova Group or the Intelligroup Group. SeraNova shall be
entitled to receive, and shall be paid, subject to Section 3.4 and Section 3.5
hereof, by Intelligroup, the amount of any SeraNova Tax Benefits for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return which properly includes any member
of the Intelligroup Group.
(b) Intelligroup shall be liable for, and shall indemnify and hold harmless, as
appropriate, and subject to Section 3.4 and Section 3.5 hereof, any member of
the SeraNova Group against any and all Intelligroup Tax Detriments for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return which properly includes
any member of the SeraNova Group or the Intelligroup Group. Intelligroup shall
be entitled to receive, and shall be paid, subject to Section 3.4 and Section
3.5 hereof, by SeraNova, the amount of any Intelligroup Tax Benefits for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return which properly includes
any member of the SeraNova Group.
2.3. NON-LINE OF BUSINESS ADJUSTMENTS. (a) SeraNova shall be liable for, and
shall indemnify and hold harmless, as appropriate, any member of the
Intelligroup Group against SeraNova's share, as determined in Section 2.3(c)
below, of any Non-Line of Business Adjustment the amount of which increases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the Distribution Date with respect to any Return which properly
includes any member of the SeraNova Group or the Intelligroup Group. SeraNova
shall be entitled to receive, and shall be paid by Intelligroup, SeraNova's
share, as determined in Section 2.3(c) below, of any Non-Line of Business
Adjustment the amount of which decreases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date
with respect to any Return which properly includes any member of the
Intelligroup Group.
(b) Intelligroup shall be liable for, and shall indemnify and hold harmless, as
appropriate, any member of the SeraNova Group against Intelligroup's share, as
determined in Section 2.3(c) below, of any Non-Line of Business Adjustment the
amount of which increases a Tax for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the Distribution Date with respect
to any Return which properly includes any member of the SeraNova Group or the
Intelligroup Group. Intelligroup shall be entitled to receive, and shall be paid
by SeraNova, Intelligroup's share, as determined in Section 2.3(c) below, of any
Non-Line of Business Adjustment the amount of which decreases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return which properly includes
any member of the SeraNova Group.
(c) Intelligroup and SeraNova shall share the amount of any Non-Line of Business
Adjustment to the extent each such party is liable for and/or has an obligation
to make, or has the right to receive, as the case may be, any indemnity payment,
reimbursement or other
-7-
<PAGE> 8
payment with respect to such Non-Line of Business Adjustment under this
Agreement, in proportion to the Shared Intelligroup Percentage and the Shared
SeraNova Percentage, respectively; provided, however, that in the event that
there is any Correlative Adjustment with respect to any such Non-Line of
Business Adjustment, then Intelligroup and SeraNova shall share such Non-Line of
Business Adjustment in the following manner in order to ensure that the party or
parties that will bear the burden or inure to the benefit of the Correlative
Adjustment in the future will share the Non-Line of Business Adjustment in
proportion to each of their respective Shared Percentages after giving effect to
such Correlative Adjustment:
(i) first, the amount of any such Non-Line of Business Adjustment
shall be increased or decreased, as appropriate, by the amount of the
Correlative Adjustment, the net amount resulting from such increase or decrease
being hereinafter referred to as the "Net Non-Line of Business Adjustment" for
purposes of this Section 2.3(c);
(ii) second, the Net Non-Line of Business Adjustment shall be
allocated among Intelligroup and SeraNova in proportion to the Shared
Intelligroup Percentage and the Shared SeraNova Percentage, respectively, to the
extent each such party is liable for and/or has an obligation to make, or has
the right to receive, as the case may be, any indemnity payment, reimbursement
or other payment with respect to such Non-Line Of Business Adjustment under this
Agreement; and
(iii) finally, with respect to a party to which a Correlative
Adjustment is attributable, that party's share of the Net Non-Line of Business
Adjustment as allocated pursuant to paragraph (ii) of this Section 2.3(c) will
be increased or decreased, as appropriate, by the amount, if any, of the
Correlative Adjustment that is attributable to such party in order to arrive at
such party's share of the Non-Line of Business Adjustment.
(d) Following the determination of a party's share of a Non-Line of
Business Adjustment pursuant to Section 2.3(c) above, and subject to Section 3.4
and 3.5 hereof, the Controlling Party that controls the Tax Contest to which
such Non-Line of Business Adjustment relates shall (i) be entitled to
reimbursement from Intelligroup or SeraNova, as the case may be, for each of
their respective shares, if any, of any Non-Line of Business Adjustment the
amount of which increases a Tax; and (ii) reimburse Intelligroup or SeraNova, as
the case may be, for each of their respective shares, if any, of any Non-Line of
Business Adjustment the amount of which decreases a Tax.
(e) Notwithstanding any other provision of this Agreement or the
Distribution Agreement to the contrary, if after the Distribution Date,
Intelligroup or SeraNova takes any action or fails to take any action that
directly or indirectly results in the Distribution not qualifying as a tax-free
distribution under Section 355 of the Code, then Intelligroup or SeraNova, as
the case may be, will be liable for any increased tax liability of Intelligroup
and SeraNova arising therefrom. For purposes of this subparagraph (e), in the
event the shareholders of either Intelligroup or SeraNova engage in a
transaction which results in the Distribution not qualifying as a tax-free
distribution under Section 355 of the Code, then the corporation which such
shareholders own (that is, either Intelligroup or SeraNova, as the case may be)
shall be liable for any increased tax liability arising therefrom.
-8-
<PAGE> 9
(f) Notwithstanding any other provision of this Agreement or the
Distribution Agreement to the contrary, if the Distribution does not qualify as
a tax-free distribution under Section 355 of the Code for reasons other than
those described within subparagraph (e) above, including an Internal Revenue
Service challenge or other third-party action, then any tax liability arising
therefrom (including any settlement of liability) shall be allocated among
Intelligroup and SeraNova in proportion to the Shared Intelligroup Percentage
and the Shared SeraNova Percentage, respectively.
ARTICLE III
TAX CONTESTS
3.1. NOTIFICATION OF TAX CONTESTS. The Controlling Party shall promptly
notify all Interested Parties of (a) the commencement of any Tax Contest
pursuant to which such Interested Parties may be required to make or entitled to
receive an indemnity payment, reimbursement or other payment under this
Agreement; and (b) as required and specified in Section 3.4 hereof, any Final
Determination made with respect to any Tax Contest pursuant to which such
Interested Parties may be required to make or entitled to receive any indemnity
payment, reimbursement or other payment under this Agreement. The failure of a
Controlling Party to promptly notify any Interested Party as specified in the
preceding sentence shall not relieve any such Interested Party of any liability
and/or obligation which it may have to the Controlling Party under this
Agreement except to the extent that the Interested Party was prejudiced by such
failure, and in no event shall such failure relieve the Interested Party from
any other liability or obligation which it may have to such Controlling Party.
3.2. TAX CONTEST SETTLEMENT RIGHTS. The Controlling Party shall have
the sole right to contest, litigate, compromise and settle any Adjustment that
is made or proposed in a Tax Contest without obtaining the prior consent of any
Interested Party; provided, however, that, unless the parties provide notice of
the waiver of such right, the Controlling Party shall, in connection with any
proposed or assessed Adjustment in a Tax Contest for which an Interested Party
may be required to make or entitled to receive an indemnity payment,
reimbursement or other payment under this Agreement (a) keep all such Interested
Parties informed in a timely manner of all actions taken or proposed to be taken
by the Controlling Party; and (b) provide all such Interested Parties with
copies of any correspondence or filings submitted to any Taxing Authority or
judicial authority, in each case in connection with any contest, litigation,
compromise or settlement relating to any such Adjustment in a Tax Contest. The
failure of a Controlling Party to take any action as specified in the preceding
sentence with respect to an Interested Party shall not relieve any such
Interested Party of any liability and/or obligation which it may have to the
Controlling Party under this Agreement except to the extent that the Interested
Party was prejudiced by such failure, and in no event shall such failure relieve
the Interested Party from any other liability or obligation which it may have to
such Controlling Party. The Controlling Party may, in its sole discretion, take
into account any suggestions made by an Interested Party with respect to any
such contest, litigation, compromise or settlement of any Adjustment in a Tax
Contest. All costs of any Tax Contest are to be borne by the Controlling Party
and all Interested Parties in proportion to their respective liability to make
indemnity payments, reimbursements or other payments under this Agreement with
respect to an Adjustment made in such Tax Contest; provided, however, that (x)
any costs related to an
-9-
<PAGE> 10
Interested Party's attendance at any meeting with a Taxing Authority or hearing
or proceeding before any judicial authority pursuant to Section 3.3 hereof, and
(y) the costs of any legal or other representatives retained by an Interested
Party in connection with any Tax Contest that is subject to the provisions of
this Agreement, shall be borne by such Interested Party.
3.3. TAX CONTEST PARTICIPATION. Unless waived by the parties in
writing, the Controlling Party shall provide an Interested Party with notice
reasonably in advance of, and such Interested Party shall have the right to
attend, any formally scheduled meetings with Taxing Authorities or hearings or
proceedings before any judicial authorities in connection with any contest,
litigation, compromise or settlement of any proposed or assessed Adjustment that
is the subject of any Tax Contest pursuant to which such Interested Party may be
required to make or entitled to receive an indemnity payment, reimbursement or
other payment under this Agreement, but only if the Interested Party bears, or
in the good faith judgment of the Controlling Party, may bear, a Significant
Obligation with respect to such Adjustment; provided, however, that the
Controlling Party may, in its sole discretion, permit an Interested Party that
does not bear, or potentially bear, such a Significant Obligation with respect
to such an Adjustment, to attend any such meetings, hearings or proceedings that
relate to such Adjustment. In addition, unless waived by the parties in writing,
the Controlling Party shall provide each Interested Party with draft copies of
any correspondence or filings to be submitted to any Taxing Authority or
judicial authority with respect to such Adjustments for such Interested Party's
review and comment. The Controlling Party shall provide such draft copies
reasonably in advance of the date that they are to be submitted to the Taxing
Authority or judicial authority and the Interested Party shall provide its
comments, if any, with respect thereto within a reasonable time before such
submission. The failure of a Controlling Party to provide any notice,
correspondence or filing as specified in this Section 3.3 to an Interested Party
shall not relieve any such Interested Party of any liability and/or obligation
which it may have to the Controlling Party under this Agreement except to the
extent that the Interested Party was prejudiced by such failure, and in no event
shall such failure relieve the Interested Party from any other liability or
obligation which it may have to such Controlling Party.
3.4. TAX CONTEST WAIVER. (a) The Controlling Party shall promptly
provide notice to all Interested Parties in a Tax Contest (i) that a Final
Determination has been made with respect to such Tax Contest; and (ii)
enumerating the amount of the Interested Party's share of each Adjustment
reflected in such Final Determination of the Tax Contest for which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement.
(b) Within thirty (30) days after an Interested Party receives
the notice described in Section 3.4(a) hereof from the Controlling Party, such
Interested Party shall give notice to the Controlling Party (i) that the
Interested Party agrees with each Adjustment (and its share thereof) enumerated
in the notice described in Section 3.4(a) hereof except with respect to those
Adjustments (and/or its shares thereof) that, in the good faith judgment of the
Interested Party, it disagrees with and has specifically enumerated its
disagreement with, including the amount of such disagreement, in the statement
(each such disagreed Adjustment (and/or share thereof) hereinafter referred to
as a "Disputed Adjustment"); and (ii) that the Interested Party thereby waives
its right to a determination by an Independent Third Party pursuant to the
provisions of Section 3.5 hereof with respect to all Adjustments to which it
agrees with its share
-10-
<PAGE> 11
(this statement hereinafter referred to as the "Interested Party Notice"). The
failure of an Interested Party to provide the Interested Party Notice to the
Controlling Party within the thirty (30) day period specified in the preceding
sentence shall be deemed to indicate that such Interested Party agrees with its
share of all Adjustments enumerated in the notice described in Section 3.4(a)
hereof and that such Interested Party waives its right to a determination by an
Independent Third Party with respect to all such Adjustments (and its shares
thereof) pursuant to Section 3.5 hereof.
(c) During the thirty (30) day period immediately following the
Controlling Party's receipt of the Interested Party Notice described in Section
3.4(b) above, the Controlling Party and the Interested Party shall in good faith
confer with each other to resolve any disagreement over each Disputed Adjustment
that was specifically enumerated in such Interested Party Notice. At the end of
the thirty (30) day period specified in the preceding sentence, unless notice is
provided of the mutual consent of the parties to the extension of such time
period, the Interested Party shall be deemed to agree with all Disputed
Adjustments that were specifically enumerated in the Interested Party Notice and
waive its right to a determination by an Independent Third Party pursuant to
Section 3.5 hereof with respect to all such Disputed Adjustments unless, and to
the extent, that at any time during such thirty (30) day (or extended) period,
the Interested Party has given the Controlling Party notice that it is seeking a
determination by an Independent Third Party pursuant to Section 3.5 hereof
regarding the propriety of any such Disputed Adjustment.
(d) Notwithstanding anything in this Agreement to the contrary,
an Interested Party that does not have a Significant Obligation with respect to
an Adjustment has no right to a determination by an Independent Third Party
under Section 3.5 hereof with respect to any such Adjustment.
3.5. TAX CONTEST DISPUTE RESOLUTION. (a) In the event that an
Interested Party has given the Controlling Party notice as required in Section
3.4(c) hereof that it is seeking a determination by an Independent Third Party
pursuant to this Section 3.5 with respect to any Disputed Adjustment that was
enumerated in an Interested Party Notice, then the parties shall, within ten
(10) days after the Controlling Party has received such notice, jointly select
an Independent Third Party to make such determination. In the event that the
parties cannot jointly agree on an Independent Third Party to make such
determination within such ten (10) day period, then the Controlling Party and
the Interested Party shall each immediately select an Independent Third Party
and the Independent Third Parties so selected by the parties shall jointly
select, within ten (10) days of their selection, another Independent Third Party
to make such determination.
(b) In making its determination as to the propriety of any
Disputed Adjustment, the Independent Third Party selected pursuant to Section
3.5(a) above shall assume that the Interested Party is not required or entitled
under applicable law to be a member of any Consolidated Return. In addition, the
Independent Third Party shall make its determination according to the following
procedure:
(i) The Independent Third Party shall analyze each Disputed
Adjustment for which a determination is sought pursuant to this Section 3.5 to
determine what is
-11-
<PAGE> 12
a fair and appropriate outcome (hereinafter referred to as the "Ultimate
Determination") with respect to any such Disputed Amount, taking into account
the following exclusive criteria: (A) the facts relating to such Adjustment; (B)
the applicable law, if any, with respect to such Adjustment; (C) the position of
the applicable Taxing Authority with respect to compromise, settlement or
litigation of such Adjustment; (D) the strength of the factual and legal
arguments made by the Controlling Party in reaching the outcome with respect to
such Adjustment as reflected in the Final Determination of the Tax Contest; (E)
the strength of the factual and legal arguments being made by the Interested
Party for the alternative outcome being asserted by such Interested Party
(including the availability of facts, information and documentation to support
such alternative outcome); (F) the strength of the legal and factual support for
other potential, non-frivolous Adjustments with respect to matters that were
actually raised and contested by the applicable Taxing Authority in the Tax
Contest for which the Interested Party could have been liable under this
Agreement but which were eliminated or reduced as a result of the Controlling
Party agreeing to the Disputed Adjustment as reflected in the Final
Determination of the Tax Contest; (G) the effect of the actual outcome reached
with respect to the Disputed Adjustment on other Taxable periods and on other
positions taken or proposed to be taken in Returns filed or proposed to be filed
by the Interested Party; (H) the realistic possibility of avoiding examination
of potential, non-frivolous issues for which the Interested Party could be
liable under this Agreement and that were contemporaneously identified in
writings by the party or parties during the course of the Tax Contest but which
had not been raised and contested by the applicable Taxing Authority in the Tax
Contest; and (I) the benefits to the Interested Party in reaching a Final
Determination, and the strategy and rationale with respect to the Interested
Party's Disputed Adjustment that the Controlling Party had for agreeing to such
Disputed Adjustment in reaching the Final Determination, in each case that were
contemporaneously identified in writings by the party or parties during the
course of the Tax Contest.
(ii) The Interested Party shall only be entitled to
modification of its share of a Disputed Adjustment under this Section 3.5 if, as
the case may be, either (A) the amount that would be paid by the Interested
Party under the Ultimate Determination with respect to such Disputed Adjustment
is less than 80% of the amount that would be paid by the Interested Party with
respect to such Disputed Adjustment under the actual outcome reached with
respect to such Disputed Adjustment; or (B) the amount that would be received by
the Interested Party under the Ultimate Determination with respect to such
Disputed Adjustment is more than 120% of the amount that the Interested Party
would receive with respect to such Disputed Adjustment under the actual outcome
reached with respect to such Disputed Adjustment. If an Interested Party is
entitled to modification of its share of any Disputed Adjustment under the
preceding sentence, the amount the Interested Party is entitled to receive, or
is required to pay, as the case may be, with respect to such Disputed Adjustment
shall be equal to the amount of the Ultimate Determination of such Disputed
Adjustment. The Independent Third Party will provide notice to the Controlling
Party and the Interested Party stating whether the Interested Party is entitled
to modification of its share of the Disputed Adjustment pursuant to this
paragraph (ii) and, if the Interested Party is entitled to such modification,
the amount as determined in the preceding sentence that the Interested Party is
entitled to receive from, or required to pay to, the Controlling Party with
respect to such Disputed Adjustment.
(c) Any determination made or notice given by an Independent
Third Party pursuant to this Section 3.5 shall be (i) in writing; (ii) made
within thirty (30) days following the
-12-
<PAGE> 13
selection of the Independent Third Party as set forth in Section 3.5(a) of this
Agreement unless such period is otherwise extended by the mutual consent of the
parties; and (iii) final and binding upon the parties. The costs of any
Independent Third Party retained pursuant to this Section 3.5 shall be shared
equally by the parties. The Controlling Party and the Interested Party shall
provide the Independent Third Party jointly selected pursuant to Section 3.5(a)
hereof with such information or documentation as may be appropriate or necessary
in order for such Independent Third Party to make the determination requested of
it. Upon issuance of an Independent Third Party's notice under Section
3.5(b)(ii) hereof, the Controlling Party or the Interested Party, as the case
may be, shall pay as specified in Article IV of this Agreement, the amount, if
any, of the Disputed Adjustment to the appropriate party.
ARTICLE IV
PROCEDURE AND PAYMENT
4.1. PROCEDURE. (a) If an Interested Party has any liability and/or
obligation to make, or the right to receive, any indemnity payment,
reimbursement or other payment with respect to an Adjustment under this
Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 3.5 hereof, then the amount of such
Adjustment shall be immediately due and payable upon receipt by the Interested
Party of a notice of Final Determination of a Tax Contest as required and
specified in Section 3.4(a) hereof.
(b) If after (i) notice of a Final Determination of a Tax Contest
as required and specified in Section 3.4(a) hereof has been given by a
Controlling Party to an Interested Party; and (ii) the Interested Party
receiving such notice has either:
(A) failed to provide the Interested Party Notice specified
in Section 3.4(b) hereof within the thirty (30) day period set forth in Section
3.4(b);
(B) provided the Interested Party Notice specified in
Section 3.4(b) hereof within the thirty (30) day period specified in Section
3.4(b) agreeing to all Adjustments (and the Interested Party's share of all such
Adjustments) and waiving the right to an Independent Third Party determination
pursuant to Section 3.5 hereof with respect to all such Adjustments (and the
Interested Party's share of such Adjustments);
(C) provided the Interested Party Notice specified in
Section 3.4(b) hereof within the thirty (30) day period specified in Section
3.4(b) agreeing with some, but not all, Adjustments (and the Interested Party's
share of such agreed Adjustments) and waiving the right to an Independent Third
Party Determination pursuant to Section 3.5 hereof with respect to all such
agreed Adjustments (and the Interested Party's share of such Adjustments); or
(D) provided the Interested Party Notice specified in
Section 3.4(b) hereof within the thirty (30) day period specified in Section
3.4(b) specifically enumerating the Disputed Adjustments to which it does not
agree and for which the notice specified in either Section 3.5(b)(ii) hereof
relating to any such Disputed Adjustment has been given by an Independent Third
Party,
-13-
<PAGE> 14
then the amount of any Adjustment agreed to or deemed to be agreed to by the
Interested Party, or for which an Independent Third Party notice has been given
pursuant to either Section 3.5(b)(ii) hereof, as set forth in each of clauses
(A), (B), (C) or (D) above, shall be immediately due and payable.
(c) Any Person entitled to any indemnification, reimbursement or
other payment under this Agreement with respect to the amount of any Adjustment
that has become immediately due and payable under Section 4.1(b) (the
"Indemnified Party") shall notify the Person against whom such indemnification,
reimbursement or other payment is sought (the "Indemnifying Party") of its right
to and the amount of such indemnification, reimbursement or other payment;
provided, however, that the failure to notify the Indemnifying Party shall not
relieve the Indemnifying Party from any liability and/or obligation which it may
have to an Indemnified Party on account of the provisions contained in this
Agreement except to the extent that the Indemnifying Party was prejudiced by
such failure, and in no event shall such failure relieve the Indemnifying Party
from any other liability or obligation which it may have to such Indemnified
Party. The Indemnifying Party shall make such indemnity payment, reimbursement
or other payment to the Indemnified Party within thirty (30) days of the receipt
of the notice specified in the preceding sentence; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local or
municipal Tax in which the Indemnifying Party is also the Controlling Party with
respect to such Tax Contest and, as Controlling Party, is entitled to receive an
overall net refund from the applicable state, local or municipal Taxing
Authority with respect to such state, local or municipal Tax, then the
Indemnifying Party shall make such indemnity payment, reimbursement or other
payment to the Indemnified Party within thirty (30) days from the date the
Indemnifying Party actually receives payment of or obtains the benefit of the
net refund due from the applicable state, local or municipal Taxing Authority.
4.2. PAYMENT. Any indemnity payment, reimbursement or other payment
required to be made pursuant to this Agreement by an Indemnifying Party to an
Indemnified Party shall be made, at the option of the Indemnifying Party, by (a)
certified check payable to the order of the Indemnified Party; or (b) wire
transfer of immediately available funds to such bank and/or other account of the
Indemnified Party as from time to time the Indemnified Party shall have directed
the Indemnifying Party, in writing. Any indemnity payment, reimbursement or
other payment required to be made by an Interested Party pursuant to this
Agreement shall bear interest at the Federal Short-Term Rate plus 2%, per annum,
from the date such Interested Party receives the notice of Final Determination
made with respect to a Tax Contest as provided in Section 3.4(a) hereof. Any
indemnity payment, reimbursement or other payment required to be made by a
Controlling Party to an Interested Party pursuant to this Agreement shall bear
interest at the Federal Short-Term Rate plus 2%, per annum, from a date thirty
(30) days after the date of a Final Determination made with respect to a Tax
Contest; provided, however, that, in the case of any Final Determination of a
Tax Contest involving a state, local or municipal Tax in which the Controlling
Party is entitled to receive an overall net refund from the applicable state,
local or municipal Taxing Authority with respect to such state, local or
municipal Tax, such indemnity payment, reimbursement or other payment to be made
by the Controlling Party shall bear interest at the Federal Short-Term Rate plus
2%, per annum, from the date the Controlling Party actually receives payment of
or obtains the benefit of the net refund due from the applicable state, local or
municipal Taxing Authority.
-14-
<PAGE> 15
ARTICLE V
OTHER TAX MATTERS
5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It is understood
and agreed that during Consolidation:
(b) Members of the SeraNova Group shall adopt and follow the Tax
policies and procedures that have been established by Intelligroup, unless
Intelligroup shall otherwise consent as provided herein.
(c) Intelligroup shall establish all Return positions and make
all Tax elections relating to a Consolidated Return. Members of the SeraNova
Group shall take such Consolidated Return positions and make such Tax elections
relating to a Consolidated Return as may be taken or made by Intelligroup, or as
reasonably requested by Intelligroup to be taken or made by any member of the
SeraNova Group, unless Intelligroup shall otherwise consent, as provided herein.
(d) With respect to the Consolidated Return for the taxable
period including the Distribution Date, the parties of this Agreement shall
indemnify each other in a manner consistent with Article II for the amount of
any difference between (i) the Tax liability of such party (including all of the
members of its respective Group) as calculated on a separate basis for purposes
of determining the final tax accrual provision for the period ending on the
Distribution Date and (ii) the Tax liability of such party (including all the
members of its respective Group) as calculated on a separate basis for purposes
of determining the total Tax liability as reported on the Consolidated Return
filed with respect to the taxable period including the Distribution Date. Any
payments to be made pursuant to this Section 5.1(c) shall be made within
forty-five (45) days of the filing of such Consolidated Return.
5.2. COOPERATION. Except as otherwise provided in this Agreement, each
member of the Intelligroup Group and the SeraNova Group, as the case may be,
shall, at their own expense, cooperate with each other in the filing of, or any
Tax Contest relating to, any Return and any other matters relating to Taxes and,
in connection therewith, shall (i) maintain appropriate books and records for
any and all Taxable periods or any portion of a Taxable period that may be
required by Intelligroup's record retention policies; (ii) provide to each other
such information as may be necessary or useful in the filing of, or any Tax
Contest relating to, any such Return; (iii) execute and deliver such consents,
elections, powers of attorney and other documents as may be required or
appropriate for the proper filing of any such Return or in conjunction with any
Tax Contest relating to any such Return; and (iv) make available for responding
to inquiries of any other party or any Taxing Authority, appropriate employees
and officers of and advisors retained by any member of the Intelligroup Group or
the SeraNova Group, as the case may be.
5.3. FILING OF RETURNS. The Person that would be the Controlling Party
with respect to any Tax Contest relating to a Return for which any indemnity
payment, reimbursement or other payment may be sought under this Agreement shall
(a) prepare and file, or cause to be prepared and filed, any such Return within
the time prescribed for filing such Return (including all extensions of time for
filing); and (b) shall timely pay, or cause to be timely paid, the amount
-15-
<PAGE> 16
of any Tax shown to be due and owing on any such Return. Such Person shall bear
all costs associated with preparing and filing, or causing to be prepared and
filed, any such Return. Except as provided in Section 5.1(b) hereof (relating to
Consolidated Returns), such Person shall establish all Return positions and make
all Tax elections relating to such Returns.
ARTICLE VI
MISCELLANEOUS
6.1. GOVERNING LAW. To the extent not preempted by any applicable
foreign or U.S. federal, state, or local Tax law, this Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of New Jersey, irrespective of the choice of laws principles of the State
of New Jersey, as to all matters, including matters of validity, construction,
effect, performance and remedies.
6.2. AFFILIATES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Affiliate of such party;
provided, however, that for purposes of the foregoing, no Person shall be
considered an Affiliate of a party if such Person is a member of another party's
Group.
6.3. 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.
6.4. NOTICES. On behalf of Intelligroup and SeraNova, the individuals
set forth below (or any other individuals delegated in writing by each of the
foregoing) shall serve as the single point of contact to receive or give any
notice or other communication required or permitted to be given to any member of
each of their respective Groups under this Agreement. Unless the individual
designated to receive any notice or other communication is the same individual
designated to give such notice or other communication, all notices or other
communications under this Agreement shall be in writing and shall deemed to be
duly given when (a) delivered in person; or (b) sent by facsimile; or (c)
deposited in the United States mail, postage prepaid and sent certified mail,
return receipt requested; or (d) deposited in private express mail, postage
prepaid, addressed as follows:
-16-
<PAGE> 17
If to any member of the Intelligroup Group, to:
Intelligroup, Inc.
499 Thornall Street
Edison, NJ 08837
Attn: Ashok Pandey, Co-Chief Executive Officer
Facsimile: 732-362-2100
If to any member of the SeraNova Group, to:
SeraNova ,Inc.
c/o Intelligroup, Inc.
499 Thornall Street
Edison, NJ 08837
Attn: Rajkumar Koneru, President and Chairman
Facsimile: 732-362-2100
Copies of any and all notices shall be (a) delivered in person; or (b) sent by
facsimile; or (c) deposited in the United States mail, postage prepaid and sent
certified mail, return receipt requested; or (d) deposited in private express
mail, postage prepaid, addressed as follows:
David J. Sorin
Buchanan Ingersoll Professional Corporation
650 College Road East
Princeton, NJ 08540
Facsimile: (609) 520-0360
Any party may, by written notice to the other parties, change the address to
which such notices (or copies of notices) are to be given.
6.5. 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.
6.6. ENTIRE AGREEMENT; CONFLICTING OR INCONSISTENT PROVISIONS. This
Agreement is intended to provide rights, obligations and covenants in respect of
Taxes and shall supercede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof and
thereof. In the event that any provision or term of this Agreement conflicts or
is inconsistent with any provision or term of any other agreement between or
among Intelligroup or any other member of the Intelligroup Group and/or SeraNova
or any other member of the SeraNova Group, as the case may be, which is in
effect on or prior to the date hereof, the provision or term of this Agreement
shall control and apply and the provision or term of any other agreement shall,
to the extent of such conflict or inconsistency, be inoperative and
inapplicable.
6.7. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when
-17-
<PAGE> 18
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
6.8. HEADINGS. The descriptive headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.9. ARBITRATION. 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.
6.10. 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.
6.11. DURATION. Notwithstanding anything in this Agreement or the Distribution
Agreement to the contrary, the provisions of this Agreement shall survive for
the full period of all applicable statutes of limitations (giving effect to any
waiver, mitigation or extension thereof).
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Tax
Sharing Agreement to be executed by their duly authorized representatives as of
date hereof.
INTELLIGROUP, INC.
By: /s/ Ashok Pandey
-------------------------------------------
Ashok Pandey, Co-Chief Executive Officer
SERANOVA, INC.
By: /s/ Raj Koneru
-------------------------------------------
Rajkumar Koneru, President and Chairman
-19-
<PAGE> 20
SCHEDULE A
LIST OF INTELLIGROUP SUBSIDIARIES
<TABLE>
<S> <C>
UNITED STATES
Intelligroup Inc. Empower Solutions Inc.
499 Thornall Street 3343 Peachtree Road, NE
Edison, NJ 08837 Suite 270
Atlanta, GA 30326
UNITED KINGDOM
Intelligroup Europe Ltd. CPI Resources Ltd
Del Monte House The Manor House
Staines TW18 4JD Mount Street
England Diss
Norfolk IP22 3QQ
England
CPI Consulting Ltd
The Manor House
Mount Street
Diss
Norfolk IP22 3QQ
England
NEW ZEALAND AUSTRALIA
Intelligroup New Zealand Ltd. Intelligroup Australia Pty, Ltd.
11th Floor, Morrison Kent House, Suite 103, 90 Mount Street
105 The Terrace North Sydney NSW 2060
Wellington New Zealand Australia
DENMARK JAPAN
Intelligroup Nordic A/S Intelligroup Japan Ltd.
Slotsgade 18 Office - Masuyama Bldg. 5F
DK-5000 Odense C Kiba-5-1-1, Koto-Ku,
Tokyo - 135-0042
INDIA SINGAPORE
Intelligroup Asia Pvt. Ltd. Intelligroup Singapore Pvt. Ltd.
Plot #s 883 & 884, Road # 45, 10 Hoe Chiang Road
Jubilee Hills, #17-02
Hyderabad 500 033, India. Keppel Towers
Singapore 089315
</TABLE>
<PAGE> 1
Exhibit 10.5
SERANOVA, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of
_________________, 2000, by and between SeraNova, Inc., a New Jersey corporation
(the "Company"), and __________________________ ("Indemnitee").
WHEREAS, Indemnitee is an officer and/or director of the Company and
performs a valuable service in such capacity for the Company;
WHEREAS, the Company and Indemnitee recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance may be limited;
WHEREAS, the Company and Indemnitee further recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company as an officer and/or director, the Company wishes to provide for the
indemnification and advancing of expenses to Indemnitee to the maximum extent
permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify Indemnitee
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other (hereinafter a "Claim") by reason of (or arising in part
out of) any event or occurrence related to the fact that Indemnitee is
<PAGE> 2
or was a director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "Indemnifiable Event") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter "Expenses"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such payment
of Expenses shall be made by the Company as soon as practicable but in any event
no later than thirty (30) days after written demand by Indemnitee therefor is
presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations
of the Company under Section l(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined
(in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section 1(c) hereof is involved) that Indemnitee would not be
permitted to be indemnified under applicable law, and (ii) the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section
2(a) (an "Expense Advance") shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section l(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents
-2-
<PAGE> 3
to service of process and to appear in any such proceeding. Any determination by
the Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Amended and Restated Certificate of Incorporation or Amended and
Restated By-laws as now or hereafter in effect, the Company shall seek legal
advice only from Independent Legal Counsel (as defined in Section 10(d) hereof)
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 8 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five (5) days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the President
of the Company at the address shown on the signature page of this Agreement (or
such other address as the Company shall designate in writing to Indemnitee). In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with
-3-
<PAGE> 4
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing Party
or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in such policy or policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Assumption of Defense; Selection of Counsel. In the event the
Company shall be obligated hereunder to pay the Expenses of any action, suit,
proceeding, inquiry or investigation, the Company, if appropriate, shall be
entitled to assume the defense of such action, suit, proceeding, inquiry or
investigation with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld), upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same action, suit,
proceeding, inquiry or investigation; provided that, (i) Indemnitee shall have
the right to employ Indemnitee's counsel in any such action, suit, proceeding,
inquiry or investigation at Indemnitee's expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company or (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense.
Notwithstanding the foregoing, in the event the Company shall not continue to
retain such counsel to defend such action, suit, proceeding, inquiry or
investigation, then the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.
-4-
<PAGE> 5
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Amended and Restated Certificate of Incorporation, the
Company's Amended and Restated By-laws or by statute. In the event of any change
after the date of this Agreement in any applicable law, statute or rule which
expands the right of a New Jersey corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any applicable
law, statute or rule which narrows the right of a New Jersey corporation to
indemnify a member of its board of directors or an officer, employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Amended and Restated Certificate of Incorporation, its
Amended and Restated By-laws, any agreement, any vote of shareholders or
disinterested directors, the New Jersey Business Corporation Act, or otherwise.
The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any action, suit,
proceeding, inquiry or investigation made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Amended and Restated Certificate of Incorporation, By-laws or otherwise) of the
amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses in the investigation, defense, appeal or settlement of any
civil or criminal action, suit, proceeding, inquiry or investigation, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
-5-
<PAGE> 6
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Amended and Restated Certificate of Incorporation or Amended and Restated
By-laws now or hereafter in effect relating to Claims for Indemnifiable Events,
(ii) in specific cases if the Board of Directors has approved the initiation or
bringing of such suit, or (iii) as otherwise required under Section 14A:3-5 of
the New Jersey Business Corporation Act, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
-6-
<PAGE> 7
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the shareholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as determined in
accordance with Rule 13d-3 under such Act), directly or indirectly, of
securities of the Company representing more than 20% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
shareholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the shareholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding
-7-
<PAGE> 8
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director of the Company or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action the
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement,
-8-
<PAGE> 9
Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in
defense of such action (including costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), and shall be
entitled to the advancement Expenses with respect to such action, unless as a
part of such action the court having jurisdiction over such action determines
that each of Indemnitee's material defenses to such action were made in bad
faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of New Jersey
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Superior
Court of the State of New Jersey in and for Middlesex County, which shall be the
exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
New Jersey, as applied to contracts between New Jersey residents, entered into
and to be performed entirely within the State of New Jersey, without regard to
the conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a
-9-
<PAGE> 10
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
**********
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SERANOVA, INC.
By:
-------------------------------------
Rajkumar Koneru, Chairman,
Chief Executive Officer and President
499 Thornall Street
Edison, New Jersey 08837
AGREED TO AND ACCEPTED:
INDEMNITEE:
-------------------------------------
(signature)
-------------------------------------
(name of Indemnitee)
-------------------------------------
-------------------------------------
-------------------------------------
(address)
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 9th day of September, 1999 (the
"Effective Date") by and between INFINIENT, INC., a New Jersey corporation with
its principal place of business at 499 Thornall Street, Edison, New Jersey 08837
(the "Company") and RAJKUMAR KONERU, residing at 10 Chamonix Lane, Morganville,
NJ 07751 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to secure the employment of the Executive
in accordance with the provisions of this Agreement; and
WHEREAS, the Executive desires and is willing to accept employment with
the Company in accordance herewith.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term. The Company hereby agrees to employ the Executive and the
Executive hereby agrees to serve the Company pursuant to the terms and
conditions of this Agreement as Chief Executive Officer of the Company, or in a
position at least commensurate therewith in all material respects, for a term
commencing on the Effective Date hereof and expiring on the third anniversary
thereof, provided, however, that this Agreement shall automatically be renewed
for additional, successive one-year terms unless one party shall have delivered
to the other party written notice of termination of this Agreement not less than
60 days prior to the end of the term of the Agreement then in effect.
1
<PAGE> 2
2. Positions and Duties.
(a) Duties. The Executive's duties hereunder shall be those
which shall be prescribed from time to time by the Board of Directors in
accordance with the bylaws of the Company and shall include such executive
duties, powers and responsibilities as customarily attend the office of Chief
Executive Officer of a company comparable to the Company. The Executive will
hold, in addition to such office, such other executive offices in the Company
and its subsidiaries to which he may be reasonably elected, appointed or
assigned by the Board of Directors from time to time and will discharge such
executive duties in connection therewith. The Executive shall devote his full
working time, energy and skill (reasonable absences for vacations and illness
excepted) to the business of the Company as is necessary in order to perform
such duties faithfully, competently and diligently; provided, however, that
notwithstanding any provision in this Agreement to the contrary, the Executive
shall not be precluded from devoting reasonable periods of time required for
serving as a member or Chairman of boards of companies or organizations which
have been approved by the Board of Directors so long as such memberships or
activities do not interfere with the performance of the Executive's duties
hereunder. The parties agree that the Executive will perform his duties for the
Company in the New York City metropolitan area, which for such purpose shall
include the Company's current Edison, New Jersey headquarters (the "Work Area")
and the Executive's work location may not be moved outside the Work Area without
his consent.
3. Compensation. During the term of this Agreement, the Executive shall
receive, for all services rendered to the Company hereunder, the following
(hereinafter referred to as "Compensation"):
2
<PAGE> 3
(a) Base Salary. For the term hereof, the Executive shall be
paid an annual base salary equal to two hundred fifty thousand dollars
($350,000). The Executive's base salary shall be payable in equal semi-monthly
installments, or at such other more frequent payroll periods as shall from time
to time be the Company's normal executive pay periods. Such base salary shall be
reviewed periodically, and any increases in the amount thereof shall be
determined, by the Board of Directors or a compensation committee formed by the
Board of Directors (the "Compensation Committee").
(b) Bonuses. The Executive shall be eligible for and shall
receive an annual bonus payable within 30 days after the end of each anniversary
of the Effective Date. The amount of such bonuses shall be solely within the
discretion of the Board of Directors or, if formed, the Compensation Committee
thereof, but shall in no event be less than one hundred fifty thousand
($150,000) per year.
(c) Incentive Compensation. Promptly after the execution of
this Agreement, the Company intends to adopt an employee stock option plan (the
"Option Plan") and issue stock options to the initial executive managers of the
Company. When the Option Plan is adopted, the Company agrees to issue to the
Executive an incentive stock option to acquire such number of shares of Company
Stock as shall represent 5% of the outstanding shares of Company Stock on a
fully diluted basis on the date of grant, at an exercise price per share which
represents the current fair market value per share of the Company Stock as
determined in good faith by the Board based on an independent valuation to be
obtained by the Company (and in any event such price per share shall not be
higher than the lowest exercise price for options granted to any of the
Company's other initial
3
<PAGE> 4
employee optionholders). One third of such options issued to the Employee shall
vest on March 1, 2000 and the remaining two-thirds shall vest in equal monthly
amounts over the 30th month period after March 1, 2000, and in the event of an
acquisition or a significant change in ownership of the Company (other than the
Company's planned IPO and spin off from Intelligroup), all of the Employee's
options shall vest immediately.
(d) Benefits. The Executive and his "dependents," as that
term may be defined under the applicable benefit plan(s) of the Company, shall
be included, to the extent eligible thereunder, in any and all plans, programs
and policies which provide benefits for employees and their dependents. Such
plans, programs and policies may include health care insurance, long term
disability plans, life insurance, supplemental disability insurance,
supplemental life insurance, holidays and other similar or comparable benefits
made available to the Company's senior management.
(e) Expenses. Subject to and in accordance with the Company's
policies and procedures, the Executive hereby is authorized to incur, and, upon
presentation of itemized accounts, shall be reimbursed by the Company for, any
and all reasonable and necessary business-related expenses, which expenses are
incurred by the Executive on behalf of the Company or any of its subsidiaries.
4. Absences. The Executive shall be entitled to vacations, absences
because of illness or other incapacity, and such other absences, whether for
holiday, personal time, or for any other purpose, at the discretion of the
Board, and for a minimum of six weeks each year.
4
<PAGE> 5
5. Termination. In addition to the expiration of this Agreement
provided for in Section 1 hereof, the Executive's employment hereunder may be
terminated as follows:
(a) Without Cause. The Company may terminate the Executive's
employment hereunder without cause only upon action by the Board of Directors,
and upon no less than sixty (60) days prior written notice to the Executive. The
Executive may terminate employment hereunder without cause upon no less than
sixty (60) days prior written notice to the Company.
(b) For Cause, by the Company. The Company may terminate the
Executive's employment hereunder for cause immediately and with prompt notice to
the Executive, which cause shall be determined in good faith solely by the Board
of Directors. "Cause" for termination shall mean the following conduct of the
Executive:
(i) the engaging by the Executive in willful conduct
or failure to act which has the result of causing material injury to the
Company,
(ii) the conviction of the Executive of any crime or
offense constituting fraud or a felony, or
(iii) willful failure by the Executive to comply with
any material provision of this Agreement, which failure is not cured (if capable
of cure) within thirty (30) days after receipt of written notice of such
non-compliance by the Executive.
Termination of the Executive for "Cause" shall mean termination by action of at
least a majority of the Company's Board of Directors (excluding the Executive if
Executive is a director of the Company) , at a meeting duly called and held upon
at least thirty (30) days written notice to the Executive specifying the
particulars of the action or inaction alleged to constitute "Cause" and at which
meeting the Executive and his counsel were entitled to be present and given
adequate opportunity to be heard. Action or inaction by the Executive shall not
be considered "willful" unless done or omitted by him intentionally or not in
good faith and without reasonable belief that his action or inaction was in the
best interest of the Company.
5
<PAGE> 6
(c) For Good Reason by Executive. The Executive may terminate employment
hereunder for good reason immediately and with prompt notice to the Company.
"Good reason" for termination by the Executive shall include, but is not limited
to, the following conduct of the Company:
(1) Material breach of any provision of this
Agreement by the Company, which breach shall not have been cured by the Company
within thirty (30) days of receipt of written notice of said breach;
(2) Failure to maintain the Executive in a position
commensurate with that referred to in Section 2 of this Agreement; or
(3) The assignment to the Executive of any duties
inconsistent with the Executive's position, authority, duties or
responsibilities as contemplated by Section 2 of this Agreement, or any other
action by the Company which results in a diminution of such position, authority,
duties or responsibilities, excluding for this purpose any isolated action not
taken in bad faith and which is promptly remedied by the Company after receipt
of notice thereof given by the Executive.
(d) Death. The period of active employment of the Executive
hereunder shall terminate automatically in the event of his death.
(e) Disability. In the event that the Executive shall be
unable to perform duties hereunder for a period of ninety (90) consecutive
calendar days by reason of disability as a result of illness, accident or other
physical or mental incapacity or disability, the Company may, in its discretion,
by giving written notice to the Executive, terminate the Executive's employment
hereunder as long as the Executive is still disabled on the effective date of
such termination.
6
<PAGE> 7
(f) Mutual Agreement. This Agreement may be terminated at any
time by mutual agreement of the Executive and the Company.
6. Compensation in the Event of Termination. In the event that the
Executive's employment pursuant to this Agreement terminates prior to the end of
the term of this Agreement for a reason provided in Section 5 hereof, the
Company shall pay the Executive compensation as set forth below:
(a) By Executive for Good Reason; By Company Without Cause. In
the event that the Executive's employment hereunder is terminated: (i) by the
Executive for good reason pursuant to Section 5(c) hereof; or (iii) by the
Company without Cause, then the Company shall continue to pay or provide, as
applicable, the following compensation to the Executive:
(1) Annual base salary as set forth in Section 3(a)
hereof for the full term of this contract; and
(2) Continuing coverage, but only to the extent
required by law, for the Executive and his eligible dependents under all of the
Company's benefit plans, programs and policies in effect as of the date of
termination; and
(3) In such event, the Executive's stock options
shall all vest immediately.
Such compensation shall continue to be paid or provided, as
applicable, in the same manner as before termination, and for a period of time
ending on the date when the term of this Agreement would otherwise have expired
in accordance with Section 1 of this Agreement. The Executive shall not be
required to mitigate the amount of any payment provided for in this Section 6(a)
by seeking employment or otherwise, nor shall any amounts received from
employment or otherwise by the Executive offset in any manner the obligations of
the Company hereunder.
7
<PAGE> 8
(b) By Company Upon Termination of Agreement Due to
Executive's Death or Disability. In the event of the Executive's death or if the
Company shall terminate the Executive's employment hereunder for disability
pursuant to Section 5(e) hereof, the base salary payable hereunder shall
continue to be paid at the then current rate for three (3) months after the
termination of employment to the Executive or his personal representative, as
applicable.
(c) By Company For Cause or By Executive Without Good Reason.
In the event that (i) the Company shall terminate the Executive's employment
hereunder for cause pursuant to Section 5(b) hereof or (ii) the Executive shall
terminate employment hereunder without "good reason" as provided in Section 5(c)
hereof, the Company shall not be obligated to pay the Executive any compensation
except for salary and other Compensation which may have been earned and are due
and payable but which have not been paid as of the effective date of
termination.
7. Effect of Termination. In the event of expiration or early
termination of this Agreement as provided herein, neither the Company nor the
Executive shall have any remaining duties or obligations hereunder except that:
(a) The Company shall:
(1) Pay the Executive's accrued salary and any other
accrued benefits under Section 3 hereof;
(2) Reimburse the Executive for expenses already
incurred in accordance with Section 3(e) hereof;
8
<PAGE> 9
(3) To the extent required by law, pay or otherwise
provide for any benefits, payments or continuation or conversion rights in
accordance with the provisions of any benefit plan of which the Executive or any
of his dependents is or was a participant; and
(4) Pay the Executive or his beneficiaries any
compensation due pursuant to Section 6 hereof; and
(b) The Executive shall remain bound by the terms of Section 8
hereof and Exhibit A attached hereto.
8. Restrictive Covenant. (a) The Executive acknowledges and agrees that
he has access to secret and confidential information of the Company and its
subsidiaries and that the following restrictive covenant is necessary to protect
the interests and continued success of the Company. Except as otherwise
expressly consented to in writing by the Company, until the termination of the
Executive's employment (for any reason and whether such employment was under
this Agreement or otherwise) and thereafter for twelve (12) months (the
"Restricted Period"), the Executive shall not, directly or indirectly, acting as
an employee, owner, shareholder, partner, joint venturer, officer, director,
agent, salesperson, consultant, advisor, investor or principal of any
corporation or other business entity:
(ii) request or otherwise attempt to induce or influence,
directly or indirectly, any present customer or supplier, or prospective
customer or supplier, of the Company, or other persons sharing a business
relationship with the Company, to cancel, limit or postpone their business with
the Company, or otherwise take action which might be to the material
disadvantage of the Company; or
9
<PAGE> 10
(iii) hire or solicit for employment, directly or indirectly,
or induce or actively attempt to influence, any executive of the Company or any
Affiliate, as such term is defined in the Securities Act of 1933, as amended, to
terminate his or her employment or discontinue such person's consultant,
contractor or other business association with the Company.
(c) Nothing in this Section 8, whether express or implied,
shall prevent the Executive from being a holder of securities of a company whose
securities are registered under Section 12 of the Securities Exchange Act of
1934, as amended; provided, however, that the Executive holds of record and
beneficially less than five percent (5%) of the votes eligible to be cast
generally by holders of securities of such company for the election of
directors.
(d) Executive acknowledges and agrees that in the event of a
breach or threatened breach of the provisions of this Section 8 by Executive the
Company may suffer irreparable harm and, therefore, the Company shall be
entitled, to the extent permissible by law, immediately to cease to pay or
provide the Executive any compensation being, or to be, paid or provided to him
pursuant to Sections 3 or 6 of this Agreement, and also to obtain immediate
injunctive relief restraining the Executive from conduct in breach or threatened
breach of the covenants contained in this Section 8. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from the Executive.
9. Waiver. The waiver by a party hereto of any breach by the other
party hereto of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by a party hereto.
10
<PAGE> 11
10. Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company, and the Company shall be
obligated to require any successor to expressly assume its obligations
hereunder. This Agreement shall inure to the benefit of and be enforceable by
the Executive or his legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The Executive may not
assign any of its duties, responsibilities, obligations or positions hereunder
to any person and any such purported assignment by him shall be void and of no
force and effect.
11. Notices. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing, and if personally delivered or when
sent by first class certified or registered mail, postage prepaid, return
receipt requested -- in the case of the Executive, to his residence address as
set forth above, and in the case of the Company, to the address of its principal
place of business as set forth above, in care of the Board of Directors -- or to
such other person or at such other address with respect to each party as such
party shall notify the other in writing. Notice shall be deemed effective upon
receipt by the other party.
12. Construction of Agreement.
(a) Governing Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the internal laws of the
State of New Jersey without reference to its principles regarding conflicts of
law.
(b) Severability. In the event that any one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
11
<PAGE> 12
(c) Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience of reference only and
shall not constitute a part of this Agreement.
13. Entire Agreement. This Agreement contains the entire agreement of
the parties concerning the Executive's employment and all promises,
representations, understandings, arrangements and prior agreements on such
subject are merged herein and superseded hereby. The provisions of this
Agreement may not be amended, modified, repealed, waived, extended or discharged
except by an agreement in writing signed by the party against whom enforcement
of any amendment, modification, repeal, waiver, extension or discharge is
sought. No person acting other than pursuant to a resolution of the Board of
Directors shall have authority on behalf of the Company to agree to amend,
modify, repeal, waive, extend or discharge any provision of this Agreement or
anything in reference thereto or to exercise any of the Company's rights to
terminate or ti fail to extend this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and attested by its duly authorized officers, and the Executive has set
his hand, all as of the day and year first above written.
INFINIENT, INC.
By: /s/ Ravi Singh
-------------------------------
Name: Ravi Singh
Title: EVP & Chief Financial Officer
EXECUTIVE
/s/ Rajkumar Koneru
----------------------------------
Rajkumar Koneru
12
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 9, 1999 between Infinient Inc., a
New Jersey corporation (the "Company"), and Ravi Singh (the "Employee").
WHEREAS, the Company has been formed as a wholly-owned subsidiary
of Intelligroup Inc. ("Intelligroup") to conduct the internet-related consulting
businesses previously conducted by Intelligroup and its affiliates (the
"Internet Business") and to receive as a contribution from Intelligroup the
assets associated with the Internet Business; and
WHEREAS, Intelligroup intends to pursue, as promptly as is
commercially practicable and subject to market conditions, a public trading
market for the Company's Common Stock ("Company Stock"); and
WHEREAS, the Company desires to employ the Employee as an
executive officer of the Company to be the chief corporate development and
strategy officer of the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
1. EMPLOYMENT AND TERM.
The Company hereby agrees to employ the Employee for an initial
period of three years commencing as of the date hereof (the "Initial Term")
automatically renewable thereafter for one year periods (each such period, the
"Successive Term" and collectively the "Successive Terms"), unless earlier
terminated pursuant to the terms of Section 3 of this Agreement (the Initial
Term and the Successive Terms are herein referred to as the "Term") to serve as
the Executive Vice President, Corporate Development of the Company (such
position to be the Company's highest executive officer responsible for corporate
development, strategy and acquisitions except for the Chief Executive Officer),
and in such other executive managerial position or positions (including Chief
Financial Officer if requested by the Company) with the Company, its
subsidiaries, affiliates or divisions (the "Employer Group") as shall hereafter
be agreed to by the Employee and the Board, to perform such managerial duties as
are consistent with the usual duties of an officer of his status and reporting
directly to the Company's Chief Executive Officer and the Board. The parties
agree that the Employee will perform his duties for the Company in the New York
City metropolitan area, which for such purpose shall include the Company's
current Edison, New Jersey) headquarters, (the "Work Area") and the Employee's
work location may not be moved outside the Work Area without his consent. The
Employee further understands that the Company is considering relocating its
headquarters to the San Francisco/Silicon Valley area, and the Employee consents
to such a
<PAGE> 2
relocation to that area alone, it being understood that all relocation costs of
the Employee will be borne by the Company.
The Employee hereby accepts such employment and agrees to devote
his full business time and attention to the faithful and diligent performance of
the duties provided herein, provided however that is agreed that the Employee
may continue to engage in the outside business activities described in Exhibit A
hereto.
2. COMPENSATION.
(a) Salary. The Company shall compensate the Employee with a base
salary (the "Base Salary") of $250,000, which shall be reviewed annually during
the Term by the Board or the Compensation Committee of the Board. Payment of the
Base Salary shall be made in equal semi-monthly installments or at such other
more frequent payroll intervals as shall from time to time be the Company's
normal executive pay periods.
(b) Bonuses. In addition to the Base Salary, for each fiscal year
during the Term the Employee shall receive a bonus (which in no event shall be
less than $100,000 per annum) awarded by the Board or the Compensation Committee
of the Board and which is intended to be based on performance targets to be
agreed by the employee and the Board or Compensation Committee.
(c) Stock Options. Promptly after the execution of this Agreement,
the Company intends to adopt an employee stock option plan (the "Option Plan")
and issue stock options to the initial executive managers of the Company. When
the Option Plan is adopted, the Company agrees to issue to the Employee an
incentive stock option to acquire such number of shares of Company Stock as
shall represent 3% of the outstanding shares of Company Stock on a fully diluted
basis on the date of grant, at an exercise price per share which represents the
current fair market value per share of the Company Stock as determined in good
faith by the Board based on an independent valuation to be obtained by the
Company (and in any event such price per share shall not be higher than the
lowest exercise price for options granted to any of the Company's other initial
employee optionholders). One third of such options issued to the Employee shall
vest on March 1, 2000 and the remaining two-thirds shall vest in equal monthly
amounts over the 30th month period after March 1, 2000, and in the event of an
acquisition or a significant change in ownership of the Company (other than the
Company's planned IPO and spin off from Intelligroup), all of the Employee's
options shall vest immediately.
(d) Benefits. The Employee shall be entitled to participate in all
pension, profit sharing, 401(k), deferred compensation, health, dental,
accident, life insurance, disability and other benefit plans and policies as are
from time to time available to executives of the Company.
-2-
<PAGE> 3
(e) Expenses. The Company shall pay or reimburse the Employee for
all expenses normally reimbursed by the Company, consistent with the practices
of the Company, and reasonably incurred by him in furtherance of his duties
hereunder including, without limitation, expenses for traveling, meals, hotel
accommodations and the like, upon submission by him of vouchers or an itemized
list thereof prepared in compliance with such rules relating thereto as the
Board may, from time to time, adopt and as may be required in order to permit
such payments as proper deductions to the Company, subject to the limitations
provided under the Internal Revenue Code of 1986, as amended, and the rules and
regulations adopted pursuant thereto now or hereafter in effect. In addition,
the Company shall reimburse the Employee's reasonable legal expenses incurred in
connection with the preparation and negotiation of this Agreement.
(f) Vacations. During each 12 months of employment, the Employee
shall be entitled to paid vacations for an aggregate of four weeks. The Company
shall not pay the Employee any additional compensation for any vacation time not
used by the Employee.
3. TERMINATION.
(a) This Agreement shall be terminated upon the happening of any
of the following events: (i) at the end of the Initial Term or any Successive
Term if the Company or the Employee shall give at least 90 days advance written
notice to the other party terminating this Agreement as of the end of such
Initial or Successive Term; (ii) upon the death of the Employee; or (iii) upon
the Permanent Incapacity (as such term is defined in Section 3(d) hereof) of the
Employee.
(b) The Company may terminate the Employee's employment hereunder
upon, except as otherwise provided in Section 3(c) of this Agreement, five days
advance written notice for "Cause" (as defined below).
(c) For purposes hereof, "Cause" shall mean any of the following:
(i) the intentional failure, neglect or refusal of the Employee to substantially
fulfill his material duties as an employee, provided, however, that the Employee
shall not be deemed to have intentionally failed, neglected or refused to
substantially fulfill his material duties as an employee if such failure,
neglect or refusal is directly caused by the Permanent Incapacity of the
Employee; (ii) a material breach of any fiduciary duty (except where such breach
is caused by the Permanent Incapacity of the Employee) or other material
dishonesty by the Employee with respect to the Company or any affiliate thereof
resulting in actual material harm to the Company or such affiliate; or (iii) the
conviction of the Employee of a fraudulent act or felony. Notwithstanding the
terms of Section 3(b), no termination for Cause under item (i) above shall be
effective unless the Company gives the Employee 30 days advance written notice
of its intention to terminate the Employee's employment and a detailed
description of the reasons for the termination and the Employee fails to cure
the alleged breach.
-3-
<PAGE> 4
(d) For purposes hereof, "Permanent Incapacity" shall mean the
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder, with or without reasonable accommodation, for an
aggregate period of four months in any twelve month period.
(e) In the event that the Company terminates the Employee's
employment hereunder without Cause, or if the Employee resigns for Good Reason
(as defined below) the Employee shall be entitled to payment from the Company of
severance (without any requirement of or reduction for mitigation by the
Employee) consisting of the continuation for a period of one year after such
termination of employment of all salary, bonus and benefit payments and coverage
which would have been payable to the Employee during such period had his
employment not been terminated. In such event, the vesting for the Employee's
stock options shall accelerate with respect to any options that would have
vested within six months after the date of employment termination plus one-half
of the balance of the unvested options.
(f) For purposes of this Agreement, the term "Good Reason" means:
(i) a material breach by the Company of any provision of this Agreement; or (ii)
any reduction of the Employee's compensation or duties or change in the
Employee's reporting lines; or (iii) any change by the Company of the Employee's
work location outside the Work Area or the San Francisco/Silicon Valley area in
the event of a relocation of the Company's headquarters to that area; or (iv)
the failure of the Company to obtain from its successors the express assumption
and agreement required under Section 7 of this Agreement.
4. NONCOMPETITION AND NONINTERVENTION.
(a) Except as described in Exhibit A hereto or as otherwise agreed
by the Company, while in the employ of the Company, the Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned with any other duties
or pursuits which materially interfere with the performance of his duties as an
Employee of the Company or which, even if noninterfering, may be contrary to the
best interests of the Employer Group.
(b) The Employee further agrees that he shall, during the Initial
Term and any Successive Term and, if the Employee's employment hereunder
terminates for Cause, Permanent Incapacity or as a result of a termination by
the Employee without Good Reason, for a period of one year after the termination
or cessation of the Employee's employment with the Company, directly or
indirectly, alone or as a member of any partnership or other business
organization, or as a partner, officer, director, employee, stockholder,
consultant or agent of any corporation, partnership or business organization
(excluding, in all cases, the provision of third party investment banking
services), engage in any business activity which is directly in competition with
the services being
-4-
<PAGE> 5
marketed, provided or sold by the Employer Group. During the Term and for a
period of one year after the termination or cessation of the Employee's
employment with the Company for any reason (including termination of employment
by the Company without Cause or termination of employment by the Employee for
Good Reason) the Employee shall not, directly or indirectly, alone or as a
member of any partnership or other business organization, or as a partner,
officer, director, employee, stockholder, consultant or agent of any
corporation, partnership or business organization request or cause any customer
of the Employer Group to cancel or terminate any business relationship with the
Employer Group.
(c) Notwithstanding the foregoing, the foregoing restrictions
shall not be construed to prohibit the ownership by the Employee of less than
three percent of any class of securities of any corporation which is engaged in
any of the foregoing businesses and which has a class of securities registered
pursuant to the Securities Exchange Act of 1934, provided that such ownership
represents a passive investment and that neither the Employee nor any group of
persons including the Employee directly or indirectly manages or exercises
control of any such corporation, guarantees any of its financial obligations or
otherwise takes any part in its business, other than by exercising their rights
as a shareholder.
5. CONFIDENTIAL INFORMATION.
(a) The Employee will not at any time, whether during or after the
termination or cessation of his employment, reveal to any person, association or
company any of the trade secrets or confidential information concerning the
organization, business or finances of the Employer Group so far as they have
come or may come to his knowledge, except as the Employee reasonably believes
may be required in the ordinary course of performing his duties as an employee
of the Company, except as may be in the public domain through no fault of the
Employee, or except as may be required by court order or other legal proceeding,
and the Employee shall keep secret all matters entrusted to him and shall not
use or attempt to use any such information in any manner which may injure or
cause loss or is calculated to injure or cause loss whether directly or
indirectly to the Employer Group.
(b) The Employee agrees that during his employment he shall not
make, use or permit to be used any notes, memoranda, drawings, specifications,
programs, data or other materials of any nature relating to any matter within
the scope of the business of the Employer Group (except for documents relating
to the compensation, benefits or evaluation of the performance of the Employee)
or concerning any of their dealings or affairs otherwise than for the benefit of
the Employer Group or except as may be required by court order or other legal
proceeding. The Employee shall not, after the termination or cessation of his
employment, use or permit to be used any such notes, memoranda, drawings,
specifications, programs, data or other materials, it being agreed that any of
the foregoing shall be and remain the sole and exclusive property of the
Employer
-5-
<PAGE> 6
Group and that immediately upon the termination or cessation of his employment
the Employee shall deliver all of the foregoing, and all copies thereof, to the
Company, at its main office.
6. INTELLECTUAL PROPERTY ASSIGNMENT.
The Employee agrees to assign and transfer to the Company or its
designee, without any separate remuneration or compensation, his entire right,
title and interest in and to all Inventions and Works in the Field (as
hereinafter defined), together with all United States and foreign rights with
respect thereto, and at the Company's expenses to execute and deliver all
appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on such Inventions and Works, and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments, that may be necessary or proper to vest all such Inventions and
Works in the Field and patents and copyrights with respect thereto in the
Company, and to assist the Company in the prosecution or defense of any
interference which may be declared involving any said patent applications or
patents or copyright applications or copyrights. For the purposes of this
Agreement, the words "Inventions and Works" shall include any discovery,
process, design, development, improvement, application, technique, program or
invention, whether practice or not, conceived or made by the Employee,
individually or jointly with others (whether on or off the Company's premises or
during or after normal working hours), while in the employ of the Company,
whether patentable or not, provided, however, that no discovery, process,
design, development, improvement, application, technique, program or invention
reduced to practice or conceived by the Employee off the Company's premises and
after normal working hours shall be deemed to be included in the term
"Inventions and Works" unless directly or indirectly related to the business
then being conducted by the Company or any business which the Employer Group is
then actively exploring (collectively, the "Field").
7. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and the Company's successors or assigns (whether
resulting from any reorganization, consolidation or merger of the Company or any
business to which all or substantially all of the assets of the Company are
sold) and the Employee's heirs, executors and legal representatives. The Company
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance reasonably
satisfactory to the Employee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
-6-
<PAGE> 7
8. ENTIRE AGREEMENT.
This Agreement contains the entire agreement and understanding of
the parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in writing signed by
the party to be charged.
9. RIGHT TO INJUNCTION.
The Employee acknowledges and agrees that the services rendered
and to be rendered to the Company by him are of a specialized and unique
character and that irreparable and immediate damage will result to the Company
if the Employee fails, refuses or neglects to perform his agreements and
obligations hereunder. In the event of such a failure, refusal or neglect by the
Employee, the Company shall be entitled to injunctive relief or any other legal
or equitable remedies including the recovery, by appropriate action, of the
amount of the actual damage caused by the Company by any such failure, refusal
or neglect by the Employee. The remedies provided in this Agreement shall be
deemed cumulative and the exercise of one shall not preclude the exercise of any
other remedy at law or in equity for the same event or any other event.
10. MISCELLANEOUS.
(a) Amendments. No amendment, modification or waiver of any of the
terms of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall
survive the termination or cessation of the Employee's employment with the
Company and shall be binding upon and inure to the benefit of and be enforceable
by and against the respective heirs, executors, administrators, personal
representatives, permitted successors and assigns of either of the parties to
this Agreement.
(c) Withholding. The Company may withhold from any payments to be
made to or on behalf of the Employee under this Agreement such federal, state
and local taxes as the Company is required to withhold pursuant to any law or
governmental rule or regulation.
(d) Waiver. The waiver by the Company of a breach of this
Agreement by the Employee shall not operate or be construed as a waiver of any
subsequent breach by the Employee.
(e) Severability. If any provision of this Agreement shall
contravene any law or any particular state where the Employee shall perform
services for the Company, then this Agreement
-7-
<PAGE> 8
shall be first construed to be limited in scope and duration so as to be
enforceable in that state, and if still unenforceable, shall then be construed
as if such provision is not contained herein.
(f) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or if received
by facsimile transmission, overnight delivery service or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided, however, that notices of a change of address
shall be effective only upon receipt thereof):
(a) if to the Company:
Infinient Inc.
499 Thornall Street
Edison, New Jersey 08837
Attention: Chief Executive Officer
Telecopier No.: 732-362-2100
(b) if to Employee:
Mr. Ravi Singh
8 Sandburg Court
Teaneck, New Jersey 07666
Telecopier No.: 201-692-8289
with a copy to:
Carter, Ledyard & Milburn
Two Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
Telecopier No.: 212-732-3232
(g) Governing Law. This Agreement shall be governed by the
internal substantive laws of the State of New Jersey (without regard to conflict
of laws principles thereof) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies.
(h) Suits in New Jersey. The parties agree that any action or
proceeding relating in any way to this Agreement shall be brought and enforced
in the state or federal courts located in
-8-
<PAGE> 9
Middlesex County, New Jersey and the parties hereby waive any objection to
jurisdiction or venue in any such proceeding commenced in or removed to such
courts.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which as so executed and delivered shall be deemed an
original but all of which together shall constitute one and the same instrument,
and it shall not be necessary in making proof of this Agreement as to any party
hereto to produce or account for more than one such counterpart executed and
delivered by such party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
INFINIENT INC.
By: /s/ Raj Koneru
-----------------------
Raj Koneru
/s/ Ravi P. Singh
-----------------------
Ravi P. Singh
-9-
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
BETWEEN:
SERANOVA, INC.
A wholly owned Subsidiary of Intelligroup, Inc.
AND
RAJAN NAIR
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT DESCRIBES THE BASIC LEGAL
AND ETHICAL RESPONSIBILITIES THAT YOU ARE REQUIRED TO OBSERVE AS AN EXECUTIVE
EXPOSED TO HIGHLY SENSITIVE TECHNOLOGY AND STRATEGIC INFORMATION IN PERFORMING
YOUR DUTIES. THE COMPANY BELIEVES THAT THIS AGREEMENT STRIKES A FAIR BALANCE
BETWEEN ITS INTERESTS AND YOUR NEEDS AND EXPECTATIONS.
(1)
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement is dated January 1, 2000 between SERANOVA, INC.,
("Subsidiary") a wholly owned subsidiary of INTELLIGROUP, INC.,
("Intelligroup"), a New Jersey Corporation with offices at 499 Thornall Street,
11th Floor, Edison, NJ 08837 and Rajan Nair (The "Executive"). As used herein,
"Company" shall mean the Intelligroup and all of it subsidiaries based in the U.
S. including SERANOVA, Inc.
STATEMENTS
A. The Company is engaged in the business of the development and/or
implementation of computer software and other technology products for
its customers.
B. The Executive has education and experience which would be useful to the
Company in its business.
C. It is in the Company's best interest to secure the services of the
Executive and the Executive's specialized knowledge and unique
capabilities with respect to the business of the Company.
D. The Company and the Executive wish to set forth in writing the terms
and conditions of the employment of the Executive.
E. This agreement will supersede any previous employment agreement and job
offer letters executed between the Executive and the Company.
NOW, THEREFORE, the parties agree as follows:
ARTICLES OF AGREEMENT
ARTICLE 1. EMPLOYMENT
1.1 The Executive, who is currently employed by the Company as the Senior
Vice President, Global Delivery will assume responsibility as the
Chief Operating Officer of Seranova, Inc.. The Executive will report
directly to the Chairman of the Subsidiary. The Executive understands
that this position is that of a corporate officer. The Executive
agrees to serve the Company faithfully in this capacity, the duties
and responsibilities of which may change from time to time.
1.2 The Executive agrees to devote his best efforts, energies and skill to
the discharge of his duties as Vice-President, and to this end he will
devote his full time and attention (except for sick leave, vacations,
and approved leaves of absences) exclusively to the business and
affairs of the Company. During the Term of Employment, the Executive
under no circumstances may work for a competitor of the Company.
1.3 The Executive agrees and represents to the Company that the Executive
is not subject to any existing contract which would affect or impede
the Executive's ability to perform in accordance with the terms of this
Agreement, including, by way of example, any restrictive covenants of
past employers that would prohibit the Executive's acceptance of the
terms of this Agreement. The Executive agrees not to disclose to the
Company any confidential information or trade secrets of others for
which he may be under an obligation to a third party not to disclose.
The Executive also agrees not to breach any on-going fiduciary duty
still owed to a previous employer nor to appropriate any trade secrets
obtained while in the employ of such previous employer.
(2)
<PAGE> 3
1.4 The Executive hereby acknowledges that he is in a position of trust in
performing services for the Company and its clients, including but not
limited to obtaining access to confidential and trade secret
information. The Executive represents and warrants that he has no
criminal felony convictions involving drugs, theft or violent behavior
within the past five (5) years. Furthermore, the Executive expressly
authorizes the Company or its agents to conduct criminal background
check to verify his/her above-stated representations.
ARTICLE 2. COMPENSATION
2.1 Salary. The Company shall compensate the Employee with a base salary
(the "Salary") of $250,000 which shall be payable in equal bi-monthly
installments or at such normal pay periods. The Salary will be reviewed
annually by the Board of Directors of SERANOVA ("Board"), or the
Compensation Committee of the Board.
2.2 Bonuses. In addition to the Salary, for each year during the Term of
Employment (defined in Article 6.1) the Employee shall be eligible to
receive a bonus awarded by the Board or the Compensation Committee of
the Board and which is intended to be based on performance targets to
be agreed by the employee and the Board or Compensation Committee.
ARTICLE 3. FRINGE BENEFITS
The Executive shall be entitled to participate in all pension, profit sharing,
401(k), deferred compensation, health, dental, accident, life insurance,
disability and other benefit plans and policies as are from time to time
available to executives of the Company or the Subsidiary.
ARTICLE 4. PAID TIME OFF
During each 12 months of employment, the Executive shall be entitled to paid
vacations for an aggregate of 20 working days. The Company, or the Subsidiary
shall not pay the Executive any additional compensation for any vacation time
not used by the Executive.
ARTICLE 5. REIMBURSEMENT OF EXPENSES
The Company shall promptly reimburse Executive for reasonable business expenses
incurred in performing Executive's duties and promoting the business of the
Company, including, but not limited to, reasonable entertainment expenses and
travel and lodging expenses, following presentation of proper documentation. In
the event the Subsidiary decides to relocate the its headquarters outside the
New York metropolitan area, and therefore requiring the Executive to relocate,
the Subsidiary shall pay reasonable relocation expenses to the Executive.
ARTICLE 6. TERM
6.1 Term of Employment. This agreement shall be deemed to have commenced on
January 1, 2000. This Agreement may be terminated at any time by mutual
agreement of the Executive and the Subsidiary.
6.2 Termination Without Cause or By Executive With Good Reason.
6.2.1 Either party may terminate this Agreement without "Cause" (as
defined below) upon thirty (30) days written notice of the
effective date of such termination. Upon such termination, the
Company shall be released from any and all further obligations
under this Agreement, except that the Company, or the
Subsidiary shall be obligated to pay Executive his salary and
benefits owing to Executive through the effective date of
(3)
<PAGE> 4
termination; and if it has not previously been paid to
Executive, any variable incentive compensation or bonus
compensation to which Executive had become entitled prior to
the effective date of such termination. Executive shall also
be entitled to any reimbursement owed him in accordance with
Article 5. Executive's obligations under Paragraphs 7 and 8 of
this Agreement shall survive the termination of Executive's
employment, and shall continue pursuant to the terms and
conditions of this Agreement.
6.2.2 If the Company, or the Subsidiary terminates this Agreement
without Cause as is provided for in subparagraph 6.2.1. above,
or if Executive terminates this Agreement for "Good Reason"
(as defined below), Executive shall be entitled to 6 MONTHS
SALARY, payable within thirty (30) days after the effective
date of termination. The Executive shall only be entitled to
payment and benefits provided for in this subparagraph 6.2.2.
if, and only if, Executive signs a valid general release of
all claims against the Company in a form provided by the
Company.
6.2.3 For purposes of this Agreement, "Good Reason" shall mean,
without the express written consent of Executive, the
occurrence of any of the following events unless such events
are fully corrected within 30 days following written
notification by Executive to the Company that he intends to
terminate his employment hereunder for one of the reasons set
forth below:
(i) a material breach by the Company of any material
provision of this Agreement;
(ii) the assignment to Executive of any significant duties
inconsistent with Executive's position in the Company
or a material adverse alteration in the nature or
status of Executive's responsibilities;
6.3 Termination by Employer for Cause, Death or Disability.
6.3.1 This Agreement may be terminated by the Company, or the
Subsidiary for "Cause" or because of the "Disability" of the
Executive (as defined below), or it may be terminated by the
death of the Executive. Upon such termination, the Company and
the Subsidiary shall be released from any and all further
obligations under this Agreement, except that the Company
shall be obligated to pay Executive his salary and benefits
owing to Executive through the effective date of such
termination; and if it has not previously been paid to
Executive, any variable incentive compensation or bonus to
which Executive had become entitled prior to the effective
date of such termination. Executive shall also be entitled to
any reimbursement owed him in accordance with Article 5.
Executive's obligations under Paragraphs 7 and 8 of this
Agreement shall survive the termination of Executive's
employment, and shall continue pursuant to the terms and
conditions of this Agreement.
6.3.2 Cause for Termination shall include but is not limited to the
following conduct of the Executive:
(i) Material breach of any provision of this Employment
Agreement by the Executive, provided the Executive is
given reasonable notice and a reasonable opportunity
to cure such breach if the breach is of a nature
amenable to cure within a reasonable time without
prejudice to interests of the Company.
(ii) Misconduct as an Executive of the Subsidiary,
including but not limited to: misappropriating funds
or property of the Company; any attempt to obtain any
personal profit from any transaction in which the
Executive has an interest that
(4)
<PAGE> 5
is adverse to the Company or any breach of the duty
of loyalty and fidelity to the Company; or any other
act or omission of the Executive which materially
damages the business of the Company.
(iii) Unreasonable neglect or any refusal to perform the
duties appropriately assigned to the Executive under
or pursuant to this Employment Agreement.
(iv) Conviction of a felony or plea of guilty or no lo
contendre to a felony; and
(v) Acts of dishonesty or moral turpitude by the
Executive that are materially detrimental to the
Company, or any other act or omission that causes the
Company to be in violation of governmental
regulations that subjects the Company either to
sanctions by governmental authority or to civil
liability to its Executives or third parties.
6.3.3 Death. The period of active employment of the Executive
hereunder shall terminate automatically in the event of his
death.
6.3.4 Disability. In the event that the Executive shall be unable to
perform duties hereunder for a period of ninety (90)
consecutive calendar days by reason of disability as a result
of illness, accident or other physical or mental incapacity or
disability, the Company may, in its discretion, by giving
written notice to the Executive, terminate the Executive's
employment hereunder as long as the Executive is still
disabled on the effective date of such termination.
ARTICLE 7. CONFIDENTIALITY
7.1 The Company has acquired and developed, and will continue to acquire
and develop, without limitation, technical information (including
functional and technical specifications, designs, drawings, analysis,
research, processes, systems and procedures, computer programs,
methods, ideas, "Company know how" and the like), business information
(sales and marketing research, materials, plans, accounting and
financial information, credit information on customers, lists
containing the names, addresses and business habits of customers, sales
reports, price lists, personnel records including names, addresses and
salaries of Intelligroup Executives, contractors, and subcontractors
and the like) whether or not designated as confidential and other
information designated as confidential expressly or by the
circumstances in which it is provided (all of the foregoing is referred
to as the "Proprietary Information"). This excludes common and generic
information as set forth by federal and state law or generally known in
the industry through no fault of the Executive.
7.2 The Proprietary Information is confidential, important, and unique to
business of the Company. The Company and the Executive acknowledge the
Proprietary Information represents trade secrets of the Company.
7.3 For the Company to protect the Proprietary Information properly, the
Executive recognizes it is essential that confidentiality be maintained
by the Executive and that certain restrictions be imposed upon the
Executive during the course of employment and continuing thereafter.
7.4 The Executive agrees to keep all Proprietary Information confidential.
The Executive agrees to refrain from communicating or divulging any of
the Proprietary Information to any person, firm or corporation or to
use the proprietary information for any purpose other than a Company
purpose during the term of employment and at all times following the
termination of this Agreement for any reason whatsoever.
(5)
<PAGE> 6
7.5 The Company has acquired and developed, and will continue to acquire
and develop, Proprietary Information, and during the Term of Employment
the Executive will acquire Proprietary Information about the business
of the Company's customers or other parties (such as a licensor or
contractor) with whom the Company does business under circumstances
requiring confidentiality. The Executive agrees to treat the
information acquired about the Company's customers and licensors at
least in the same manner and under the same restrictions of this
Article 7 or in a manner contractually required by any such customer or
third party to provide greater security to such customer or third
party.
7.6 Notwithstanding the foregoing restrictions, the Executive may disclose
any information to the extent required by an order of any U.S. federal
or state court or other federal or state governmental authority, but
only after the Company or its clients or contractors, as the case may
be, have been so notified and have had the opportunity, if possible, to
obtain reasonable protection for such information in connection with
such disclosure.
7.7 Upon the request of the Company or upon the termination of this
Agreement, the Executive will cause to remain with the Company all
memoranda, notes, records, drawings, manuals, disks, or other documents
and media pertaining to the Company's business, including all copies of
such.
7.8 The provisions of this Article 7 shall survive the Termination of this
Agreement.
ARTICLE 8. RESTRICTIVE COVENANT; NONINTERFERENCE WITH CUSTOMER AND COMPANY
PERSONNEL RELATIONS
The Executive covenants and agrees that during the term of employment and for a
period of one year following the termination of employment for any reason
whatsoever or no reason, the Executive shall not directly or indirectly do any
of the following without the written consent of a Company executive:
8.1 Solicit or accept any similar business from a person, firm or
corporation that is a customer of the Company with whom the Executive
had any substantive business dealings on the Company's behalf during
the time the Executive is employed by the Company; and
8.2 Solicit or accept any similar business similar to that provided by the
Company from any person, firm or corporation that is an active
(significant progress made toward closing business) prospective
customer of the Company with whom the Executive had any substantive
business dealings on the Company's behalf during the term of
employment.
8.3 Solicit, persuade, induce, entice or attempt to entice, cause or
attempt to cause, any Executive or individual contractor of the Company
to terminate his or her employment or contractual relationship with the
Company.
8.4 Solicit, persuade, induce, entice or attempt to entice, cause or
attempt to cause, any customer of the Company to terminate its business
relationship with the Company. For the purpose of this paragraph, such
customer shall include as well firms, companies or other business
entities that have been customers of the Company within the 12 months
preceding Executive's termination but may not be actual customers at
the time of termination.
8.5 The restrictions of this Article 8 shall survive the termination of
this Agreement.
ARTICLE 9. REMEDIES OF COMPANY
9.1 The Executive acknowledges the restrictions imposed by this Agreement
are reasonable and are necessary to protect the legitimate business
interests of the Company.
(6)
<PAGE> 7
9.2 If the Executive breaches or threatens to breach any of the
restrictions imposed by this Agreement, the Executive agrees the
Company would suffer irreparable harm for which money would be an
inadequate remedy. Accordingly, the Executive agrees that the Company
has the right to obtain injunctive or other equitable relief in
addition to any other available remedies and the Company shall have the
additional right to recover from the Executive court costs and
reasonable attorneys fees incurred by the Company in protection of its
interests hereunder.
ARTICLE 10. BINDING EFFECT
This Agreement is binding upon, inures to the benefit of and is enforceable by
the heirs, personal representatives, successors and permitted assigns of the
parties. This Agreement is not assignable by the Executive. Nor may the
obligations of the Executive be delegated to any person or other entity. The
Company may assign this Agreement without the consent of the Executive to a
subsidiary of the Company, to an entity that acquires the Company, to an entity
with which the Company merges or to an entity which is acquired by the Company.
ARTICLE 11. INVENTIONS, TRADEMARKS, PATENTS AND OTHER WORK PRODUCTS
11.1 Unless otherwise authorized in writing by the Company and to the extent
the Executive generates works of authorship, copyrights, inventions,
trademarks, trade dress or other such work products dealing with the
nature of the Company's business (collectively the "Works") during the
terms of employment by the Company, or uses the premises, facilities or
time of the Company to create or fix the Works, the Executive shall and
hereby does convey, assign and transfer ownership to the Company of all
right, title and interest in and to all the Works throughout the world,
including but not limited to any and all copyright, patent, trademark
and trade dress rights. Whenever permitted by law, the Company shall
have the exclusive right to obtain copyright, patent and/or trademark
registration or other protection in the Works in its own name as
inventor, author and owner and to secure any renewals and extensions of
such rights throughout the world.
11.2 The Executive hereby acknowledges that the Executive retains no rights
whatsoever with respect to the Works, including but not limited to any
rights to reproduce the Works, prepare derivative works based thereon,
file copyright or trademark applications for the Works, distribute
copies of the Works in any manner whatsoever, exhibit, use or display
the Works publicly or otherwise, or license or assign to any third
party the right to do any of the foregoing, except as otherwise
authorized in writing by the Company.
11.3 The Executive agrees to execute any documents as may be reasonably
required by the Company to effect the Company's ownership rights as
provided herein or to otherwise further the purpose of this Agreement.
11.4 The Company shall be entitled to a shop right with respect to any of
the Works created by the Executive that is not assignable to the
Company under the terms of this Agreement. In the event of termination,
expiration or invalidation of this Agreement by statutory construction,
judicial interpretation or other means, Executive agrees that the
Company has absolute rights of first refusal to acquire any remaining
portion or extension of the copyright term in the Works.
ARTICLE 12. NO OFFSET
The amount of any payment or benefit provided for in this Agreement, including
welfare benefits, shall not be reduced by any compensation or benefits earned by
or provided to Executive as the result of employment by another employer after
termination of Executive's employment with the Company.
ARTICLE 13. TAXES
(7)
<PAGE> 8
All payments to be made to Executive under this Agreement will be subject to any
applicable withholding of federal, state and local income and employment taxes.
ARTICLE 14. NOTICES
All notices under this Agreement shall be made in writing and shall be deemed
given when (1) delivered in person, (2) deposited in the U.S. mail, first class,
with proper postage prepaid and properly addressed to the address first set
forth above, unless changed by notice in writing signed by the addressee, or (3)
deposited in the U.S. mail, first class, with proper postage prepaid and
properly addressed to the address first set forth above, unless changed by
notice in writing signed by the addressee, by certified mail, return receipt
requested, or (4) delivered by an overnight or other express delivery service
carrier, or (5) sent through the interoffice delivery service of Employer, if
the Executive is still employed by the Company at the time.
ARTICLE 15. GOVERNING LAW AND JURISDICTION
This Agreement is governed by and is to be construed and enforced in accordance
with the laws of New Jersey as though made and to be fully performed in New
Jersey (without regard to the conflicts of law rules of New Jersey). All
disputes arising under this Agreement are to be resolved in the courts of the
State of New Jersey. If any party desires to commence an action to enforce any
provision of this Agreement, such action must be instituted in the appropriate
New Jersey court. The parties consent to the jurisdiction of the New Jersey
courts. The parties agree that the courts of the State of New Jersey are to have
exclusive jurisdiction over this Agreement. The parties agree that service of
any process is effective if served in the manner that a Notice may be served
pursuant to this Agreement.
ARTICLE 16. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement does not
in any manner affect any other provision. If any provision is determined to be
invalid or unenforceable, this Agreement is to be construed as if the invalid or
unenforceable provision was omitted.
ARTICLE 17. POST-EMPLOYMENT OBLIGATION
17.1 Company Property. All records, files, lists, including computer
generated lists, drawings, documents, equipment and similar items
relating to the Company's business that the Executive shall prepare or
receive from the Company shall remain the Company's sole and exclusive
property. Upon termination of this Agreement, Executive shall promptly
return to the Company all property of the Company in his possession.
Executive further represents that he will not copy or cause to be
copied, print out, or cause to be printed out any software, documents
or other materials originating with or belonging to the Company.
Executive additionally represents that, upon termination of his
employment with the Company, he will not retain in his possession any
such software, documents or other materials.
17.2 Cooperation. Executive agrees that both during and after his employment
he shall, at the request of the Company, render all assistance and
perform all lawful acts that the Company considers necessary or
advisable in connection with any litigation involving the Company or
any director, officer, employee, shareholder, agent, representative,
consultant, client, or vendor of the Company.
ARTICLE 18. MISCELLANEOUS
This Agreement shall also be subject to the following miscellaneous
considerations:
18.1 Executive and the Company each represent and warrant to the other that
he or it has the authorization, power and right to deliver, execute,
and fully perform his or its obligations under this Agreement in
accordance with its terms.
(8)
<PAGE> 9
18.2 Any rights of Executive hereunder shall be in addition to any rights
Executive may otherwise have under benefit plans, agreements, or
arrangements of the Company to which he is a party or in which he is a
participant, including, but not limited to, any Company-sponsored
employee benefits plans and profit sharing. Provisions of this
Agreement shall not in any way abrogate Executive's rights under such
other plans, agreements or arrangements.
ARTICLE 19. AMENDMENTS AND NON-WAIVER
This Agreement, including this Article 19, may only be changed or amended by a
written agreement signed by a Company Corporate Officer and the Executive. A
waiver by the Company of a breach of any provision of this Agreement by the
Executive is not to be construed as a waiver of any other current or subsequent
breach.
ARTICLE 20. ENTIRE AGREEMENT
20.1 This Agreement, contains the entire understanding of the parties with
respect to the matters set forth herein. Each party acknowledges that
there are no warranties, representations, promises, covenants or
understandings of any kind except those that are expressly set forth in
this Agreement. This Agreement supersedes any previous agreements
between the parties.
20.2 Executive represents and agrees that he fully understands his right to
discuss all aspects of this Agreement with his private attorney, that
to the extent he desired, he availed himself of this right, that he has
carefully read and fully understands all of the provisions of the
Agreement, that he is competent to execute this Agreement, that his
decision to execute this Agreement has not been obtained by any duress
and that he freely and voluntarily enters into this Agreement, and that
he has read this document in its entirety and fully understands the
meaning, intent, and consequences of this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement.
/s/ Raj Koneru
- --------------
Raj Koneru
Chief Executive Officer
SERANOVA, Inc.
Dated:
/s/ Rajan Nair
- --------------
Rajan Nair
Chief Operating Officer
[ ]
Dated: 01/20/2000
(9)
<PAGE> 1
EXHIBIT 10.9
MASTER CONSULTING SERVICES AGREEMENT
THIS MASTER CONSULTING SERVICES AGREEMENT (this "Agreement"), made and entered
into this 21 day of December, 1999 ("Effective Date"), by and between SeraNova,
Inc. and Intelligroup, Inc. collectively (hereinafter "SeraNova"), New Jersey
corporations, and Mueller/Shields (hereinafter "Consultant"), a California
corporation:
Recitals:
Consultant represents that it has expertise in the area of sales, marketing,
training, and strategic planning, and is ready, willing, and able to provide
consulting assistance to SeraNova on the terms and conditions set forth herein;
and
SeraNova, in reliance on Consultant's representations, is willing to engage
Consultant as an independent contractor, and not as an employee, on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the obligations herein made and undertaken,
the parties, intending to be legally bound, hereby agree as follows:
SECTION 1. SCOPE OF SERVICES
1.1 Consultant shall provide consulting services (the "Services") as set
forth in the Intelligroup, Inc. Integrated Sales and Marketing Program
for NewCo Proposal Version 2.4 dated October 12, 1999 (the "Proposal")
and submitted by Consultant to SeraNova. Consultant shall render such
Services and deliver the required reports and other deliverables
("Deliverables") in accordance with the timetable and milestones set
forth in Exhibit A and the Proposal. In the event Consultant
anticipates at any time that it will not reach one or more milestones
or complete one or more assignments within the prescribed timetable,
Consultant shall immediately so inform SeraNova by written notice,
submit proposed revisions to the timetable and milestones that reflect
Consultant's best estimates of what can realistically be achieved, and
continue to work under the original timetable and milestones until
otherwise directed by SeraNova. Consultant shall also prepare and
submit such further reports of its performance and its progress as set
forth in the Proposal and as SeraNova may reasonably request from time
to time.
1.2 Consultant shall provide and make available to SeraNova such resources
as shall be necessary to perform the Services called for by this
Agreement. Such resources shall include the key employees (Key
employees) named by the parties and listed in Exhibit B, as amended in
writing by the parties from time to time. If any such Key Employee
leaves the employ of Consultant during the term of this Agreement for
any reason or is unavailable to continue work at the specified level of
commitment (full-time, X number of hours/week, etc.) called for herein,
and if substitute individuals acceptable to SeraNova are not available
to continue the work within 5 business days, SeraNova shall have the
right to terminate this Agreement pursuant to Section 2.2 hereof.
1.3 SeraNova shall, within 10 business days of receipt of each Deliverable
submitted to SeraNova, advise Consultant of SeraNova's acceptance or
rejection of such Deliverable. Any rejection shall specify the nature
and scope of the deficiencies in such Deliverable. Consultant shall,
upon receipt of such rejection, act diligently, but in no event later
than 10 business days to correct such deficiencies.
1.4 All work shall be performed in a workmanlike and professional manner by
employees of Consultant having a level of skill and experience in the
area commensurate with the requirements of the scope of
<PAGE> 2
work to be performed. Consultant shall make sure its employees at all
times observe security and safety policies of SeraNova while on
SeraNova's site.
1.5 SeraNova and Consultant shall develop appropriate administrative
procedures to apply to Consultant's personnel. SeraNova shall
periodically prepare an evaluation of the performance of Consultant's
personnel.
1.6 SeraNova may interview the Consultant's personnel assigned to
SeraNova's work. Consultant shall have the right, at any time, to
request removal of any employee(s) of Consultant whom SeraNova deems to
be unsatisfactory. Upon such request, Consultant shall use its best
efforts to promptly replace such employee(s) with substitute
employee(s) having appropriate skills and training within two business
days.
1.7 Anything herein to the contrary notwithstanding, the parties hereby
acknowledge and agree that SeraNova shall have no right to control the
manner, means, or method by which Consultant performs the Services
called for by this Agreement. Rather, SeraNova shall be entitled only
to direct Consultant with respect to the elements of Services to be
performed by Consultant and the results to be derived by SeraNova, to
inform Consultant as to where and when such Services shall be
performed, and to review and assess the performance of such Services by
Consultant for the limited purposes of assuring that such Services have
been performed and confirming that such results were satisfactory.
SECTION 2. TERM OF AGREEMENT
2.1 This Agreement shall commence on the Effective Date, and unless
modified by mutual agreement of the parties or terminated earlier
pursuant to the terms of this Agreement, shall continue until the
satisfactory completion of the Services.
2.2 This Agreement may be terminated by either party upon sixty (60)
business days' prior written notice, if the other party breaches any
term hereof and the breaching party fails to cure such breach within
such sixty (60) business day period.
2.3 This Agreement may be terminated by SeraNova at its discretion upon
thirty (30) business days' prior written notice.
2.4 Upon termination of this Agreement for any reason, SeraNova shall pay
the Consultant for all services performed in accordance with the
Milestone Payment Schedule as well as the Cancellation Fee specified in
Exhibit A. Consultant shall promptly return to SeraNova all copies of
any SeraNova data, records, or materials of whatever nature or kind,
including all materials incorporating the proprietary information of
SeraNova and all work for hire pursuant to this Agreement. Consultant
shall furnish to SeraNova all works in progress or portions thereof,
including all incomplete work.
2.5 In the event of termination, Consultant will assist SeraNova in the
orderly termination of the Services and/or any applicable attachments
hereto, and the transfer of all items and Work Product (defined below),
tangible and intangible, as may be necessary for the orderly,
non-disrupted business continuation of Consultant; and shall promptly
deliver to SeraNova, upon the expiration or termination of all or part
of the Services, complete and correct copies of all Work Product
(including any related source code) in the form and on the media in use
as of the date of such expiration or termination.
2.6 Upon termination by SeraNova, SeraNova shall have no liability for any
payments accruing for Services performed after the termination date.
-2-
<PAGE> 3
SECTION 3. FEES, EXPENSES AND PAYMENT
3.1 In consideration of the Services to be performed by Consultant,
SeraNova shall, within thirty (30) days of receipt of an invoice for
each milestone, as set forth in the Milestone Payment Schedule in
Exhibit A attached hereto, pay Consultant the fees due pursuant to such
Milestone Payment Schedule, as well as provide the Shared Risk/Shared
Reward Compensation and Stock Options in Exhibit A.
3.2 In the event Consultant terminates this Agreement because of a material
breach by SeraNova, Consultant shall be entitled to a pro rata payment
for work in progress based on the percentage of work then completed as
well as the Cancellation Fees in Exhibit A. No such pro rata payment
shall be made if SeraNova terminates this Agreement because of a breach
of Consultant.
3.3 Consultant agrees that the fees and charges for any follow-on or
additional work not included in the Proposal attached hereto shall be
performed at the lesser of (1) Consultant's then-current rates for such
work as charged to Consultant's most favored customer receiving similar
services, or (2) the rates applicable to the scope of work fixed by
this Agreement, including any discount previously applied to the work
set forth in the proposal. In the event any payment is delinquent under
this Agreement, all amounts due and owing shall accrue interest at
eight percent per annum.
SECTION 4. CONSULTANT PERSONNEL
4.1 Consultant shall bear sole responsibility for payment of compensation
to its personnel. Consultant shall pay and report, for all personnel
assigned to SeraNova's work, federal and state income tax withholding,
social security taxes, and unemployment insurance applicable to such
personnel as employees of Consultant. Consultant shall bear sole
responsibility for any health or disability insurance, retirement
benefits, or other welfare or pension benefits (if any) to which such
personnel may be entitled. Consultant agrees to defend, indemnify and
hold harmless SeraNova, SeraNova's officers, directors, employees and
agents, and the administrators of SeraNova's benefit plans from and
against any claims, liabilities or expenses relating to such
compensation, tax, insurance or benefit matters; provided that SeraNova
shall promptly notify Consultant of each such claim when and as it
comes to SeraNova's attention. SeraNova shall cooperate with Consultant
in the defense and resolution of such claims, and SeraNova shall not
settle or otherwise dispose of such claims without Consultant's prior
written consent; such consent not to be unreasonably withheld.
4.2 Notwithstanding any other workers' compensation or insurance policies
maintained by SeraNova, Consultant shall procure and maintain workers'
compensation coverage sufficient to meet the statutory requirements of
every state where Consultant's personnel assigned to SeraNova's work
are located.
4.3 Consultant shall obtain and maintain in effect written agreements with
each of its personnel who participate in any of SeraNova's work
hereunder. Such agreements shall contain terms sufficient for
Consultant to comply with all provisions of this Agreement.
4.4 As neither Consultant nor its personnel are SeraNova's employees,
SeraNova shall not take any action or provide Consultant's personnel
with any benefits or commitments inconsistent with any of such
undertakings by Consultant. In particular, SeraNova will not withhold
FICA (Social Security) from Consultant's payments; make state or
federal unemployment insurance contributions on behalf of Consultant or
its personnel; withhold state and federal income tax from payment to
Consultant; make disability insurance contributions on behalf of
Consultant; and obtain workers' compensation insurance on behalf of
Consultant or its personnel.
SECTION 5. INTELLECTUAL PROPERTY RIGHTS
-3-
<PAGE> 4
5.1 All rights, titles and interests in and to the programs, systems, data,
reports, audio and video materials, databases, or other materials used
or produced by Consultant in the performance of the Services called for
in this Agreement, including any modifications, enhancements, or
derivative works thereof, shall remain or become the property of
Consultant.
5.2 All rights, titles and interests in and to all Deliverables and other
materials provided pursuant to this Agreement, including all rights in
copyrights, research, databases created specifically for SeraNova,
domain names and internet addresses, or other intellectual property
rights pertaining thereto ("Work Product"), shall be held by SeraNova,
and all Work Product shall, to the extent possible, be considered works
made by Consultant for hire for the benefit of SeraNova. Consultant
shall mark all Work Product with SeraNova's copyright or other
proprietary notices as directed by SeraNova and shall take all actions
deemed necessary by SeraNova to protect SeraNova's rights therein. In
the event that the Work Product does not constitute work made by
Consultant for hire for the benefit of SeraNova under applicable law,
or in the event that Consultant otherwise retains any rights to any
Work Product, Consultant agrees to assign, and upon creation thereof
hereby automatically assigns, all rights, titles, and interests in and
to such Work Product to SeraNova, without further consideration.
Consultant agrees to execute any documents of assignment or
registration of copyright requested by SeraNova respecting any and all
Work Product.
5.3 All rights, titles and interests in and to any programs, systems, data,
and materials furnished to Consultant by SeraNova are and shall remain
the property of SeraNova.
5.4 Notwithstanding the above, neither party shall be prevented from making
use of know-how and principles learned or experience gained of a
non-proprietary and non-confidential nature.
SECTION 6. CONFIDENTIAL INFORMATION
6.1 Consultant acknowledges that in order to perform the Services called
for in this Agreement, it shall be necessary for SeraNova to disclose
to Consultant certain trade secret(s) or other confidential and
proprietary information that has been developed by SeraNova at great
expense and that required considerable effort of skilled professionals
("Confidential Information"). As used herein, the term Confidential
Information shall mean any scientific or technical data, marketing or
strategic business information, design, process, procedure, formula,
methodology, or improvement that is commercially valuable to SeraNova
and not generally known in the industry. Confidential Information shall
not include information which is:
a. independently developed by Consultant or already
known by Consultant prior to Consultant's receipt of
Confidential Information and without violating its
obligations hereunder or any of SeraNova's
proprietary rights;
b. publicly known (other than through unauthorized
disclosure by Consultant);
c. disclosed by SeraNova to a third party without any
obligation of confidentiality; or
d. required to be disclosed by Consultant pursuant to
any applicable law or order of court (provided that
consultant shall provide reasonable prior written
notice to SeraNova of such disclosure).
Consultant agrees that it shall not disclose, transfer, use, copy, or
allow access to any such Confidential Information to any employees or
to any third parties, except for those who have a need to know such
Confidential Information in order to accomplish the requirements of
this Agreement and who are bound
-4-
<PAGE> 5
by contractual obligations of confidentiality and limitation of use
sufficient to give effect to this Section 6. Consultant further
acknowledges that the Work Product will of necessity incorporate such
Confidential Information. In no event shall Consultant disclose any
such Confidential Information to any competitors of SeraNova or to
third parties generally.
6.2 The parties agree to hold the nature and terms of this Agreement as
Confidential Information and Consultant shall not disclose the nature
of the effort undertaken for SeraNova or the terms of this Agreement to
any other person or entity, except as may be necessary to fulfill
Consultant's obligations hereunder, or as required by law.
6.3 Consultant shall not at any time use SeraNova's name or any SeraNova
trademark(s) or trade name(s) in any advertising or publicity without
the prior written consent of SeraNova.
6.4 The obligations set forth in this Section shall survive termination of
this Agreement and continue for so long as the relevant information
remains proprietary or Confidential Information.
SECTION 7. WARRANTIES
7.1 Consultant warrants that:
a. Consultant's performance of the Services called for
by this Agreement do not and shall not violate any
applicable law, rule, or regulation; any contracts
with third parties; or any third-party rights in any
patent, trademark, copyright, trade secret, or
similar right; and
b. Consultant is the lawful owner or licensee of any
software programs or other materials used by
Consultant in the performance of the Services called
for in this Agreement and has all rights necessary to
convey to SeraNova the unencumbered ownership of Work
Product.
b. Consultant warrants that all SeraNova data and
information in Consultant's possession or accessible
by Consultant are and shall remain the property of
SeraNova. The SeraNova data and information shall not
be: (i) used by Consultant other than in connection
with providing the Services; (ii) disclosed, sold,
assigned, leased or otherwise provided to third
parties by Consultant; or (iii) commercially
exploited by or on behalf of Consultant or any other
third party.
d. Consultant warrants that it shall establish and
maintain safeguards against the destruction, loss,
alteration or unauthorized disclosure of the SeraNova
data and information in Consultant's possession in
accordance with SeraNova's security standards as
notified by SeraNova to Consultant from time to time,
including use of secure passwords and login IDs.
SECTION 8. INDEMNIFICATION AND EXCLUSION OF DAMAGES
8.1 Consultant hereby indemnifies and agrees to hold harmless SeraNova from
and against any and all claims, demands, and actions, and any
liabilities, damages, or expenses resulting therefrom, including court
costs and reasonable attorney fees, arising out of or relating to the
Services performed by Consultant hereunder or any breach of the
warranties made by Consultant pursuant to Section 8 hereof.
Consultant's obligations under this Section 9.1 shall survive the
termination of this Agreement for any reason. SeraNova agrees to give
Consultant prompt notice of any such claim, demand, or action and
shall, to the extent SeraNova is not adversely affected, cooperate
fully with Consultant in defense and settlement thereof.
-5-
<PAGE> 6
8.2 EXCEPT IN THE EVENT OF BREACH OF SECTIONS 5, 7, 8, OR 9.1, NEITHER
PARTY SHALL BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL,
SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES WHETHER ARISING UNDER CONTRACT,
WARRANTY, OR TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY) OR ANY
OTHER THEORY OF LIABILITY, REGARDLESS OF WHETHER SUCH PARTY KNEW OR
SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.
SECTION 9. NON-COMPETITION
9.1 Consultant hereby agrees that during the term of this Agreement and for
a period of twelve (12) months thereafter it will not directly or
indirectly offer substantially similar services to another entity that
develops, offers, or provides Internet or Enterprise Information Portal
("EIP") services to substantially the same or similar markets as
SeraNova, as described in the Proposal, without SeraNova's prior
written consent.
SECTION 10. MISCELLANEOUS
10.1 Consultant shall not assign, transfer, or subcontract this Agreement or
any of its obligations hereunder without the prior written consent of
SeraNova; provided, however, that Consultant may assign its right to
receive payments hereunder to such third parties as Consultant may
designate by written notice to SeraNova.
10.2 This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New Jersey as they apply to a
contract executed, delivered and performed solely in such State.
10.3 The parties are and shall be independent contractors to one another,
and nothing herein shall be deemed to cause this Agreement to create an
agency, partnership, or joint venture between the parties. Nothing in
this Agreement shall be interpreted or construed as creating or
establishing the relationship of employer and employee between SeraNova
and either Consultant or any employee or agent of Consultant.
10.4 Consultant shall, at is sole expense, obtain and carry in full force
and effect, during the term of this Agreement, insurance coverage of
the types and in the amounts listed in Exhibit A. Upon the request of
SeraNova, Consultant shall provide SeraNova with evidence satisfactory
to SeraNova of such insurance.
10.5 All remedies available to either party for one or more breaches by the
other party are and shall be deemed cumulative and may be exercised
separately or concurrently without waiver of any other remedies. The
failure of either party to act in a breach of this Agreement by the
other shall not be deemed a waiver of such breach or a waiver of future
breaches, unless such waiver shall be in writing and signed by the
party against whom enforcement is sought.
10.6 All notices required or permitted hereunder shall be in writing
addressed to the respective parties as set forth below, unless another
address shall have been designated, and shall be delivered by hand or
by registered or certified mail, postage prepaid.
10.7 This Agreement constitutes the entire agreement of the parties hereto
and supersedes all prior representations, proposals, discussions, and
communications, whether oral or in writing. This Agreement may be
modified only in writing and shall be enforceable in accordance with
its terms when signed by the party sought to be bound.
10.8 The parties covenant and agree that, subsequent to the Effective Date
and without any additional consideration, each of the parties shall
execute and deliver any further legal instruments and perform any acts
which are or may become necessary to effectuate the purposes of this
Agreement.
-6-
<PAGE> 7
10.9 In the event of a conflict or an inconsistency between this Agreement,
the Proposal, and any Exhibit attached hereto, the Exhibit shall govern
this Agreement and this Agreement shall govern the Proposal.
10.10 Any dispute or controversy arising under or relating to this Agreement
or the relationship between the parties created by this Agreement shall
be resolved by final and binding arbitration under the auspices of the
American Arbitration Association. The parties shall have the right to
conduct reasonable discovery and the hearing shall be held as promptly
as possible. In the event any legal action is necessary to enforce or
interpret this Agreement, the prevailing party shall recover all costs
and attorneys' fees.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives, on the date and year first above written.
[SeraNova] [Mueller/Shields]
By: /s/ Raj Koneru By: /s/ Phyllis L. Mueller
--------------------- ----------------------
Raj Koneru Phyllis L. Mueller
Title: Title: CEO, Mueller/Shields
CEO, SeraNova, Inc.
Address for correspondence: Address for correspondence:
499 Thornall Street 15225 Alton Parkway
Edison, NJ 08837 Building 100
Irvine, CA 92618
-7-
<PAGE> 8
EXHIBIT A - DELIVERABLES
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
October 1999 - Kickoff meeting
- Assign M/S team members
- Develop and finalize the research strategy and questionnaire
- Start research interviews
- Develop Class "A" lead definition, lead distribution protocol, lead
form, and lead generation questionnaire
- IT setup for marketing database
- List purchase and prospect database build
- Weekly reporting
November 1999 - Continue with research questionnaire interviews
- Data entry of research interviews
- Begin the development of the sales training program
- Interim market research analysis and report
- Begin development on corporate brochure
- Begin creative development for corporate identity program
- Begin creative development for marketing programs (direct mail, seminar
program, and advertising)
- Begin the telecontact demand generation program
- Monthly review meeting
- Develop lead tracking/pipeline report and system
December 1999 - Complete research questionnaire interviews and data entry
- Code, tabulate, and analysis market data
- Develop market research report and recommendations
- Present market research findings
- Complete creative development of corporate identity program
- Finalize copy for corporate brochure
- Begin development of planning guide
- Develop initial creatives for the marketing programs and begin the
market testing
- Begin the prospect database build for the seminar and direct marketing
programs
- Final selection of seminar sites
- Continue development of the sales training program
- Continue the telecontact demand generation program
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
</TABLE>
-8-
<PAGE> 9
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
January 2000 - Finalize planning guide
- Print corporate brochure
- Develop the collateral carrier and envelope
- Begin development of data sheets
- Begin development
of proposal template program
- Complete the sales
training materials
- Continue development of the
sales training program
- Complete market testing of
creatives and finalize the creatives
- Review creatives for the marketing programs (direct mail, advertising,
and seminar programs)
- Finalize the prospect database build for seminar and direct mail
programs
- Continue the telecontact demand generation program
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
February 2000 - Print the planning guide
- Print the collateral carrier and envelope
- Finalize copy and creative for data sheets
- Complete development of the white papers
- Complete development of proposal template program
- Develop and finalize telecontact scripts for the direct marketing and
seminar programs
- Continue development of the sales training program
- Finalize all creatives for marketing programs
- Mail invitations for the first seminar
- Begin telecontact program in support of the seminar program
- Begin seminar confirmation and reminder programs
- Trade show consulting
- Implement wave 1A of direct marketing program
- Begin telecontact program in support of the direct marketing program
- Develop and implement collateral fulfillment program
- Begin lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
</TABLE>
-9-
<PAGE> 10
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
March 2000 - On-site management and setup of first seminar
- First seminar held
- Qualify and distribute all leads from the seminar
- Mail invitations for the second seminar
- Continue telecontact program in support of the seminar program
- Continue seminar confirmation and reminder programs
- Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Deliver first sales training class
- Program management
- Weekly reporting
- Monthly status review meeting
April 2000 - On-site management and setup of second seminar
- Second seminar held
- Qualify and distribute all leads from the seminar
- Mail invitations for the third seminar
- Continue telecontact program in support of the seminar program
- Continue seminar confirmation and reminder programs
- Implement wave 1B of direct marketing program
- Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
May 2000 - On-site management and setup of third seminar
- Third seminar held
- Qualify and distribute all leads from the seminar
- Mail invitations for the fourth seminar
- Continue telecontact program in support of the seminar program
- Continue seminar confirmation and reminder programs
- Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
</TABLE>
-10-
<PAGE> 11
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
- Monthly status review meeting
</TABLE>
-11-
<PAGE> 12
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
June 2000 - Implement wave 2A of direct marketing program
- On-site management and setup of fourth seminar
- Fourth seminar held
- Qualify and distribute all leads from the seminar
- Continue seminar confirmation and reminder programs
- Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Conduct sales training course
- Program management
- Weekly reporting
- Monthly status review meeting
July 2000 - Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
August 2000 - Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
September 2000 - Implement wave 2B of direct marketing program
- Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Conduct sales training course
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Conduct sales training course
- Program management
- Weekly reporting
- Monthly status review meeting
October 2000 - Conduct sales training course
- Continue telecontact program in support of the direct marketing program
</TABLE>
-12-
<PAGE> 13
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
- Continue collateral fulfillment program
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
</TABLE>
-13-
<PAGE> 14
<TABLE>
<CAPTION>
MONTH SCHEDULE OF WORK
<S> <C> <C>
November 2000 - Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Conduct sales training course
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
December 2000 - Continue telecontact program in support of the direct marketing program
- Continue collateral fulfillment program
- Conduct sales training course
- Continue lead qualification, distribution, and reporting
- Continue lead tracking/pipeline report
- Program management
- Weekly reporting
- Monthly status review meeting
</TABLE>
-14-
<PAGE> 15
SERANOVA MILESTONE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
MILESTONE PAYMENT SCHEDULE
------------------------------- -------------------------------- ---------------------------
INVOICE DATE PAYMENT DUE MONTHLY MILESTONE PAYMENT
SCHEDULE
------------------------------- -------------------------------- ---------------------------
<S> <C> <C>
October 1, 1999 Deposit Due Upon Receipt $294,905
------------------------------- -------------------------------- ---------------------------
November 1, 1999 November 30, 1999 $503,630
------------------------------- -------------------------------- ---------------------------
December 1, 1999 December 31, 1999 $401,465
------------------------------- -------------------------------- ---------------------------
January 15, 2000 February 15, 2000 $520,000
------------------------------- -------------------------------- ---------------------------
February 1, 2000 February 29, 2000 $520,000
------------------------------- -------------------------------- ---------------------------
March 1, 2000 March 31, 2000 $560,000
------------------------------- -------------------------------- ---------------------------
April 15, 2000 May 15, 2000 $644,714
------------------------------- -------------------------------- ---------------------------
May 1, 2000 May 31, 2000 $573,915
------------------------------- -------------------------------- ---------------------------
June 1, 2000 June 30, 2000 $232,041
------------------------------- -------------------------------- ---------------------------
July 1, 2000 July 31, 2000 --
------------------------------- -------------------------------- ---------------------------
August 1, 2000 August 31, 2000 --
------------------------------- -------------------------------- ---------------------------
September 1, 2000 September 30, 2000 --
------------------------------- -------------------------------- ---------------------------
October 1, 2000 October 31, 2000 --
------------------------------- -------------------------------- ---------------------------
November 1, 2000 November 30, 2000 --
------------------------------- -------------------------------- ---------------------------
December 1, 2000 December 31, 2000 --
---------------------------------------------------------------- ---------------------------
TOTAL PROGRAM INVESTMENT $4,250,670
---------------------------------------------------------------- ---------------------------
</TABLE>
-15-
<PAGE> 16
SHARED RISK/SHARED REWARD COMPENSATION
Mueller/Shields will receive additional compensation based on the actual
quarterly revenues generated in the United States by SeraNova according to the
schedule below.
The quarterly revenue goals (generated in the United States) on which this
compensation will be based:
<TABLE>
<S> <C>
Q1 2000 $12,070,000
Q2 2000 $15,964,000
Q3 2000 $19,345,000
Q4 2000 $23,821,000
</TABLE>
The compensation that Mueller/Shields will receive for each quarter is:
- - If the actual quarterly revenue is less than 80% of the goal of that
quarter, Mueller/Shields will receive no compensation for that quarter.
- - The compensation for the quarter will be 3.1% of the actual incremental
revenue over 80% of the quarterly revenue goal.
- - If the actual revenue achieved is over 100%, Mueller/Shields will
receive an additional 5% of the actual incremental revenue over 100% of
the quarterly revenue goal.
- - The compensation will not exceed $150,000 for each quarter.
Examples of how the compensation would be calculated are included in the
following table
<TABLE>
<CAPTION>
- --------------------------- ------------------------------ ----------------------
Quarter Actual Revenue Achieved Total Compensation
- --------------------------- ------------------------------ ----------------------
<S> <C> <C>
Q1 2000 $12,000,000 $73,000
- --------------------------- ------------------------------ ----------------------
Q2 2000 $16,000,000 $101,000
- --------------------------- ------------------------------ ----------------------
Q3 2000 $20,000,000 $150,000
- --------------------------- ------------------------------ ----------------------
Q4 2000 $24,000,000 $150,000
- --------------------------- ------------------------------ ----------------------
</TABLE>
The calculated compensation will be paid within the 30 days after a quarter is
completed. Example, the Q1 2000 payment would be due on April 30, 2000.
-16-
<PAGE> 17
A. Stock Options
Mueller/Shields is hereby granted options to buy 15,000 shares of SeraNova
common stock, at a strike price of $6.66 per share exercisable after January 1,
2000. The rights to exercise these options will expire on December 31, 2000.
In addition, Mueller/Shields will be granted options to buy 5,000 additional
shares of SeraNova common stock on July 15, 2000 if SeraNova meets 80% of its
cumulative Q1 2000 and Q2 2000 revenue targets or $22,427,000. The strike price
of these 5,000 shares will be the market price on July 1, 2000 exercisable until
June 30, 20001.
-17-
<PAGE> 18
CANCELLATION FEES
If the contract is terminated for any reason, Muller/Shields will be paid a
cancellation fee as detailed in the following table. These cancellation fees are
in addition to the fees specified in the Milestone Payment Schedule.
<TABLE>
<CAPTION>
---------------------------------------------------- --------------------
Month of Notice of Contract Termination Cancellation Fee
---------------------------------------------------- --------------------
<S> <C>
October 1999 to January 1999 $0
---------------------------------------------------- --------------------
February 2000 $267,000
---------------------------------------------------- --------------------
March 2000 $534,000
---------------------------------------------------- --------------------
April 2000 $800,000
---------------------------------------------------- --------------------
May 2000 $400,000
---------------------------------------------------- --------------------
June 2000 to December 2000 $0
---------------------------------------------------- --------------------
</TABLE>
-18-
<PAGE> 19
EXHIBIT B: KEY EMPLOYEES
SeraNova shall have ready and unencumbered access during regular business hours
to the following Consultant personnel:
1. Phyllis Mueller
2. Craig Shields
3. Bill Thompson
4. Stephen Hansmire
The following employees shall be deemed Key Employees pursuant to the terms of
the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name Minimum Hours per Week/Month on SeraNova Project
- --------------------------------------------------------------------------------------------------
<S> <C>
Willie Bloomstein 15 per week/60 per month
- --------------------------------------------------------------------------------------------------
Paula Davey 10 per week/45 per month
- --------------------------------------------------------------------------------------------------
Scot Hansen 5 per week/20 per month
- --------------------------------------------------------------------------------------------------
Alain Jamar 10 per week/45 per month
- --------------------------------------------------------------------------------------------------
Bill Kline 40 per week/175 per month
- --------------------------------------------------------------------------------------------------
Sally Mikhail 10 per week/45 per month
- --------------------------------------------------------------------------------------------------
John Moriarty 40 per week/175 per month
- --------------------------------------------------------------------------------------------------
Jennifer Murray 10 per week/45 per month
- --------------------------------------------------------------------------------------------------
Gary Patrick 10 per week/45 per month
- --------------------------------------------------------------------------------------------------
Kalee Przybylak 40 per week/175 per month
- --------------------------------------------------------------------------------------------------
John Simmons 40 per week/175 per month
- --------------------------------------------------------------------------------------------------
Glenn Warren 5 per week/20 per month
- --------------------------------------------------------------------------------------------------
Robin Young 5 per week/20 per month
- --------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE> 1
EXHIBIT 10.10
SERANOVA, INC.
1999 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Non-Employee
members of the Board and Consultants (sometimes referred to herein as
"Participants") of the Company and its Subsidiaries and to promote the success
of the Company's business.
2. CERTAIN DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "Award" or "Awards," except where referring to a particular
category of grant under the Plan, shall include Incentive Stock Options,
Nonstatutory Stock Options, Restricted Stock Awards and Stock Awards.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended,
including any successor law thereto.
(d) "Committee" means any Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock, $.01 par value, of the
Company.
(f) "Company" means SeraNova, Inc., a New Jersey corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any Non-Employee Director of the Company
whether compensated for such services or not.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
(i) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company.
<PAGE> 2
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means: (i) if the Common Stock is admitted
to quotation on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), the Fair Market Value on any given date shall be
the average of the highest bid and lowest asked prices of the Common Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported;
or (ii) if the Common Stock is admitted to trading on a United States securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall be the closing price reported for the Common Stock on such exchange or
system for such date or, if no sales were reported for such date, for the last
day preceding such date for which a sale was reported; (iii) notwithstanding the
foregoing, the Fair Market Value of the Common Stock on the effective date of
the Company's Initial Public Offering shall be the offering price to the public
of the Common Stock on such date; and (iv) in the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Plan Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Initial Public Offering" means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of the Common Stock to the
public.
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
(p) "Optioned Stock" means the Common Stock subject to an Option.
(q) "Optionee" means an Employee, Consultant or Non-Employee
Director who receives an Option.
(r) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1999 Stock Plan.
(t) "Plan Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(u) "Restricted Stock" means shares of Common Stock acquired
pursuant to a Restricted Stock Award under Section 12 below.
-2-
<PAGE> 3
(v) "Restricted Stock Award" means any Award granted pursuant to
Section 12 of the Plan.
(w) "Share" means a share of the Common Stock, as may be adjusted
from time to time in accordance with Section 15 of the Plan.
(x) "Stock Award" means any award granted pursuant to Section 13 of
the Plan.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
(z) "Termination for Cause" shall include, but not be limited to, a
finding by the Board of the Participant's: (i) performance of duties in an
incompetent manner; (ii) commission of any act of fraud, insubordination,
misappropriation or personal dishonesty relating to or involving the Company in
any material way; (iii) gross negligence; (iv) violation of any express
direction of the Company or any material violation of any rule, regulation,
policy or plan established by the Company from time to time regarding the
conduct of its employees or its business, if such violation is not remedied by
the Participant within thirty (30) days of receiving notice of such violation
from the Company; (v) violation of any obligation of Participant's consulting
relationship or Continuous Status as an Employee with the Company that is
demonstrably willful and deliberate on the Participant's part and is not
remedied by the Participant within thirty (30) days after receiving notice of
such violation from the Company; (vi) disclosure or use of confidential
information of the Company, other than as required in the performance of the
Participant's duties; (vii) actions that are clearly contrary to the best
interest of the Company; (viii) conviction of a crime constituting a felony or
any other crime involving moral turpitude, or no conviction, but the substantial
weight of credible evidence indicates that the Participant has committed such a
crime; or (ix) the Participant's use of alcohol or any unlawful controlled
substance to an extent that it interferes with the performance of the
Participant's duties.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 15
of the Plan, the initial maximum number of shares of Common Stock that may be
issued under the Plan shall be five million (5,000,000) shares; provided,
however, that the maximum number of shares available under the Plan shall
automatically be increased to an amount equal to twenty percent (20%) of the
shares of Common Stock outstanding on any December 31, beginning on December 31,
2000; and provided, further, that the foregoing formula shall never result in a
decrease in the maximum number of shares of Common Stock available for issuance
under the Plan. For purposes of the foregoing limitation, the shares of Common
Stock underlying any Awards which are forfeited, canceled, reacquired by the
Company, satisfied without the issuance of Common Stock or otherwise terminated
(other than by exercise) shall be added back to the number of shares of Common
Stock available for issuance under the Plan. Notwithstanding the foregoing: (i)
no more than five million (5,000,000) shares shall be available for the award of
Incentive Stock Options; and (ii) on and after the date that the Plan is subject
to Section 162(m) of the Code, Options with respect to no more than two hundred
fifty thousand (250,000) shares of Common Stock may be granted to any one
individual Participant during any one (1) calendar
-3-
<PAGE> 4
year period. Common Stock to be issued under the Plan may be either authorized
and unissued shares or shares held in treasury by the Company.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by: (i)
the full Board; or (ii) a committee of the Board comprised of two or more
"Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) promulgated
under the Exchange Act. Subject to the provisions of the Plan, the Plan
Administrator is authorized to:
(a) construe the Plan and any Award under the Plan;
(b) select the Directors, officers, Employees and
Consultants of the Company and its Subsidiaries to
whom Awards may be granted;
(c) determine the number of shares of Common Stock to be
covered by any Award;
(d) determine and modify from time to time the terms and
conditions, including restrictions, of any Award and
to approve the form of written instrument evidencing
Awards;
(e) accelerate at any time the exercisability or vesting
of all or any portion of any Award and/or to include
provisions in awards providing for such acceleration;
(f) impose limitations on Awards, including limitations
on transfer and repurchase provisions;
(g) extend the exercise period within which Options may
be exercised; and
(h) determine at any time whether, to what extent, and
under what circumstances Common Stock and other
amounts payable with respect to an Award shall be
deferred either automatically or at the election of
the Participant and whether and to what extent the
Company shall pay or credit amounts constituting
interest (at rates determined by the Plan
Administrator) or dividends or deemed dividends on
such deferrals.
The determination of the Plan Administrator on any such matters shall
be conclusive.
5. DELEGATION OF AUTHORITY TO GRANT AWARDS. The Plan Administrator, in
its discretion, may delegate to the Chief Executive Officer of the Company all
or part of the Plan Administrator's authority and duties with respect to
granting Awards to individuals who are not subject to the reporting provisions
of Section 16 of the Act or "covered employees" within the meaning of Section
162(m) of the Code. The Plan Administrator may revoke or amend the terms
-4-
<PAGE> 5
of such a delegation at any time, but such revocation shall not invalidate prior
actions of the Chief Executive Officer that were consistent with the terms of
the Plan.
6. ELIGIBILITY.
(a) Directors, officers, Employees and Consultants of the
Company or its Subsidiaries who, in the opinion of the Plan Administrator, are
mainly responsible for the continued growth and development and future financial
success of the business shall be eligible to participate in the Plan.
(b) The Plan shall not confer upon any Participant any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
7. STOCK OPTIONS.
(a) Options granted pursuant to the Plan may be either Options
which are Incentive Stock Options or Nonstatutory Stock Options. Incentive Stock
Options and Nonstatutory Stock Options shall be granted separately hereunder.
The Plan Administrator, shall determine whether and to what extent Options shall
be granted under the Plan and whether such Options granted shall be Incentive
Stock Options or Nonstatutory Stock Options; provided, however, that: (i)
Incentive Stock Options may be granted only to Employees of the Company or any
Subsidiary; and (ii) no Incentive Stock Option may be granted following the
tenth (10th) anniversary of the effective date of the Plan. The provisions of
the Plan and any Option Agreement pursuant to which Incentive Stock Options
shall be issued shall be construed in a manner consistent with Section 422 of
the Code (or any successor provision) and rules and regulations promulgated
thereunder.
(b) To the extent that Options designated as Incentive Stock
Options (under all plans of the Company or any Parent or Subsidiary) become
exercisable by a Participant for the first time during any calendar year for
Common Stock having a Fair Market Value greater than One Hundred Thousand
Dollars ($100,000), the portion of such Options which exceeds such amount shall
be treated as Nonstatutory Stock Options. For purposes of this Section 7,
Options designated as Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of Common Stock
shall be determined as of the time the Option with respect to such Common Stock
is granted. If the Code is amended to provide for a different limitation from
that set forth in this Section 7, such different limitation shall be deemed
incorporated herein effective as of the amendment date and with respect to such
Options as required or permitted by such amendment to the Code. If an Option is
treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option
in part by reason of the limitation set forth in this Section 7, the Participant
may designate which portion of such Option the participant is exercising. In the
absence of such designation, the Participant shall be deemed to have
-5-
<PAGE> 6
exercised the Incentive Stock Option portion of the Option first. Separate
certificates representing each such portion shall be issued upon the exercise of
the Option.
8. TERM OF PLAN. The Plan shall become effective on December 1,
1999, provided the Plan has been previously adopted by the Board and approved by
the shareholders of the Company as described in Section 22 of the Plan. The Plan
shall remain in effect until terminated under Section 18 of the Plan.
9. TERM OF OPTIONS. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that in the case of an
Incentive Stock Option, the term shall be no more than ten (10) years from the
date of grant thereof or such shorter term as may be provided in the Option
Agreement. In the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
10. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall
be no less than one hundred ten percent (110%) of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than one hundred percent (100%) of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option granted to any
person, the per Share exercise price shall be no less than eighty-five
percent (85%) of the Fair Market Value per Share on the date of grant.
(b) The Option exercise price of each share purchased pursuant to an
Option shall be paid in full at the time of each exercise of the Option: (i) in
cash; (ii) by check; (iii) by cash equivalent; (iv) by delivering to the Company
a notice of exercise with an irrevocable direction to a broker-dealer registered
under the Exchange Act to sell a sufficient portion of the shares and deliver
the sale proceeds directly to the Company to pay the exercise price; (v) in the
-6-
<PAGE> 7
discretion of the Plan Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the Option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the exercise price must have been held by the Participant for at
least six (6) months in order to be utilized to pay the exercise price; or (vi)
in the discretion of the Plan Administrator, through any combination of the
foregoing methods of payment.
11. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Plan Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company through a method of payment allowable under Section
10(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 15 of the Plan.
(b) Termination of Employment. Except as set forth below, in
the event of termination of an Optionee's Continuous Status as an Employee,
consulting relationship or Director status with the Company (as the case may
be), such Optionee may, but only within ninety (90) days (or such other period
of time as is determined by the Board, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding ninety (90) days) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 11(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee, consulting relationship or Director status (as the case
may be) as a result of his or her total and permanent
-7-
<PAGE> 8
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent the Optionee was otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(d) Death of Optionee.
(i) In the event of the death of an Optionee during
the term of Optionee's Continuous Status as an Employee, consulting relationship
or Director status with the Company (as the case may be), the Option may be
exercised, at any time within twelve (12) months following the date of death
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise the Option at the date of
death. To the extent that Optionee was not entitled to exercise the Option at
the date of death, or if the Option is not exercised by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance to the extent so entitled within the time specified herein, the
Option shall terminate.
(ii) In the event of the death of an Optionee within
thirty (30) days after the termination of Optionee's Continuous Status as an
Employee, consulting relationship or Director status with the Company (as the
case may be) pursuant to Section 11(b) above, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death. To the
extent that Optionee was not entitled to exercise the Option at the date of
death, or if the Option is not exercised by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance to the
extent so entitled within the time specified herein, the Option shall terminate.
(e) Termination for Cause or Post-Termination Relationship
with Competing Business. Notwithstanding the provisions of Section 11(b) above,
in the event of "Termination for Cause" of an Optionee's Continuous Status as an
Employee, consulting relationship or Director status with the Company (as the
case may be) or in the event that such Optionee within the option term becomes
an employee, consultant or director of a Competing Business (as defined herein),
any Option held by the Optionee, whether vested or unvested, shall forthwith
terminate. In addition to the immediate forfeiture of all Options upon the
occurrence of the events specified in the preceding sentence, Optionee shall
automatically forfeit all shares underlying any exercised portion of an Option
for which the Company has not yet delivered the share certificates, upon refund
by the Company of the exercise price paid by the Optionee for such Shares. For
purposes of this Plan, the term "Competing Business" shall mean any person,
-8-
<PAGE> 9
corporation or other entity engaged in the business of: (i) providing strategic
Internet consulting services, interactive Internet solutions, application
management services and management consulting services; or (ii) selling or
attempting to sell any product or service which is the same as or similar to
products or services sold by the Company within the last year prior to
termination of such Participant's employment, consulting relationship or
Director status, as the case may be, hereunder.
12. RESTRICTED STOCK AWARDS.
(a) The Plan Administrator may grant Restricted Stock Awards
to any officer, Employee or Consultant of the Company and its Subsidiaries. A
Restricted Stock Award entitles the recipient to acquire shares of Common Stock
subject to such restrictions and conditions as the Plan Administrator may
determine at the time of grant. Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives.
(b) Upon execution of a written instrument setting forth the
Restricted Stock Award and paying any applicable purchase price, a Participant
shall have the rights of a shareholder with respect to the Common Stock subject
to the Restricted Stock Award, including, but not limited to, the right to vote
and receive dividends with respect thereto; provided, however, that shares of
Common Stock subject to Restricted Stock Awards that have not vested shall be
subject to the restrictions on transferability described in Section 12(d) below.
Unless the Plan Administrator shall otherwise determine, certificates evidencing
the Restricted Stock shall remain in the possession of the Company until such
Restricted Stock is vested as provided in Section 12(c) below.
(c) The Plan Administrator at the time of grant shall specify
the date or dates and/or the attainment of pre-established performance goals,
objectives and other conditions on which Restricted Stock shall become vested,
subject to such further rights of the Company or its assigns as may be specified
in the instrument evidencing the Restricted Stock Award. If the grantee or the
Company, as the case may be, fails to achieve the designated goals or the
grantee's relationship with the Company is terminated prior to the expiration of
the vesting period, the grantee shall forfeit all shares of Common Stock subject
to the Restricted Stock Award which have not then vested.
(d) Unvested Restricted Stock may not be sold, assigned
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award.
13. STOCK AWARDS. The Plan Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Plan
Administrator) a Stock Award to any officer, Employee or Consultant of the
Company or its Subsidiaries, pursuant to which such individual may receive
shares of Common Stock free of any vesting restrictions (a "Stock Award") under
the Plan. Stock
-9-
<PAGE> 10
Awards may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration, or in lieu of any cash
compensation due to such individual.
14. WITHHOLDING TAX OBLIGATIONS.
(a) Whenever Shares are to be issued under the Plan, the
Company shall have the right to require the Participant to remit to the Company
an amount sufficient to satisfy applicable federal, state and local tax
withholding requirements prior to the delivery of any certificate for Shares;
provided, however, that in the case of a Participant who receives an Award of
Shares under the Plan which is not fully vested, the Participant shall remit
such amount on the first business day following the Tax Date. The "Tax Date" for
purposes of this Section 14 shall be the date on which the amount of tax to be
withheld is determined. If a Participant makes a disposition of shares acquired
upon the exercise of an Incentive Stock Option within either two (2) years after
the Option was granted or one (1) year after its exercise by the Participant,
the Participant shall promptly notify the Company and the Company shall have the
right to require the Participant to pay to the Company an amount sufficient to
satisfy federal, state and local tax withholding requirements.
(b) A Participant who is obligated to pay the Company an
amount required to be withheld under applicable tax withholding requirements may
pay such amount: (i) in cash; (ii) in the discretion of the Plan Administrator,
through the delivery to the Company of previously-owned shares of Common Stock
having an aggregate Fair Market Value on the Tax Date equal to the tax
obligation, provided that the previously owned shares delivered in satisfaction
of the withholding obligations must have been held by the Participant for at
least six (6) months; or (iii) in the discretion of the Plan Administrator,
through a combination of the procedures set forth in subsections (i) and (ii) of
this Section 14(b).
(c) A Participant who is obligated to pay to the Company an
amount required to be withheld under applicable tax withholding requirements in
connection with either the exercise of a Nonstatutory Stock Option, the receipt
of a Restricted Stock Award or Stock Award under the Plan may, in the discretion
of the Plan Administrator, elect to satisfy this withholding obligation, in
whole or in part, by requesting that the Company withhold shares of stock
otherwise issued to the Participant having a Fair Market Value on the Tax Date
equal to the amount of the tax required to be withheld; provided, however, that
shares may be withheld by the Company only if such withheld shares have vested.
Any fractional amount shall be paid to the Company by the Participant in cash or
shall be withheld from the Participant's next regular paycheck.
(d) An election by a Participant to have shares of stock
withheld to satisfy federal, state and local tax withholding requirements
pursuant to Section 14(c) must be in writing and delivered to the Company prior
to the Tax Date.
15. ADJUSTMENT OF NUMBER AND PRICE OF SHARES.
-10-
<PAGE> 11
Any other provision of the Plan notwithstanding:
(a) If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, the outstanding shares of Common Stock are
increased or decreased or are exchanged for a different number or kind of shares
or other securities of the Company, or additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, the
Plan Administrator shall make an appropriate or proportionate adjustment in: (i)
the number of Options that can be granted to any one individual Participant;
(ii) the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan; and (iii) the price for each share subject to
any then outstanding Options under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of shares) as
to which such Options remain exercisable; and (iv) the maximum number of shares
that may be issued under the Plan, the maximum number of shares that are
available for the award of Incentive Stock Options and the maximum number of
shares that may be granted to any one individual Participant during any one (1)
calendar year period, each as set forth in Section 3 hereof. The adjustment by
the Plan Administrator shall be final, binding and conclusive.
(b) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall authorize the issuance or assumption of an Option
or Options in a transaction to which Section 424(a) of the Code applies, then,
notwithstanding any other provision of the Plan, the Plan Administrator may
grant an Option or Options upon such terms and conditions as it may deem
appropriate for the purpose of assumption of the old Option, or substitution of
a new Option for the old Option, in conformity with the provisions of Code
Section 424(a) and the rules and regulations thereunder, as they may be amended
from time to time.
(c) No adjustment or substitution provided for in this Section
15 shall require the Company to issue or to sell a fractional share under any
Option Agreement or share award agreement and the total adjustment or
substitution with respect to each Option and share award agreement shall be
limited accordingly.
(d) In the case of the dissolution or liquidation of the
Company, the Plan and all Awards granted hereunder shall terminate. In the event
of such proposed termination, each Participant shall be notified of such
termination and shall be permitted to exercise for a period of at least fifteen
(15) days prior to the date of such termination all Options held by such
Participant which are then exercisable.
(e) In the case of: (i) a merger, reorganization or
consolidation in which the Company is acquired by another person or entity
(other than a holding company formed by the Company); (ii) the sale of all or
substantially all of the assets of the Company to an unrelated person or entity
which is not an "affiliate" (as defined in Rule 144 of the Securities Act of
1933)
-11-
<PAGE> 12
of the Company; or (iii) the sale of all of the capital stock of the Company to
an unrelated person or entity which is not an "affiliate" of the Company (in
each case, a "Fundamental Transaction"), all Options shall be assumed or
equivalent options shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. For the purposes of this
paragraph, the Options shall be considered assumed if, following the Fundamental
Transaction, the Options confer the right to purchase, for each Share subject to
the Options immediately prior to the Fundamental Transaction, the consideration
(whether stock, cash, or other securities or property) received in the
Fundamental Transaction by holders of Common Stock for each Share held on the
effective date of the Fundamental Transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the Fundamental Transaction was not solely common
stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation and the Participant, provide for the
consideration to be received upon the exercise of the Options, for each Share
subject to the Options, to be solely common stock of the successor corporation
or its Parent equal in Fair Market Value to the per share consideration received
by holders of Common Stock in the Fundamental Transaction.
In the event that such successor corporation does not agree to
assume the Options or to substitute equivalent options, the Board shall provide
for each Optionee to have the right to exercise all Options then held by such
Optionee, including Options which would not otherwise be exercisable. In such
event, the Board shall notify each Optionee that such Options shall be fully
exercisable for a period of fifteen (15) days from the date of receipt of such
notice, and that such Options will terminate upon the expiration of such period.
Notwithstanding anything in the Plan to the contrary, the
acceleration of exercisability in this Section shall not occur in the event that
such acceleration would, in the opinion of the Company's independent auditors,
make the Fundamental Transaction ineligible for pooling of interests accounting
treatment and the Company intends to use such treatment with respect to such
transaction. The Board shall obtain a written statement from the Company's
independent auditors with respect to the effect of accelerated exercisability of
outstanding Options prior to providing any Optionee with the notice contemplated
by this Section.
(f) In the event that the Company shall be merged or
consolidated with another corporation or entity, other than with a corporation
or entity which is an "affiliate" of the Company, under the terms of which
holders of capital stock of the Company will receive upon consummation thereof a
cash payment for each share of capital stock of the Company surrendered pursuant
to such transaction (the "Cash Purchase Price"), the Board may provide that all
outstanding options shall terminate upon consummation of such transaction and
each Optionee shall receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (i) the Cash Purchase Price multiplied by the number of
shares of Capital Stock of the Company subject to outstanding options held by
such optionee exceeds (ii) the aggregate exercise price of such options.
-12-
<PAGE> 13
16. NONTRANSFERABILITY. A Participant's rights under the
Plan, including the right to any shares or amounts payable may not be assigned,
pledged, or otherwise transferred except, in the event of a Participant's death,
to the Participant's designated beneficiary or, in the absence of such a
designation, by will or by the laws of descent and distribution; provided,
however, that the Plan Administrator may, in its discretion, at the time of
grant of a Nonstatutory Stock Option or by amendment of an Option Agreement for
an Incentive Stock Option or a Nonstatutory Stock Option, provide that Options
granted to or held by a Participant may be transferred, in whole or in part, to
one or more transferees and exercised by any such transferee, provided further
that: (i) any such transfer must be without consideration; (ii) each transferee
must be a member of such Participant's "immediate family" (as defined below) or
a trust, family limited partnership or other estate planning vehicle established
for the exclusive benefit of one or more members of the Participant's immediate
family; and (iii) such transfer is specifically approved by the Plan
Administrator following the receipt of a written request for approval of the
transfer; and provided further that any Incentive Stock Option which is amended
to permit transfers during the lifetime of the Participant shall, upon the
effectiveness of such amendment, be treated thereafter as a Nonstatutory Stock
Option. In the event an Option is transferred as contemplated in this Section,
such transfer shall become effective when approved by the Plan Administrator and
such Option may not be subsequently transferred by the transferee other than by
will or the laws of descent and distribution. Any transferred Option shall
continue to be governed by and subject to the terms and conditions of this Plan
and the relevant Option Agreement, and the transferee shall be entitled to the
same rights as the Participant as if no transfer had taken place. As used in
this Section, "immediate family" shall mean, with respect to any person, any
spouse, child, stepchild or grandchild, and shall include relationships arising
from legal adoption.
17. TERMINATION - CERTAIN FORFEITURES. Notwithstanding
any other provision of the Plan to the contrary, a Participant shall have no
right to exercise any Option or vest or receive payment of any Restricted Stock
Award or Stock Award if: (a) the Participant is Terminated for Cause; or (b) if
following the Participant's termination from the Company and prior to the
Company's delivery of the shares of Common Stock underlying an Award, the
Participant becomes an officer or director of, a consultant to or employed by a
Competing Business. Furthermore, notwithstanding any other provision of the Plan
to the contrary, in the event that a Participant receives or is entitled to the
delivery or vesting of Common Stock pursuant to an Award during the twelve (12)
month period prior to the Participant's termination from the Company or during
the twelve (12) months following the Participant's termination from the Company,
the Company, in its sole discretion, may require the Participant to return or
forfeit the cash and/or Common Stock received with respect to such award (or its
economic value as of (i) the date of the exercise of Options; (ii) the date
immediately following the end of the Restricted Period for Restricted Stock
Awards; or (iii) the date of grant with respect to Stock Awards, as the case may
be) in the event that the Participant becomes an officer or director of, a
consultant to or employed by a Competing Business within eighteen (18) months of
such Participant's termination from the Company. The Company's right to require
forfeiture under this Section 17 must be exercised within ninety (90) days after
the discovery of an occurrence triggering the Plan
-13-
<PAGE> 14
Administrator's right to require forfeiture but in no event later than
twenty-four (24) months after the Participant's termination from the Company.
18. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
19. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not
be issued pursuant to any Award under the Plan unless the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
20. RESERVATION OF SHARES. The Company, during the term
of this Plan, will at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
-14-
<PAGE> 15
21. AGREEMENTS. Options and Restricted Stock Awards shall
be evidenced by written agreements in such form as the Board shall approve from
time to time.
22. SHAREHOLDER APPROVAL. Continuance of the Plan shall
be subject to approval by the shareholders of the Company within twelve (12)
months before or after the date the Plan is adopted. Such shareholder approval
shall be obtained in the degree and manner required under applicable state and
federal law.
23. INFORMATION TO OPTIONEES. The Company shall provide
to each Optionee, during the period for which such Optionee has one or more
Options outstanding, copies of all annual reports and other information which
are provided to all shareholders of the Company. The Company shall not be
required to provide such information if the issuance of Options under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
* * * * *
<PAGE> 1
EXHIBIT 21.1
EXHIBIT 21
SUBSIDIARIES
Azimuth Consulting Limited, a corporation formed pursuant to the laws
of New Zealand and a wholly-owned subsidiary of SeraNova, Inc.
Azimuth Consulting Philippines, Inc., a corporation formed
pursuant to the laws of the Philippines and a wholly-owned
subsidiary of Azimuth Consulting Limited.
Azimuth Corporation Limited, a corporation formed pursuant to the laws
of New Zealand and a wholly-owned subsidiary of SeraNova, Inc.
New Zealand Public Information Management Limited, a corporation
formed pursuant to the laws of New Zealand and a wholly-owned
subsidiary of Azimuth Corporation Limited.
Azimuth Holdings Limited, a corporation formed pursuant to the laws of
New Zealand and a wholly-owned subsidiary of SeraNova, Inc.
Azimuth Holdings Pty Limited, a corporation formed pursuant to
the laws of Australia and a wholly-owned subsidiary of Azimuth
Holdings Limited.
Azimuth Consulting Australia Pty Limited, a corporation formed
pursuant to the laws of Australia and a wholly-owned subsidiary
of Azimuth Holdings Limited.
Braithwaite Richmond Limited, a corporation formed pursuant to the laws
of New Zealand and a wholly-owned subsidiary of SeraNova, Inc.
Network Publishing, Inc., a Utah corporation and a wholly-owned
subsidiary of SeraNova, Inc.
SeraNova Limited, a corporation formed pursuant to the laws of England
and Wales and a wholly-owned subsidiary of SeraNova, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED COMBINED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE REGISTRANT'S
FORM 10 FOR THE PERIOD ENDED 9/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001104219
<NAME> SERANOVA, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 321
<SECURITIES> 0
<RECEIVABLES> 8,014
<ALLOWANCES> 250
<INVENTORY> 1
<CURRENT-ASSETS> 12,153
<PP&E> 1,422
<DEPRECIATION> 143
<TOTAL-ASSETS> 17,433
<CURRENT-LIABILITIES> 11,119
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,667
<TOTAL-LIABILITY-AND-EQUITY> 17,433
<SALES> 27,073
<TOTAL-REVENUES> 27,073
<CGS> 15,606
<TOTAL-COSTS> 26,033
<OTHER-EXPENSES> (27)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 1,003
<INCOME-TAX> 449
<INCOME-CONTINUING> 554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554
<EPS-BASIC> .04<F1>
<EPS-DILUTED> .03<F2>
<FN>
<F1>THIS AMOUNT REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH THE
REQUIREMENTS OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NO. 128 -"EARNINGS
PER SHARE".
<F2>THIS AMOUNT REPRESNETS DILUTED EARNINGS PER SHARE IN ACCORDANCE WITH THE
REQUIREMENTS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 -"EARNINGS
PER SHARE".
</FN>
</TABLE>
