-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F1+JeVLzYMqiNxbyVGZOv58+d7Y/Q0RDSik6AWVFMMZGYaXCwEM+hzLQhAjtanUJ KBwroaE3/ddelfb+n43VBg== 0000893220-00-000294.txt : 20000320 0000893220-00-000294.hdr.sgml : 20000320 ACCESSION NUMBER: 0000893220-00-000294 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERANOVA INC CENTRAL INDEX KEY: 0001104219 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 223677719 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-29199 FILM NUMBER: 572072 BUSINESS ADDRESS: STREET 1: 499 THOMALL STREET CITY: EDISON STATE: NJ ZIP: 08837 BUSINESS PHONE: 7325901600 MAIL ADDRESS: STREET 1: 499 THOMALL STREET CITY: EDISON STATE: NJ ZIP: 08837 10-12G/A 1 AMEND. NO. 1 TO FORM 10 SERNOVA, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 SERANOVA, INC. -------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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)
(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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SERANOVA, INC. INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY REFERENCE Cross Reference Sheet Between Information Statement and Items of Form 10. ITEM 1. BUSINESS. The registrant, SeraNova, Inc., a New Jersey corporation, is a subsidiary of Intelligroup, Inc., a New Jersey corporation. The information required by this item is contained in the sections entitled "Summary," "Risk Factors" and "Business" of the Information Statement. ITEM 2. FINANCIAL INFORMATION. The information required by this item is contained in the sections entitled "Summary," "Capitalization," "Selected Historical Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Information Statement. ITEM 3. PROPERTIES. The information required by this item is contained in the section entitled "Business" of the Information Statement. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is contained in the sections entitled "Management -- Executive Compensation" and "Principal Shareholders" of the Information Statement. ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. The information required by this item is contained in the sections entitled "Management -- Directors, Executive Officers and Key Employees" of the Information Statement. ITEM 6. EXECUTIVE COMPENSATION. The information required by this item is contained in the section entitled "Management -- Executive Compensation" of the Information Statement. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is contained in the sections entitled "The Spin-Off -- Agreements Between SeraNova and Intelligroup and Relationship After the Spin-off" and "Relationship with Intelligroup" of the Information Statement. ITEM 8. LEGAL PROCEEDINGS. The information required by this item is contained in the section entitled "Business -- Legal Proceedings" of the Information Statement. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required by this item is contained in the sections entitled "The Spin-Off -- Manner of Effecting the Spin-off," "Principal Shareholders" and "Description of Capital Stock" of the Information Statement. 1 3 ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. Since September 9, 1999, SeraNova has issued unregistered securities in the transactions described below. Securities issued in such transactions were offered in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, relating to sales by an issuer not involving any public offering, or under Rule 701 under the Securities Act of 1933 as transactions made pursuant to a written compensatory plan or pursuant to a written contract relating to compensation. The transactions were effected without the use of an underwriter and the certificates evidencing the shares bear a restrictive legend permitting the transfer thereof only upon registration of the shares or an exemption under the Securities Act of 1933. All recipients had adequate access to information about SeraNova. (i) On September 9, 1999, Intelligroup, Inc. formed Infinient, Inc. and was issued 100 shares of its common stock in connection therewith. On December 6, 1999, Infinient changed its name to SeraNova, Inc. On January 1, 2000, SeraNova, in connection with the transfer by Intelligroup of its Internet solutions business to SeraNova, issued 900 shares of its common stock to Intelligroup. The 1,000 shares currently held by Intelligroup are estimated to be 16,200,000 shares after giving effect to the contemplated stock split in order to effect a one SeraNova share-for-one Intelligroup share distribution in connection with the spin-off. (ii) Since September 9, 1999, SeraNova has granted stock options to purchase an aggregate of 3,236,092 shares of its common stock outside of any stock option plan at a weighted average exercise price of $3.19 per share. (iii) Since September 9, 1999, SeraNova has granted stock options to purchase an aggregate of 1,667,575 shares of its common stock under the 1999 Stock Plan at a weighted average exercise price of $6.51 per share. (iv) On March 14, 2000, SeraNova issued an aggregate of 50 shares of common stock to four (4) accredited institutional investors for an aggregate purchase price of $10,000,000. The 50 shares currently held by such investors are estimated to be 809,388 shares after giving effect to the contemplated stock split in order to effect a one SeraNova share-for-one Intelligroup share distribution in connection with the spin-off. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. The information required by this item is contained in the sections entitled "Description of Capital Stock" and "Anti-Takeover Effects of Certain Certificate of Incorporation and By-Law Provisions" of the Information Statement. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The information required by this item is contained in the sections entitled "Anti-Takeover Effects of Certain Certificate of Incorporation and By-Law Provisions" and "Limitations on Directors' and Officers' Liability" of the Information Statement. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is identified in the Index to Financial Statements of the Information Statement. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements 1. See the Index to Financial Statements on page F-1 of the Information Statement.
2 4 (b) Exhibits *2.1 Information Statement (attached to this Registration Statement as Annex A). *2.2 Distribution Agreement by and between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000. 3.1 Certificate of Incorporation of SeraNova, Inc. 3.2 By-Laws of SeraNova, Inc. *10.1 Contribution Agreement by and between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000. *10.2 Services Agreement by and between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000. 10.3 Space Sharing Agreement by and among Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000. 10.4 Tax Sharing Agreement by and between Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000. 10.5 Form of Indemnification Agreement by and between SeraNova, Inc. and each of its directors and executive officers. 10.6 Employment Agreement by and between SeraNova, Inc. and Rajkumar Koneru dated as of September 9, 1999. 10.7 Employment Agreement by and between SeraNova, Inc. and Ravi Singh dated as of September 9, 1999. 10.8 Employment Agreement by and between SeraNova, Inc. and Rajan Nair dated as of October 1, 1999. 10.9 Master Consulting Services Agreement by and between SeraNova, Inc. and Mueller/Shields dated as of December 21, 1999. 10.10 1999 Stock Plan. *10.11 Registration Rights Agreement by and between SeraNova, Inc. and Evansville, Ltd. dated as of March 14, 2000. *10.12 Registration Rights Agreement by and between SeraNova, Inc. and Ampal -- American Israel Corporation, dated as of March 14, 2000. *10.13 Registration Rights Agreement by and between SeraNova, Inc. and NSA Investments, Inc. dated as of March 14, 2000. *10.14 Registration Rights Agreement by and between SeraNova, Inc. and SSB, Ltd. dated as of March 14, 2000. *10.15 Common Stock Purchase Option Agreement by and between SeraNova, Inc. and Global Emerging Markets North America, Inc. dated March 15, 2000. 21.1 Subsidiaries of the Registrant. 27.1 Financial Data Schedule.
- --------------- * Filed herewith. All other exhibits previously filed. 3 5 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. SERANOVA, INC. By: /s/ RAVI SINGH ------------------------------------ Ravi Singh Chief Financial Officer DATE: March 17, 2000 4 EX-2.1 2 INFORMATIOM SRATEMENT 1 ANNEX A EXHIBIT 2.1 INTELLIGROUP, INC. 499 THORNALL STREET EDISON, NEW JERSEY 08837 , 2000 Dear Intelligroup Shareholder: I am pleased to inform you that the Board of Directors of Intelligroup, Inc. has conditionally approved a distribution to holders of our common stock. Intelligroup intends to distribute all of the outstanding shares of common stock of Intelligroup's subsidiary, SeraNova, Inc. ("SeraNova") held by Intelligroup. Intelligroup currently owns approximately 95% of the outstanding shares of SeraNova. SeraNova provides professional services, primarily in the area of business-to-business interactions on the Internet. The distribution will be made to holders of record of Intelligroup common stock on , 2000. Pursuant to the distribution, you will receive one share of SeraNova common stock for every one share of Intelligroup common stock you hold on the record date. Shares of SeraNova common stock are expected to trade on the Nasdaq National Market under the symbol "SERA." Holders of Intelligroup common stock on the record date are not required to take any action to participate in the distribution. The enclosed Information Statement explains the proposed distribution in detail and provides important financial and other information regarding SeraNova. We urge you to read this Information Statement carefully. A shareholder vote is not required in connection with the distribution and, accordingly, your proxy is not being sought. We thank you for your continued support. Very truly yours, Nagarjun Valluripalli Chairman and Co-Chief Executive Officer 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES WILL NOT BE ISSUED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PRELIMINARY INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THESE SECURITIES. PRELIMINARY COPY, DATED MARCH 17, 2000 SUBJECT TO COMPLETION OR AMENDMENT INFORMATION STATEMENT SERANOVA, INC. COMMON STOCK (PAR VALUE $0.01 PER SHARE) We have prepared this information statement to provide you with information regarding the proposed spin-off of all outstanding shares of SeraNova which are currently held by Intelligroup to Intelligroup shareholders. You should consider carefully the risk factors beginning on page 9 of this information statement. The spin-off does not require approval by shareholders of Intelligroup, Inc. Therefore, Intelligroup is not asking you for a proxy and requests that you do not send Intelligroup a proxy. This information statement is not an offer to sell, or a solicitation of an offer to buy, any of our securities or those of Intelligroup. If you are an Intelligroup shareholder at the close of business on , 2000, you will receive one share of our common stock for every one share of Intelligroup common stock you hold at that time. The spin-off will take effect on , 2000 and certificates for our shares will be mailed to you on or about , 2000. You will not be required to make any payment for the shares of our common stock that you will receive in the spin-off. If you have any questions regarding the spin-off, you may contact American Stock Transfer & Trust Company at 40 Wall Street, New York, New York 10005, or by telephone at (212) 936-5100, or Intelligroup's investor relations contact, Richard Bevis, at Intelligroup, Inc., 499 Thornall Street, Edison, New Jersey 08837, or by telephone at (732) 362-2343. No public trading market currently exists for our common stock. However, we are seeking to have our common stock approved for quotation on the Nasdaq National Market. If the shares are accepted for quotation on the Nasdaq National Market, we expect that a "when issued" market will develop on or shortly before the record date for the spin-off and regular way trading will begin on the first business day after the effective date of the spin-off. Proposed Nasdaq National Market Trading Symbol "SERA" ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OUR COMMON STOCK, OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this information statement is , 2000. 3 SERANOVA, INC. INFORMATION STATEMENT TABLE OF CONTENTS
PAGE ---- Questions and Answers about the Spin-Off.................... ii Forward-Looking Statements.................................. iii Summary..................................................... 1 Risk Factors................................................ 9 The Spin-Off................................................ 20 Capitalization.............................................. 23 Selected Historical Financial Data.......................... 24 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 26 Business.................................................... 34 Management.................................................. 45 Relationship with Intelligroup.............................. 51 Certain Transactions........................................ 54 Principal Shareholders...................................... 54 Description of Capital Stock................................ 56 Where You Can Find More Information......................... 60 Index to Financial Statements............................... F-1
i 4 QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF WHAT IS THE SPIN-OFF? Intelligroup intends to pay a dividend to its shareholders consisting of all of the shares of SeraNova's common stock owned by Intelligroup. The dividend is known as a spin-off. WHAT WILL I RECEIVE IN THE SPIN-OFF? For every one share of Intelligroup stock that you hold at the close of business on , 2000, you will receive one share of our common stock. Shares of our common stock will be sent to you automatically without any required payment or other action on your part. WHEN WILL THE SPIN-OFF OCCUR? The spin-off will be completed as soon as possible after the conditions to the spin-off are met. These conditions include, among others, approval for quotation of our common stock on the Nasdaq National Market. ARE THERE TAX CONSEQUENCES? Arthur Andersen LLP has issued an opinion to Intelligroup to the effect that the spin-off should be tax-free to Intelligroup shareholders and to Intelligroup for federal income tax purposes. To review the material federal income tax consequences in greater detail, see page 21. WILL I BE PAID DIVIDENDS ON MY SERANOVA COMMON STOCK? We do not expect to pay cash dividends on our stock for the foreseeable future. WHERE WILL MY SERANOVA COMMON STOCK BE TRADED? We anticipate that our common stock will be traded on the Nasdaq National Market under the symbol "SERA," subject to official notice of issuance. WHAT WILL HAPPEN TO INTELLIGROUP AND MY EXISTING INTELLIGROUP COMMON STOCK? Intelligroup will continue to own and operate its other business. Intelligroup stock will continue to trade on the Nasdaq National Market under the symbol "ITIG." The spin-off will not affect the number of outstanding shares of Intelligroup stock or any rights of Intelligroup shareholders. HOW WILL I TRADE MY INTELLIGROUP AND SERANOVA COMMON STOCK? Beginning on or about , 2000, and continuing through , 2000, you will only be able to sell your Intelligroup stock with due bills for our stock. The due bill entitles you to receive the dividend intended to be paid to each of the Intelligroup shareholders in the spin-off. This means that during the due bill period, if you sell your Intelligroup stock, you will give up your right to receive the dividend of SeraNova stock. As a result, if you sell your Intelligroup stock during the due bill period, you will have to deliver the certificate for our stock to the buyer of your Intelligroup stock once you receive our certificate. Shares of Intelligroup common stock are traded on the Nasdaq National Market which is aware of the due bill period. Accordingly, you do not have to notify the Nasdaq National Market when trading your Intelligroup stock during the due bill period. Beginning on , 2000 we expect that regular way trading in our stock will begin on the Nasdaq National Market. This means that Intelligroup stock will no longer be traded with due bills. Accordingly, beginning on , 2000, you will be able to trade your SeraNova stock and your Intelligroup stock independently of each other. ii 5 FORWARD-LOOKING STATEMENTS This information statement contains certain "forward-looking statements" concerning our operations, performance and financial condition, including our future economic performance, plans, and objectives and the likelihood of success in developing and expanding our business. These statements are based upon a number of assumptions and estimates which are subject to significant uncertainties, many of which are beyond our control. The words "may," "would," "could," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate" and similar expressions are meant to identify such forward-looking statements. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those set forth in the section entitled "Risk Factors." These forward-looking statements reflect our views only as of the date of this information statement. We undertake no obligation to update such statements or publicly release the result of any revisions to these forward-looking statements which we may make to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. iii 6 SUMMARY This summary highlights selected information from this information statement, but does not contain all details concerning the spin-off of our common stock to Intelligroup shareholders, including information that may be important to you. To better understand the spin-off and our business and financial position, you should carefully review this entire information statement. OUR BUSINESS SeraNova provides professional services, primarily in the area of business-to-business interactions on the Internet. Business-to-business interactions include communications and commerce conducted between a company and its customers, suppliers and partners. Our services include strategy consulting, creative design, technology implementation and management of Internet applications. In all of our client engagements, we apply SeraNova's Time-to-Market Approach, our proprietary methodology, to deliver these services. We provide an integrated set of services that helps strategize, design, build and manage Internet applications. Our strategy consulting services combines the expertise in business-to-business interactions with industry-specific knowledge to create a comprehensive Internet strategy for our clients. We build and implement Internet applications that enable a range of business-to-business activities, such as procurement, interaction with customers and transactions with business partners. Once the applications are deployed, we provide application and content management service that is seamless, resulting in reduced risk of reliability and security. Our services enable Global 1000 companies to combine the scope and efficiencies of the Internet with their existing business practices. We also work with emerging Internet-based companies that conduct their business exclusively through the Internet. We focus on five industry markets -- financial services, telecommunications, automotive, technology and healthcare. During the last three years, we have provided Internet professional services to over 80 clients in a variety of industries. Our clients in 1999 included American Express, Audi of America, EMI Music Publishing, Hewlett-Packard, LiquidPrice.com, Medical Internet Solutions, Novell and Volkswagen. MARKET OPPORTUNITY The Internet presents opportunities to transform businesses and entire industries. Increasingly, many companies are using the Internet as the primary platform for universal communication and sophisticated global business transactions. According to International Data Corporation, worldwide business-to-business transactions on the Internet are expected to reach $1.14 trillion by 2003. This increase in business-to-business activities on the Internet has forced companies to develop complex and scalable Internet applications consistent with their market positioning and business goals. The development and implementation of Internet-based applications require expertise in business strategy, creative design and technology implementation. Given the lack of in-house capabilities, many companies are seeking outside specialists. International Data Corporation estimates the market for Internet professional services will grow from $7 billion in 1998 to $78.5 billion in 2003. We believe that most companies seeking to build or enhance their capabilities for business-to-business interactions on the Internet need a professional service provider with comprehensive and integrated capabilities. Such a service provider must provide strategic insights combined with extensive technological expertise to build Internet applications that are rapidly deployable as well as scalable. As the complexity and the scope of business-to-business interactions grow, the underlying content of these applications must be updated and their functionalities must be expanded. Therefore, to ensure a reliable, secure and robust system for complex business-to-business interactions, the service provider must also be able to provide application management services following the deployment. Furthermore, to be able to achieve such rapid deployment, the service provider must apply an integrated methodology. We believe many professional service providers do not provide the full range of services; most providers lack the necessary focus and technology expertise to build applications required for sophisticated business-to-business interactions. 1 7 OUR STRATEGY We seek to be the leading provider of professional services focused on business-to-business interactions on the Internet. To that end, we are pursuing the following strategies: Build Our Brand. Establish the SeraNova name through an aggressive marketing strategy that emphasizes our business-to-business focus. Attract and Retain Outstanding Professionals. We emphasize hiring, developing and retaining individuals that are vital to our professional services business. Strengthen Our Client Relationships and Penetrate Industry Markets. We continue to strengthen our relationships with key clients. We are expanding our market-specific solution frameworks and organizing our sales efforts around specific industry segments. Widen Our Global Presence. We intend to expand our global presence through a combination of internal growth and strategic acquisitions. Refine and Enhance SeraNova Time-to-Market Approach. We continue to build upon our proprietary methodology and invest in the knowledge management process to enable us to reduce the delivery time of our services and minimize our costs to deliver such services. RECENT DEVELOPMENTS On March 14, 2000, we entered into a purchase agreement with four institutional investors pursuant to which such investors purchased an aggregate of 50 shares of our common stock at a price per share of $200,000, for an aggregate purchase price of $10,000,000. The 50 shares currently held by such investors are estimated to be 809,388 shares after giving effect to the contemplated stock split in order to effect a one SeraNova share-for-one Intelligroup share distribution in connection with the spin-off. Additionally, we may, at our option, sell an additional 25 shares of our common stock for an additional $5,000,000 to another investor. We intend to use such proceeds for working capital and general corporate purposes, including the repayment of debt. ADDRESS AND TELEPHONE NUMBER Our principal executive offices are located at 499 Thornall Street, Edison, New Jersey 08837. Our telephone number at that address is (732) 590-1600. Our website is located at http://www.SeraNova.com. The information contained at our website is not incorporated into and does not constitute a part of this information statement. All references to "we," "us," "our," "SeraNova" or "the Company" in this information statement means SeraNova, Inc. and SeraNova's business after the contribution of assets and liabilities of Intelligroup, Inc.'s Internet services business to us by Intelligroup and certain of its subsidiaries pursuant to the Contribution Agreement between Intelligroup, Inc. and SeraNova, dated as of January 1, 2000. 2 8 THE SPIN-OFF Company Doing the Spin-off.... Intelligroup, Inc., a New Jersey corporation. Company Resulting from the Spin-off...................... SeraNova, Inc., a New Jersey corporation. Conditions to the Spin-off.... Completion of the spin-off is subject to approval for quotation of our common stock on the Nasdaq National Market, among other conditions. Spin-off Ratio................ One share of our common stock for every one share of Intelligroup common stock held of record on the spin-off record date. Spin-off Record Date.......... , 2000 (5:00 p.m. New York time). Spin-off Effective Date....... , 2000. The dividend agent will commence mailing our common stock certificates on this date. Trading in Intelligroup Common Stock from the Spin-off Record Date Up To and Including the Spin-off Effective Date..... During this period, Intelligroup common stock will trade on the Nasdaq National Market with due bills attached. The due bills will entitle a purchaser of Intelligroup common stock during this period to receive one share of our stock for every one share purchased. Accordingly, a seller of Intelligroup common stock during the due bill period will have to deliver the certificate for our common stock to the buyer of Intelligroup common stock once he or she receives our certificate. Since the Nasdaq National Market is aware of the due bill period, no notification by a purchaser or seller is necessary when trading Intelligroup common stock. If the spin-off conditions are not satisfied and the spin-off is not completed, the due bills will become null and void. Our Outstanding Stock and Options....................... Based on approximately 16.2 million shares of Intelligroup common stock outstanding at the close of business on March 14, 2000 and 809,388 shares of SeraNova common stock held by certain institutional investors, approximately 17 million shares of our common stock will be distributed in the spin-off. We also have reserved 5.0 million shares of common stock for issuance under our 1999 Stock Plan, of which options to purchase 1,667,575 shares have been granted, and we have granted additional options to purchase 3,236,092 shares outside of the 1999 Stock Plan. See "Management -- 1999 Stock Plan." Dividend Agent................ The dividend agent is American Stock Transfer & Trust Company. The address and telephone number of the dividend agent are 40 Wall Street, New York, New York 10005, (212) 936-5100. Material Federal Income Tax Consequences to Intelligroup Shareholders................ Arthur Andersen LLP has issued an opinion to Intelligroup to the effect that, for federal income tax purposes, the spin-off should qualify as a tax-free distribution to the shareholders of Intelligroup under Section 355 of the Internal Revenue Code. Therefore, you should not incur federal income tax upon the receipt of our 3 9 common stock in the spin-off. See "The Spin-off -- Material Federal Income Tax Consequences." Trading Market and Symbol for our Common Stock.............. We are seeking to have our common stock approved for quotation on the Nasdaq National Market under the proposed symbol "SERA". Prior to the spin-off, we do not expect there to be any public trading market for our common stock except that our common stock is expected to trade on a "when-issued" basis on the Nasdaq National Market beginning on , 2000 for settlement on , 2000. If the spin-off is not completed, all "when-issued" trading in our common stock will be null and void. If the spin-off is completed, we expect that "regular way" trading in our common stock on the Nasdaq National Market will commence at 9:30 a.m. New York time, on , 2000 subject to official notice of issuance. See "Risk Factors -- An Active Trading Market May Not Develop for Our Common Stock" and "-- Absence of Dividends" and "The Spin-Off -- Trading of Our Common Stock." Transfer Agent and Registrar for our Common Stock.......... American Stock Transfer & Trust Company. Agreements between SeraNova and Intelligroup and Relationship after the Spin-off.................... After the spin-off, SeraNova and Intelligroup will operate independently of each other as separate public companies. Prior to the spin-off, we entered into the following agreements with Intelligroup: Contribution Agreement; Services Agreement; Space Sharing Agreement; Tax Sharing Agreement and Distribution Agreement. Such agreements govern our on-going relationship with Intelligroup. See "The Spin-Off -- Agreements Between SeraNova and Intelligroup and Relationship After the Spin-off." 4 10 SUMMARY COMBINED FINANCIAL DATA The historical summary combined financial data set forth below for each of the fiscal years in the two-year period ended December 31, 1999, is derived from our audited combined financial statements included elsewhere in this information statement. The historical summary combined financial data for the fiscal years ended March 31, 1998 and 1997 is derived from our audited combined financial statements not included in this information statement. Historical financial information may not be indicative of our future performance as an independent company. The information set forth below should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Combined Financial Statements and Notes. See "Index to Financial Statements." We have not presented data about historical earnings per share because the capital structure of our business prior to the spin-off is not indicative of our capital structure following the spin-off. We have presented pro forma net loss per share for the year ended December 31, 1999. This is calculated by dividing net loss by the outstanding shares of common stock of Intelligroup as of December 31, 1999. Intelligroup shares were utilized since the spin-off will be one share of SeraNova common stock for each share of Intelligroup common stock.
FOR THE NINE- FOR THE MONTH PERIOD YEAR ENDED ENDED FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ------------ ------------- ------------------- 1999(2) 1998(1) 1998 1997 ------------ ------------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues.......................................... $39,795 $12,438 $ 8,995 $ 9,200 Cost of sales..................................... 22,475 7,315 4,797 4,949 Selling, general and administrative expenses...... 17,605 5,106 3,812 4,092 Depreciation and amortization..................... 1,131 102 133 150 Operating income (loss)........................... (1,416) (85) 253 9 Net loss.......................................... (1,261) (552) (253) (243) Unaudited pro forma net loss per common share -- basic and diluted(3).................. $ (0.08) ======= Shares used in per share calculation of unaudited pro forma net loss -- basic and diluted(3)..... 15,949 ======= BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents......................... $ 611 $ 677 $ 368 $ 635 Working capital (deficit)......................... (776) (424) 145 565 Total assets...................................... 18,880 5,775 3,216 2,402 Total liabilities................................. 13,910 5,383 2,975 1,866 Shareholder's equity.............................. 4,970 392 241 536 OTHER DATA: Capital expenditures.............................. $ 2,175 $ 603 $ 7 $ 328
- --------------- (1) Effective April 1, 1998, the Company changed its fiscal year from March 31 to December 31. (2) On January 8, 1999, Intelligroup, Inc. acquired the common stock of Network Publishing, Inc. in a purchase business combination. The results of operations of Network Publishing, Inc. have been included above since the date of acquisition. Pro forma results for the period January 1, 1999 to January 7, 1999 are not material to SeraNova's combined financial statements for the year ended December 31, 1999. (3) See Note 2 to SeraNova's combined financial statements. 5 11 SUMMARY OF UNAUDITED PRO FORMA COMBINED FINANCIAL DATA Effective January 1, 2000, the net borrowings from the Parent ($8,397,000 as of December 31, 1999) were converted to amounts payable to a bank under Intelligroup's revolving Credit Facility Agreement (the "Agreement"). SeraNova has become a co-borrower under the Agreement with a sublimit of up to $10,000,000 available to SeraNova (see Note 13 to the combined financial statements). On March 14, 2000, SeraNova sold 50 shares of its common stock to four institutional investors for $10,000,000 and, at SeraNova's option, may sell an additional 25 shares for an additional $5,000,000 to an additional investor. Proceeds from this financing will be used to repay SeraNova's borrowings under the Agreement prior to spin-off. SeraNova entered into certain agreements with Intelligroup that became effective January 1, 2000. Under these agreements, Intelligroup will continue to provide SeraNova with certain general and administrative functions on a fee basis. (See "Relationship with Intelligroup" for a summary of these agreements). We believe that, temporarily, these agreements are the most cost efficient and least disruptive way to maintain the administrative support services we require. The following pro forma balance sheet as of December 31, 1999, reflects the above mentioned equity financing and repayment of outstanding debt to the bank. The pro forma statement of operations for the year ended December 31, 1999 adjusts the results of operations as if the agreements with Intelligroup were effective during 1999. The pro forma amounts are presented for informational purposes only. The pro forma financial data is not necessarily indicative of the balance sheet and results of operations of SeraNova. 6 12 SERANOVA, INC. AND AFFILIATES UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1999 (IN THOUSANDS)
HISTORICAL EQUITY DEBT SERANOVA, INC. FINANCING REPAYMENT PRO FORMA -------------- --------- --------- --------- ASSETS Current Assets: Cash........................................ $ 611 $10,000(1) $(8,397)(2) $ 2,214 Accounts receivable......................... 7,456 7,456 Unbilled services........................... 3,680 3,680 Other current assets........................ 769 769 ------- ------- ------- ------- Total Current Assets.......................... 12,516 10,000 (8,397) 14,119 Property and equipment, net................... 2,863 2,863 Intangible assets, net and other assets....... 3,501 3,501 ------- ------- ------- Total Assets.................................. $18,880 $10,000 $(8,397) $20,483 ======= ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term lease obligations.............................. $ 120 $ 120 Notes payable to Parent..................... 8,397 $(8,397)(2) -- Accounts payable............................ 872 872 Accrued payroll and related costs........... 1,551 1,551 Accrued expenses and other liabilities...... 2,352 2,352 ------- ------- ------- ------- Total Current Liabilities..................... 13,292 -- (8,397) 4,895 Long-Term Debt and Capital Lease Obligations................................. 618 618 ------- ------- ------- ------- Total Liabilities............................. 13,910 -- (8,397) 5,513 Shareholders' Equity: Parent company investment and advances...... 7,250 10,000(1) 17,250 Currency translation adjustment............. (34) (34) Accumulated deficit......................... (2,246) (2,246) ------- ------- ------- ------- Total Shareholders' Equity.................... 4,970 10,000 -- 14,970 ------- ------- ------- ------- Total Liabilities and Shareholders' Equity.... $18,880 $10,000 $(8,397) $20,483 ======= ======= ======= =======
- --------------- (1) Represents the sale of 50 shares of the Company's common stock completed on March 14, 2000. (2) Represents the repayment of outstanding debt prior to spin-off. 7 13 SERANOVA, INC. AND AFFILIATES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL SERANOVA, INC. PRO FORMA ADJUSTMENTS PRO FORMA -------------- --------------------- -------------- Revenues............................. $39,795 $39,795 Cost of Sales........................ 22,475 22,475 ------- ------- Gross Profit......................... 17,320 17,320 ------- ------- Selling, general and administrative expenses........................... 17,605 $(803)(1) $ 1,162(2) 17,964 (3 Depreciation and amortization........ 1,131 1,131 ------- ----- ------- ------- Total operating expenses........... 18,736 (803) 1,162 19,095 ------- ----- ------- ------- Operating loss....................... (1,416) 803 (1,162) (1,775) Other income (expense), net.......... (80) (288)(4) (368) ------- ----- ------- ------- Loss before income taxes............. (1,496) 803 (1,450) (2,143) Benefit for income taxes............. (235) (235) ------- ----- ------- ------- Net loss............................. $(1,261) $ 803 $(1,450) $(1,908) ======= ===== ======= ======= Unaudited pro forma net loss per common share -- basic and diluted............................ $ (0.08) $ (0.12) ======= ======= Shares used in per share calculation of unaudited pro forma net loss -- basic and diluted.......... 15,949 15,949 ======= =======
- --------------- (1) Represents the elimination of historical costs covered by the services and space sharing agreements. (2) Represents the estimated annual costs that would have been incurred under the services and space sharing agreements (See Note 4 to the combined financial statements). (3) The difference between the historical costs covered by the services and space sharing arrangements and the costs to be incurred under the services and space sharing agreements is due to Company growth throughout 1999 which resulted in SeraNova utilizing an increasing volume of office space and incurring higher costs as the year progressed. (4) Represents the estimated annual interest expense to be incurred if the bank credit facility was in place for the year 1999. 8 14 RISK FACTORS You should carefully consider each of the following risks and all of the other information in this information statement. Some of the following risks relate principally to the spin-off while other risks relate principally to our business in general and the industry in which we operate. Finally, other risks relate principally to the securities markets and ownership of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our common stock could decline. This information statement contains forward-looking statements that involve risks and uncertainties. You should not rely on these forward-looking statements. We use words such as "anticipate," "believe," "plan," "expect," "future," "intend," and similar expressions to identify such forward-looking statements. This information statement also contains forward-looking statements attributed to certain third parties relating to their estimates regarding, among other things, the growth in the market for professional services, including business-to-business interactions on the Internet. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks faced by us described below and elsewhere in this information statement. RISKS RELATING TO THE SPIN-OFF FEDERAL TAX CONSEQUENCES OF THE SPIN-OFF TO INTELLIGROUP AND INTELLIGROUP SHAREHOLDERS. Arthur Andersen LLP has issued an opinion to Intelligroup to the effect that the spin-off should be tax-free to Intelligroup and to Intelligroup shareholders. We have not requested a ruling from the Internal Revenue Service relating to the tax consequences of the spin-off. Arthur Andersen's opinion is not binding on the Internal Revenue Service or the courts. If it is determined that the spin-off is not a tax-free spin-off, then: - Intelligroup would recognize a gain equal to the excess of the fair market value of the SeraNova common stock distributed to its shareholders over Intelligroup's basis in the SeraNova common stock; and - Each U.S. holder of Intelligroup common stock would be generally treated as if such shareholder had received a taxable dividend, to the extent of earnings and profits, in an amount equal to the fair market value of the SeraNova common stock received. IF WE ARE UNABLE TO OBTAIN CERTAIN THIRD-PARTY CONSENTS TO THE SPIN-OFF, OUR ABILITY TO CONDUCT OUR BUSINESS AS CURRENTLY CONDUCTED COULD BE MATERIALLY ADVERSELY AFFECTED. The spin-off and related transactions could result in a violation of certain of Intelligroup's existing contractual arrangements or require the consent of a third party to transfer these arrangements to us. In a substantial number of situations, an amendment, consent or waiver from third parties, including many clients, will be required. In particular, American Express, our largest customer (representing approximately 28% of our total revenues for the year ended December 31, 1999), has not yet consented to the assignment of their contracts with Intelligroup to us. We are seeking amendments and consents to all material arrangements although we believe that no single agreement for which an amendment, consent or waiver is being sought is material, the failure to receive a significant number of such amendments, waivers or consents with respect to contractual arrangements could have a material adverse effect on our ability to continue to conduct our business. THE COMBINED POST-SPIN-OFF VALUE OF INTELLIGROUP AND SERANOVA SHARES MAY NOT EQUAL OR EXCEED THE PRE-SPIN-OFF VALUE OF INTELLIGROUP SHARES. After the spin-off, we anticipate that shares of Intelligroup common stock will continue to be traded on the Nasdaq National Market and we expect that shares of SeraNova common stock will also be traded on the 9 15 Nasdaq National Market. We cannot assure you that the combined trading prices of Intelligroup common stock and SeraNova common stock after the spin-off will be equal to or greater than the trading price of Intelligroup common stock prior to the spin-off. Until the market has fully evaluated the business of Intelligroup without the business of SeraNova, the price at which Intelligroup common stock trades may fluctuate significantly. Similarly, until the market has fully evaluated the SeraNova business on an independent basis, the price at which our common stock trades may fluctuate significantly. IF THE SPIN-OFF IS NOT A LEGAL DIVIDEND, IT COULD BE HELD INVALID BY A COURT. The dividend which effects the spin-off is subject to New Jersey corporate law. We cannot assure you that a court will not later determine that the spin-off was invalid under New Jersey law and reverse the spin-off. The resulting complications, costs and expenses could have a material adverse effect on our business, financial condition and results of operations. CREDITORS OF INTELLIGROUP AT THE TIME OF THE SPIN-OFF MAY CHALLENGE THE SPIN-OFF. If a court in a lawsuit by an unpaid creditor or representative of creditors of Intelligroup, such as a trustee in bankruptcy, were to find that among other reasons, at the time of the spin-off, Intelligroup or SeraNova: - was insolvent; - was rendered insolvent by reason of the spin-off; - was engaged in a business or transaction for which Intelligroup's or SeraNova's remaining assets constituted unreasonably small capital; or - intended to incur, or believed it would incur, debts beyond its ability to pay such debts as they matured, the court may be asked to void the spin-off (in whole or in part) as a fraudulent conveyance. The court could then require that the shareholders return some or all of the shares of SeraNova common stock, or require Intelligroup or SeraNova, as the case may be, to fund certain liabilities of the other company for the benefit of creditors. The measure of insolvency for purposes of the foregoing will vary depending upon the jurisdiction whose law is being applied. Generally, however, each of Intelligroup and SeraNova, as the case may be, would be considered insolvent if the fair value of its assets were less than the amount of its liabilities or if it incurred debt beyond its ability to repay such debt as it matures. Intelligroup and SeraNova, believe that each company will be solvent after the spin-off. RISK FACTORS RELATING TO OUR BUSINESS AND OUR SECURITIES OUR LIMITED OPERATING HISTORY AS A SEPARATE COMPANY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS. SeraNova was operated as a separate business division within Intelligroup since September 1999. We were not operated as a separate company until January 1, 2000 and, therefore, we have a limited operating history as a stand-alone company. Accordingly, we have a limited history of addressing material risks in our business. These risks are magnified by the fact that we are operating in the new and expanding Internet professional services markets. These risks include our potential inability to: - attract, retain and motivate qualified personnel; - expand our sales and support staff; - obtain financing for our expanding business which may be hindered by our lack of an operating history as a separate corporate entity; - develop our own internal operating and financial reporting procedures; - increase the scale of our operations; - maintain sufficiently high employee utilization; - respond effectively to competitive pressures; 10 16 - continue to develop and upgrade our services and solutions; - replace the transitional services necessary for the conduct of our business that Intelligroup has agreed to provide to us for a limited period after the completion of the spin-off; and - satisfy legal and regulatory requirements. In addition, we believe that our historical financial statements for all periods do not reflect potential changes that may occur in our funding and our operations as a result of our becoming a stand-alone company. WE ANTICIPATE FUTURE LOSSES. We expect to incur significant sales and marketing, infrastructure development and general and administrative expenses. As a result, we anticipate losses through at least the third quarter of 2000. In order to achieve profitability, we will need to control costs associated with building an infrastructure as well as increase our revenues. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. We cannot assure you that we will be able to contain costs, grow revenue or increase profitability. WE WILL NOT BE ABLE TO RELY ON INTELLIGROUP TO FUND FUTURE CAPITAL REQUIREMENTS. Prior to January 1, 2000, the assets, liabilities, operations and personnel associated with our business were operated within Intelligroup and certain of its subsidiaries. As such, all of our capital requirements in excess of internally generated funds were provided by Intelligroup's equity offerings or credit facilities. Consequently, we have not independently maintained or managed any cash or been responsible for obtaining external sources of financing. Following the spin-off, Intelligroup will no longer be obligated to provide funds to finance our working capital or other cash requirements. While our agreements with Intelligroup permit, and Intelligroup has provided, intercompany loans, Intelligroup is not obligated to fund our operations. As of December 31, 1999, we were indebted to Intelligroup for approximately $8.4 million. We believe our capital requirements will vary greatly from quarter to quarter, depending on, among other things, capital expenditures, fluctuations in our operating results and financing activities. We cannot guarantee that financing, if needed, will be available on favorable terms, if at all. In addition, future financing could subject us to restrictive covenants that may limit our ability to take certain actions. We may not be able to obtain financing with interest rates as favorable as those historically obtained by Intelligroup. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." POTENTIAL CONFLICTS WITH INTELLIGROUP MAY NOT BE RESOLVED IN OUR FAVOR. Conflicts may develop between Intelligroup and us regarding the terms of our agreements with Intelligroup. Such disputes may not be resolved in our favor. It is our policy and the policy of Intelligroup that transactions between Intelligroup and us will generally be on terms and conditions comparable to those between unaffiliated third parties. However, because our agreements with Intelligroup were negotiated in the context of a parent-subsidiary relationship, we cannot assure you that these agreements, or the transactions with Intelligroup contemplated by such agreements, will be effected on terms as favorable to us as could have been obtained from unaffiliated third parties. If such conflicts are not resolved in our favor, our business, financial condition and results of operations could be adversely affected. See "Relationship with Intelligroup." VARIABILITY OF QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE. The market price of our common stock may be adversely affected because our revenue, gross profit, operating income and net income or net loss may vary substantially from quarter to quarter. Many factors may contribute to fluctuations in our operating results. These factors include the following: Factors within our control: - changes in our pricing policies; - introduction of our new services offerings; 11 17 - possibility of over-runs on fixed-price contracts; - the timing and number of personnel we hire; - the timing and acquisition of new businesses by us; and - the efficiency with which we utilize our employees. Factors not exclusively within our control: - changes in our competitors' pricing policies; - variations in billing margins and personnel utilization rates; - introduction of new services by our competitors; - acceptance of our new services offerings; - the market for qualified technical personnel; - seasonal impact on customer spending; - cancellation or delay of contracts by our customers or potential customers; - length of our sales cycle; - short-term nature of our customers' contractual commitments; - the number, size, scope and timing of our projects; and - the demand for Internet professional services. WE MAY NOT BE ABLE TO EXPAND OUR OWN SALES AND SUPPORT ORGANIZATION. We need to substantially expand our direct and indirect sales activities and we may not be able to do so. Our services require a sophisticated and technical sales effort targeted at professionals at different levels within our prospective customers' organizations. Without an expanded sales effort, we may not be able to: - Build market awareness and establish name recognition for SeraNova; - Compete effectively with larger Internet services organizations; or - Establish alternative sales channels. We cannot be certain that we will be able to successfully expand our sales and marketing efforts or that we will be able to successfully promote our existing or future services offerings. See "Business -- Strategy" and "-- Sales and Marketing." OUR HISTORICAL FINANCIAL INFORMATION MAY HAVE LIMITED RELEVANCE TO OUR RESULTS OF OPERATIONS AS A SEPARATE COMPANY. Prior to the transfer of Intelligroup's Internet services business to us on January 1, 2000, Intelligroup did not account for our business as, and we were not operated as, a separate unit or division. In presenting our historical financial statements for all periods, we specifically identified all revenue, cost of sales, other income (expense) and certain selling, general and administrative expenses incurred by Intelligroup on our behalf. Other selling, general and administrative expenses were allocated using methodologies which took into consideration the ratio of our revenue to the consolidated revenue of Intelligroup, head count, occupancy and other factors. However, we cannot assure you that our historical financial information prior to December 31, 1999 necessarily reflects what the results of operations, financial position and cash flows would have been had we been a separate company, or is indicative of our future results of operations, financial positions and cash flows. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 12 18 WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALITY TECHNICAL AND MANAGERIAL PERSONNEL DUE TO A COMPETITIVE MARKET. We may not be able to hire and retain the number of quality technical personnel necessary to meet our requirements. Our future success depends to a significant extent on our ability to attract, train and retain quality professionals who are highly skilled in the Internet and its rapidly changing technology. We believe that there is a worldwide shortage of, and significant competition for, professionals with the advanced technical and managerial skills necessary to perform the services we offer. Our business, financial condition, results of operations and growth prospects could decline significantly if we are unable to hire and retain qualified technical personnel that are necessary to conduct and expand our operations successfully. While substantially all of our technical personnel have entered into agreements which contain non-disclosure, non-solicitation and non-competition provisions, we cannot guarantee that such agreements are enforceable or ensure continued service by such individuals. See "Business -- Strategy" and "-- Employees." IF WE EXPERIENCE LOWER BILLING AND UTILIZATION RATES OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED. Our personnel costs are relatively fixed for any given period. Our personnel expense levels are based in part on expectations of future revenue. As a result, our operating results have been, and in the future will continue to be, impacted by changes in technical personnel billing and utilization rates. We may be required to increase the compensation of our employees due to the competitive market for technical personnel, which would likely result in lower billing margins. During periods of rapid and concentrated hiring, technical personnel utilization rates have been, and are expected to continue to be, adversely affected and we are likely to incur greater technical training costs. Due to these and other factors, if we are successful in expanding our services offerings and revenue, periods of variability in utilization are likely to occur. We believe, therefore, that past operating results and period-to-period comparisons should not be relied upon as an indication of future operating performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Selected Quarterly Results of Operations." THERE IS INTENSE COMPETITION IN THE INTERNET SERVICES MARKET. The Internet services market is relatively new, intensely competitive and rapidly changing. We expect competition to continue and intensify which may adversely affect our ability to maintain or increase our market share. To be competitive, we must respond effectively to evolving changes in technology as well as to our competitors' innovations by continuing to enhance our services offerings and expand our sales channels. Any pricing pressures, reduced margins or loss of market share resulting from our failure to compete effectively could materially adversely affect our business. Furthermore, we believe the barriers to entry into our markets are relatively low, which enable new competitors to offer competing services. Current or future competitors may develop or offer services that are comparable or superior to ours at a lower price, which could result in a decrease in our revenues and the value of your investment. Many of our current and potential competitors have longer operating histories and substantially greater financial, marketing, technical and other resources than us. Some of these competitors have a greater ability to provide services on a national or international basis and may be able to adapt more quickly to changes in customer needs or to devote greater resources to their Internet services business. Such competitors may attempt to increase their presence in our markets by forming strategic alliances with other competitors or our customers, offering new or improved services to our customers or increasing their efforts to gain and retain market share through competitive pricing. In addition, other companies have developed particularly strong reputations in niche service offerings or local markets which may provide them with a competitive advantage. See "Business -- Competition." WE MAY BE LIABLE TO DISSATISFIED CUSTOMERS. We design, develop, implement and manage Internet solutions that are critical to the operation of our customers' businesses. Defects in the solutions developed by us could result in delayed or lost revenue to our 13 19 customers. Since many of our projects are critical to the operation of our customers' businesses and provide benefits that are difficult to quantify, the claim for damages by the customer could be substantial. In cases in which we have written contracts with our customers, we attempt to contractually limit our liability for damages arising from errors, mistakes, omissions or negligent acts performed while rendering our services. However, the limitations of liability set forth in our contracts may not be enforceable in all instances or may not otherwise protect us from liability for damages. Additionally, we do not have written contracts with many of our customers, and therefore we have no contractual limitation of liability. We do not carry errors and omissions insurance. We intend to pursue such coverage. However, we can not assure you that such coverage will be available on terms acceptable to us. Our business, financial condition and results of operations could decline if customers successfully assert one or more large claims that exceed available insurance coverage, if any, against us. WE MUST MANAGE OUR GROWTH EFFECTIVELY. We have experienced substantial growth in revenue, employees and customers during the past few years. Future growth will likely place a strain on our resources. We also expect that additional demands will be placed on our resources due to our becoming a separate company. To manage our growth effectively, we will have to develop and improve our operational, financial and other internal systems, as well as our business development capabilities. We must also continue to attract, train, retain, motivate and manage our employees. Our future success will depend in large part on our ability to: - continue to maintain high rates of employee utilization at profitable billing rates; - successfully execute fixed-price contracts within our target cost parameters; - maintain project quality, particularly if the size and scope of our projects increase; and - integrate the services offerings, operations and employees of acquired businesses. In the foreseeable future, our administrative, operational and other infrastructure resources will continue to be provided, in large part, by Intelligroup. For the near term, our ability to manage our growth effectively will depend, in part, upon Intelligroup's timely and complete performance of its obligations to provide such resources. Over the long term, our ability to manage growth will depend on our ability to develop independent internal systems, as well as our own business development capabilities. If we fail to manage our growth effectively, it could adversely affect our business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." WE MAY NOT BE ABLE TO KEEP PACE WITH ANTICIPATED RAPID TECHNOLOGICAL CHANGES. Our success depends, in part, on our ability to develop solutions that keep pace with: - Rapidly changing Internet and other technology; - Evolving industry standards; - Changing customer objectives and standards; and - Frequent new services introductions. Any delay or failure on our part in responding quickly, efficiently and cost-effectively to these developments could result in serious harm to our business and operating results. The development and commercialization of new technologies and the introduction of new services could render our existing services obsolete or unmarketable. We cannot assure you that we will be successful in identifying, developing, marketing or implementing the new services necessary to keep pace with technological change. We must enhance existing services while developing, integrating and introducing new services offerings on a timely and cost-effective basis to keep pace with technological developments and address increasingly sophisticated customer requirements. We may experience contractual, technical or personnel difficulties that could delay or prevent our successful introduction of such new services. See "Business -- Industry Background." 14 20 OUR SUCCESS IS DEPENDENT UPON OUR KEY PERSONNEL. We believe our success depends to a significant degree upon the continued service of the key members of our management team, Rajkumar Koneru, our chairman, chief executive officer and president, Ravi Singh, our chief financial officer and executive vice president and Rajan Nair, our chief operating officer, because of their industry knowledge, marketing skills and relationships with our major customers, partners and employees. The loss of the services of any one of them could materially adversely affect us. See "Management -- Employment Agreements." OUR FUTURE ACQUISITIONS MAY NEGATIVELY IMPACT OUR BUSINESS. A key element of our strategy is growth by acquisition. We expect to undertake acquisitions in the future, although none are planned or being negotiated as of the date of this information statement. Risks associated with an acquisition include: - Potential difficulty assimilating acquired personnel, operations, customers or vendors; - Possibility that we are unable to retain acquired personnel, customers or vendors; - Management of growth issues; - Dilution to existing shareholders in the event we have to incur debt or issue equity securities to pay for any future acquisitions; - Risks associated with financing; - Disruption of our ongoing business and distraction of our management and employees; and - Unanticipated expenses or liabilities or lower than expected revenues of the business acquired. Although we intend to conduct due diligence reviews with respect to all acquisition candidates, we may not successfully identify all material liabilities or risks related to a potential acquisition candidate. WE MAY EXPERIENCE COST OVER-RUNS ON FIXED-PRICE CONTRACTS. We bear the risk of cost over-runs and inflation in connection with fixed-price projects. An increasing number of our future projects may be fixed-price contracts rather than contracts billed based on actual time spent providing services. Cost over-runs for fixed-price contracts would likely result from our inaccurately estimating the time or resources required. Inaccurate estimates on our part could lead to losses on our engagements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." WE DEPEND ON INTELLIGROUP FOR MANY ADMINISTRATIVE SERVICES. The majority of our administrative functions are provided by Intelligroup pursuant to our contractual arrangements with Intelligroup, including most administrative, human resources and management information systems functions. We intend, over time, to further develop our own administrative infrastructure. If we are required to perform all of such functions prior to developing our own infrastructure, we will likely experience operational disruptions and increased expenses. We cannot assure you that we will be able to develop adequate administrative functions in a timely and cost-effective manner. See "Relationship with Intelligroup." WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS AND NEED TO ESTABLISH RELATIONSHIPS WITH NEW CLIENTS. We generally are engaged by clients on a project-by-project basis, rather than long-term contracts. As a result, clients may not engage us for future services once a project has been completed. Additionally, most of our contracts can be canceled by the customer on short notice and without significant penalty. The cancellation or significant reduction in the scope of a large contract could have a material adverse effect on our business. 15 21 WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS. Our future success is dependent, in part, upon our proprietary implementation methodology, development tools and other intellectual property rights. In order to protect our proprietary rights, we: - Rely upon trade secrets, nondisclosure and other contractual arrangements; - Rely on copyright and trademark laws; - Enter into confidentiality agreements with employees, consultants and customers; - Limit access to and distribution of proprietary information; and - Require almost all employees and consultants to assign to us their rights in intellectual property developed during their employment or engagement by us. There can be no assurance that the steps taken by us will be adequate to deter misappropriation of our proprietary information or that we will be able to detect unauthorized use of and take appropriate steps to enforce our intellectual property rights. We believe that our trademarks, service marks, services, methodology and development tools do not infringe on the intellectual property rights of others. There can be no assurance, however, that such a claim will not be asserted against us in the future, or that if asserted, any such claim will be successfully defended. OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET. The Internet is new and rapidly evolving. Our future success depends on the acceptance and continued use of the Internet for conducting business. Our business will be adversely affected if commerce on the Internet does not continue to grow, or grows more slowly than anticipated. Some of the critical issues relating to Internet usage that concern businesses and consumers include: - Actual or perceived lack of security; - Cost and ease of Internet access; - Intellectual property ownership; - Potentially inadequate network infrastructure; - Quality of service; and - Uncertainty of potential taxation of electronic commerce transactions. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD AFFECT OUR BUSINESS. An increase in the regulation of the Internet could hinder the growth and the use of the Internet for business and commerce. Although there are currently few laws and regulations in effect, federal, state and local governmental organizations as well as foreign governments are considering a number of legislative and regulatory proposals. New laws and regulations may govern or restrict the areas of: - User privacy; - Pricing and taxation of goods and services offered over the Internet; - Quality of services; - Content of websites; and - Intellectual property ownership. We can not be certain as to how new or existing laws governing the Internet will affect our business. 16 22 WE FACE RISKS BECAUSE WE HAVE INTERNATIONAL OPERATIONS. Our international operations have increased in recent years. For the year ended December 31, 1999, approximately 31% of our revenues were derived from international operations. To date, we have established foreign operations in Australia, New Zealand, Philippines, Thailand, India and the United Kingdom. In order to expand international sales, we may establish or acquire additional foreign operations. Increasing foreign operations has required and likely will continue to require significant management attention and financial resources and could materially adversely affect our business. There can be no assurance that we will be able to increase international market demand for our services. The risks in our international business activities include: - Unexpected changes in regulatory environments; - Foreign currency fluctuations; - Tariffs and other trade barriers; - Longer accounts receivable payment cycles; - Difficulties in managing international operations; - Political instability; - Potential foreign tax consequences including restrictions on the repatriation of earnings; and - The burdens of complying with a wide variety of foreign laws and regulations. There can be no assurance that such factors will not have a material adverse effect on our future international sales, if any, and, consequently, on our business. WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS IN INDIA. We commenced Internet operations in India in October 1999. As a result, we are subject to the risks associated with doing business in India. India's central and state governments heavily regulate the Indian economy. In the recent past, the government of India has provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage foreign investment in certain sectors of the economy. Certain of these benefits that directly affect our Indian operations include: - Tax holidays; - Liberalized import and export duties; and - Preferential rules on foreign investment and repatriation. Changes in the business, political or regulatory climate of India could have a material adverse effect on our Indian business. Further, the United States has recently imposed sanctions on India in response to certain nuclear testing conducted by the Indian government. Changes in the following factors could have a material adverse effect on our business: - Inflation; - Interest rates; - Taxation; or - Other social, political, economic or diplomatic developments affecting India in the future. RISK OF INCREASED GOVERNMENT REGULATION OF IMMIGRATION. In the United States, we have relied, and in the future expect to continue to rely, increasingly upon attracting and retaining personnel with technical and project management skills from other countries. The Immigration and Naturalization Service limits the number of new petitions it approves each year. Accordingly, we may be unable to obtain visas necessary to bring critical foreign employees to the United States. Any 17 23 difficulty in hiring or retaining foreign nationals in the United States could increase competition for technical personnel and have a material adverse effect on our business. OUR STOCK PRICE MAY BE VOLATILE. The market price of our common stock may be volatile as the stock market in general has been volatile. In addition, the stock prices for many technology and Internet-related companies have experienced wide fluctuations which often have been unrelated to operating performance. Investors may not be able to resell their shares of common stock at acceptable prices following periods of volatility because of the market's adverse reaction to such volatility. Factors that could cause volatility in our stock price include, among other things: - Actual or anticipated variations in quarterly results; - Variations in our operating results which may cause us to fail to meet analysts' or investors' expectations; - Changes in earnings estimates or recommendations by securities analysts; - Conditions or trends in the Internet services industry; - Changes in the market valuations of, and earnings and other announcements by, providers of Internet professional services; - Announcements by us or our competitors of technological innovations; - Additions or departures of our key personnel; and - Volume and timing of sales of our common stock. AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR OUR COMMON STOCK. There is no public market for our common stock. We are seeking to have our common stock included for quotation on the Nasdaq National Market. We cannot assure you that an active trading market in the common stock will develop or, if one develops, that it will be sustained. Until the time that the spin-off has been completed, our common stock is fully distributed and an orderly market develops, various conditions may adversely affect the trading price of our common stock. These conditions include, among others, investor perception about us and general economic and market conditions. ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD DETER OUR ACQUISITION BY A THIRD PARTY. Certain provisions of our Certificate of Incorporation and By-laws could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to our shareholders. For example, our Certificate of Incorporation eliminates the rights of shareholders to call a special meeting of shareholders or take action by written consent. In addition, our Certificate of Incorporation allows our Board of Directors to issue preferred stock without shareholder approval. Such issuances could make it more difficult for a third party to acquire us. As a New Jersey corporation, we are also subject to the New Jersey Shareholders Protection Act contained in Section 14A:10A-1. In general, Section 14A:10A-1 prohibits a publicly-held New Jersey corporation from engaging in a "business combination" with an "interested shareholder" for a period of five years following the date the person became an interested shareholder, unless, among other things: - the board of directors approved the transaction in which such shareholder became an interested shareholder prior to the date the interested shareholder attained such status; and - the business combination is approved by the affirmative vote of the holders of at least 66 2/3% of the corporation's voting stock not beneficially owned by the interested shareholder at a meeting called for such purpose. 18 24 A "business combination" generally includes a merger, sale of assets or stock, or other transaction resulting in a financial benefit to the interested shareholder. In general, an interested shareholder is a person who, together with affiliates and associates, owns, or within five years prior to the determination of interested shareholder status, did own, 10% or more of the corporation's voting stock. See "Description of Capital Stock -- Preferred Stock" and "-- Anti-Takeover Effects of Certain Certificate of Incorporation and By-law Provisions." ABSENCE OF DIVIDENDS. We have never paid, and do not anticipate paying any cash dividends on our common stock in the foreseeable future. 19 25 THE SPIN-OFF REASONS FOR THE SPIN-OFF. The spin-off will allow us to focus solely on our Internet professional services business which requires a sales and marketing effort that is distinct from Intelligroup's. In addition, we believe that we will be able to raise capital more easily and provide better incentives for our employees as a separate publicly-traded Internet services company. The spin-off should enable us and Intelligroup to conduct business with each other's competitors and to invest in or acquire complementary businesses that will potentially solidify our competitive position in the market for Internet professional services. The spin-off will also allow Intelligroup to focus on its core business relating to the implementation of enterprise resource planning software and as an application service provider. MANNER OF EFFECTING THE SPIN-OFF. The spin-off will be effected by a stock dividend paid to each holder of record of Intelligroup common stock. The spin-off ratio will be one share of our common stock for every one share of Intelligroup common stock outstanding on the spin-off record date. Intelligroup shareholders will not be required to pay for shares of our common stock received in the spin-off. Additionally, Intelligroup shareholders will not need to surrender or exchange Intelligroup common stock in order to receive shares of our common stock. All shares of our common stock received by Intelligroup shareholders in connection with the spin-off will be fully paid and non-assessable. Intelligroup shareholders do not have any appraisal rights in connection with the spin-off. On or about , 2000 and continuing through , 2000, Intelligroup common stock will trade on the Nasdaq National Market with due bills attached. The due bills will entitle a purchaser of Intelligroup common stock during this period to receive one share of our common stock for each one share purchased. Accordingly, a seller of Intelligroup common stock during the due bill period will have to deliver the certificate for our common stock to the buyer of Intelligroup common stock once he or she receives our certificate. Since the Nasdaq National Market is aware of the due bill period, no notification by a purchaser or seller is necessary when trading Intelligroup common stock. If the spin-off is not completed, all due bills attaching to Intelligroup common stock will become null and void. In order to be entitled to receive shares of our common stock in the spin-off, Intelligroup shareholders must be holders of record of Intelligroup common stock at 5:00 p.m. New York time on the spin-off effective date, which is expected to be , 2000. The dividend agent is American Stock Transfer & Trust Company. American Stock Transfer & Trust Company will commence mailing our common stock certificates on the spin-off effective date. RESULTS OF THE SPIN-OFF. Following the spin-off, we will be a separate, publicly-traded company. Immediately after the spin-off, based on the number of outstanding shares of Intelligroup common stock and the number of record holders on , 2000, we expect to have approximately 17 million shares of common stock outstanding, held by approximately 89 record holders. The actual number of shares of our common stock to be issued will be determined as of the spin-off effective date. Following the spin-off, Intelligroup will continue to own and operate its other business. The spin-off will not affect the number of outstanding shares of Intelligroup common stock or any rights of Intelligroup shareholders. TRADING OF OUR COMMON STOCK. We are seeking to have our common stock included for quotation on the Nasdaq National Market under the symbol "SERA." Prior to the spin-off, we do not expect any public trading market for our common stock to exist except that, beginning on , 2000, our common stock is expected to trade on a "when-issued" basis on the Nasdaq National Market for settlement when our common stock is issued on , 2000. The term 20 26 "when-issued" means trading in shares prior to the time certificates are actually available or issued. If the spin-off conditions are not satisfied and the stock dividend is not paid, all such "when-issued" trading will become null and void. If the spin-off conditions are satisfied and the stock dividend is paid on the spin-off effective date, it is expected that "regular way" trading in our common stock on the Nasdaq National Market will commence at 9:30 a.m. New York time on , 2000, subject to official notice of issuance. The shares of our common stock issued to Intelligroup shareholders will be freely transferable, except for shares received by persons who may be deemed to be our "affiliates" under the Securities Act. Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by, or are under common control with us and may include certain of our officers and directors. Persons who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act and Rule 144 under the Securities Act (with the exemption under Rule 144 not available until 90 days after the date of this information statement). For a discussion of certain uncertainties that should be considered when trading in our common stock, see "Risk Factors -- An Active Trading Market May Not Develop for Our Common Stock." AGREEMENTS BETWEEN SERANOVA AND INTELLIGROUP AND RELATIONSHIP AFTER THE SPIN-OFF. After the spin-off, SeraNova and Intelligroup will operate independently of each other as separate public companies. Neither SeraNova nor Intelligroup will have any beneficial stock ownership interest in the other. All employees of Intelligroup who join us will cease to be employees of Intelligroup. We entered into agreements with Intelligroup providing for the transfer of Intelligroup's Internet business to us prior to the spin-off. We also entered into agreements with Intelligroup that will define our responsibilities regarding the following: - Indemnification against certain liabilities, including liabilities for taxes; - Corporate transitional matters, including the transfer of assets and liabilities under employee benefit plans; - Space sharing and other administrative services; and - Allocation of taxes. These agreements were negotiated before the spin-off and thus were negotiated between affiliated parties. We believe that the terms of these agreements equitably reflect the benefits and costs of our ongoing relationship with Intelligroup. However, we cannot assure you that any of these agreements, or that any of the transactions provided for in these agreements, were effected on terms at least as favorable to us or to Intelligroup as could have been obtained from unaffiliated third parties. See "Relationship With Intelligroup" for a summary of such agreements, arrangements and transactions. Following the spin-off, additional or modified agreements, arrangements and transactions may be entered into by us and Intelligroup. Any such future agreements, arrangements and transactions will be determined through arm's-length negotiation between the parties. MATERIAL FEDERAL INCOME TAX CONSEQUENCES. Arthur Andersen LLP has issued an opinion to Intelligroup to the effect that, among other things, the spin-off should qualify as a tax-free spin-off to Intelligroup's shareholders and Intelligroup under Section 355 of the Internal Revenue Code. The following is a summary of the material federal income tax consequences to Intelligroup's shareholders and Intelligroup expected to result from the spin-off. - An Intelligroup shareholder should not recognize any taxable gain or loss as a result of the spin-off. 21 27 - An Intelligroup shareholder should apportion the tax basis for his Intelligroup stock on which our common stock is distributed between the Intelligroup stock and our common stock received in the spin-off in proportion to the relative fair market values of Intelligroup stock and our common stock on the date of the spin-off. - The holding period for our common stock received by an Intelligroup shareholder in the spin-off should include the period during which he or she held the Intelligroup stock on which our common stock is distributed, provided that the Intelligroup stock is held as a capital asset by such holder on the date of the spin-off. - Intelligroup should not recognize any gain or loss as a result of the spin-off. Current Treasury regulations require each Intelligroup shareholder who receives our common stock in the spin-off to attach to his or her federal income tax return for the year in which the spin-off occurs, a detailed statement setting forth such data as may be appropriate in order to show the applicability of Section 355 of the Internal Revenue Code to the spin-off. Intelligroup will provide the appropriate information to each shareholder of record as of the spin-off record date. The summary of federal income tax consequences set forth above is for general information only and may not be applicable to shareholders who receive their shares of our common stock through the exercise of employee stock options or otherwise as compensation or who are otherwise subject to special treatment under the Internal Revenue Code. All shareholders should consult their own tax advisors as to the particular tax consequences to them, including the applicability and effect of state, local and foreign tax laws. REASONS FOR FURNISHING THIS INFORMATION STATEMENT. This information statement is being furnished by Intelligroup solely to provide information to Intelligroup shareholders about, subject to the satisfaction of the spin-off conditions, the receipt of our common stock pursuant to the spin-off. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of our securities or those of Intelligroup. The information contained in this information statement is believed by us and Intelligroup to be accurate as of the date set forth on its front cover. Changes may occur after that date, and neither we nor Intelligroup will update the information except in the normal course of our respective public disclosure practices. 22 28 CAPITALIZATION The following table sets forth our capitalization as of December 31, 1999 on an actual and as adjusted basis. The as adjusted information reflects the spin-off as if the spin-off had occurred on December 31, 1999. Notes payable to parent represents $8.4 million payable to Intelligroup as of December 31, 1999. As of such date, our long-term debt was $618,000. You should read this table in conjunction with "Selected Historical Financial Data," our historical financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" which appear elsewhere in this information statement.
AS OF DECEMBER 31, 1999 (IN THOUSANDS) -------------------------- ACTUAL AS ADJUSTED ----------- ----------- Notes payable to parent..................................... $ 8,397 $ 8,397 ======= ======= Long-term debt.............................................. 618 618 ======= ======= Shareholder's equity Common stock: $0.01 par value 40,000,000 shares authorized: outstanding 15,949,000 as adjusted(1)..................... -- 159 Additional paid-in capital.................................. -- 7,091 Parent company investment(2)................................ 7,250 -- Accumulated comprehensive loss.............................. (2,280) (2,280) ------- ------- Total shareholder's equity............................. 4,970 4,970 ------- ------- Total capitalization................................... $13,985 $13,985 ======= =======
- --------------- (1) Excludes 3,236,092 SeraNova options and vested Intelligroup options as of December 31, 1999 which may be exercised prior to spin-off, the number of which will not be ascertainable until the spin-off. (See Note 10 of Notes to Combined Financial Statements.) Also excludes 809,388 shares issued by SeraNova in a private placement to four institutional investors in March 2000. (See Note 13 of Notes to Combined Financial Statements.) (2) At the time of the spin-off, the parent company investment will be converted to common stock and additional paid-in capital. 23 29 SELECTED HISTORICAL FINANCIAL DATA The selected historical financial data for all periods reflects the combined results of operations and financial condition of Intelligroup's Internet services business as if we had existed as a corporation separate from Intelligroup during the periods presented. The selected historical data includes the historical assets, liabilities, revenue and expenses directly related to our operations that were either specifically identified or in the case of certain selling, general and administrative expenses, allocated using methodologies which took into consideration the ratio of our revenue to the consolidated revenue of Intelligroup, headcount, occupancy or other appropriate factors. You should read the selected historical financial data together with our financial statements and the sections of this information statement entitled "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." We derived the selected financial data presented below from our combined financial statements described in this paragraph. Arthur Andersen LLP, independent public accountants, audited our combined financial statements as of December 31, 1999 and 1998 and for the year ended December 31, 1999, the nine months ended December 31, 1998 and the year ended March 31, 1998. Their report relating to such audits appears on page F-2 of this information statement. The historical financial data set forth below for the fiscal year ended March 31, 1997 are derived from the Company's audited combined financial statements not included in this information statement. The historical financial data set forth below for the fiscal year ended March 31, 1996 are derived from the Company's unaudited combined financial statements. In our opinion, these unaudited combined financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information. 24 30 SERANOVA, INC. AND AFFILIATES SELECTED HISTORICAL FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR FOR THE NINE ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, FOR THE YEARS ENDED MARCH 31, ------------ ------------ ----------------------------------- 1999(3) 1998(1) 1998 1997 1996 ------------ --------------- --------------- ------ ------ STATEMENT OF OPERATIONS DATA: Revenues............................. $39,795 $12,438 $8,995 $9,200 $9,347 Cost of sales........................ 22,475 7,315 4,797 4,949 4,664 ------- ------- ------ ------ ------ Gross profit......................... 17,320 5,123 4,198 4,251 4,683 ------- ------- ------ ------ ------ Selling, general and administrative expenses........................... 17,605 5,106 3,812 4,092 3,576 Depreciation and amortization........ 1,131 102 133 150 119 ------- ------- ------ ------ ------ Total operating expenses.... 18,736 5,208 3,945 4,242 3,695 ------- ------- ------ ------ ------ Operating income (loss).............. (1,416) (85) 253 9 988 Other income (expense), net.......... (80) (66) 13 (80) 13 ------- ------- ------ ------ ------ Income (loss) before income taxes.... (1,496) (151) 266 (71) 1,001 Provision (benefit) for income taxes.............................. (235) 401 519 172 470 ------- ------- ------ ------ ------ Net income (loss).................... $(1,261) $ (552) $ (253) $ (243) $ 531 ======= ======= ====== ====== ====== Unaudited pro forma net loss per common share -- basic and diluted(2)......................... $ (0.08) ======= Shares used in per share calculation of unaudited pro forma net loss -- basic and diluted(2)....... 15,949 ======= BALANCE SHEET DATA: (AT PERIOD END) Cash................................. $ 611 $ 677 $ 368 $ 635 $1,237 Working capital (deficit)............ (776) (424) 145 565 1,152 Total assets......................... 18,880 5,775 3,216 2,402 4,026 Long-term debt....................... 618 -- 219 521 523 Shareholder's equity................. 4,970 392 241 536 925
- --------------- (1) Effective April 1, 1998, the Company changed its fiscal year from March 31 to December 31. (2) See Note 2 to SeraNova's combined financial statements. (3) On January 8, 1999, Intelligroup, Inc. acquired the common stock of Network Publishing, Inc. in a purchase business combination. The results of operations of Network Publishing, Inc. have been included above since the date of acquisition. Pro forma results for the period January 1, 1999 to January 7, 1999 are not material to SeraNova's combined financial statements for the year ended December 31, 1999. 25 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our combined financial statements and the notes related to combined financial statements contained elsewhere in this information statement. This discussion contains forward-looking statements that involve risks and uncertainties. SeraNova's actual results could differ materially from those anticipated by such forward-looking information due to competitive factors and other factors discussed under "Risk Factors" and elsewhere in this information statement. OVERVIEW SeraNova provides professional services, primarily in the area of business-to-business interactions on the Internet. Business-to-business interactions include communications and commerce conducted between a company and its customers, suppliers and partners. We offer a comprehensive set of services, including strategy consulting, creative design, technology implementation and management of Internet applications for our customers. Our revenues are derived primarily from providing professional services to clients who are redefining their existing businesses on the Internet platform, or emerging start-up companies that have the potential to become leaders in their respective markets. We believe that to become competitive in this new medium, enterprises need to transform their business models and execution strategy. Accordingly, we take a consultative approach to our sales process. A team consisting of a salesperson, a relevant vertical industry expert and the appropriate solutions expert guides the prospective customer through the decision-making process. Strategy consulting, which includes business analysis and project definition, is typically performed at the client's site. A significant part of our creative design and technology implementation is provided from one of our delivery centers. Most of the services we provide are for clients within the United States. In addition to our domestic offices, we maintain a presence in multiple locations in the Asia-Pacific region, India and the United Kingdom. We generally bill our services based on the actual time spent providing services. For the year ended December 31, 1999, approximately 95% of our revenues were derived from such time and materials contracts and arrangements. Revenues related to time and materials contracts are typically recognized when the services are provided. Revenues with respect to fixed-price contracts are recognized in proportion to the costs incurred. In the year ended December 31, 1999, only one client accounted for more than 10% of our revenues. American Express accounted for approximately 28% of the total revenues for the year ended December 31, 1999. Six clients, including American Express, accounted for approximately 50% of total revenue for the year ended December 31, 1999. We anticipate that such client concentration will continue for the foreseeable future. To effectively address the market demand, and to remain competitive, our clients tend to pursue multiple Internet initiatives at the same time. By proactively developing a strong relationship with our key clients, we expect to benefit from such initiatives, but to the extent our significant clients use fewer of our services or terminate their relationship with us, our revenues could decline materially. This could result in a significant negative impact on our business and operations. Our results from quarter to quarter may vary based upon various factors such as changes in our pricing policies, variations in billing margins and personnel utilization rates, length of our sales cycle, our ability to recruit technical personnel, the acceptance of our new services offerings and fluctuation in foreign exchange rates. Our cost of sales represent the costs to provide our professional services and include compensation, benefits, consultant-training and expenses incurred by our personnel that are not billable to our clients. They do not include expenses relating to our sales and marketing efforts. Given the supply-constrained market, we anticipate that our cost per professional will increase in future quarters. Our typical client engagement lasts between three and six months, and any early termination or postponement of a large project or of several projects could significantly impact revenues in any given quarter and result in lower gross margins. Selling, general and administrative expenses include costs associated with a range of sales and sales support functions such as salaries, commissions and related expenses for our salesforce; salaries and bonuses of executives, marketing, information technology, human resources and other administrative personnel; marketing expenses, facilities costs, technology expenditures, professional services and fees and other general 26 32 corporate costs. Beginning in the fourth quarter of 1999, we made, and anticipate making, significant marketing investments to build a visible SeraNova brand among prospects and potential employees, and to reorganize our sales process. To that end, we have retained Mueller Shields, a leading sales and marketing strategy firm, based in Los Angeles. While some of these expenses may occur only one time, a significant portion of these expenses should continue to be part of our selling, general and administrative expenses, whether the services are provided by Mueller Shields or otherwise. More than 85% of Mueller Shields's fees will be paid on a time and materials basis. In addition, we anticipate developing Digital Vision Labs in New York City and San Francisco. The Digital Vision Labs will enable us to demonstrate our vision for the new or business-to-business paradigms on the Internet, and serve as a client-interaction facility. We expect selling, general and administrative expenses to increase in absolute dollars, and increase in the short term as a percentage of revenue, as we invest in new infrastructures and strategic initiatives and incur additional costs required to grow our business and operations. We expect to incur significant sales and marketing, infrastructure development and general and administrative expenses. As a result, we anticipate losses through at least the third quarter of 2000. In order to achieve profitability, we will need to control costs associated with building an infrastructure as well as increase our revenues. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. We cannot assure you that we will be able to contain costs, grow revenue or increase profitability. In November 1998, Intelligroup acquired Azimuth Consulting Limited, Azimuth Holdings Limited, Braithwaite Richmond Limited and Azimuth Corporation Limited (the "Azimuth Companies"), by exchanging 902,928 shares of Intelligroup common stock for all the common stock of the Azimuth Companies. The acquisition of the Azimuth Companies was accounted for as a pooling of interests. Accordingly, all prior period combined financial statements contain the financial results and financial position of Azimuth Companies. In January 1999, Intelligroup acquired Network Publishing, Inc., a Utah based Internet consulting firm, for a combination of cash paid up front and an additional consideration amount payable upon the achievement of certain operating results. In July 1999, Intelligroup and the owners of Network Publishing, Inc. agreed that this additional consideration was approximately $2.43 million, and would no longer be contingent on any operating performance. However, Intelligroup at its discretion, could pay the amount either in cash, or in its common stock. Intelligroup paid approximately $340,000 in cash and issued 99,558 shares in connection with such agreement on January 8, 2000. This acquisition has been accounted for using the purchase method. The excess of the purchase price over net tangible assets acquired has been allocated to intangible assets and goodwill and is being amortized over five years. The financial results of Network Publishing, Inc. have been included in the combined financial statements since the date of acquisition. The management and operations of the Azimuth Companies and Network Publishing, Inc. have now been integrated into SeraNova. SeraNova's U.S. Internet business commenced in mid 1997. Prior to such period, all operating results are those of the Azimuth Companies. Prior to September 1999, Intelligroup did not account for our business as a separate unit or division. In presenting our historical financial statements for all periods, we specifically identified all revenue, cost of sales, other income (expense) and certain selling, general and administrative expenses incurred by Intelligroup on our behalf. Other selling, general and administrative expenses were allocated using methodologies which took into consideration the ratio of our revenue to the consolidated revenue of Intelligroup, head count, occupancy and other factors. However, we cannot assure you that our historical financial information prior to December 31, 1999 necessarily reflects what the results of operations, financial position and cash flows would have been had we been a separate company, or is indicative of our future results of operations, financial positions and cash flows. 27 33 RESULTS OF OPERATIONS
FOR THE FOR THE NINE-MONTH FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1999 1998 1998 ------------ ------------ ---------- (IN THOUSANDS) Revenues............................................... $39,795 $12,438 $8,995 Cost of sales.......................................... 22,475 7,315 4,797 ------- ------- ------ Gross profit......................................... 17,320 5,123 4,198 Operating expenses: Selling, general and administrative expenses........... 17,605 5,106 3,812 Depreciation and amortization.......................... 1,131 102 133 ------- ------- ------ Total operating expenses.......................... 18,736 5,208 3,945 ------- ------- ------ Operating income (loss)........................... (1,416) (85) 253 Other income (expenses), net: Interest expense....................................... (82) (14) (10) Other income (expense), net............................ 2 (52) 23 ------- ------- ------ Total other income (expenses), net................ (80) (66) 13 ------- ------- ------ Income (loss) before income taxes...................... (1,496) (151) 266 Provision (benefit) for income taxes................... (235) 401 519 ------- ------- ------ Net loss............................................. $(1,261) $ (552) $ (253) ======= ======= ======
FOR THE FOR THE NINE-MONTH FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1999 1998 1998 ------------ ------------ ---------- As a Percentage of Revenues: Revenues............................................... 100.0% 100.0% 100.0% Cost of sales.......................................... 56.5 58.8 53.3 ----- ----- ----- Gross profit......................................... 43.5 41.2 46.7 Operating expenses: Selling, general and administrative expenses........... 44.2 41.1 42.4 Depreciation and amortization.......................... 2.9 0.8 1.5 ----- ----- ----- Total operating expenses.......................... 47.1 41.9 43.9 ----- ----- ----- Operating income (loss)........................... (3.6) (0.7) 2.8 Other income (expenses), net: Interest expense..................................... (0.2) (0.1) (0.1) Other income (expense)............................... 0.0 (0.4) 0.3 ----- ----- ----- Total other income (expenses), net................ (0.2) (0.5) 0.2 ----- ----- ----- Income (loss) before income taxes...................... (3.8) (1.2) 3.0 Provision (benefit) for income taxes................... (0.6) 3.2 5.8 ----- ----- ----- Net loss............................................. (3.2)% (4.4)% (2.8)% ===== ===== =====
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998 Revenues. Revenues increased by $27.4 million, to $39.8 million for the year ended December 31, 1999 compared with $12.4 million for the nine-month period ended December 31, 1998. This increase would equate to $23.3 million, or 141.2%, if the nine-month period were annualized. The increase in revenue is the result of an increase in the number of clients and an increase in the average size of engagements, as well as the acquisition of Network Publishing, Inc. on January 8, 1999. Network Publishing, Inc. accounted for approximately $5.9 million, or 14.8%, of total revenue for the year ended December 1999. U.S. based revenue, exclusive of Network Publishing, increased $15.5 million during the year ended December 31, 1999 to $21.5 28 34 million from $6.0 million for the nine-month period ended December 31, 1998. U.S. billing rates increased by 5.4% and the number of billable consultants increased from 153 to 249, or 62.8%, for the year ended December 31, 1999. The Azimuth Companies' revenue increased by $2.8 million, or 32.3% for the year 1999 as compared with an annualized 1998. This increase in sales is due to Azimuth's expansion into additional foreign markets. Gross profit. Gross profit represents revenues less cost of sales. Cost of sales consists primarily of salaries and associated employee benefits for personnel directly assigned to client projects and non-reimbursed direct expenses incurred to complete projects. For the year ended December 31, 1999, gross profit increased by $12.2 million to $17.3 million from $5.1 million in the nine months ended December 31, 1998. This increase would equate to a $10.5 million, or 153.6% for the year 1999 versus an annualized 1998. The primary reasons for this increase is the expansion of U.S. operations, the addition of Network Publishing, Inc. in January 1999, and an increase in profitability in the Azimuth Companies' operations. U.S. operations, exclusive of Network Publishing, increased by $4.8 million during the year ended December 31, 1999 compared to the nine-month period ended December 31, 1998 or $4.1 million (151.8%) compared to an annualized 1998. Network Publishing contributed $4.1 million of gross profit during the year 1999. The Azimuth Companies gross profit increased from $3.1 million during the nine months ended December 31, 1998 to $5.7 million for the year ended December 31, 1999. This is a 38.0% increase of 1999 over 1998 on an annualized basis. Gross profit as a percentage of total revenues increased by 2.3% to 43.5% for 1999 as compared to 41.2% for the nine months ended December 31, 1998. The gross profit percentage is primarily affected by two factors: the overall utilization of consulting personnel and average billing rates less consultant payroll rates. Employee utilization could be impacted by multiple factors including increases in recruiting, rapid growth or reduction of number or size of projects. Selling, general and administrative expenses. Selling, general and administrative expenses include sales and administrative salaries and related benefit costs, occupancy costs, professional fees, and other costs. These expenses increased $12.5 million, or 245.0%, to $17.6 million for the year ended December 31, 1999 from $5.1 million in the nine month period ended December 1998. This would equate to an increase of $10.8 million, or 158.8%, for the year 1999 over an annualized 1998. Selling, general and administrative expenses increased slightly as a percentage of total sales to 44.2% for the year ended December 31, 1999 compared to 41.1% for the nine months ended December 31, 1998. The primary reasons for the large increase in actual selling, general and administrative expenses during 1999 as compared with an annualized 1998 were: 1) costs associated with the acquisition of Network Publishing, Inc., 2) the continued investment in the expansion of U.S. operations, 3) an emphasis on marketing and development of SeraNova during 1999 and 4) costs associated with the spin-off of SeraNova. Depreciation and amortization. Depreciation and amortization increased $1.0 million, or 1008.8%, to $1.1 million for the year ended December 31, 1999 from $102,000 in the nine months ended December 31, 1998. This would equate to an increase of $995,000, or 731.6% based on an annualization of 1998. The primary reasons for the significant increase in depreciation and amortization during 1999 are the acquisition of Network Publishing and the expansion of U.S. based operations. Amortization of goodwill and intangible assets related to the acquisition were $569,000 for 1999 plus depreciation of $279,000 from Network Publishing operations. Depreciation related to U.S. operations increased by $165,000 during 1999 as compared to the nine months ended December 31, 1998. Other income (expense), net. Other income (expense), net decreased $14,000, or 21.2%, to a net expense of $80,000 for the year ended December 31, 1999 as compared to a net expense of $66,000 for the nine months ended December 31, 1998. The decrease is primarily the result of additional interest expenses of $77,000 in 1999 from Network Publishing operations. Provision for income taxes. Income tax expense represents combined federal, state and foreign taxes. Our income tax benefit is $235,000 on pretax losses of $1.5 million for the year ended December 31, 1999 compared to a tax provision of $401,000 on pretax loss of $151,000 for the comparable period in 1998. The effective tax rate for the year ended 1999 was (15.7)% as compared with 265.5% for the nine months ended December 31, 1998. The low effective tax rate benefit for 1999 was due to income taxes incurred in certain 29 35 foreign countries which were not able to be offset against domestic operations. The high effective tax rate for 1998 was due to income taxes incurred by the Azimuth Companies that were not able to be offset against losses in other foreign jurisdictions. Our India operation, which commenced in the fourth quarter of 1999, has a tax holiday for ten years, thus no income taxes have been provided on their earnings. NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED MARCH 31, 1998 Revenues. Revenues increased $3.4 million, or 38.3%, to $12.4 million for the nine-month period ended December 31, 1998 from $9.0 million for the twelve-month period ending March 31, 1998. This increase would equate to an increase of $7.5 million, or 84.4%, if the nine-month period was annualized. This increase is due primarily to the rapid expansion of U.S. operations from start up in the last calendar quarter of 1997. U.S. revenues increased by $3.9 million to $6.0 million for the nine-month period ended December 31, 1998 compared to $2.1 million for the twelve-month period ended March 31, 1998. Revenues from foreign operations were relatively equal for the nine-month period ended December 31, 1998 and the twelve month period ended March 31, 1998 at $6.4 million and $6.9 million, respectively. Annualization of the nine-month period ended December 31, 1998 would equate to an increase of 23.2% over the twelve-month period ended March 31, 1998. Revenue increases were the result of growth in both the size and number of client projects. Gross profit. Gross profit increased $924,000, or 22.0%, to $5.1 million over the nine-month period ending December 31, 1998 from $4.2 million for the twelve month period ended March 31, 1998. Annualization of the nine-month period would equate to an increase of $2.6 million, or 62.7% over the twelve-month period ended March 31, 1998. These increases are primarily attributable to rapid expansion of U.S. operations during 1998. Gross profit from U.S. operations increased $1.3 million for the nine-month period ending December 31, 1998 compared with the twelve-month period ended March 31, 1998. Gross profit as a percentage of total revenues decreased to 41.2% for the nine-month period ended December 31, 1998 from 46.7% for the twelve-month period ended March 31, 1998. The decrease in gross margin percentage is primarily due to lower utilization rates attained during expansion of the U.S. operations and, therefore, higher costs as compared with the established foreign operations. Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.3 million, or 34.0%, to $5.1 million in the nine-month period ended December 31, 1998 from $3.8 million for the twelve-month period ended March 31, 1998. This increase would equate to an increase of $3.0 million, or 78.6%, if the nine-month period were annualized. Selling, general and administrative expenses decreased as a percentage of total revenue to 41.1% for the nine-month period ended December 31, 1998 from 42.4% for the twelve-month period ended March 31, 1998. The increase in actual dollars is primarily due to the additional investment in U.S. operations and a one-time charge of $659,000 incurred in the nine months ended December 31, 1998. This one time charge is for legal and accounting fees associated with the sale of the Azimuth Companies to Intelligroup, Inc. Depreciation and amortization. Depreciation and amortization decreased $31,000, or 23.6%, to $102,000 in the nine-month period ended December 31, 1998 from $133,000 in the twelve-month period ended March 31, 1998. If the nine-month period were annualized, depreciation and amortization would increase $3,000, or 1.9% to approximately $136,000. This increase in depreciation and amortization expense over the twelve-month period was due to an increase in depreciation on the increased asset base in the U.S. somewhat offset by a reduction in depreciation expense on foreign operations. The decrease in foreign depreciation expense is primarily due to a smaller asset base. Other income (expense), net. Other income (expense) decreased $79,000, or 597.8%, to a net expense of $66,000 in the nine-month period ended December 31, 1998 from a net income of $13,000 in the twelve-month period ended March 31, 1998. If the nine-month period were annualized to twelve months, the decrease would be approximately $101,000. The decrease is principally due to losses incurred on currency fluctuations relating to foreign operations during the nine-month period ended December 31, 1998 compared with gains on currency fluctuations during the comparative twelve-month period ended March 31, 1998. Provision for income taxes. Income tax expense represents combined federal, state and foreign taxes. Our income tax provision was $401,000 on pretax losses of $151,000 for the nine-month period ended 30 36 December 31, 1998 compared with $519,000 on pretax profits of $266,000 for the twelve-month period ended March 31, 1998. The high effective income tax rates in these periods were due to income taxes incurred by the Azimuth Companies in certain foreign countries that were not able to be offset against losses in New Zealand. SELECTED QUARTERLY RESULTS OF OPERATIONS The following table presents certain condensed unaudited quarterly financial information for each of the eight most recent quarters in the period ended December 31, 1999. This information is derived from our unaudited financial statements that include, in our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results of operations for such periods. This table should be read in conjunction with the audited Combined Financial Statements and Notes thereto beginning on page F-1 of this information statement.
QUARTER ENDED --------------------------------------------------------------------------------------- DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, 1999 1999 1999 1999 1998 1998 1998 1998 -------- --------- -------- -------- -------- --------- -------- -------- (IN THOUSANDS) Revenues........................ $12,722 $10,471 $8,614 $7,988 $4,811 $4,169 $3,525 $2,873 Cost of sales................... 6,869 6,091 4,866 4,649 2,898 2,534 1,924 1,604 ------- ------- ------ ------ ------ ------ ------ ------ Gross profit.................. 5,853 4,380 3,748 3,339 1,913 1,635 1,601 1,269 Operating expenses: Selling, general and administrative expenses..... 7,808 3,698 3,373 2,726 2,327 1,525 1,250 1,178 Depreciation and amortization................ 501 350 145 135 75 2 45 29 ------- ------- ------ ------ ------ ------ ------ ------ Total operating expenses...... 8,309 4,048 3,518 2,861 2,402 1,527 1,295 1,207 ------- ------- ------ ------ ------ ------ ------ ------ Operating income (loss)....... (2,456) 332 230 478 (489) 108 306 62 Other (expenses) income, net.... (43) (5) (13) (19) (156) 106 (12) 43 ------- ------- ------ ------ ------ ------ ------ ------ Income (loss) before income taxes......................... (2,499) 327 217 459 (645) 214 294 105 Provision (benefit) for income taxes......................... (684) 205 65 179 (69) 420 67 181 ------- ------- ------ ------ ------ ------ ------ ------ Net income (loss)............... $(1,815) $ 122 $ 152 $ 280 $ (576) $ (206) $ 227 $ (76) ======= ======= ====== ====== ====== ====== ====== ======
QUARTER ENDED --------------------------------------------------------------------------------------- DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, 1999 1999 1999 1999 1998 1998 1998 1998 -------- --------- -------- -------- -------- --------- -------- -------- As a Percentage of Revenues: Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales................... 54.0 58.2 56.5 58.2 60.2 60.8 54.6 55.8 ------- ------- ------ ------ ------ ------ ------ ------ Gross profit.................. 46.0 41.8 43.5 41.8 39.8 39.2 45.4 44.2 Operating expenses: Selling, general and administrative expenses..... 61.4 35.3 39.2 34.1 48.3 36.6 35.5 41.0 Depreciation and amortization................ 3.9 3.3 1.7 1.7 1.6 0.1 1.2 1.0 ------- ------- ------ ------ ------ ------ ------ ------ Total operating expenses...... 65.3 38.6 40.9 35.8 49.9 36.7 36.7 42.0 ------- ------- ------ ------ ------ ------ ------ ------ Operating income (loss)....... (19.3) 3.2 2.6 6.0 (10.1) 2.5 8.7 2.2 Other (expenses) income, net.... (0.3) (0.1) (0.2) (0.2) (3.3) 2.5 (0.3) 1.5 ------- ------- ------ ------ ------ ------ ------ ------ Income (loss) before income taxes......................... (19.6) 3.1 2.4 5.8 (13.4) 5.0 8.4 3.7 Provision (benefit) for income taxes......................... (5.4) 2.0 0.8 2.2 1.4 10.1 2.0 6.3 ------- ------- ------ ------ ------ ------ ------ ------ Net income (loss)............... (14.2)% 1.1% 1.6% 3.6% (12.0)% (5.1)% 6.4% (2.6)% ======= ======= ====== ====== ====== ====== ====== ======
LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements are to fund working capital needs and capital expenditures in order to support revenue growth. Historically, SeraNova's business has operated as a division or subsidiary of 31 37 Intelligroup. As a result, Intelligroup has managed most of our cash, capital resources and cash management functions. We have not independently maintained or managed any cash or independently sought external sources of financing. Following the proposed spin-off, we intend to maintain a separate and independent cash management system, as well as seek separate financing. See "Relationship with Intelligroup." For the year ended December 31, 1999, net cash used in operating activities totaled $6.1 million. Cash was provided by $1.1 million from depreciation and amortization, $410,000 from accrued payroll and related costs increase and $288,000 from an increase in accounts payable. This was offset by a $3.8 million increase in accounts receivable, a $2.7 million increase in unbilled services and a net loss from operations of $1.3 million. The increase in accounts receivable and unbilled services was primarily due to the increased operations within the U.S. and the acquisition of Network Publishing, Inc. In the nine months ended December 31, 1998, net cash used in operating activities was $466,000. The principal uses of funds were the net loss of $552,000, an increase in accounts receivable of $1.1 million, an increase in unbilled services of $648,000 and an increase of $174,000 in other current assets. This was offset by an increase in accounts payable of $250,000 and increases in accrued expenses of $1.4 million. We had capital expenditures for the year ended December 31, 1999 and the nine months ended December 31, 1998 of $2.2 million and $603,000, respectively, for computers, furniture, equipment and leasehold improvements. Capital expenditures are expected to continue to be significant for the first six months of 2000. On January 8, 1999, Intelligroup acquired all of the shares of outstanding capital stock of Network Publishing, Inc. The acquisition was accounted for utilizing the purchase method of accounting. The purchase price included an initial cash payment in the aggregate of $1.8 million together with a cash payment of $200,000 to be held in escrow and acquisition costs of $165,000 and resulted in costs in excess of fair value of net tangible assets acquired of $1.6 million. In addition, the purchase price also included an earnout payment of up to $2.2 million in restricted shares of Intelligroup and up to $354,000 in cash. In July, 1999, Intelligroup and the former shareholders of Network Publishing, Inc. agreed to amend the agreements to eliminate the earnout and fix the additional consideration amount to $2.4 million payable at the option of Intelligroup in common stock or cash. As of December 31, 1999, SeraNova recorded this transaction as an addition to goodwill. On January 8, 2000, Intelligroup made a cash payment of $340,000 with the balance paid in Intelligroup common stock to satisfy the obligation. The foregoing cash flows are not necessarily indicative of the cash flows that would have resulted if we were a separate entity. Notes Payable to Parent represents a calculation of net borrowings from the Parent. Although no formal note existed, SeraNova has agreed to repay such amounts. On January 1, 2000, such borrowings were converted to amounts repayable by SeraNova to a bank under a revolving credit facility agreement of Intelligroup, Inc. Effective January 1, 2000, SeraNova became a co-borrower under Intelligroup's revolving credit agreement with a bank. The amount available under the revolving credit facility is up to $15,000,000 in the aggregate with a sublimit of up to $10,000,000 available to SeraNova. Intelligroup and SeraNova are jointly and severally liable under the agreement. In the event Intelligroup requests and the bank approves a change in control of the ownership of SeraNova as contemplated by the spin-off, all SeraNova's obligations due under the agreement become due and payable. As of December 31, 1999, the aggregate outstanding advances against the revolving credit facility were $10.6 million. SeraNova's portion of the outstanding balance as of December 31, 1999, was $8.4. All amounts due to the bank from SeraNova's portion will be paid prior to the spin-off and upon receipt of payment by the bank, the bank will release SeraNova from all obligations under the credit facility. Originally, on January 29, 1999, Intelligroup entered into a three-year revolving credit facility agreement (the "Credit Agreement") with a bank. The Credit Agreement with the bank was comprised of a revolving line of credit pursuant to which Intelligroup may borrow up to $30,000,000 either at the bank's prime rate per annum or the EuroRate plus 2% (at the Parent's option). The Credit Agreement contained certain covenants which, among other things, required Intelligroup to (i) maintain a minimum Consolidated Cash Flow 32 38 Leverage Ratio, (ii) maintain a minimum Consolidated Net Worth, and (iii) maintain a minimum Fixed Charge Coverage Ratio, all as defined in the Credit Agreement. At Intelligroup's option, for each loan, interest shall be computed either at the bank's prime rate per annum or the Adjusted Libor Rate plus the Applicable Margin, as defined. As a result of the restructuring and other special charges incurred during the quarter ended June 30, 1999, Intelligroup was not in compliance with the Consolidated Cash Flow Leverage Ratio and Consolidated Net Worth financial covenants at June 30, 1999. On August 12, 1999, the bank notified Intelligroup that such non-compliance constituted an Event of Default under the Credit Agreement. At September 30, 1999, while Intelligroup was in compliance with the Consolidated Net Worth financial covenant, it was not in compliance with the Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio financial covenants. On January 26, 2000, Intelligroup finalized with the bank the terms of a waiver and amendment to the Credit Agreement to remedy defaults which existed under the Credit Agreement. The terms of the waiver and amendment include, among other things, (i) a $15,000,000 reduction in availability under the Credit Agreement, (ii) a first priority perfected security interest on all assets of Intelligroup and its domestic subsidiaries and (iii) modification of certain financial covenants and a waiver of prior covenant defaults. On March 14, 2000, we entered into a purchase agreement with four institutional investors pursuant to which such investors purchased an aggregate of 50 shares of our common stock at a price per share of $200,000, for an aggregate purchase price of $10,000,000. Additionally, we may, at our option, sell an additional 25 shares of our common stock for an additional $5,000,000 to another investor. We intend to use such proceeds for working capital and general corporate purposes, including the repayment of approximately $8.4 million of debt to the bank. We are currently negotiating an asset-based credit facilities with domestic and foreign commercial banks which are expected to be completed within the near future. We believe that the net proceeds from the sale of common stock and from the asset-based credit facilities will be sufficient to fund capital requirements for the next year. We believe that the planned financing arrangements, will be sufficient to satisfy our current and planned operations. There can be no assurance that we will be able to consummate the additional financing that we require on terms acceptable to us, if at all. YEAR 2000 COMPLIANCE We did not experience any significant computer or systems problems relating to the Year 2000. Upon review of our internal and external systems during 1999, we determined that we did not have any material exposure to such computer problems and that the software and systems required to operate our business and provide our services were Year 2000 compliant. As a result, we did not incur, and do not expect to incur, any material expenditures relating to Year 2000 systems issues. 33 39 BUSINESS OVERVIEW SeraNova provides professional services, primarily in the area of business-to-business interactions on the Internet. Business-to-business interactions include communications and commerce conducted between a company and its customers, suppliers and partners. We offer a comprehensive set of services, including strategy consulting, creative design, technology implementation and management of Internet applications. We create value for our clients by rapidly developing and deploying Internet applications that enable strategic business-to-business interactions. We emphasize an integrated service model and leverage our proprietary methodology, SeraNova's Time-to-Market Approach to deliver our services. We believe that our services allow our clients to gain a competitive advantage by enabling them to penetrate existing markets, enter new markets, create new business opportunities, reduce operational costs, improve customer service, shorten product development cycles and enhance employee and organizational efficiency. We believe we have gained considerable experience and market presence from completing multiple engagements for Global 1000 companies and Internet start-ups such as American Express, Audi of America, EMI Music Publishing, Hewlett-Packard, Liquidprice.com, Medical Internet Solutions, Novell and Volkswagen Corporation of America. INDUSTRY BACKGROUND Growth of Business-to-Business Electronic Commerce The Internet is one of the fastest growing means of communication, reaching consumers and businesses globally. Companies are increasingly using the Internet to improve their core business processes, lower operating costs and acquire new competencies. Many companies have identified new offerings to extend and complement their existing products and services. Some companies have adopted the Internet as the primary platform to conduct business. International Data Corporation estimates that business-to-business transactions on the Internet will reach $1.14 trillion by 2003. Market for Strategic Internet Services We believe that the Internet represents a revolutionary and powerful vehicle through which businesses and entire industries will conduct day-to-day operations. Rapidly changing markets, constantly evolving customer and supplier relationships, emergence of new technologies, geographically dispersed operations and demands for increased efficiencies are forcing companies to re-evaluate their business models. As a result, many senior executives rank their Internet strategy among their highest corporate priorities. While companies can realize tremendous value by utilizing the Internet, the analysis, design and implementation of an effective Internet solution requires a range of expertise and skills that few businesses possess. To develop successful and scalable Internet solutions, companies need business strategists, Internet technology experts, creative designers and application development capabilities. Given the increasing pressure to bring products and offerings to market quickly, training in-house employees to learn the requisite skills is impractical. In addition, hiring and maintaining a full-service staff of trained professionals can be inefficient and costly. Accordingly, many companies have chosen to outsource some or all of their Internet services requirements to outside specialists with strategic consulting, creative and technical expertise. These outsourcing needs have generated a dramatic demand for Internet professional services, which International Data Corporation estimates will grow from $7 billion in 1998 to $78.5 billion in 2003. Challenges in Selecting the Right Internet Solutions Provider Increased demand for Internet professional services has attracted many firms to this market. SeraNova believes that many of these firms lack an integrated set of offerings. For example, many traditional information technology service providers do not have the creative skills required to create captivating web-based content and provide a favorable user-experience. Advertising and marketing firms typically lack the technical expertise 34 40 and integration skills necessary to deliver the increasingly complex solutions demanded by customers; and strategic consulting firms lack Internet technology expertise, marketing perspective and implementation capabilities required to offer comprehensive solutions. In addition, many of these firms lack sufficient knowledge of their clients' industries and business processes and have limited experience in delivering complex applications that enable business-to-business interactions. Furthermore, companies realize that their Internet strategy is constantly evolving, and often they are forced to pursue several initiatives simultaneously. Therefore, program management, or the ability to manage multiple projects and ensure an execution that is coherent with a company's business goals, is critical to success. We believe that companies seeking to effectively capitalize on the Internet require and seek one firm that has a comprehensive suite of service offerings, such as strategy consulting, creative design, technology implementation and Internet application management services to achieve a seamless delivery and management of Internet solutions. Furthermore, to be able to execute a rapid application deployment, the service provider must leverage an integrated methodology. We believe many professional service providers do not provide the full range of services; most providers lack the necessary focus and technological expertise to build applications required for sophisticated business-to-business interactions. THE SERANOVA SOLUTION Our services include strategy consulting, creative design, technology implementation and management of Internet applications. We believe we have the necessary assets to build strategic Internet solutions that enable our clients to achieve competitive advantages. These key assets include: - 80 strategy consultants with strong expertise in business-to-business interactions and knowledge in specific industry markets; - Information planning and program management experience; - Full spectrum of business-to-business interaction solutions, such as customer interaction to electronic procurement and channel management; - Intimate knowledge of widely-used enterprise software applications and technologies; - Interactive designers and creative professionals; - SeraNova's Time-to-Market Approach, a proprietary methodology that emphasizes constant innovation and targets a rapid execution; and - Application management capabilities. Enterprise Information Portal as a Framework for Business-to-Business Interactions. An enterprise information portal is a framework to build scalable Internet applications for business-to-business interactions. Typically, enterprises utilize multiple information systems to address a variety of business processes such as human resources activities, customer relationship management, financial accounting, procurement and manufacturing. The information systems that manage these core business processes are often built with disparate technologies, old and new applications and a variety of information databases. Enterprises today are faced with certain fundamental challenges. First, they must seamlessly integrate applications, databases and information systems that reside within the enterprises. Second, the information systems and business processes then need to be integrated with the information systems of their customers, suppliers and business partners. Furthermore, as markets and technologies evolve, enterprises must be able to cost-efficiently transition into new information systems without disrupting the strategic business processes. We have developed the enterprise information portal, which provides a structured approach to new application development, seamless integration and transition. The enterprise's customers, suppliers, partners and employees can access the information, and use the desired applications through customizable browser-based interfaces. While we do not sell the enterprise information portal as a product, it is a critical leverage for the professional services we provide. It enables us to effectively strategize for a specific business-to-business interaction, design a scalable solution and reduce our time to develop the required Internet application. 35 41 SeraNova Time-to-Market Approach We use our SeraNova Time-to-Market Approach, our proprietary methodology, to deliver professional services. The service model divides each client engagement into five well-defined phases -- eStrategy, discover, plan, implement and optimize, which provide our consultants with a consistent, yet flexible approach. Our methodology identifies and prioritizes initiatives, rapidly delivers them to market, captures valuable market experience and feedback and immediately applies the feedback to refine the solution. Often, we execute multiple initiatives within the same client project to effectively adapt to ever changing market conditions. We believe this process results in a solution that provides measurable competitive advantage to our clients. Our approach allow us to identify, capture, and re-use valuable Internet frameworks that we develop in client projects. We also offer flexible application maintenance and content management services that maximize the return on investment to our clients. Global Delivery Model Internet professional service providers are constantly seeking to shorten application development time and to recruit professionals to deliver such services. SeraNova has built a network of global delivery centers spanning multiple time zones, enabling us to engage in concurrent development and have a virtual 24-hour work day on client projects. The development centers provide us with extensive resources that can be quickly deployed on any specific project on a global basis. We currently have delivery centers in four strategic locations in the US -- (Edison, New Jersey; Phoenix, Arizona; Provo, Utah; Foster City, California); a state-of-the-art Internet development center in Hyderabad, India; and a development center in Wellington, New Zealand. BUSINESS STRATEGY We seek to be the leading provider of professional services focused on business-to-business interactions on the Internet. To that end, we are pursuing the following strategies: - BUILD OUR BRAND. We plan to establish and build recognition of the SeraNova name through an aggressive marketing strategy, which will emphasize our service offerings targeted to rapidly enable business-to-business interactions. In addition, we intend to sponsor seminars and host roundtable discussions that will highlight our leadership in conceiving innovative solution frameworks such as the enterprise information portal. We are building digital vision labs, where we can demonstrate innovative solutions to prospective clients and industry leaders for their specific markets. Currently we are in the process of leasing physical spaces in New York City, San Francisco and London to build these digital vision labs. - ATTRACT AND RETAIN OUTSTANDING PROFESSIONALS. Our business depends upon the experience and dedication of our professionals. As an integral part of our services offerings, we offer our intellectual experience to clients. Our future growth and our ability to provide a comprehensive range of innovative Internet professional services are dependent on our ability to attract and retain highly skilled and experienced professionals. We are committed to training and developing our professionals to meet the challenges of the fast-paced environment in which we perform. We attract business and technical professionals who are driven by a desire to work on strategic and technically innovative projects. We plan to retain and motivate our employees through competitive compensation packages, stock option grants, and a culture that rewards teamwork and customer-orientation. We place great emphasis on training our employees and provide numerous career and personal improvement programs within SeraNova. We reward employees based on merit. - INTEGRATED FOCUS -- INDUSTRY MARKETS AND BUSINESS-TO-BUSINESS INTERACTIONS. We are investing to build superior practice groups along specific industry markets and business-to-business interactions. We continue to enhance our capabilities in five target industry markets -- financial services, telecommunications, automotive, technology and healthcare. Our business-to-business interaction offerings are organized around suppliers, partners, employees and customers. For example, our electronic procurement offering focuses on building strategy and Internet solutions to facilitate the transaction and 36 42 communication between companies and their suppliers. The interactive customer offering allows us to develop solutions targeted at a company's customers. We believe an integrated approach, where we combine business-to-business interaction expertise with industry specific knowledge allows our consultants to quickly conceive effective solutions and deliver rapid return on investment to clients. - STRENGTHEN OUR CLIENT RELATIONSHIPS. We believe in becoming partners in our clients' success. The online market is in a continuous state of flux. In such an environment, our long lasting relationships with our clients become critical in developing sustainable competitive advantages. By working closely with our clients to define and enhance their Internet strategies, we believe we can help our clients address challenges and seize opportunities more effectively. To further strengthen the relationships with our key clients, we continue to assemble a superior portfolio of client-driven services offerings. We believe such a focus results in client-satisfaction, follow-on engagements with existing clients and referrals for engagements with new clients. Financially, this strategy results in increased revenue and reduced sales costs. - WIDEN OUR GLOBAL PRESENCE. We have established a worldwide organization to support our global customers. Consequently, over the next two years we intend to enhance our presence within the United States and certain global markets, driven by the demands of our existing clients, new customers and strategic acquisitions. Currently, in addition to the US, we offer services in Europe, Australia, New Zealand, Thailand, India and Philippines. These markets present us with significant new business opportunities. - A COMPREHENSIVE SET OF OFFERINGS. We believe our portfolio of service offerings is one of the most comprehensive in the Internet professional services market. We start our client engagements with strategy consulting, then define project requirements, design and build Internet applications and finally provide application management services after deployment. By offering a portfolio of integrated services, we reduce the development time and maximize the impact, quality, consistency and cost- effectiveness of the Internet solution for our clients. Our end-to-end integrated offerings also allow us to increase the potential size of the opportunity within our client base. We believe SeraNova is one of the very few Internet professional service providers with a comprehensive application management offering. This offering allows us to continue our engagement beyond the implementation phase. Our application management offering becomes the gatekeeper to other opportunities within an existing client. We have been awarded multiple projects that resulted from our continued involvement in the application management phase. - REFINE AND ENHANCE SERANOVA TIME-TO-MARKET APPROACH AND SOLUTIONS FRAMEWORKS. We believe a structured approach to our services allows us to shorten our implementation time, lower our costs and consistently deliver high-quality products. In all of our projects, we use our Time-to-Market Approach, our proprietary methodology that enables our team to formulate strategy, design, implement in a rapid time-frame and manage the application after deployment. We continue to refine these processes resulting in further acceleration of the delivery of our services. In addition, we have developed the enterprise information portal solution frameworks based upon strategic business-to-business activities. We capture the firm-wide expertise and knowledge on specific business-to-business interactions into repeatable and integrated processes, resulting in faster and more efficient delivery. We continue to evaluate, identify, test and incorporate new technologies into these solution frameworks. We believe that continuous enhancement of our methodology and solution frameworks is critical to maintaining a competitive advantage in the Internet professional service provider market. OUR SERVICES Our services offerings can be grouped into three areas: strategy consulting, business-to-business interaction solutions and application management. These offerings have been assembled to deliver complete integrated solutions and they represent our view of how successful Internet strategies and solutions are deployed. 37 43 Strategy Consulting Changing market places and competitive pressures are forcing companies to pursue multiple Internet initiatives at the same time. Often they pursue these initiatives in an isolated and uncoordinated manner, ignoring the opportunity to integrate them with a broader corporate strategy. Our strategy consultants work with clients to first help define their competitive positioning and then tailor a strategy that is designed to provide them measurable competitive advantage. We leverage our industry experience and business-to-business interaction knowledge to formulate executable Internet strategies that are closely tied to the client's overall business objectives and operations. Business-to-Business Interaction Solutions Our solution professionals utilize the strategic plan and recommendations from our strategy consultants and develop robust technology-based solutions that are aimed at enabling one or more business-to-business interactions. These offerings are focused on four primary enterprise stakeholders: suppliers, partners, employees and customers. - INTERACTIVE CUSTOMER SOLUTIONS. We believe that the Internet offers our clients an opportunity to reach customers on a global basis and to target specific services and products based on their customers' needs. Online solutions significantly reduce the acquisition cost of new customers. We implement solutions that enable clients to engage in personalized interactions with their customers and prospects over the Internet. These solutions allow our clients to develop enduring relationships with their customers, practice one-to-one marketing, segment customers based on their profitability and rapidly grow their online customer base by attracting and serving prospects with the right information. - ELECTRONIC PROCUREMENT SOLUTIONS. The Internet has created an opportunity to re-engineer procurement processes within the online world. We have created new Internet-enabled procurement processes for organizations and implemented solutions that automate their online procurement cycle. These electronic procurement solutions deliver significant direct cost-savings to our clients as well as indirect savings resulting from the streamlining of procurement processes, which have a direct impact on the length of the production cycles. - EMPLOYEE ENABLEMENT SOLUTIONS. At SeraNova, we have gained significant experience in designing and implementing Intranet-based solutions that provide employees with the right information needed to effectively perform their job. - CHANNEL MANAGEMENT SOLUTIONS. Our clients interact with multiple business partners like dealers, resellers, distributors and OEMs. While the Internet can serve as a cost-effective channel for selling products and services within certain industries, it can often result in channel conflicts. For example, automotive manufacturers selling vehicles directly over the Internet can create a conflict with their dealer network. Through careful planning and execution, it is possible to resolve these conflicts and have the Internet and traditional channels co-exist and often complement each other. We build solutions that expand, integrate and manage multiple channels. Application Management As the complexity and the scope of business-to-business interactions grow, the underlying content of these applications must be updated and their functionalities must be expanded. Application management is an integral part of our end-to-end offering. Following the deployment of an Internet solution, we provide a comprehensive application management service that addresses content management, upgrade of applications, additional development, management of information systems and transition onto new technology platforms. This reduces security risks and provides reliability that are critical to conduct strategic business-to-business activities. We perform these functions from our delivery centers in Phoenix, Arizona; Provo, Utah and Hyderabad, India. Our application management offering has been received very well with customers and approximately 30% of our new projects include an application management component. 38 44 Our clients can choose to have our application management team work at their locations or at one of our support facilities or provide 24-by-7 maintenance and support by leveraging our Internet Development Center located in Hyderabad, India. Most clients choose a combination of the above options to achieve the right set of services and cost savings. We typically do not host applications for our clients, unless requested to do so. SeraNova can perform the required application management services regardless of where the customers' Internet applications are hosted. OUR APPROACH AND SOLUTIONS FRAMEWORKS The markets are transforming fast, and often a company's ability to bring its product and services to the market defines its success. SeraNova provides professional services that enable strategic business-to-business interactions on the Internet and help our clients stay ahead of their competition. In delivering our professional services, we use our proprietary methodology, our Time-to-Market approach. Our consultants apply specific solution frameworks to rapidly develop an Internet solution for a particular business-to-business activity. SeraNova Time-to-Market Approach As our clients' partners in success, we seek to effectively strategize, design and rapidly deploy Internet solutions. Our proprietary methodology, SeraNova's Time-to-Market approach consists of five phases: eStrategy, discover, plan, implement and optimize. - eSTRATEGY. In this phase we identify enterprise business objectives; assess opportunities and risks; analyze market and competition; build the business case; assess impact across the enterprise and suggest required transformation. Our strategists help companies define metrics for success, evaluate existing infrastructures and recommend a framework for technology architecture. This strategy development often identifies multiple projects that can be executed simultaneously across the organization. Each of these projects then goes through the four distinct phases: discover, plan, implement and optimize. One of the key components of eStrategy is the program management function that allows our team to manage multiple projects. 39 45 [MARKET APPROACH CHART] - DISCOVER. In this phase we clearly define the requirements and scope for a specific project. Based on our client's objectives, our professionals help our clients choose the appropriate solution framework and relevant technologies. - PLAN. During this phase the project team creates an initial layout and subsequent roadmap to deploy the Internet solution. The project team carefully plans development objectives and testing plans. - IMPLEMENT. In the fourth phase, activities center on building and deploying Internet solutions through incremental releases. Our project teams perform rigorous testing on each release to ensure proper function and reliability. - OPTIMIZE. The optimize phase coincides with the application management offering. Some of the activities we engage in during our optimize phase are: return on investment analysis, application support, content management, maintenance and performance review. Business-to-Business Interaction Solution Frameworks A solution framework is a set of guidelines that incorporates best practices and implementation templates for a specific business-to-business activity such as procurement or customer-interaction. By incorporating our experience in developing interactive and integrated Internet solutions for our clients, these solution frameworks allow us to bring our cumulative expertise to client engagements, allowing us to leverage our knowledge for the benefit of our clients. This results in faster and more efficient solution implementations. At SeraNova, we have developed the enterprise information portal which is incorporated in of our solution frameworks. This provides a structured approach to conceive and develop Internet solutions, provide seamless integration with clients' existing information systems and transition to new technology platforms. Every constituent of the enterprise -- customers, suppliers, partners and employees can access the information, and use the desired applications through customizable browser-based interfaces. There are four key components within enterprise information portals: user profiles, personalization, interactions and integration. 40 46 We continue to invest in building reusable component templates within our solution frameworks. These solution frameworks incorporate best practices for both planning as well as implementation. They enable our project team to compress the strategy, design and deployment cycle. CASE STUDIES The following case studies illustrate the challenges faced by some of our customers and the solutions we have provided: VOLKSWAGEN OF AMERICA: NEW PRODUCT LAUNCH Volkswagen of America, Inc. markets a full line of Volkswagen and Audi vehicles manufactured at company plants in Germany and Mexico. In the fall of 1997, Volkswagen of America sought to expand its Internet presence in preparation for the launch of its new Beetle in January 1998. Volkswagen saw the Internet as the perfect new medium to redefine its brand identity, to transform its customer acquisition process and to generate new and sustainable demand. Our automotive practice began working with Volkswagen's Interactive Marketing group to reposition Volkswagen's brand and communication identity. Following a market assessment of Volkswagen's target audience and positioning strategy, our team executed extensive functional re-design of its website including building comparitors to compare different models, an online commerce platform and an innovative configurator for the new Beetle model. These applications were integrated with Volkswagen's internal business processes such as product planning and inventory management. We believe our solutions enabled Volkswagen to achieve a significant online milestone. Both the number of visits to Volkswagen site and the time spent per visit have doubled (almost 24,000 visits a day) since the launch of new site. As a result of the success in launching the Beetle, Volkswagen engaged us to continue enhancing its Internet presence. At present, we are working on multiple electronic commerce initiatives with Volkswagen, including an on-line buying system that is completely integrated with sales and distributions systems of the company and its dealers. EMI MUSIC PUBLISHING: INTERACTIVE E-COMMERCE EMI Music Publishing controls the rights to a very large and diverse song catalog. With approximately one million songs in copyright holdings, EMI Music is the largest music publisher in the world. EMI licenses songs to advertising agencies, film companies, multimedia firms and other businesses for use in television commercials, computer games, movies, corporate presentations and many other projects that require music. EMI sought to leverage the power of the Internet to create a completely different customer experience. In close collaboration with EMI's Creative Services and New Media group, our team began by determining an Internet strategy that would create a completely different interactive experience for EMI's customers and enable commerce via the web. Once the strategy was conceived, our team started building the website -- www.emimusicpub.com for music professionals to interact with EMI Publishing. We designed a business center where registered professional users could access EMI's catalog using a unique search engine, that allowed them to not only search by traditional categories such as label, artist, year etc., but also search by "concepts". Today, we are assisting EMI to proactively market to new customer segments through emimusicpub.com. SeraNova and EMI continue to bring new innovation to emimusicpub.com. We are currently building a new generation environment to enable a customer-licensing process over the web. LIQUIDPRICE.COM: ONLINE MARKET PLACE CONNECTING BUYERS, MERCHANTS AND MANUFACTURERS In July 1999, LiquidPrice.com sought to re-define the business of shopping for new products. The portal would not only fill a growing need for the buyers -- "hassle-free shopping at the best price", but would significantly expand the presence of traditional merchants and add tremendous efficiency to manufacturers' 41 47 channel management. Buyers can choose their target purchase items from an extensive catalog of products; merchants and manufacturers bid for buyers' business. LiquidPrice.com was on a critical path to launch the site in the United States by the 1999 Christmas holiday season. Engaged by LiquidPrice.com in August 1999, our team moved quickly to outline the positioning and created a strategic roadmap to take them from "idea" to "launch". A four-week strategy session yielded a complete set of functional requirements. In the following six weeks, a team of technical architects, creative designers and application developers built and launched the first version of the site. While a mid-November launch achieved the first milestone on time, it was essential for LiquidPrice.com to constantly stay ahead of competition. The Company has already engaged SeraNova to conceive and build a second generation site with complete business-to-business integration among partner merchants, manufacturers and distribution agents. SIGNIFICANT CLIENTS We have provided professional services to a variety of clients worldwide in a range of industries, including financial services, telecommunications, automotive, technology and healthcare. In addition, we work with a number of Internet start-up companies. Following is a representative list of our clients in fiscal year 1999: Financial Services Telecommunication and Automotive Utilities American Express Bell Atlantic Volkswagen of America ASB Bank US Cellular Audi of America American Investment Bank Philippines Long Distance Subaru of America New Zealand Telecom CLEAR Communications Pacific Gas & Electric Technology Internet Healthcare Hewlett Packard LiquidPrice.com Medical Internet Solutions 3 COM UTAH.COM EMI Novell
SALES AND MARKETING Our sales process is strategic, targeted and comprehensive. Once an opportunity is identified, a sales manager, accompanied by the appropriate industry-market specialist and a business-to-business interaction solutions expert, present a market analysis and business scenario to the client team. We believe a consultative sales process yields more value for our clients and allows us to penetrate deep into the client's organization. Our marketing efforts include communicating with existing customers and developing relationships with new customers through referrals, requests for proposals, responses to customer-initiated contacts and contacts initiated by us with desired customers. A critical focus for us is to build a visible identity among our customers, prospects, employees and investors. To that end, we have retained Mueller Shields, a leading sales and marketing consulting firm to enable us achieve these goals. In addition, they are helping extensively in generating qualified leads and closing sales. We are seeking to expand the size and enhance the quality of our sales force. By hiring additional highly qualified sales personnel, we intend to increase direct sales, build market awareness, establish name recognition and promote our reputation as a high-quality, full-service Internet solutions provider. In addition, we intend to continue to leverage Intelligroup's relationships to generate sales leads for us. 42 48 The length of the sales cycle varies depending on the type of service and size of customer, typically ranging from approximately one to three months. Our direct sales representatives typically have several years of sales experience in the Internet services industry. PEOPLE AND CULTURE As of December 31, 1999, we employed 537 client-team professionals worldwide. They included strategy consultants, creative designers, technical architects and application development specialists. At December 1998, we had 212 client-team professionals. At December 31, 1999, our non-client staff included approximately 33 in sales, 45 in services support and 25 in administrative and management functions. None of our employees is represented by a labor union. Substantially all of our employees have executed non-competition agreements. We recognize that our employees are key to our future success. This future success is based on (1) an effective recruiting program that attracts intelligent, creative and entrepreneurial individuals, (2) a strong and coherent corporate culture, (3) an effective career management program and (4) equity-ownership for all employees. Substantially all of our employees the participate in employee stock option program. RECRUITING We have dedicated significant resources to our recruiting efforts and manage it like a sales function. From time to time, we use certain recruiting consultants to assist our staff recruiters. Our recruiting drive is targeted at four levels: executive, industry experts, technical and creative. We have designed specific career development programs for strategy consultants, technical experts and creative professionals within our company. We aggressively train and provide numerous career and personal improvement programs within SeraNova. ADMINISTRATIVE AND SUPPORT SERVICES While SeraNova has its own independent support staff for critical functions such as sales, marketing and recruiting, we anticipate in the short term Intelligroup will provide a range of support services. For further details, please see Inter-company Service Agreements discussed elsewhere in this information statement. COMPETITION We compete in rapidly changing markets that are intensely competitive and highly fragmented. We compete, directly and indirectly, with a variety of national and regional companies, such as - Internet professional service providers, including Sapient, Scient, Viant, Proxicom, iXL and Razorfish. - Large systems integrators and consulting firms such as Andersen Consulting and the consulting units of "Big Five" accounting firms. - General management consulting firms, such as McKinsey & Co., Bain & Company and Boston Consulting Group. We believe that the principal competitive factors in the market for Internet services include technical expertise, breadth of services offerings, reputation, financial stability and price. To be competitive, we must respond promptly and effectively to the challenges of technological change, evolving standards and our competitors' innovations by continuing to enhance our services offerings and expand our sales channels. Any pricing pressure, reduced margins or loss of market share resulting from our failure to compete effectively could materially affect our business. Many of our current and potential competitors have longer operating histories and substantially greater financial, marketing, technical and other resources than do we. As a result, our competitors may be able to adapt more quickly to changes in customer needs or to devote greater resources to the provisioning of Internet solutions services. Such competitors may attempt to build their presence in our markets by forming strategic alliances with other competitors or our customers, offering new or improved products and services to our 43 49 customers or increasing their efforts to gain and retain market share through competitive pricing. In addition, competition for quality technical personnel has continued to intensify, resulting in increased personnel costs. Such competition has adversely affected, and is likely to continue to adversely affect, our gross profits, margins and results of operations. Furthermore, we believe the barriers to entry into our markets are relatively low, which enable new competitors to offer competing services. See "Risk Factors -- There Is Intense Competition in the Internet Services Market." We believe that we compete successfully by providing comprehensive solutions for our customers. We deliver creative, innovative, end-to-end Internet services to help our customers expand their businesses and maintain their competitive advantage through Internet-driven opportunities. We also believe that we distinguish ourselves on the basis of our strategic thinking, technical expertise, competitive pricing, our 24x7 global delivery model and our ability to understand our customers' needs. FACILITIES SeraNova leases various office facilities under operating leases expiring at various dates through December 31, 2005 (See Notes to the Financial Statements). Also, we are currently permitted to occupy and use various office space pursuant to the terms of a space sharing agreement with Intelligroup. Our principal executive offices are located in Edison, New Jersey. Our headquarters includes sufficient space for certain of our sales and technical staffs and our marketing, administrative, finance and management personnel. We maintain offices in the following locations:
UNITED STATES EUROPE ASIA PACIFIC - ---------------------- -------------- ------------ Edison, New Jersey United Kingdom Australia Foster City, New Zealand California Phoenix, Arizona Philippines Rosemont, Illinois Thailand Auburn Hills, Michigan India Provo, Utah Fayetteville, Georgia
We believe that our existing facilities are adequate to meet our current needs and that suitable additional or alternative space will be available in the future on reasonable terms as needed. INTELLECTUAL PROPERTY RIGHTS We do not have and do not rely on registered trademarks or patents to protect our proprietary information. Instead, we rely primarily on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions. We have developed specific processes, methodologies and tools underlying the SeraNova's Time-to-Market Approach. We can not guarantee that steps we have taken to protect our proprietary rights will be adequate to prevent misappropriation of our intellectual property. LEGAL PROCEEDINGS There are currently no material legal proceedings pending to which we are a party or to which any of our property is subject. 44 50 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.
NAME AGE POSITION(S) - ---- --- ----------- 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
All directors hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. All of our executive officers are elected annually by the board of directors and serve at the discretion of the board of directors and until their successors are elected and qualified. Rajkumar Koneru has been the Chief Executive Officer of SeraNova since its formation in September 1999. Mr. Koneru joined our parent company, Intelligroup, in 1994 when his company Oxford Systems merged with Intelligroup. He has served as the Chief Executive Officer of Intelligroup from November 1997 to April 1998, and from May 1999 to January 2000. Mr. Koneru led the reorganization of Intelligroup resulting in two separate businesses -- ASP Plus and SeraNova. Mr. Koneru has led SeraNova's strategic direction and growth over the last three years. He also serves as the Chairman of the Board of Directors of IndiaInfo.com Private Limited and Visual Interactive, Inc. Mr. Koneru graduated from the Birla Institute of Technology and Science with a Masters degree in Management Studies. Ravi Singh has served as our Chief Financial Officer since September 1999. Mr. Singh has eighteen years of investment banking and senior management experience, including eleven years in investment banking, focused on technology and emerging growth companies. Before joining SeraNova, from July 1998 to September 1999, Mr. Singh was a Managing Director and Head of Technology Investment Banking at Punk Ziegel & Company in New York. From 1996 to 1998, before joining Punk Ziegel, Mr. Singh was Managing Director of Forbes & Walker Inc., a New York and Toronto based private equity investment firm. Prior to that, Mr. Singh was a General Partner and Managing Director of SG Cowen in New York. Before joining SG Cowen, Mr. Singh was a Manager in Coopers & Lybrand's New York practice. Mr. Singh is a member of the Board of Directors at SeraNova. He also serves on the Board of Directors for each of Mangosoft Corporation in Westborough, MA, and Bacon Felt Company in Taunton, MA. Mr. Singh received his MBA from Columbia University. Rajan Nair has served as the Chief Operating Officer of SeraNova since December 1999. Since joining Intelligroup in February 1997, Mr. Nair has been instrumental in building the sales force and delivery team for Intelligroup's Internet Services unit. From January 1999 to December 1999 he was the Vice President of Intelligroup's Internet Services unit. In December 1999 Mr. Nair was appointed as the Chief Operating Officer of SeraNova. Prior to that, from August 1995 to February 1997, he was a Principal with Computer Sciences Corporation's national SAP practice. From February 1994 to August 1995, Mr. Nair was a Senior Consultant with Deloitte and Touche. Mr. Nair received his bachelor's degree from Bombay University in India. 45 51 Nagarjun Valluripalli serves as Secretary and Treasurer of SeraNova, and a member of its Board of Directors. Mr. Valluripalli joined Intelligroup in 1994 when his company Oxford Systems merged with Intelligroup and currently serves as Chairman and Co-Chief Executive Officer for Intelligroup. Prior to founding Intelligroup, Mr. Valluripalli was a regional sales manager for Satya Electronics. He received a Masters in Technology from Birla Institute of Technology and Science in 1990. Tom Bernetich joined SeraNova as a Senior Vice President in November 1999. Mr. Bernetich is responsible for SeraNova's North American sales efforts. Prior to that, from April 1998 to October 1999, Mr. Bernetich was a Vice-President at Bluestone Software, where he led the company's software sales effort. From August 1994 to April 1998, Mr. Bernetich was a director at Bluestone Consulting, where he was responsible for multiple functions including sales, recruiting and operations. Mr. Bernetich received a BA in Accounting with a minor in Computer Science from Lynchburg College in May 1983. Richard Bevis has served as the Vice President of Marketing at SeraNova since September 1999. Mr. Bevis served as the Director of Marketing for Intelligroup from February 1999 to September 1999. Prior to that, Mr. Bevis served in various capacities at multiple technology companies. He was Vice President of Marketing at Planetworks from 1997 to 1999. From 1990 to 1994, Mr. Bevis managed the Consulting Partners Program at Novell and was a Group Marketing Manager at Unix System Laboratories. From 1979 to 1990, Mr. Bevis held several marketing management positions at AT&T Information Systems. Mr. Bevis has a B.Sc. degree in Physics and Math from the University of Liverpool and an MBA in Information Systems from Pace University. Tarun Chandra is the Vice President of Corporate Strategy at SeraNova. Prior to joining SeraNova in October 1999, Mr. Chandra spent eight years on Wall Street. Most recently, from 1997 to 1999 he was a Partner and Senior Analyst with Punk, Ziegel & Company, a technology and healthcare investment banking boutique in New York, where he covered IT services and Internet companies. Mr. Chandra has an MBA in Finance from the University of Detroit, and an M.S. in information systems from Pace University. Donald Moore is a Senior Vice President at SeraNova and is responsible for its international operations, including Asia-Pacific and Europe. Mr. Moore joined Intelligroup with the acquisition of Azimuth Consulting in November 1998. From October 1995 to November 1998 he served as the Managing Director of Azimuth Consulting. From April 1992 to September 1995, Mr. Moore was the General Manager of Azimuth Consulting, New Zealand. Prior to that he held several sales and senior management positions at Wang Computers and other professional services companies. Ashok Roy has been the Vice President of Business Development at SeraNova since September 1999. Mr. Roy is responsible for the Company's business development with respect to Internet-based companies and acquisitions. Mr. Roy joined Intelligroup in December 1997 to lead the company's mergers and acquisition efforts. Prior to joining Intelligroup, Mr. Roy was an investment banker at Broadview Associates. He received his Masters in Business Administration from the Wharton School and a Bachelor of Technology degree from the Indian Institute of Technology. The board of directors has a compensation committee, which approves salaries and incentive compensation for our executive officers and administers our stock plan. The compensation committee currently consists of Messrs. Koneru and Singh. Upon the election of three independent directors, we expect that our compensation committee will consist of Mr. Koneru and one or more of the independent directors. The board of directors also has an audit committee, which reviews the results and scope of the audit and other services provided by our independent accountants. The audit committee currently consists of the entire board. Upon the election of three independent directors, we expect that our audit committee will consist of at least three independent directors. DIRECTORS' COMPENSATION Currently, we do not provide our directors with cash compensation for their services as members of our board of directors. However, we anticipate that we will compensate each non-employee member of the Board with cash compensation and stock option grants upon his or her election to the Board of Directors. In 46 52 December 1999, we granted Mr. Nagarjun Valluripalli options to purchase 300,000 shares of SeraNova's common stock at an exercise price of $6.51 per share. EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation paid by Intelligroup for services in all capacities awarded to, earned by or paid to our chief executive officer and each of our other executive officers whose aggregate compensation exceeded $100,000 during the year ended December 31, 1999 or would have exceeded $100,000 had they served the entire year (collectively, the "Named Executives"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------- ---------------- NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS STOCK OPTIONS(1) - ------------------------------ ---- -------- ------- ---------------- 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
- --------------- (1) The number of shares covered by this option grant was established based upon the assumption that the spin-off will be effected in a manner whereby each holder of an outstanding share of Intelligroup common stock will receive one share of SeraNova common stock as a result of the spin-off. If the spin-off occurs at a ratio other than one-to-one as herein described, then the number of shares purchasable by the Named Executive pursuant to such option shall be proportionately adjusted. OPTION GRANTS IN 1999 The following table sets forth information concerning individual grants of stock options made during year ended December 31, 1999 to each of the Named Executives. OPTION GRANTS IN LAST FISCAL YEAR
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% - ---- ------- ------------ -------- ---------- ---------- ---------- Rajkumar Koneru............. 777,938 24.0% $2.52 9/15/09 $1,232,887 $3,124,379 Ravi Singh.................. 466,763 14.4% $2.52 9/15/09 $ 739,732 $1,874,628 Rajan Nair.................. 466,763 14.4% $2.52 10/1/09 $ 739,732 $1,874,628
- --------------- (1) All options were granted outside of the 1999 Stock Plan as described herein. The number of shares covered by such options, was established based upon the assumption that the spin-off will be effected in a manner whereby each holder of an outstanding share of Intelligroup Inc. common stock will receive one share of SeraNova common stock as a result of the spin-off. If the spin-off occurs at a ratio other than one-to-one as herein described, then the number of shares purchasable by the Named Executive shall be proportionately adjusted. 47 53 (2) Based on 3,236,092 shares reserved for issuance upon the exercise of options granted to employees during 1999. (3) The exercise price equals the fair market value of the common stock as of the grant date as determined by the board of directors. (4) The potential realizable value is calculated based upon the term of the option at the time of grant (10 years). Assumed stock price appreciation of 5% and 10% is based on the fair value at the time of grant. 1999 YEAR-END OPTION VALUES
NUMBER OF OPTIONS AT VALUE OF IN-THE-MONEY FISCAL YEAR-END OPTIONS(1) --------------------- ---------------------- NAME VESTED UNVESTED VESTED UNVESTED - ---- ------- --------- ------- ----------- Rajkumar Koneru..................................... -- 777,938 $-- $3,103,973 Ravi Singh.......................................... -- 466,763 -- 1,862,384 Rajan Nair.......................................... -- 466,763 -- 1,862,384
- --------------- (1) Based on a year-end fair market value of the underlying securities equal to $6.51 per share less the exercise price per share for such shares. The year-end fair market value of the common stock was determined in good faith by the Board of Directors of SeraNova. 1999 STOCK PLAN The 1999 Stock Plan was adopted by the board of directors, approved by Intelligroup, as our sole shareholder, and became effective on December 1, 1999. The 1999 Stock Plan shall remain in effect until terminated by the board of directors. As of December 31, 1999, a total of 5,000,000 shares of common stock were reserved for issuance upon the exercise of options or the grant of restricted stock awards or stock awards under the 1999 Stock Plan. However, the total number of shares reserved for issuance under the 1999 Stock Plan may be automatically increased in the event such number of shares represents less than 20% of the outstanding shares of our common stock on December 31 of any future year. Those eligible to receive stock option grants, restricted stock awards and stock awards under the 1999 Stock Plan include employees, non-employee directors and consultants. The 1999 Stock Plan is administered by the compensation committee of our board of directors. Subject to the provisions of the 1999 Stock Plan, the administrator of the 1999 Stock Plan has the discretion to determine the optionees and/or grantees, the type of options or awards to be granted, the vesting provisions, the terms of the grants and other related provisions as are consistent with the 1999 Stock Plan. The exercise price of an incentive stock option may not be less than the fair market value per share of the our common stock on the date of grant or, in the case of an optionee who beneficially owns 10% or more of the voting power of all classes of our capital stock, not less than 110% of the fair market value per share on the date of grant. The exercise price of a non-qualified stock option may not be less than 85% of the fair market value per share of our common stock on the date of grant. Prior to the spin-off, the fair market value is determined by the board of directors in good faith. We anticipate that following the spin-off, the fair market value shall be determined in accordance with the closing sales price of our common stock as quoted on the Nasdaq National Market. In addition, the 1999 Stock Plan allows for the grant of restricted stock awards and stock awards subject to the restrictions and conditions as the administrator may determine at the time of grant. The term of each stock option granted under the 1999 Stock Plan shall be stated in the applicable option agreement, provided, however, in the case of incentive stock options, the term shall be no more than ten years from the date of grant, subject to earlier termination upon or after a fixed period following the optionee's death, disability or termination of employment with us. The term of any options granted to a holder of more than 10% of our capital stock may be no longer than five years. Options granted under the 1999 Stock Plan to our employees will vest in the manner determined by our board of directors. Typically, options are not assignable or otherwise transferable except by will or as per the laws of descent and distribution. The 48 54 administrator, however, may in its discretion provide that certain options may be transferred to one or more transferees provided certain conditions are satisfied. In the event of a merger or consolidation of us with or into another corporation or the sale of all or substantially all of our assets in which the successor corporation does not assume outstanding options or issue equivalent options, our board of directors is required to provide accelerated vesting of outstanding options. As of the date of this information statement, there were options to purchase 1,667,575 shares of common stock at a weighted average exercise price per share of $6.51 outstanding under this plan. The number of shares reserved under the 1999 Stock Plan was established based upon the assumption that the spin-off will be effected in a manner whereby each holder of an outstanding share of Intelligroup common stock will receive one share of SeraNova common stock as a result of the spin-off. If the spin-off occurs at a ratio other than one-to-one as herein described, then the number of shares purchasable by employees shall be proportionately adjusted. In addition, there were 3,236,092 options outstanding outside the plan. These options include the grants to the Named Executives described above. The weighted average exercise price of these options is $3.19 per share. In case the spin-off occurs at a ratio other than one-to-one as herein described, then the number of shares purchasable by these options shall be proportionately adjusted. EMPLOYMENT AGREEMENTS We have entered into employment agreements with each of our executive officers. The Company has an employment agreement with Rajkumar Koneru, our President, Chief Executive Officer and Chairman of the Board, which expires September 9, 2002. Such employment agreement automatically renews for additional successive one-year terms unless otherwise terminated by either party upon 60 days written notice prior to the expiration of the term then in effect. The annual salary provided under this agreement is $350,000 together with an annual bonus of not less than $150,000 per year. In the event of termination without cause, the agreement provides for Mr. Koneru to receive his annual base salary for the full term of such agreement, as well as continued coverage under all of our benefit plans, programs and policies to the extent required by law. Additionally, the agreement provided for the grant of options to purchase 777,938 shares of our common stock at $2.52 per share which was equal to the fair market value per share of our common stock as of the grant date as determined by the board of directors. One third of such options vest on March 15, 2000 and the remaining options vest in equal monthly amounts over a 30 month period thereafter. Additionally, Mr. Koneru has agreed that during the term of his agreement and for one year thereafter, he will not interfere with our customer relationships or solicit our executives or affiliates. The Company has an employment agreement with Ravi Singh, our Chief Financial Officer, which expires September 9, 2002. Such employment agreement automatically renews for additional successive one-year terms unless otherwise terminated by either party upon 90 days written notice prior to the term then in effect. The annual salary provided under this contract is approximately $250,000 together with an annual bonus of not less than $100,000 per year. In the event of termination without cause, the agreement provides for a severance payment equal to one year of salary, bonus, benefit payments and coverage. Additionally, the agreement provided for the granting of options to purchase 466,763 shares of our common stock at $2.52 per share which was equal to the fair market value per share of our common stock as of the grant date as determined by the board of directors. One third of such options vest on March 15, 2000, and the remaining options vest in equal monthly amounts over a 30 month period thereafter. Mr. Singh has agreed that during the term of this agreement and, in the event his employment is terminated for cause, permanent incapacity or by Mr. Singh without good reason, then for a period of one year thereafter, he will not compete with us. Mr. Singh has also agreed that during the term of his agreement and for one year thereafter, he will not interfere with our customer relationships. The agreement also provides that Mr. Singh maintain the confidentiality of information about us and our business. Additionally, Mr. Singh has agreed to assign and transfer to us all his title and right to inventions and works in our business. The Company has an employment agreement with Rajan Nair, our Chief Operating Officer. The annual salary provided under this agreement is $250,000. Either party may terminate the agreement without cause 49 55 upon 30 days written notice. In the event of termination without cause, the agreement provides for severance payment equal to six months salary. The agreement provides that Mr. Nair maintain the confidentiality of our information and our business. Mr. Nair has also agreed to assign and transfer to us all of his title and right to inventions and works in our business. Additionally, during the term of the agreement and for one year thereafter, Mr. Nair has agreed not to solicit or accept similar business from our customers or prospective customers, interfere with our customer relationships or solicit our executives and individual contractors. In addition to the foregoing agreements, we have executed agreements with each of our employees, whereby each employee agrees to maintain the confidentiality of our information and to assign inventions to us. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the year ended December 31, 1999, the compensation of our executive officers was determined by the compensation committee. The compensation committee was established by the board of directors on September 10, 1999. The compensation committee consists of Messrs. Koneru and Singh. Upon the election of three independent directors, we expect that our compensation committee will consist of Mr. Koneru and one or more of the independent directors. Mr. Koneru also serves on the compensation committee of the Intelligroup board of directors which, among other things, determines the compensation of Mr. Valluripalli, a member of our board of directors. See "Management -- Employment Agreements" and "Certain Transactions." INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Certificate of Incorporation and By-laws provide that we are authorized to indemnify our directors and officers to the fullest extent authorized under New Jersey law. We intend to enter into indemnification agreements with each of our directors and officers providing for indemnification of such directors and officers to the fullest extent permitted by applicable law. 50 56 RELATIONSHIP WITH INTELLIGROUP CONTRACTUAL ARRANGEMENTS We have entered into a number of agreements with Intelligroup which became effective January 1, 2000. We believe that the terms of these agreements equitably reflect the benefits and costs of our ongoing relationship with Intelligroup. However, as a result of Intelligroup's ownership interest in SeraNova, the terms of such agreements were not, and the terms of any future amendments to those agreements will not be, the result of arm's-length negotiations. Contribution Agreement The assets and liabilities of Intelligroup's Internet services business was transferred by Intelligroup and certain of its subsidiaries to SeraNova on January 1, 2000. The transfer may be subject to certain post-closing adjustments. SeraNova and Intelligroup have agreed to execute and deliver such further assignments, documents of transfer, deeds and instruments as may be necessary for the more effective implementation of such transfers. Some post-closing assignments and transfers may require consent by third parties and various filings, approvals or recordings with governmental entities. Some permits or licenses may require reapplication by us, and the reissuance in our name. If consent to the assignment or reissuance of any contract, license or permit being transferred is not obtained, SeraNova and Intelligroup will seek to develop alternative approaches so that, to the maximum extent possible, we will receive the benefits of the contract, license or permit and will discharge the duties and bear the costs and risks under the contract, license or permit. We will bear the risk that the alternative arrangements will not provide us with the full benefits of the contract, license or permit. We and Intelligroup, however, believe that all necessary consents and reissuances that are material to us will be obtained. Services Agreement Prior to Intelligroup's transfer of its Internet services business to us on January 1, 2000, Intelligroup's administrative personnel provided support services for our business. We have entered into a services agreement with Intelligroup under which Intelligroup will continue to provide to us certain general and administrative functions. We believe that our services agreement with Intelligroup minimizes the possibility of disruption of such functions for the foreseeable future. The initial term of the services agreement is for a period of one year beginning on January 1, 2000. The services agreement shall automatically renew for additional consecutive one-year periods unless either party gives notice of its intent not to renew at least 60 days prior to the end of the then expiring term. The services agreement can be terminated by either party upon 30 days written notice. General and Administrative Services and Expenses. Under the terms of the services agreement, we have agreed with Intelligroup: (1) to share certain general and administrative expenses; and (2) for Intelligroup to provide us with other general and administrative services in exchange for a fixed fee. The general and administrative expenses that we have agreed to share with Intelligroup include payroll costs for shared employees, utilities costs, equipment expenses, taxes and office supplies. The services that Intelligroup has agreed to provide to us for a fee are: - Administrative services, including reception services, 401(k) plan maintenance and travel administration; - Tax services, including preparation and filing of corporate tax returns, assistance with tax compliance and accounting for taxes, and supervision of audits and other proceedings and litigation; - Human resources services, including advice and assistance relating to employee benefits, facilitation of government/regulatory reporting and assistance with compliance issues; and 51 57 - Management information systems services, including operational and technical support for telephones and voice mail. Our Cost of Fee-Based Services. Our cost for administrative services provided by Intelligroup is approximately $30,000 per month. Reasons for the Agreement. We believe that the most cost-efficient and least disruptive way to obtain the administrative support services we require is for Intelligroup to continue to provide such services to us on a fee basis as described above rather than based on the actual hours spent by Intelligroup personnel providing such services. It would be difficult, if not impossible, to determine the portion of time spent by Intelligroup's employees on functions pertaining only to our business or only to Intelligroup's business. For example, the provision of technical support services for internal operating systems, inputting and processing data, recruiting of personnel, administration of employee benefit plans that pertain to both companies and government reporting would be difficult to allocate. Direct Expenses. Except for the services provided on our behalf by Intelligroup pursuant to the services agreement and the other agreements described below, we are responsible for providing or otherwise obtaining all of the necessary administrative, management and support services required to conduct our business, all of which were previously provided or obtained by Intelligroup. The direct expenses include executive compensation, personnel salaries and benefits for our employees. Space Sharing Agreement We have entered into a space sharing agreement with Intelligroup providing for the sharing by Intelligroup and us of Intelligroup's office facilities, including the office facilities located in Edison, New Jersey at which our and Intelligroup's principal executive offices are located. We and Intelligroup believe that it is beneficial for us to continue to be located within Intelligroup's corporate headquarters and branch office facilities due to economies of scale. Under the space sharing agreement, the costs associated with the leasing and maintaining facilities are, in general, allocated between Intelligroup and us on the basis of actual use of floor space. Tax Sharing Agreement We have entered into a tax sharing agreement with Intelligroup that governs the allocation between us of federal, state, local and foreign tax liabilities and related tax matters, such as the preparation and filing of tax returns and the conduct of audits and other tax proceedings, for taxable periods before and after the spin-off. In general, the tax sharing agreement provides for, among other things, that: - each of Intelligroup and SeraNova shall be responsible for their respective tax liabilities and receive their respective tax benefits relating to the taxable periods prior to the spin-off as allocated by the agreement; - Intelligroup will be responsible for, and will indemnify us against, its tax liabilities for taxable periods ending prior to the date of the spin-off; and - we will be responsible for, and will indemnify Intelligroup and its subsidiaries against, our tax liabilities for taxable periods beginning on or after the date of the spin-off. In addition, Intelligroup will be liable for, and will indemnify us against, all tax liabilities incurred by us as a result of any event, action, or failure to act, wholly or partially within the control of Intelligroup or any of its subsidiaries, including any event, action or failure to act that results in a breach of any representation made to the Internal Revenue Service, or any other event related to the acquisition of Intelligroup stock, resulting in taxes imposed on us with respect to any action taken pursuant to the spin-off or any related transaction. We will be liable for, and will indemnify Intelligroup and its subsidiaries against, all tax liabilities incurred by Intelligroup or any of its subsidiaries as a result of any event, action, or failure to act wholly or partially within our control, including any event, action or failure to act that results in a breach of any representation made to 52 58 the Internal Revenue Service, or any other event related to the acquisition of our stock, resulting in taxes imposed on Intelligroup or any of its subsidiaries with respect to any action taken pursuant to the spin-off or any related transaction. POTENTIAL CONFLICTS WITH INTELLIGROUP As a result of our relationship with Intelligroup, conflicts may develop between Intelligroup and us and such conflicts may not be resolved in our favor. For some examples of potential conflicts, see "Risk Factors -- Potential Conflicts with Intelligroup May Not Be Resolved in Our Favor." Our agreements with Intelligroup provide procedures for resolving any disputes arising out of or relating to such agreements. Generally, the procedure establishes that the parties shall first attempt to negotiate in good faith a resolution of the dispute. If the parties fail to amicably resolve the dispute, either party may submit the dispute to binding arbitration. We may enter into material transactions and agreements with Intelligroup in the future in addition to those described above. We have been advised by Intelligroup that it intends that, for so long as Intelligroup owns a majority of our voting power, the terms of any future transactions and agreements between Intelligroup or its affiliates and us will be at least as favorable to us as could be obtained from unrelated third parties. The board will utilize such procedures in evaluating the terms and provisions of any material transactions between Intelligroup or its affiliates and us as the board may deem appropriate in light of its fiduciary duties under state law. Depending on the nature and size of the particular transaction, in any such evaluation, the board may rely on management's statements and opinions and may or may not utilize outside experts or consultants or obtain independent appraisals or opinions. Two of our three directors are also directors of Intelligroup. Rajkumar Koneru, our Chairman, President and Chief Executive Officer will resign as an officer of Intelligroup effective upon the spin-off. Mr. Koneru will remain a director of Intelligroup. Nagarjun Valluripalli, a member of our board also serves as Co-Chief Executive Officer of Intelligroup. Our directors who are also directors of Intelligroup may have conflicts of interest with respect to matters potentially or actually involving or affecting Intelligroup and us, such as acquisitions, financing and other corporate opportunities that may be suitable for Intelligroup and us. To the extent that such opportunities arise, such directors may consult with their legal advisors and make a determination after consideration of a number of factors, including whether such opportunity is presented to any such director in his capacity as our director, whether such opportunity is within our line of business or consistent with our strategic objectives and whether we will be able to undertake or benefit from such opportunity. In addition, determinations may be made by the board, when appropriate, by the vote of the disinterested directors only. Notwithstanding the foregoing, there can be no assurance that conflicts will be resolved in our favor. 53 59 CERTAIN TRANSACTIONS We have a loan payable to Intelligroup as of December 31, 1999, in the amount of $8,397,000. Additional amounts may become payable to Intelligroup stemming from income taxes and/or cash flow requirements for the periods subsequent to December 31, 1999 and prior to the proposed spin-off. Effective January 1, 2000, the loan payable to Intelligroup, Inc. was converted to amounts repayable by SeraNova to a bank under a revolving credit facility of Intelligroup, Inc. On September 15, 1999, we granted non-qualified stock options to purchase an aggregate of 777,938 shares of our common stock to Rajkumar Koneru for an exercise price of $2.52 per share. On September 15, 1999, we granted non-qualified stock options to purchase an aggregate of 466,763 shares of our common stock to Ravi Singh for an exercise price of $2.52 per share. On October 1, 1999, we granted non-qualified stock options to purchase an aggregate of 466,763 shares of our common stock to Rajan Nair for an exercise price of $2.52 per share. On December 1, 1999, we granted non-qualified stock options to purchase an aggregate of 300,000 shares of our common stock to Nagarjun Valluripalli for an exercise price of $6.51 per share. PRINCIPAL SHAREHOLDERS The following table sets forth as of March 14, 2000, as adjusted to give effect to the spin-off, certain information regarding beneficial ownership of our common stock by: - each person or group of affiliated persons we expect to be the beneficial owner of more than 5% of the outstanding shares of common stock; - each director; - each Named Executive; and - all directors and Named Executives as a group. The address for each director and officer is c/o SeraNova, Inc., 499 Thornall Street, Edison, New Jersey 08837.
NAME SHARES(1) PERCENTAGE(2) - ---- --------- ------------- Rajkumar Koneru(3).......................................... 2,461,533 14.3% Nagarjun Valluripalli(4).................................... 2,239,721 13.1 Ravi Singh(5)............................................... 155,588 * Rajan Nair.................................................. 117,291 * Ashok Pandey(6)............................................. 2,080,083 12.2 NSA Investments, Inc.(7).................................... 1,722,980 10.1 Capital Guardian Trust Company(8)........................... 876,000 5.2 All directors and executive officers as a group (four persons).................................................. 4,974,133 28.3
- --------------- * Denotes less than 1%. (1) Beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and also any shares which the individual or entity has a right to acquire within 60 days after March 14, 2000 through the exercise of any stock options. The inclusion herein of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power with respect to all shares of capital stock listed as owned by such person or entity. Based upon shares of Intelligroup common stock beneficially owned by such holder and shares underlying options to purchase SeraNova common stock granted to such holder. (2) Based upon approximately 16.2 million shares of Intelligroup common stock and 809,388 equivalent shares of SeraNova common stock outstanding as of March 14, 2000. 54 60 (3) Includes 259,312 shares of common stock purchasable upon the exercise of options which are exercisable as of January 15, 2000 or sixty days thereafter. (4) Includes 37,500 shares of common stock purchaseable upon the exercise of options which are exercisable as of March 14, 2000 or sixty days thereafter. (5) Represents 155,587 shares of common stock purchaseable upon the exercise of options which are exercisable as of January 15, 2000 or sixty days thereafter. (6) The address for Ashok Pandey is c/o Intelligroup, Inc., 499 Thornall Street, Edison, New Jersey 08837. (7) The address for NSA Investments, Inc. is 250 Engamore Lane, Suite 102, Norwood, Massachusetts 02062. The information set forth on the table is based solely upon data derived from a Schedule 13D/A filed by such shareholder with respect to Intelligroup. NSA's holdings consist of 1,398,980 shares of Intelligroup common stock and approximately 324,000 shares of SeraNova common stock purchased in the March 2000 equity investment. (See Note 13 of Notes to Combined Financial Statements). (8) The address for Capital Guardian Trust Company is 11100 Santa Monica Boulevard, Los Angeles, California 90025-3384. The information set forth on the table is based solely upon data derived from a Schedule 13G/A filed by such shareholder with respect to Intelligroup. 55 61 DESCRIPTION OF CAPITAL STOCK GENERAL Our authorized capital stock consists of 40,000,000 shares of our common stock, par value $0.01 per share and 5,000,000 shares of undesignated preferred stock, par value $0.01 per share. The following statements are brief summaries of certain provisions with respect to our capital stock contained in our Certificate of Incorporation and By-laws, copies of which have been filed as exhibits to the registration statement. The following summary is qualified in its entirety by reference thereto. COMMON STOCK Voting Rights The holders of our common stock are entitled to one vote per share on all matters to be voted on by shareholders. Holders of shares of our common stock are not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by shareholders must be approved by a majority, or, in the case of election of directors, by a plurality, of the votes entitled to be cast by the holders of our common stock present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Except as otherwise provided by law or in our Certificate of Incorporation, and subject to any voting rights granted to holders of any outstanding preferred stock, amendments to our Certificate of Incorporation must be approved by a majority of the votes entitled to be cast by the holders of our common stock. However, amendments to our Certificate of Incorporation that would alter or change the powers, preferences or special rights of the our common stock so as to affect them adversely also must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment. Notwithstanding the foregoing, any amendment to our Certificate of Incorporation to increase the authorized shares of any class of our capital stock requires the approval only of a majority of the votes entitled to be cast by the holders of our common stock. Dividends Holders of our common stock will share ratably on a per share basis in any dividend declared by the board of directors, subject to any preferential rights of any outstanding preferred stock. Dividends payable in shares of common stock may be paid only as follows: (1) shares of our common stock may be paid only to holders of our common stock; and (2) the number of shares so paid will be equal on a per share basis with respect to each outstanding share of our common stock. Other Rights Unless approved by a majority of the votes entitled to be cast by the holders of our common stock, in the event of any reorganization or consolidation of us with one or more corporations or a merger of us with another corporation in which shares of common stock are converted into or exchangeable for shares of stock, other securities or property, all holders of our common stock, will be entitled to receive the same kind and amount of shares of stock and other securities and property. On our liquidation, dissolution or winding up, after payment in full of the amounts required to be paid to holders of preferred stock, if any, all holders of our common stock, are entitled to receive the same amount per share with respect to any distribution of assets to holders of shares of our common stock. No shares of our common stock are subject to redemption or have preemptive rights to purchase additional shares of our common stock or our other securities. Upon completion of the spin-off, all of the issued and outstanding shares of our common stock will be validly issued, fully paid and non-assessable. As of March 14, 2000, based on the stock ownership of Intelligroup, the additional equity financing and assuming a one share-for-one share spin-off ratio, there were approximately 17 million shares of our common 56 62 stock issued or outstanding, five stockholders of record and outstanding options to purchase an aggregate of 4,903,667 shares of our common stock, 15,000 of which were immediately exercisable. See "Management -- 1999 Stock Plan." PREFERRED STOCK The preferred stock is issuable from time to time in one or more series and with such designations, preferences and other rights for each series as shall be stated in the resolutions providing for the designation and issue of each such series adopted by our board of directors. The board of directors is authorized by our Certificate of Incorporation to determine, among other things, the voting, dividend, redemption, conversion, exchange and liquidation powers, rights and preferences and the limitations thereon pertaining to such series. The board of directors, without shareholder approval, may issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of the common stock and that could have certain anti-takeover effects. We have no present plans to issue any shares of preferred stock. The ability of the board of directors to issue preferred stock without shareholder approval could have the effect of delaying, deferring or preventing a change in control of us or the removal of existing management. REGISTRATION RIGHTS OF CERTAIN HOLDERS On March 14, 2000, we entered into a purchase agreement with four institutional investors pursuant to which such investors purchased an aggregate of 50 shares of our common stock at a price per share of $200,000, for an aggregate purchase price of $10,000,000. The Company granted certain demand and piggyback registration rights to such investors. ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS New Jersey Statute We are governed by the provisions of Section 14A:10A-1 et seq., the New Jersey Shareholders Protection Act (the "New Jersey Act"), of the New Jersey Business Corporation Act, an anti-takeover law. In general, the statute prohibits a publicly-held New Jersey corporation from engaging in a "business combination" with an "interested shareholder" for a period of five years after the date of the transaction in which the person became an interested shareholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested shareholder. An "interested shareholder" is a person who, together with affiliates and associates, owns (or within five years, did own) 10% or more of the corporation's voting stock. After the five-year waiting period has elapsed, a business combination between a corporation and an interested shareholder will be prohibited unless the business combination is approved by the holders of at least two-thirds of the voting stock not beneficially owned by the interested shareholder, or unless the business combination satisfies the New Jersey Act. The New Jersey Act's fair price provision is intended to provide that all shareholders (other than the interested shareholders) receive a fair price for their shares. General The provisions of our Certificate of Incorporation and By-laws summarized below may delay, deter, or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interest. Board of Directors Our Certificate of Incorporation and By-laws provide that the number of our directors shall be fixed from time to time exclusively by resolution adopted by the affirmative vote of not less than a majority of the entire board of directors. However, there shall not be less than one director. In addition, the By-laws provide that any vacancies will be filled by the affirmative vote of: - A majority of the remaining directors, even if less than a quorum; or - By a sole remaining director. 57 63 Generally, directors may be removed from office by the affirmative vote of the holders of at least a majority of our voting power. Special Meetings and Action by Written Consent Our By-laws provide that, special meetings of shareholders may be called only by the President, the Chairman or by order of a majority of the board of directors. In addition, our By-laws provide that our shareholders may not act by written consent in lieu of a meeting of shareholders. Amendment Amendment of the foregoing provisions, require approval by holders of at least 66% of all of the outstanding shares of our capital stock entitled to vote in the election of directors, voting together as a single class. Our By-laws may also be amended by action of the board of directors. LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY Section 14A:3-5 of the New Jersey Business Corporation Act permits each New Jersey business corporation to indemnify its directors, officers, employees and agents against expenses and liabilities in connection with: - any proceeding involving such persons by reason of his serving or having served in such capacities; or - for each such person's acts taken in his capacity as a director, officer, employee or agent of the corporation if such actions were taken in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. With respect to any criminal proceeding, indemnity is permitted if such person had no reasonable cause to believe his or her conduct was unlawful, provided that any such proceeding is not by or in the right of the corporation. Our Certificate of Incorporation limits the liability of our directors and officers as authorized by Section 14A:2-7(3). Section 14A:2-7(3) of the New Jersey Business Corporation Act enables a corporation in its certificate of incorporation to limit the liability of directors and officers of the corporation to the corporation or its shareholders. Specifically, the certificate of incorporation may provide that directors and officers of the corporation will not be personally liable for money damages for breach of a duty as a director or an officer, except for liability: - for any breach of the director's or officer's duty of loyalty to the corporation or its shareholders, - for acts or omissions not in good faith or which involve a knowing violation of law, - as to directors only, under Section 14A:6-12(1) of the New Jersey Business Corporation Act, which relates to unlawful declarations of dividends or other distributions of assets to shareholders or the unlawful purchase of shares of the corporation, or - for any transaction from which the director or officer derived an improper personal benefit. Article XI of our By-laws specifies that we shall indemnify our directors, officers, employees and agents to the extent such parties are a party to any action because he or she was our director, officer, employee or agent. This provision of the By-laws is deemed to be a contract between the registrant and each director and officer who serves in such capacity at any time while such provision and the relevant provisions of the New Jersey Business Corporation Act are in effect, and any repeal or modification thereof shall not offset any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. The affirmative vote of the holders of at least 80% of the voting power of all outstanding shares of capital stock of the Company is required to adopt, amend or repeal such provisions of the By-laws. 58 64 We intend to enter into indemnification agreements with each of our officers and directors pursuant to which we will agree to indemnify such parties to the full extent permitted by law, subject to certain exceptions, if such party becomes subject to an action because such party is a director or officer of SeraNova. At present, there is no pending litigation or proceeding involving a director or officer of SeraNova as to which indemnification is being sought nor are we aware of any threatened litigation that may result in claims for indemnification by any officer of director. LISTING Application has been made to have our common stock approved for quotation on the Nasdaq National Market under the symbol "SERA." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the our common stock is American Stock Transfer & Trust Company. 59 65 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission the registration statement under the Securities Exchange Act with respect to the SeraNova common stock being received by Intelligroup shareholders in the spin-off. This information statement does not contain all of the information set forth in the registration statement and the exhibits thereto, to which reference is hereby made. Statements made in this information statement as to the contents of any contract, agreement or other document referred to herein and filed as an exhibit are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the registration statement, reference is made to such exhibit form more complete description of the matter involved, and each such statement shall be deeded qualified in its entirety by such reference. The registration statement and the exhibits thereto filed by us with the Securities and Exchange Commission may be inspected at the public reference facilities of the Securities and Exchange Commission listed below. After the spin-off, we will be subject to the information requirements of the Exchange Act, and in accordance therewith will file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at its principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such documents may be obtained from the Public Reference Room of the Commission at prescribed rates. This material also may be obtained on the Commission's website at http://www.sec.gov. Information regarding the operation of the Public Reference Room may be obtained by calling the Commission at 1(800) SEC-0330. Application has been made to have the shares of SeraNova common stock included for quotation on the Nasdaq National Market and, if and when such shares of SeraNova common stock commence trading on the Nasdaq National Market, such reports, proxy statements and other information relating to the Company will be available for inspection at 1735 K Street, N.W., Washington, D.C. 20006-1500. We intend to furnish our shareholders with annual reports containing consolidated financial statements (beginning with fiscal year 1999) audited by our independent accountants. 60 66 INDEX TO FINANCIAL STATEMENTS
PAGE ---- 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
F-1 67 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To SeraNova, Inc.: We have audited the accompanying combined balance sheets of SeraNova, Inc. (a New Jersey corporation) and affiliates as of December 31, 1999 and 1998 and the related statements of operations, shareholder's equity and cash flows for the year ended December 31, 1999, the nine-month period ended December 31, 1998 and the year ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SeraNova, Inc. and affiliates as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the year ended December 31, 1999, the nine-month period ended December 31, 1998 and the year ended March 31, 1998, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Roseland, New Jersey March 6, 2000 (except with respect to Note 13 as to which the date is March 14, 2000) F-2 68 SERANOVA, INC. AND AFFILIATES COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Current Assets: Cash...................................................... $ 611 $ 677 Accounts receivable, net of allowance for doubtful accounts of $353 and $207, respectively................ 7,456 3,096 Unbilled services......................................... 3,680 900 Other current assets...................................... 769 286 ------- ------ Total Current Assets........................................ 12,516 4,959 Property and equipment, net................................. 2,863 816 Intangible assets, net...................................... 3,492 -- Other assets................................................ 9 -- ------- ------ Total Assets................................................ $18,880 $5,775 ======= ====== LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Current portion of long-term debt......................... $ 120 $ -- Notes payable to Parent................................... 8,397 1,779 Accounts payable.......................................... 872 526 Accrued payroll and related costs......................... 1,551 1,039 Accrued expenses and other liabilities.................... 2,352 2,039 ------- ------ Total Current Liabilities................................... 13,292 5,383 Long-Term Debt, net of current portion...................... 618 -- ------- ------ Total Liabilities........................................... 13,910 5,383 ------- ------ Commitments Shareholder's Equity: Preferred stock $.01 par value, 5,000,000 shares authorized, none issued or outstanding................. -- -- Common stock, $.01 par value, 40,000,000 shares authorized, 1,000 shares issued and outstanding as of December 31, 1999...................................... -- -- Parent company investment................................. 7,250 1,353 Accumulated deficit....................................... (2,246) (985) Currency translation adjustment........................... (34) 24 ------- ------ Total Shareholder's Equity.................................. 4,970 392 ------- ------ Total Liabilities and Shareholder's Equity.................. $18,880 $5,775 ======= ======
The accompanying notes to combined financial statements are an integral part of these statements. F-3 69 SERANOVA, INC. AND AFFILIATES COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE-MONTH FOR THE YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1999 1998 1998 ------------------ ------------- ------------------ Revenues......................................... $39,795 $12,438 $8,995 Cost of sales.................................... 22,475 7,315 4,797 ------- ------- ------ Gross profit..................................... 17,320 5,123 4,198 ------- ------- ------ Selling, general and administrative expenses..... 17,605 5,106 3,812 Depreciation and amortization.................... 1,131 102 133 ------- ------- ------ Total operating expenses......................... 18,736 5,208 3,945 ------- ------- ------ Operating income (loss).......................... (1,416) (85) 253 Other income (expense), net...................... (80) (66) 13 ------- ------- ------ Income (loss) before income taxes................ (1,496) (151) 266 Provision (benefit) for income taxes............. (235) 401 519 ------- ------- ------ Net loss......................................... $(1,261) $ (552) $ (253) ======= ======= ====== Unaudited pro forma net loss per common share -- basic and diluted.............................. $ (0.08) ======= Shares used in per share calculation of unaudited pro forma net loss -- basic and diluted........ 15,949 =======
The accompanying notes to combined financial statements are an integral part of these statements. F-4 70 SERANOVA, INC. AND AFFILIATES COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)
TOTAL SHAREHOLDER'S ACCUMULATED OTHER EQUITY AND PARENT COMPANY ACCUMULATED COMPREHENSIVE COMPREHENSIVE INVESTMENT DEFICIT INCOME (LOSS) INCOME (LOSS) -------------- ----------- ----------------- ------------------- BALANCE -- MARCH 31, 1997........ $ 701 $ (180) $ 15 $ 536 Net loss......................... -- (253) -- (253) Foreign currency translation..... -- -- (68) (68) ------- Comprehensive loss............... (321) Net transfers from Intelligroup, Inc............................ 26 -- -- 26 ------ ------- ---- ------- BALANCE -- MARCH 31, 1998........ 727 (433) (53) 241 Net loss......................... -- (552) -- (552) Foreign currency translation..... -- -- 77 77 ------- Comprehensive loss............... (475) Net transfers from Intelligroup, Inc............................ 626 -- -- 626 ------ ------- ---- ------- BALANCE -- DECEMBER 31, 1998..... 1,353 (985) 24 392 Net loss......................... -- (1,261) -- (1,261) Foreign currency translation..... -- -- (58) (58) ------- Comprehensive loss............... (1,319) Net transfers from Intelligroup, Inc............................ 5,897 -- -- 5,897 ------ ------- ---- ------- BALANCE -- DECEMBER 31, 1999..... $7,250 $(2,246) $(34) $ 4,970 ====== ======= ==== =======
The accompanying notes to combined financial statements are an integral part of these statements. F-5 71 SERANOVA, INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE FOR THE NINE-MONTH FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 1999 1998 1998 ------------ ------------- ----------- Cash Flows from Operating Activities: Net loss.......................................... $(1,261) $ (552) $ (253) Adjustments to reconcile net loss to net cash used operating activities: Depreciation and amortization..................... 1,131 102 133 Provisions for doubtful receivables............... 189 140 127 Changes in assets and liabilities, net of acquired business: Accounts receivable............................. (3,766) (1,068) (1,066) Unbilled services............................... (2,662) (648) (248) Other current assets............................ (425) (174) (71) Other assets.................................... (5) -- -- Accounts payable................................ 288 250 139 Accrued payroll and related costs............... 410 74 (32) Accrued expenses and other liabilities.................................. 8 1,410 418 ------- ------- ------- Net cash used in operating activities........ (6,093) (466) (853) ------- ------- ------- Cash Flows from Investing Activities: Purchase of business, net of cash acquired........ (2,186) -- -- Capital expenditures.............................. (2,175) (603) (7) ------- ------- ------- Net cash used in investing activities............. (4,361) (603) (7) ------- ------- ------- Cash Flows from Financing Activities: Loans from Parent............................... 6,618 894 886 Repayment of loans.............................. (109) (219) (302) Proceeds from loans............................. -- -- -- Net transfers from Parent....................... 3,937 626 26 ------- ------- ------- Net cash provided by financing activities.... 10,446 1,301 610 ------- ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents.......................................... (58) 77 (17) ------- ------- ------- Increase (Decrease) in Cash and Cash Equivalents....... (66) 309 (267) Cash and Cash Equivalents, Beginning of Period......... 677 368 635 ------- ------- ------- Cash and Cash Equivalents, End of Period........ $ 611 $ 677 $ 368 ======= ======= ======= Supplementary disclosures of cash flow information: Cash paid for interest.......................... $ 81 $ 17 $ 6 Cash paid for income taxes...................... $ 229 $ 361 $ 84
The accompanying notes to combined financial statements are an integral part of these statements. F-6 72 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -- THE COMPANY SeraNova, Inc. (the "Company" or "SeraNova") is a provider of strategic eBusiness services, including business-to-business solutions. The Company's services include strategic consulting, design, implementation and management of eBusiness systems. The Company serves e-business solution needs of Global 5000 as well as emerging internet based companies through rapid conception, creation and deployment of innovation internet and portal-based solutions. SeraNova was incorporated under the name Infinient, Inc. in the State of New Jersey on September 9, 1999 and issued 100 shares to Intelligroup, Inc. ("Intelligroup" or the "Parent") on such date. Effective on January 1, 2000, Intelligroup contributed the assets and liabilities of its Internet solutions group, including SeraNova India which commenced operations in October 1999, the capital stock of Network Publishing, Inc. and the capital stock of the Azimuth Companies to the Company in exchange for 900 shares of the common stock of the Company, $0.01 par value per share (the "Formation"). The Formation was accounted for using the carryover basis of accounting. The accompanying combined financial statements include the accounts and operations of the Internet solutions group since its inception in 1997, Network Publishing, Inc. from the date of its acquisition by the Parent (January 8, 1999) and the Azimuth Companies for all periods presented (see Note 3). Intelligroup acquired the Azimuth Companies in a transaction accounted for as a pooling of interests and Network publishing, Inc. through a purchase acquisition. SeraNova began operations in India in October of 1999 and the United Kingdom in November of 1999. Results of operations and financial information since inception have been included in the accompanying combined financial statements. The Parent has proposed to distribute to its shareholders of all of the SeraNova shares of common stock it holds. For each common share of Intelligroup stock held, one share of SeraNova common stock is anticipated to be issued. The Company intends to split the number of its outstanding shares on the record date of such dividend so that the number of the Company's outstanding shares shall equal the number of outstanding shares of the Parent. The spin-off is subject to certain conditions and approvals. SeraNova has not operated as a separate company and faces the risks and uncertainties encountered by companies in the early stages of development such as managing growth, intense competition, expansion both domestically and internationally and rapidly changing technology. In the past, the Company has relied on the Parent for many administrative services and financial support. The Company has entered into various agreements with the Parent (see Note 4) and is currently exploring various alternative financing options. Effective April 1, 1998, the Company changed its year end from March 31 (the Azimuth Companies former year end) to December 31. All significant intercompany balances and transactions have been eliminated. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of investments in highly liquid short-term instruments, with maturities of three months or less from date of purchase. F-7 73 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition The Company generates revenue from professional services rendered. Revenue is recognized as services are performed with the corresponding cost of providing those services reflected as cost of sales. Substantially all customers are billed on a per diem basis whereby actual time is charged directly to the customer. Billings to customers for out-of-pocket expenses are recorded as a reduction of expenses incurred. Unbilled services represent services provided which are billed subsequent to the respective period end. The Company anticipates all such amounts to be realized within the following year. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets (five years). Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life (ten years). Cost of maintenance and repairs are charged to expense as incurred. Intangible Assets Intangible assets as of December 31, 1999 include goodwill of $3,922,000 and other intangibles totaling $139,500 less accumulated amortization of $569,000 that was attributable to the acquisition of Network Publishing, Inc. (see Note 3). These intangible assets are being amortized over the estimated useful lives of 5 years using the straight-line method. Amortization expense was $569,000 for the year ended December 31, 1999. Allowance for Doubtful Accounts The Company provides an allowance for doubtful accounts based upon a review of outstanding receivables as well as historical collection information. Credit is granted to substantially all customers on an unsecured basis. In determining the amount of allowance, management is required to make certain estimates and assumptions. The provision for doubtful accounts totaled $189,000, $140,000 and $127,000 for the year ended December 31, 1999, the nine months ended December 31, 1998 and the year ended March 31, 1998, respectively. Write-offs of accounts receivable totaled $43,000, $60,000 and $0 for the year ended December 31, 1999, the nine months ended December 31, 1998 and the year ended March 31, 1998, respectively. Recoverability of Long-Lived Assets The Company reviews the recoverability of its long-lived assets on a periodic basis whenever events and circumstances have occurred that indicate the remaining balance may not be recoverable. The assessment for potential impairment is based primarily on the Company's ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. The Company does not believe that any such events or changes in circumstances have occurred. The amount of impairment of goodwill and other intangibles would be determined as part of the long-lived asset grouping being evaluated. Where goodwill is identified with assets subject to an impairment loss, the carrying amount of the identified goodwill would be eliminated before making any reduction of the carrying amounts of the impaired long-lived assets and identifiable intangibles. Stock-Based Compensation Stock-based compensation is recognized using the intrinsic value method under APB No. 25. For disclosure purposes, pro forma net income (loss) impacts are provided as if the fair market value method has been applied. F-8 74 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Currency Translation Assets and liabilities relating to foreign operations are translated into US dollars using exchange rates in effect at the balance sheet date. Income and expenses are translated in US dollars using monthly average exchange rates during the year. Translation adjustments associated with assets and liabilities are excluded from income and credited or charged directly to shareholder's equity. Foreign currency transaction gains and losses are recorded in other income (expense) in the combined statements of operations. Concentrations One customer accounted for approximately 28% of the combined revenues of SeraNova for the year ended December 31, 1999. Accounts receivable as of December 31, 1999 attributable to this customer was $1,960,000. Another customer accounted for 13% of revenues for the nine-month period ended December 31, 1998 (see Note 4). Accounts receivable attributable to this customer was $419,000 as of December 31, 1998. No other customer contributed in excess of 10% of the combined revenues for any other period. For the year ended December 31, 1999, six customers accounted for approximately 50% of the Company's revenues. Income Taxes The Company accounts for income taxes pursuant to SFAS 109, "Accounting for Income Taxes", which uses the liability method to calculate deferred income taxes. The accompanying combined statements of operations reflect income taxes as if the Company filed a separate tax return. U.S. income taxes on undistributed earnings of foreign entities have not been provided as they are considered permanently invested. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable and debt approximate fair value because of the short-term nature of these instruments. Pro Forma Net Loss Per Share (Unaudited) Pro forma net loss per share -- basic has been computed by dividing the net loss by the December 31, 1999 outstanding shares of common stock of the Parent. Pro forma net loss per share -- diluted has been computed by dividing the net loss by the December 31, 1999 outstanding shares of common stock of the Parent. Stock options (3,236,000 as of December 31, 1999) have not been included in the calculation since they are anti-dilutive. NOTE 3 -- BUSINESS COMBINATIONS On November 25, 1998, the Parent consummated the acquisition of all of the outstanding capital stock of Azimuth Consulting Limited, Azimuth Holdings Limited, Braithwaite Richmond Limited and Azimuth Corporation Limited (collectively the "Azimuth Companies"). The acquisition of the Azimuth Companies was accounted for as a pooling of interests. The accompanying combined financial statements include the results of operations and financial position of the Azimuth Companies for all periods presented in accordance with pooling of interests accounting. As consideration for this acquisition, the Parent issued 902,928 shares of its common stock. On January 8, 1999, the Parent consummated the acquisition of all of the shares of outstanding capital stock of Network Publishing, Inc. The acquisition was accounted for utilizing the purchase method of F-9 75 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) accounting. The purchase price included an initial cash payment in the aggregate of $1,800,000 together with a cash payment of $200,000 to be held in escrow plus costs of the transaction, and resulted in costs in excess of fair value of net tangible assets acquired of $1,600,000. Such amount has been allocated to intangible assets (assembled workforce of $139,500) with the remainder assigned to goodwill. In addition, the purchase price included an earn-out payment of up to $2,212,650 in restricted shares of the Parent's common stock payable on or before April 15, 2000 and a potential lump sum cash payment of $354,024 payable no later than March 31, 2000. In July 1999, the Parent and the former shareholders of Network Publishing, Inc. agreed to amend the agreements to eliminate the earnout and fix the additional consideration amount at $2,430,000 payable at the option of the Parent in Parent Company common stock or cash. As of December 31, 1999, SeraNova has recorded this transaction as an increase to goodwill and equity. On January 8, 2000, the Parent made a cash payment of $340,000 and issued approximately 100,000 shares of its common stock to satisfy its obligation. The following unaudited pro forma information presents a summary of results of operations of the Company and Network Publishing, Inc. as if the acquisition had occurred on April 1, 1997.
FOR THE NINE-MONTH PERIOD ENDED FOR THE YEAR ENDED DECEMBER 31, 1998 MARCH 31, 1998 ------------------ ------------------ Revenues.................................................. $15,576,000 $12,393,000 Net loss.................................................. (571,000) (559,000) Pro forma net loss per common share -- basic and diluted................................................. $ (0.04)
NOTE 4 -- RELATED PARTY TRANSACTIONS Prior to the Formation, the Parent accounted for the separate financial results of Network Publishing, Inc. and the Azimuth Companies. However, the Parent did not account separately for the U.S. internet business. In the preparation of the accompanying combined financial statements, the Company and the Parent have specifically identified all revenue, costs of sales, other income (expense), net and certain direct selling, general and administrative expenses incurred on behalf of SeraNova related to the U.S. internet operations. Other selling, general and administrative expenses have been allocated between the Parent and SeraNova based on either revenue generation, head count or occupancy, where applicable. The selling, general and administrative expenses captured and allocated by these methods pertain to only U.S. operations. Revenue, head count and occupancy percentages were calculated using only U.S. data for Intelligroup and SeraNova. The Company believes that allocated costs approximate the historical costs of SeraNova and that the allocation methods used are reasonable. For balance sheet purposes, the U.S. internet operation's cash and payables are included in Parent company investment as they historically have not been accounted for separately. For the nine-month period ended December 31, 1998, one customer accounted for approximately $1.7 million, or 13%, of the combined revenues of SeraNova. An executive officer of such customer is currently a member of the Board of Directors of the Parent. SeraNova generated approximately $58,000 of revenue from such Company during the year ended December 31, 1999. During the year ended December 31, 1999, one customer accounted for approximately $105,000 of combined revenues of SeraNova. An executive officer of such customer is currently the chairman of SeraNova. Notes payable to parent represents a calculation of net borrowing from the Parent as of December 31, 1999 and 1998 (See Note 13). SeraNova and the Parent have entered into the following agreements effective January 1, 2000. F-10 76 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Distribution Agreement This agreement between SeraNova and Intelligroup calls for distribution by Intelligroup on the Distribution Date of the SeraNova Common Stock owned by Intelligroup to the holders of Intelligroup Common Stock as of the Record Date, subject to certain conditions. Services Agreement Under the terms of the services agreement, SeraNova has agreed with Intelligroup: (1) to share certain general and administrative expenses; and (2) for Intelligroup to provide the Company with other general, administrative services in exchange for a fee. The general and administrative expenses include payroll costs for shared employees, utilities costs, equipment expenses, taxes and office supplies. SeraNova's cost for administrative services provided by Intelligroup will approximate $30,000 per month. Contribution Agreement The assets and liabilities of Intelligroup's Internet services business, as defined, were transferred by Intelligroup and certain of its subsidiaries to SeraNova effective January 1, 2000 subject to certain conditions being satisfied. The transfer may be subject to a post contribution adjustment, as defined. Some assignments and transfers may require prior consent by third parties and various filings or recordings with governmental entities. Space Sharing Agreement SeraNova has entered into a space sharing agreement with Intelligroup providing for the sharing by Intelligroup and SeraNova of Intelligroup's office facilities, including the office facilities located in Edison, New Jersey at which SeraNova's and Intelligroup's principal executive offices are located. Under the space sharing agreement, the costs associated with leasing and maintaining facilities are, in general, allocated between Intelligroup and SeraNova on the basis of actual use of floor space. SeraNova's space sharing costs will approximate $68,000 per month. Tax Sharing Agreement SeraNova has entered into a tax sharing agreement with Intelligroup that governs the allocation of federal, state, local and foreign tax liabilities and related tax matters. NOTE 5 -- COMMITMENTS Employment Agreements In September and October, 1999, the Company entered into three employment agreements with certain executive officers which expire through October 2002. The amount due under these contracts is approximately $1.1 million per year. Additionally, the contracts provided for the granting of options to purchase 1,711,464 shares of the Company's common stock at $2.52 per share which was equal to the estimated fair market value of the Company's common stock as of the grant date as determined by the board of directors (See Note 10). The options vest over a three year period. Leases SeraNova leases various office space, office equipment and vehicles under operating leases expiring at various dates through December 2005. Rental expense for all leases approximated $729,000 for the year ended F-11 77 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1999, $284,000 for the nine-month period ended December 31, 1998 and $388,000 for the year ended March 31, 1998, respectively. Future lease commitments are as follows:
FOR THE YEARS ENDED DECEMBER 31, - -------------------------------- 2000........................................... $ 736,000 2001........................................... 635,000 2002........................................... 586,000 2003........................................... 551,000 2004........................................... 611,000 Thereafter..................................... 479,000 ---------- $3,598,000 ==========
Rental expense associated with the space sharing agreement with Intelligroup (Note 4) is not included in the above table. Benefit Plans Employees of SeraNova were eligible to participate in the Intelligroup, Inc. Employee Retirement Plan (the "Plan"). The Plan allows eligible employees to contribute up to 15% percent of their annual compensation, subject to the Internal Revenue Code's statutory limitations. Effective January 1, 1999, contributions to the Plan by Intelligroup are made at the discretion of the Board of Directors, and the related expense specific to the SeraNova Plan were approximately $132,000 for the year ended December 31, 1999. There were no employer contributions to the Plan for the periods prior to January 1, 1999. Effective January 1, 2000, the SeraNova, Inc. Employee Retirement Plan was formed. As of this date, SeraNova employees will no longer be eligible to participate in the Intelligroup, Inc. Retirement Plan. SeraNova will contribute 50% of the first 4% of a participants contribution subject to the Internal Revenue Code's statutory limitations. Other Commitments The Company has entered into an agreement with a strategic marketing consulting company in connection with certain sales and marketing services. Under the terms of this agreement the consulting company will assist the Company in building a SeraNova brand, generate leads, support sales force and build a sales systems infrastructure. SeraNova expects to spend approximately $3 million in the first six months of the fiscal year 2000 related to this agreement. NOTE 6 -- INCOME TAXES The operating results of the domestic Internet solutions group have historically been included in the consolidated tax returns of Intelligroup and have been computed as if they were on a stand-alone basis. The tax accounts for Network Publishing, Inc. and the Azimuth Companies are reported based on individual tax returns filed by each company historically. The provisions for income taxes include the effect of certain temporary differences between amounts reported for tax purposes versus financial reporting. F-12 78 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes was as follows:
FOR THE PERIODS ENDED ----------------------------------------- DECEMBER 31, DECEMBER 31, MARCH 31, 1999 1998 1998 ------------ ------------ --------- Current Federal....................................... $(560,000) $163,000 $ 76,000 State......................................... (55,000) 54,000 25,000 Foreign....................................... 363,000 386,000 450,000 --------- -------- -------- Current....................................... (252,000) 603,000 551,000 --------- -------- -------- Deferred Federal....................................... 15,000 (37,000) (26,000) State......................................... 2,000 (9,000) (6,000) --------- -------- -------- Deferred...................................... 17,000 (46,000) (32,000) --------- -------- -------- Total........................................... $(235,000) $557,000 $519,000 ========= ======== ========
The tax effects of the significant temporary differences which comprised the deferred tax assets and liabilities are as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Tax Deferred Assets: Allowance for doubtful accounts.......................... $ 124,000 $ 84,000 Vacation accrual......................................... 180,000 123,000 Foreign net operating loss carryforwards................. 81,000 75,000 --------- --------- Total deferred tax assets................................ 385,000 282,000 Deferred Tax Liabilities: Depreciation............................................. 24,000 (4,000) Valuation allowance........................................ (261,000) (198,000) --------- --------- Net deferred tax asset..................................... $ 100,000 $ 80,000 ========= ========= Current.................................................... $ 304,000 $ 207,000 Non-current................................................ 57,000 71,000 Valuation.................................................. (261,000) (198,000) --------- --------- Net deferred tax asset..................................... $ 100,000 $ 80,000 ========= =========
The Company has provided a valuation allowance for all deferred tax assets of the Azimuth Companies and the start up operations in the United Kingdom due to the historical losses of these companies. The effective tax rate of SeraNova for each period presented is comprised of federal taxes on income of domestic operations at 34%. State taxes on domestic income totaled 4% of the effective tax rate. Other permanent items, including, among others, non-deductible entertainment expenses, totaled 3% of the effective rate while non-deductible amortization totaled 13% of the effective tax rate in 1999. The remaining difference between the statutory federal rate of 34% and the Company's effective rates relates to taxes on income from foreign jurisdictions. Losses incurred in certain countries could not be offset by income from other countries thus resulting in high effective rate. F-13 79 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- LONG-TERM DEBT Network Publishing, Inc. has entered into a $875,000 note payable with a bank dated April 25, 1997, secured by their equipment, furniture and fixtures. The note, which bears interest at the bank's prime rate (8.5% percent as of December 31, 1999) plus 2%, matures on April 25, 2007. Principal and interest are payable in monthly installments. Interest expense for the period ended December 31, 1999 was $77,000. Included in current portion of long-term debt are other miscellaneous borrowings totaling approximately $48,000. The aggregate amount of principal maturities of long-term debt as of December 31, 1999 are as follows: 2000........................................................ $120,000 2001........................................................ 73,000 2002........................................................ 81,000 2003........................................................ 89,000 2004........................................................ 99,000 Thereafter.................................................. 276,000 -------- $738,000 ========
NOTE 8 -- PROPERTY AND EQUIPMENT Property and Equipment consist of the following (in thousands):
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Computers and software..................................... $ 2,839 $ 595 Furniture and equipment.................................... 1,191 796 ------- ------ 4,030 1,391 Accumulated depreciation................................... (1,167) (575) ------- ------ $ 2,863 $ 816 ======= ======
Depreciation expense was $561, $102 and $133 for the year ended December 31, 1999, the nine months ended December 31, 1998 and the year ended March 31, 1998. NOTE 9 -- ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consisted of the following (in thousands):
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Accrued expenses........................................... $2,053 $1,779 Advanced billings.......................................... 83 64 Income taxes payable....................................... 216 196 ------ ------ Total............................................ $2,352 $2,039 ====== ======
NOTE 10 -- STOCK OPTIONS On December 1, 1999 the Company adopted the SeraNova, Inc. 1999 Stock Plan covering its employees, officers and directors, and certain consultants, agents and key contractors. The maximum number of shares available for issuance under the Plan is 5,000,000 on a post split and spin-off basis, subject to certain adjustments. The Company has granted stock options with an exercise price at fair market value as described F-14 80 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) below. The Plan provides for both non-qualified and incentive stock options. Generally, options granted under the Plan vest in six equal installments at the end of each six month period after the date of grant and expire within ten years from the date of the grant and have an exercise price equal to the fair market value of SeraNova's common stock on the date of grant. SeraNova has elected to follow APB No. 25 in accounting for its employee stock options. Accordingly, no compensation cost has been recognized. A summary of the stock option grants is as follows:
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE FAIR VALUE --------- ---------------- ---------------- Options Outstanding, December 31, 1998........... -- -- -- Options Granted, September 15, 1999.............. 1,244,701 $2.52 $2.16 Options Granted, October 1, 1999................. 1,450,010 2.52 2.16 Options Granted, December 1, 1999................ 541,381 6.51 5.58 --------- ----- ----- Options Outstanding, December 31, 1999 (none exercisable)................................... 3,236,092 $3.19 $2.73 ========= ===== =====
On January 1, 2000, pursuant to the 1999 stock plan, stock options were granted to purchase 1,407,575 shares of the Company's common stock at an exercise price of $6.51 per share. On January 14, 2000, the Company granted stock options under the 1999 stock plan to purchase 260,000 shares of the Company's common stock with an exercise price per share of $6.51. The calculation of the option grant prices of SeraNova's common stock was as follows: The Company multiplied SeraNova's revenue contribution in the most recent quarter (SeraNova's revenue as a percentage of the total consolidated revenue for Intelligroup) to the Intelligroup's stock price as of the valuation date. Then the Company applied 100% premium to the implied price to obtain fair market value of SeraNova's common stock. The fair value of option grants for disclosure purposes is estimated on the date of grant using the Black-Scholes option-pricing model that uses the following assumptions: expected volatility of 82%, risk-free interest rate of 6%, dividend rate of 0% and expected lives of 10 years. The weighted-average fair value of options granted during 1999 was $2.73. Had the compensation cost for the Company's stock options been determined using the Black-Scholes fair value pricing model, the net of tax impact for year ended December 31, 1999 would be as follows: Net loss as reported............................ $(1,261,000) Net loss pro forma.............................. $(1,625,000) Unaudited pro forma net loss per common share as reported -- basic and diluted................. $ (0.08) Unaudited pro forma net loss per common share as adjusted -- basic and diluted................. $ (0.10)
The pro forma results are not intended to be indicative of or a projection of future results. NOTE 11 -- SEGMENT INFORMATION Historically, SeraNova has managed operations only by geographic region. The following is information by geographic area as of and for the nine-month periods ended December 31, 1999 and December 31, 1998 and the year ended March 31, 1998. F-15 81 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 UNITED STATES ASIA PACIFIC EUROPE INDIA COMBINED TOTAL - ------------------------------------ ------------- ------------ ------ ------ -------------- Revenue............................ $27,408 $11,324 $ -- $1,063 $39,795 Depreciation & amortization........ 1,015 82 -- 34 1,131 Income (loss) from operations...... (2,734) 848 (99) 569 (1,416) Interest income.................... 6 24 -- -- 30 Interest expense................... (77) (5) -- -- (82) Other income (expense)............. -- (28) -- -- (28) Income (loss) before income taxes... (2,805) 839 (99) 569 (1,496) Capital spending................... 1,012 120 -- 1,043 2,175 Total assets....................... 14,032 3,410 39 1,399 18,880
FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 1998 UNITED STATES ASIA PACIFIC COMBINED TOTAL - ------------------------------------------------- ------------- ------------ -------------- 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
FOR THE YEAR ENDED MARCH 31, 1998 UNITED STATES ASIA PACIFIC COMBINED TOTAL - --------------------------------- ------------- ------------ -------------- 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
Foreign revenue is based on the country in which SeraNova's operations reside. NOTE 12 -- PREFERRED STOCK Pursuant to the Company's Certificate of Incorporation, the Company has the authority to issue 5,000,000 shares of undesignated preferred stock, par value $.01 per share. The preferred stock may be issued, from time to time, pursuant to a resolution by the Company's Board of Directors that will set forth the voting powers and other pertinent rights of such series. NOTE 13 -- SUBSEQUENT EVENTS Equity Investment On March 14, 2000, the Company sold 50 shares of its common stock to four institutional investors for $10,000,000. The Company granted certain demand and piggyback registration rights to such investors. F-16 82 SERANOVA, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Additionally, the Company has an option to sell an additional 25 shares of its common stock to an institutional investor for $5,000,000. Bank Credit Facility As discussed in Note 4 notes payable to Parent represents a calculation of net borrowings from the Parent. Although no formal note existed, SeraNova has agreed to repay such amounts. On January 1, 2000, such borrowings were converted to amounts repayable by SeraNova to a bank under a revolving credit facility agreement. Effective January 1, 2000, SeraNova became a co-borrower under Intelligroup's revolving credit agreement with a bank. The revolving credit facility is up to $15,000,000 in aggregate with a sublimit of up to $10,000,000 available to SeraNova. Intelligroup and SeraNova are jointly and severally liable under the agreement. In the event Intelligroup requests and the bank approves a change in control of the ownership of SeraNova as contemplated by the spin off, all SeraNova's obligations under the agreement become due and payable. As of December 31, 1999, the aggregate outstanding advances against the revolving credit facility were $10.6 million. SeraNova's portion of the outstanding balance as of December 31, 1999, was $8.4 million. All amounts due to the bank from SeraNova's portion will be paid prior to spin off and upon receipt of payment by the bank, the bank will release SeraNova from all obligations under the credit facility. Originally, on January 29, 1999, Intelligroup entered into a three-year revolving credit facility agreement (the "Credit Agreement") with a bank. The Credit Agreement with the bank was comprised of a revolving line of credit pursuant to which Intelligroup may borrow up to $30,000,000 either at the bank's prime rate per annum or the EuroRate plus 2% (at the Parent's option). The Credit Agreement contained certain covenants which, among other things, required Intelligroup to (i) maintain a minimum Consolidated Cash Flow Leverage Ratio, (ii) maintain a minimum Consolidated Net Worth and (iii) maintain a minimum Fixed Charge Coverage Ratio, as defined. At Intelligroup's option for each loan, interest shall be computed either at the bank's prime rate per annum or the Adjusted Libor Rate plus the Applicable Margin, as defined. As a result of the restructuring and other special charges incurred during the quarter ended June 30, 1999, Intelligroup was not in compliance with the Consolidated Cash Flow Leverage Ratio and Consolidated Net Worth financial covenants at June 30, 1999. On August 12, 1999, the bank notified Intelligroup that such non-compliance constituted an Event of Default under the Credit Agreement. At September 30, 1999, while Intelligroup was in compliance with the Consolidated Net Worth financial covenant, it was not in compliance with the Consolidated Cash Flow Leverage Ratio and Minimum Fixed Charge Coverage Ratio financial covenants. On January 26, 2000, Intelligroup finalized with the bank the terms of a waiver and amendment to the Credit Agreement to remedy defaults which existed under the Credit Agreement. The terms of the waiver and amendment include, among other things, (i) a $15,000,000 reduction in availability under the Credit Agreement, (ii) a first priority perfected security interest on all assets of Intelligroup and its domestic subsidiaries and (iii) modification of certain financial covenants and a waiver of prior covenant defaults. F-17 83 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Network Publishing, Inc.: We have audited the accompanying balance sheets of Network Publishing, Inc. (a Utah corporation) as of December 31, 1998 and 1997, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Network Publishing, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Salt Lake City, Utah December 21, 1999 F-18 84 NETWORK PUBLISHING, INC. BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 ASSETS
1998 1997 ---------- ---------- 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 ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997 ---------- ---------- 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 ========== ==========
F-19 85 NETWORK PUBLISHING, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
F-20 86 NETWORK PUBLISHING, INC. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL ---------------- PAID-IN ------------------ DEFERRED SHAREHOLDERS' SHARES AMOUNT CAPITAL SHARES AMOUNT COMPENSATION RETAINED EARNINGS EQUITY ------ ------- ---------- ------ --------- ------------ ----------------- ------------- 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 ====== ======= ======== ====== ========= ========= ========= =========
F-21 87 NETWORK PUBLISHING, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 INCREASE (DECREASE) IN CASH
1998 1997 1996 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)..................................... $ 265,890 $ (21,384) $ 232,871 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation....................................... 258,850 213,229 109,027 Deferred income taxes.............................. 125,665 (15,830) 12,185 Amortization of deferred compensation.............. 38,721 7,766 5,183 Changes in operating assets and liabilities: Accounts receivable, net......................... (125,175) (198,505) (319,716) Unbilled services................................ (61,624) 22,557 (51,425) Prepaid expenses................................. (38,440) (7,753) 11,704 Accounts payable................................. (30,554) (1,667) 65,351 Accrued payroll and related benefits............. 2,055 38,661 39,596 Accrued liabilities.............................. (43,526) 71,230 (6,642) Deferred revenue................................. (29,414) 123,047 38,763 Income taxes payable/receivable.................. 118,577 (240,948) 144,251 --------- --------- --------- Net cash provided by (used in) operating activities.................................. 481,025 (9,597) 281,148 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and equipment................... (114,267) (344,609) (289,688) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) on line of credit......... (80,000) 80,000 -- Proceeds from issuance of debt........................ -- 863,973 125,000 Principal payments on debt............................ (58,259) (213,452) (35,865) Principal payments on capital lease obligations....... (3,174) -- -- Purchase of treasury stock............................ -- (420,577) -- --------- --------- --------- Net cash provided by (used in) financing activities.................................. (141,433) 309,944 89,135 --------- --------- --------- NET INCREASE (DECREASE) IN CASH......................... 225,325 (44,262) 80,595 CASH, beginning of year................................. 93,957 138,219 57,624 --------- --------- --------- CASH, end of year....................................... $ 319,282 $ 93,957 $ 138,219 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.................................. $ 77,902 $ 60,395 $ 16,207 Cash paid for income taxes.............................. 19,777 219,905 --
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 88 NETWORK PUBLISHING, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Network Publishing, Inc. (the "Company"), a Utah corporation founded on February 4, 1994, provides information technology services through web-site development and hosting services based on leading technologies. The Company markets its services to a wide variety of industries in the United States. The majority of the Company's business is with large established companies, including automobile manufacturers and technology companies. As discussed in Note 9, subsequent to December 31, 1998, all of the Company's outstanding shares of common stock were acquired by Intelligroup, Inc. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash, trade receivables, trade payables and debt instruments. The carrying amounts of these instruments reported in the accompanying balance sheets are considered to estimate their fair values due to the short-term nature of such financial instruments and the current interest rate environment. Concentration of Credit Risk and Significant Customers In the normal course of business, the Company extends credit to substantially all its customers on an unsecured basis. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables as well as historical collection information. At December 31, 1998, management believes the Company had incurred no material impairments in the carrying value of its accounts receivable, other than uncollectable amounts for which a provision has been recorded. One customer accounted for approximately 26, 19 and 10 percent of revenue in 1998, 1997 and 1996, respectively. Accounts receivable due from this customer were approximately 37 and 32 percent of accounts receivable as of December 31, 1998 and 1997, respectively. Another customer accounted for approximately 6, 44 and 61 percent of revenue in 1998, 1997 and 1996, respectively. Accounts receivable due from this customer were approximately 6 and 30 percent of accounts receivable as of December 31, 1998 and 1997, respectively. Two additional customers each accounted for approximately 17 percent of revenue during 1998 and 36 and 3 percent of accounts receivable as of December 31, 1998. No other customer accounted for more than 10 percent of the Company's accounts receivable as of December 31, 1998 or 1997 or revenues for 1998, 1997 or 1996. The loss of one or more of these significant customers could have a material adverse impact on the Company's financial position and results of operations. Furniture and Equipment Furniture and equipment are stated at cost, less accumulated depreciation. Computer equipment, software and furniture and fixtures are depreciated using the straight-line method over the estimated useful life of the asset, which is typically three to seven years. F-23 89 NETWORK PUBLISHING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments that extend the useful lives of existing equipment are capitalized and depreciated. On retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. The Company evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The Company uses an estimate of future undiscounted net cash flows of the related asset or group of assets over the remaining life in measuring whether the assets are recoverable. As of December 31, 1998, the Company does not consider any of its long-lived assets to be impaired. Revenue Recognition The Company generates revenue from professional services rendered. Revenue is recognized as services are performed with the corresponding cost of providing those services reflected as cost of sales. A majority of the customers are billed on a time and materials basis. Billings to customers for out-of-pocket expenses are recorded as a reduction of expenses incurred. Unbilled services of $118,006 and $56,382 at December 31, 1998 and 1997, respectively, represent services provided prior to year-end which were billed subsequent to year-end. Revenue from advance billings is deferred until the services are provided and amounted to $133,633 and $163,047 as of December 31, 1998 and 1997, respectively. Research and Development Research and development costs are expensed as incurred and amounted to $230,120 and $288,319 during the years ended December 31, 1998 and 1997, respectively. No research and development costs were incurred during the year ended December 31, 1996. Income Taxes The Company recognizes an asset or liability for the deferred income tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. These deferred income tax assets or liabilities are measured using currently enacted tax rates. NOTE 2 -- LINE OF CREDIT The Company has entered into a line of credit agreement with a bank, which provided for maximum borrowings of $300,000 as of December 31, 1998. Borrowings under the agreement were secured by the accounts receivable of the Company, were guaranteed by the Company's three shareholders and bore interest at the bank's prime rate (7.75 percent at December 31, 1998) plus three percent. As of December 31, 1998 and December 31, 1997, the Company had outstanding borrowings of $0 and $80,000, respectively. The line of credit matured on April 5, 1999. Under the terms of the agreement, the Company was required to comply with certain restrictive covenants, including a minimum earnings ratio and a minimum debt to net worth requirement. As of December 31, 1998, the Company was in compliance with these covenants. F-24 90 NETWORK PUBLISHING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- LONG-TERM DEBT As of December 31, 1996, long-term debt consisted of two notes payable to a bank. In April 1997, the Company paid the outstanding balance on these two notes with proceeds from a new note obtained from the same bank. Principal and interest are payable in monthly installments through April 2007. The note bears interest at the bank's prime rate (7.75 percent at December 31, 1998) plus two percent. The note is secured by furniture and equipment, and is guaranteed by the Company's three shareholders. The aggregate amount of principal maturities of long-term debt as of December 31, 1998 were as follows:
YEAR ENDING DECEMBER 31, - ------------------------ 1999.............................................. $ 61,877 2000.............................................. 65,585 2001.............................................. 72,842 2002.............................................. 80,669 2003.............................................. 89,337 Thereafter........................................ 382,031 -------- $752,351 ========
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:
1998 1997 1996 -------- -------- -------- 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 ======== ======== ========
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:
1998 1997 1996 -------- -------- -------- 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 ======== ======== ========
F-25 91 NETWORK PUBLISHING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred income tax assets and liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997 --------- -------- 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) ========= ========
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:
CAPITAL LEASE OPERATING LEASE YEAR ENDING DECEMBER 31, OBLIGATIONS OBLIGATIONS - ------------------------ ------------- --------------- 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 =======
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 92 NETWORK PUBLISHING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 -- SHAREHOLDERS' EQUITY Treasury Stock In April 1997, the Company's Board of Directors approved the repurchase of 22,000 shares of common stock for $420,577 from the Company's majority shareholder. The Company repurchased these shares for cash on April 24, 1997. Stock Options On July 1, 1995, the Company adopted the 1995 Stock Option Plan (the "Plan") to provide incentives to eligible employees and officers. Under the Plan, the Board of Directors is authorized to grant 3,200 options to purchase shares of common stock to eligible participants. The Board of Directors is also authorized to specify the terms and conditions of each option granted, including the number of shares, the exercise price, vesting provisions, and the option term. A summary of option activity under the 1995 Stock Option Plan for the years ended December 31, 1998, 1997 and 1996 is presented below:
OPTIONS ------- 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 =====
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 93 NETWORK PUBLISHING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) disclosures, the estimated fair market value of the stock options is amortized over the vesting periods of the respective stock options. Following are the pro forma disclosures and the related impact on net income (loss) for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 -------- -------- -------- Net income (loss) as reported...................... $265,890 $(21,384) $232,871 Net income (loss) pro forma........................ 265,670 (21,428) 232,756
NOTE 7 -- SEGMENT INFORMATION In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information". This statement requires disclosures related to components of a company for which separate financial information is available and evaluated regularly by the company's chief operating decision makers in deciding how to allocate resources and in assessing performance. Management believes that the Company has only one operating segment because the Company's core business operations consist only of information technology services. All of the Company's revenues for the years ended December 31, 1998, 1997 and 1996 were sourced from the United States. NOTE 8 -- EMPLOYEE BENEFIT PLANS The Company offers its employees participation in a qualified 401(k) profit-sharing plan which requires the Company to match employee contributions up to predetermined limits for qualified employees as defined by the plan. For the years ended December 31, 1998, 1997 and 1996, the Company contributed $24,025, $20,451 and $7,383 to the plan, respectively. NOTE 9 -- SUBSEQUENT EVENT On January 8, 1999, all outstanding shares of the Company's common stock and vested stock options to purchase the Company's common stock were purchased by Intelligroup, Inc. for a purchase price of approximately $4.5 million, consisting of cash and Intelligroup, Inc. common stock. F-28 EX-2.2 3 DISTRIBUTION AGREEMENT DATED AS OF JANUARY 1, 2000 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. 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- 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- 4 "Losses" means, with respect to any Person, any and all damage, loss, liability and expense incurred or suffered by such Person (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any and all Actions or threatened Actions). "Managing Party" has the meaning set forth in Section 4.6. "Nasdaq" means the Nasdaq Stock Market. "Netpub" means Network Publishing, Inc., a Utah corporation and wholly-owned subsidiary of Intelligroup. "Participating Party" has the meaning set forth in Section 4.6. "Person" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a governmental or political subdivision or an agency or instrumentality thereof. "Pre-Distribution Policy" has the meaning set forth in Section 7.4. "Record Date" means the date determined by Intelligroup's Board of Directors (or determined by a committee of such Board of Directors or by any person pursuant to authority delegated to such committee or such person) as the record date for determining the holders of Intelligroup Common Stock entitled to receive SeraNova Common Stock pursuant to the Distribution. "Representatives" has the meaning set forth in Section 6.6. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SeraNova Balance Sheet Liabilities" has the meaning set forth in this Section 1.1 in the definition of "SeraNova Liabilities." "SeraNova Business" means the business of providing Internet solutions. "SeraNova Common Stock" has the meaning set forth in the second recital hereto. "SeraNova Form 10" means the registration statement on Form 10 filed by SeraNova with the SEC on or about January 27, 1999, to effect the registration of SeraNova Common Stock pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended from time to time. "SeraNova Group" means SeraNova and its Subsidiaries as of (and, except where the context clearly indicates otherwise, after) the Effective Time (including all predecessors to -4- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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. 23 SCHEDULE 2.1(a) AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SERANOVA, INC. 24 CERTIFICATE REQUIRED TO BE FILED WITH THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SERANOVA, INC. Pursuant to the provisions of Section 14A:9-5(5) of the New Jersey Business Corporations Act, the undersigned corporation hereby executes the following certificate: 1. The name of the corporation is SeraNova, Inc. (the "Corporation"). 2. The Amended and Restated Certificate of Incorporation was adopted by the Board of Directors of the Corporation on December 1, 1999 and by the sole shareholder of the Corporation on December 1, 1999. 3. The number of shares of the Corporation entitled to vote on the Amended and Restated Certificate of Incorporation is 1,000 shares of Common Stock. All outstanding shares of Common Stock voted for the foregoing Amended and Restated Certificate of Incorporation and no shares of Common Stock voted against the foregoing Amended and Restated Certificate of Incorporation. 4. The Amended and Restated Certificate of Incorporation restates, integrates and amends in its entirety the provisions of the Corporation's Certificate of Incorporation, as amended to date. IN WITNESS WHEREOF, the undersigned has signed this Certificate on behalf of the Corporation this 25th day of January, 2000. By: Rajkumar Koneru --------------------------------------- Rajkumar Koneru, Chairman, Chief Executive Officer and President 25 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SERANOVA, INC. Pursuant to Section 14A:9-5 of the New Jersey Business Corporation Act (the "Act"), the undersigned corporation hereby executes this Amended and Restated Certificate of Incorporation. FIRST: The name of the Corporation is SeraNova, Inc. (the "Corporation"). SECOND: The purpose or purposes for which the Corporation is organized is to engage in any lawful activity within the purposes for which corporations may be organized under Title 14A of the Act. THIRD: The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty five million (45,000,000) shares. The Corporation is authorized to issue two classes of stock designated "Common Stock" and "Preferred Stock," respectively. The total number of shares of Common Stock authorized to be issued by the Corporation is forty million (40,000,000), each such share of Common Stock having a par value of $.01. The total number of shares of Preferred Stock authorized to be issued by the Corporation shall be five million (5,000,000), each such share of Preferred Stock having a par value of $.01, all of which is undesignated. The undesignated Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is hereby authorized, by adopting a resolution or resolutions and filing a certificate or certificates pursuant to the applicable provisions of the Act, to establish from time to time the number of shares to be included in each such series of Preferred Stock, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to the fixing or alteration of the dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of Preferred Stock, or any of them, and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In the event the number of shares of any series shall be so decreased, the shares removed from such series by such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. FOURTH: The address of the registered office of the Corporation shall be 499 Thornall Street, Edison, New Jersey 08837. The registered agent of the Corporation at its registered office shall be Rajkumar Koneru. 26 FIFTH: The number of directors constituting the current Board of Directors is three. The names and addresses of each of such directors is as follows: Name Address ---------------------- ------------------------ Rajkumar Koneru c/o SeraNova, Inc. 499 Thornall Street Edison, New Jersey 08837 Nagarjun Valluripalli c/o SeraNova, Inc. 499 Thornall Street Edison, New Jersey 08837 Ravi Singh c/o SeraNova, Inc. 499 Thornall Street Edison, New Jersey 08837 SIXTH: The following provisions are included for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its Board of Directors and shareholders: (i) The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation, subject to any limitation thereof contained in the Bylaws. The shareholders also shall have the power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, except as set forth below in clause (ii), in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation; (ii) in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of ARTICLE XI of the Bylaws of the Corporation entitled "INDEMNIFICATION AND INSURANCE." (iii) Upon the earlier of (i) the consummation of an initial public offering of securities of the Corporation under the Securities Act of 1933, as amended, or (ii) the registration of the Corporation's Common Stock under the -2- 27 Securities Exchange Act of 1934, as amended, shareholders of the Corporation may not take any action by written consent in lieu of a meeting. (iv) Special meetings of shareholders may be called at any time only by the President, the Chairman of the Board of Directors of the Corporation (if any) or a majority of the Board of Directors of the Corporation. Business transacted at any special meeting of shareholders shall be limited to matters relating to the purpose or purposes set forth in the notice of such special meeting. (v) The Board of Directors of the Corporation, when evaluating any offer of another party (a) to make a tender or exchange offer for any equity security of the Corporation or (b) to effect a business combination, merger, consolidation, or sale of all or substantially all of the assets of the Corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation as a whole, be authorized to give due consideration to any such factors as the Board of Directors of the Corporation determines to be relevant, including, without limitation: (1) the short term and long term interests of the Corporation and the Corporation's shareholders, including the possibility that these interests might be best served by the continued independence of the Corporation; (2) whether the proposed transaction might violate federal or state laws; (3) not only the consideration being offered in the proposed transaction, in relation to the then current market price for the outstanding capital stock of the Corporation, but also to the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part or through orderly liquidation, the premiums over market price for the securities of other corporations in similar transactions, current political, economic and other factors bearing on securities prices and the Corporation's financial condition and future prospects; and (4) the social, legal and economic effects upon employees, suppliers, creditors, customers and others having similar relationships with the Corporation, upon the communities in which the Corporation operates its business and upon the economy of the state, region and nation. In connection with any such evaluation, the Board of Directors of the Corporation is authorized to conduct such investigations and engage in such legal proceedings as the Board of Directors of the Corporation may determine. -3- 28 (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- 29 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- 30 SCHEDULE 2.1(b) BY-LAWS OF SERANOVA, INC. 31 BY-LAWS OF SERANOVA, INC. (FORMERLY INFINIENT, INC.) ARTICLE I OFFICES 1.01 Registered Office: The initial registered office of the Corporation shall be c/o Intelligroup, Inc., 499 Thornall Street, Edison, New Jersey 08837. The Board of Directors may change the registered office from time to time. 1.02 Other Offices: The Corporation may have such other offices either within or without the State of New Jersey as the Board of Directors may designate or as the business of the Corporation may require from time to time. ARTICLE II SEAL 2.01 Seal: The corporate seal shall be in the form adopted by the Board of Directors and may be altered by them from time to time. 6 32 ARTICLE III SHAREHOLDERS' MEETINGS 3.01 Place: All meetings of the shareholders shall be held at the registered office of the Corporation or at such other place or places, either within or without the State of New Jersey, as may from time to time be selected by the Board of Directors. 3.02 Annual Meetings: The annual meeting of shareholders shall be held at such time as may be fixed by the Board of Directors. At that meeting the shareholders shall elect, by a plurality vote, a Board of Directors, and transact such other business as may properly come before the meeting. 3.03 Special Meetings: Special meetings of the shareholders may be called only by the President, the Chairman of the Board of Directors of the Corporation (if any) or by order of a majority of the Board of Directors. Such written request shall state the purpose or purposes of the proposed meeting. Business transacted at a special meeting shall be confined to the purpose or purposes stated in the notice calling such meeting. 3.04 Notice of Shareholders' Meetings: Written notice of the time, place and purpose or purposes of every meeting of shareholders shall be given not less than ten or more than sixty days before the date of the meeting, either personally or by mail (to the last address appearing on the books of the Corporation), to each shareholder of record entitled to vote at the meeting and to each shareholder otherwise entitled to notice by law, unless a greater period of notice is required by statute in a particular case. When a meeting is adjourned to another time or place, it shall not be necessary to give notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken and at the adjourned meeting only such business is transacted as might have been transacted at the original meeting. However, if after the adjournment the Board fixes a new record date for the adjourned meeting, a notice of the -2- 33 adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice. 3.05 Waiver of Notice: Notice of a meeting need not be given to any shareholder who signs a waiver of such notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by that shareholder. Whenever shareholders are authorized to take any action after the lapse of a prescribed period of time, the action may be taken without such lapse if such requirement is waived in writing, in person or by proxy, before or after the taking of such action, by every shareholder entitled to vote thereon as of the date of the taking of such action. 3.06 Action by Shareholders Without Meeting: (1) Any action required or permitted to be taken at a meeting of shareholders by statute or the Certificate of Incorporation or By-laws of the Corporation may be taken without a meeting if all the shareholders entitled to vote thereon consent thereto in writing, except that in the case of any action to be taken pursuant to Chapter 10 (concerning mergers, etc.) of the New Jersey Business Corporation Act (the "Act"), such action may be taken without a meeting only if all shareholders entitled to vote consent thereto in writing and the Corporation provides to all other shareholders the advance notification required by paragraph (2)(b) of this section. (2) Except as otherwise provided in the Certificate of Incorporation and subject to the provisions of this subsection, any action required or permitted to be taken at a meeting of shareholders by the Act, the Certificate of Incorporation, or By-laws, other than the annual election of Directors, may be taken without a meeting upon the written consent of -3- 34 shareholders who would have been entitled to cast the minimum number of votes which would be necessary to authorize such action at a meeting at which all shareholders entitled to vote thereon were present and voting. (a) If any shareholder shall have the right to dissent from a proposed action, pursuant to Chapter 11 of the Act, the Board shall fix a date on which written consents are to be tabulated; in any other case, it may fix a date for tabulation. If no date is fixed, consents may be tabulated as they are received. No consent shall be counted which is received more than sixty days after the date of the Board action authorizing the solicitation of consents or, in a case in which consents, or proxies for consents, are solicited from all shareholders who would have been entitled to vote at a meeting called to take such action, more than sixty days after the date of mailing of solicitation of consents, or proxies for consents. (b) Except as provided in paragraph (2)(c), the Corporation, upon receipt and tabulation of the requisite number of written consents, shall promptly notify all non-consenting shareholders, who would have been entitled to notice of a meeting to vote upon such action, of the action consented to, the proposed effective date of such action, and any conditions precedent to such action. Such notification shall be given at least twenty days in advance of the proposed effective date of such action in the case of any action taken pursuant to Chapter 10 of the Act, and at least ten days in advance in the case of any other action. (c) The Corporation need not provide the notification required to be given by paragraph (2)(b) if it (i) solicits written consents or proxies for consents from all shareholders who would have been entitled to vote at a meeting called to take such action, -4- 35 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- 36 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- 37 (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- 38 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- 39 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- 40 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 -10- 41 annual meeting. Each Director shall hold office for the term for which he/she is elected and until a successor shall have been elected and qualified. 4.03 Removal of Directors: Unless otherwise provided in the Certificate of Incorporation, any or all of the Directors of the Corporation may be removed with or without cause by the shareholders by the affirmative vote of the majority of all shares then entitled to vote for the election of the Directors. 4.04 Quorum of Board of Directors and Committees; Action of Directors Without a Meeting: (1) The participation of Directors with a majority of the votes of the entire Board of Directors, or of any Committee thereof, shall constitute a quorum for the transaction of business. (2) Any action required or permitted to be taken pursuant to authorization voted at a meeting of the Board of Directors, or any Committee thereof, may be taken without a meeting if, prior or subsequent to such action, all members of the Board or such Committee, as the case may be, consent thereto in writing and such written consents are filed with the minutes of the proceedings of the Board or Committee. 4.05 Place of Board of Directors Meeting: Meetings of the Board of Directors may be held either within or without the State of New Jersey, at such times and places as the Board of Directors shall determine. 4.06 Annual Meeting: An annual meeting of the newly elected Board of Directors shall be held immediately following the annual meeting of shareholders (or immediately following any adjournment thereof) at the place of such annual meeting of shareholders, for the -11- 42 organization of such Board of Directors and for the transaction of any other business as may conveniently and properly be brought before such meeting. 4.07 Meetings of the Board of Directors: (1) Regular meetings of the Board of Directors may be held with or without notice. Special meetings of the Board of Directors shall be held upon notice to the Directors and may be called by the President upon at least one days notice to each Director either personally or by mail, wire, or telephone; special meetings shall be called by the President or Secretary in a like manner upon written request of one or more Directors. Notice of any meeting need not be given to any Director who signs a written waiver of notice, whether before or after the meeting. The attendance of any Director at a meeting, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute an effective waiver of notice by that Director. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. (2) Where appropriate communication facilities are reasonably available, any or all Directors shall have the right to participate in all or any part of a meeting of the Board of Directors, or any Committee thereof, by means of conference telephone or any means of communication by which all persons participating in the meeting are able to hear each other. 4.08 Adjournment: A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Notice of the adjournment shall be given to all Directors who were absent at the time of the adjournment. Notice of an adjourned meeting need not be given to any Directors who were present at the time of the adjournment only if the time and place are fixed at the meeting adjourning and if the period of adjournment does not exceed ten days in any one adjournment. -12- 43 4.09 Powers of Directors: The Board of Directors shall manage or direct the management of the business and affairs of the Corporation. In addition to the powers and authorities expressly conferred upon them by these By-laws, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by these By-laws directed or required to be exercised or done by the shareholders. 4.10 Compensation of Directors: The Board, by the affirmative vote of a majority of Directors in office and irrespective of any personal interest of any of them, shall have authority to establish reasonable compensation of Directors for services to the Corporation as Directors, officers or otherwise. 4.11 Executive Committees: The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an executive committee and one or more other committees, each of which shall have one or more members. Each such committee shall have and may exercise all the authority delegated to it by the Board, except that no such committee shall make, alter or repeal any By-law of the Corporation; elect or appoint any Director, or remove any officer or Director; submit to shareholders any action that requires shareholders' approval; or amend or repeal any resolution theretofore adopted by the Board which by its terms is amendable or repealable only by the Board. Actions taken at a meeting of any such committee shall be reported to the Board at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting. -13- 44 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- 45 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- 46 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- 47 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- 48 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- 49 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- 50 ARTICLE IX MISCELLANEOUS PROVISIONS 9.01 Monetary Disbursements: All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. 9.02 Fiscal Year: The Board of Directors shall be authorized to choose the initial fiscal year of the Corporation, and to change that fiscal year from time to time. 9.03 Dividends: The Board of Directors may declare and pay dividends upon the outstanding shares of the Corporation from time to time and to such extent as they deem advisable, in the manner and upon the terms and conditions provided by statute and the Certificate of Incorporation. 9.04 Reserve: Before payment of any dividend there may be set aside such sum or sums as the Directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interests of the Corporation, and the Directors may abolish any such reserve in the manner in which it was created. 9.05 Giving Notice: Whenever written notice is required to be given to any person, it may be given to such person, either personally or by sending a copy thereof through the mail. If notice is given by mail, the notice shall be deemed to be given when deposited in the mail addressed to the person to whom it is directed at his last address as it appears on the records of the Corporation, with postage pre-paid thereon. Such notice shall specify the place, day and hour -20- 51 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 -21- 52 By-laws made, by the shareholders, and the shareholders may prescribe that any By-law made by them shall not be altered, amended or repealed by the Board of Directors. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the By-laws of the Corporation, subject, however, to any limitation thereof contained in these By-laws. The shareholders also shall have the power to adopt, amend or repeal the By-laws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the By-laws of the Corporation; and provided further that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of ARTICLE XI of the By-laws of the Corporation entitled "INDEMNIFICATION AND INSURANCE." ARTICLE XI INDEMNIFICATION AND INSURANCE 11.01 Indemnification: The Corporation shall indemnify and hold harmless, to the fullest extent permitted by law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action or -22- 53 suit, whether or not by or in the right of the Corporation, or proceeding, whether civil, criminal, administrative or investigative (collectively, a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement, incurred, suffered or paid by or on behalf of such person, and expenses (including attorneys' fees) reasonably incurred by such person. 11.02 Payment of Expenses: The Corporation shall pay the expenses (including attorneys' fees) incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article or otherwise. 11.03 Claims: The right to indemnification and payment of expenses under the Certificate of Incorporation, these By-laws or otherwise shall be a contract right. If a claim for indemnification or payment of expenses under this Article is not paid in full within sixty days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. -23- 54 11.04 Non-Exclusivity of Rights: The rights conferred on any person by this Article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these By-laws, agreement, vote of shareholders or disinterested Directors or otherwise. 11.05 Other Indemnification: The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise. 11.06 Insurance: The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a Director or officer of another Corporation, or as its representative in a partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. 11.07 Amendment or Repeal: Any repeal or modification of the foregoing provisions of this Article XI shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. * * * * * * * * -24- 55 SCHEDULE 3.1(xi) OPINION OF ARTHUR ANDERSEN LLP RELATING TO TAX-FREE DISTRIBUTION 56 March 3, 2000 ARTHUR ANDERSEN Board of Directors Arthur Andersen LLP Intelligroup, Inc. 101 Eisenhower Parkway 499 Thornall Street Roseland NJ 07068-1099 Edison, New Jersey 08837 Tel 973 403 6100 Dear Ladies and Gentlemen: You have requested our opinion as to certain U.S. federal income tax consequences under the Internal Revenue Code of 1986, as amended ("the Code"), resulting from the proposed contribution (the "Contribution") of the "Internet Solutions Group Division" by Intelligroup, Inc. ("ITIG") to SeraNova, Inc. ("SeraNova") followed by the distribution by ITIG of SeraNova stock pro rata to the shareholders of ITIG (the "Distribution") under Sections 368(a)(1)(D) and 3551 pursuant to a plan described in the Contribution Agreement and the Distribution Agreement dated January 1, 2000 (the "Principal Agreements").2 All other terms used herein and not otherwise defined have the meanings ascribed to them in the Principal Agreements. In rendering our opinion, we have assumed that the Contribution and the Distribution will occur in accordance with the Principal Agreements, and that there are no other formal or informal arrangements between ITIG, any parties to the Distribution, any parties to the Principal Agreements, or any shareholders thereof. In addition, we have assumed the due authorization, execution and delivery by each party thereto of all documents, the genuineness of all signatures, the authority of all persons signing such documents on behalf of each party thereto, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals and the conformity to the original document of any document submitted to us as a certified, conformed, or photostat copy. Further, we have relied on and assumed to be accurate, as of the date hereof and as of the date of the Distribution, and without further inquiry (and without limitation as to knowledge and belief), the certifications and representations made by, and on behalf of, ITIG, SeraNova, and the stockholders, and all other parties contained in the representation letter addressed to us. We have not audited or otherwise attempted to verify the accuracy or completeness of any of the foregoing. (a) Premise of Opinion Our opinion is limited to the federal income tax matters addressed herein, and no other opinions are rendered with respect to other federal tax matters or to any issues arising under the tax laws of any - -------- 1 Unless otherwise indicated, all section references are to the Internal Revenue Code and the Treasury Regulations promulgated thereunder. 2 The term Principal Agreements refers to the Contribution Agreement dated January 1, 2000 and the Distribution Agreement dated January 1, 2000. Any reference to the "Principal Agreements" also includes Registration Statement filed on Form 10 by SeraNova with the Securities and Exchange Commission on January 27, 2000. 57 foreign country, state, or locality. The opinion expressed herein is based on our interpretation of the Code, income tax regulations thereunder, court decisions, rulings and procedures issued by the Internal Revenue Service (the "Service") as of the date of this letter, and other authorities that we deemed relevant. Should there be any change, including any change having retroactive effect, in the Code, the regulations and rulings issued thereunder, judicial interpretations thereof, or in current understanding and interpretation of tax accounting practices, the opinion expressed herein would necessarily have to be reevaluated in light of any such changes. Additionally, should any of the representations or facts set forth herein prove to be either incomplete or inaccurate, as of the date hereof, our opinion may change. We have no responsibility to update our opinion for changes in facts, assumptions, representations, or technical authorities that arise after the date of our tax opinion. We have not considered any non-income tax or any state, local, foreign, or other income tax consequences, and therefore we express no opinion regarding the treatment that would be accorded the Distribution for such purposes. We also express no opinion on non-tax issues, such as corporate or securities law matters, including whether any tax disclosures included in documents made available to the shareholders of ITIG or the public are adequate within the requirements of the securities or corporate laws that govern the issuance of such documents and disclosures. Further, our opinion does not address the potential tax ramifications to the parties named herein or the stockholders of any transaction other than the Distribution and Contribution described herein. Our opinion does not address the tax consequences of the Distribution to a ITIG stockholder that has a special status, including insurance companies; tax-exempt entities; financial institutions or broker-dealers; foreign corporations; estates and trusts not subject to U.S. federal income tax on their income regardless of source; persons who are not citizens or residents of the United States; and persons who acquired their ITIG common stock as a result of the exercise of an employee stock option, pursuant to an employee stock purchase plan, or otherwise as compensation. Opinion We are of the opinion, based upon our interpretation of the Code, the Treasury regulations, existing administrative and judicial interpretations thereof and the foregoing facts, information, assumptions and representations, all assumed to be accurate as of the date hereof, that for U.S. federal income tax purposes: 1. The transfer by ITIG to SeraNova of the assets of the Internet Solutions Group Division in exchange for all the stock of SeraNova, plus the assumption by SeraNova of liabilities associated with the Internet Solutions Group Division, followed by the pro rata distribution of all of the stock of SeraNova to ITIG's shareholders should qualify as a reorganization within the meaning of Section 368(a)(1)(D) of the Code. ITIG and SeraNova should each be a "party to the reorganization" within the meaning of Section 368(b). 2. ITIG should recognize no gain or loss on the transfer of assets to, and the assumption of the liabilities referred to above by, SeraNova in exchange for the stock of SeraNova. Sections 361(a) and 357(a) of the Code. 3. SeraNova should recognize no gain or loss on the receipt of the assets from ITIG in exchange for SeraNova stock. Section 1032(a) of the Code. 4. SeraNova's basis in the assets received from ITIG should be equal to the basis of such assets in the hands of ITIG immediately before such transfer. Section 362(b) of the Code. -2- 58 5. SeraNova's holding period of each asset received from ITIG should include the period during which ITIG held such asset. Section 1223(2) of the Code. 6. ITIG should recognize no gain or loss upon its distribution of all the SeraNova stock to the ITIG shareholders. Section 361(c)(1) of the Code. 7. The ITIG shareholders should recognize no gain or loss (and no amount should be included in the income of the ITIG shareholders) upon the receipt of SeraNova stock in the Distribution. Section 355(a)(1) of the Code. 8. The aggregate basis of the ITIG stock and the SeraNova stock in the hands of each ITIG shareholder after the Distribution should be the same as the aggregate basis of the ITIG stock held by each ITIG shareholder immediately before the Distribution, allocated between the ITIG stock and the SeraNova stock in proportion to the fair market value of each in accordance with Treas. Reg. Section1.358-2(a)(2). Section 358(a)(1), (b)(2), and (c) of the Code. 9. The holding period of the SeraNova stock received by the each ITIG shareholder should include the period that the ITIG shareholder has held the ITIG stock as of the date of the Distribution, provided that the ITIG stock is held as a capital by such shareholder on the date of the Distribution. Section 1223(1) of the Code. 10. As provided in section 312(h), proper allocation of earnings and profits between ITIG and SeraNova should be made in accordance with Treas. Reg. Section1.312-10(a). This opinion is not binding on the Service, and there can be no assurance that the Service will not take positions contrary to the opinion expressed herein. However, if the Service challenges the tax treatment of the Distribution, the opinion expressed herein reflects our assessment of the probable outcome of litigation based solely on an analysis of the existing tax authorities relating to the issues that are the subject of this opinion. This opinion is solely for the benefit of ITIG, SeraNova, and their stockholders and is not intended to be relied upon by any other party. Except to the extent expressly permitted hereby, and without the prior written consent of this firm, our opinion may not be quoted in whole or in part, or otherwise referred to in any documents or delivered to any person or entity. Any such authorized other party receiving a copy of our opinion must consult and rely upon the advice of their own counsel, accountant, or other advisor. Very truly yours, ARTHUR ANDERSEN LLP By ---------------------- Richard D. Moriarty -3- 59 SCHEDULE 8.8 SURVIVING AGREEMENTS 1. Distribution Documents EX-10.1 4 CONTRIBUTION AGREEMENT DATED AS OF JANUARY 1, 2000 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 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- 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- 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- 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- 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 Intelligroup shall have assigned, transferred and delivered to the SeraNova Group, and the SeraNova Group shall have accepted from Intelligroup, all of Intelligroup's right, title and interest in and to all SeraNova Contracts pertaining to the SeraNova Business as identified on EXHIBIT D hereto and the SeraNova Group hereby accepts and agrees to perform and comply with the SeraNova Contracts as if an original signatory thereunder. (c) The SeraNova Group hereby assumes only those SeraNova Liabilities listed on EXHIBIT E attached hereto related to the conduct of the SeraNova Business, in accordance with their respective terms. Except as set forth on EXHIBIT E, the SeraNova Group shall not otherwise acquire, discharge, assume or become responsible for any Liabilities of Intelligroup. Intelligroup agrees to pay and satisfy when due the Liabilities not expressly assumed hereunder by the SeraNova Group. (d) Upon the execution hereof, Intelligroup hereby grants to SeraNova a non-exclusive, royalty free, fully paid, irrevocable right and license to sell, assign, copy, distribute, sub-license, use and otherwise commercially exploit the intellectual property rights set forth on EXHIBIT G hereto (the "Licensed Intellectual Property"). Such license includes the right to modify and enhance the Licensed Intellectual Property and to own such modifications and enhancements, including all intellectual property related thereto. 2.2 TRANSFER OF SERANOVA ASSETS CONSISTING OF STOCK OR OTHER EQUITY INTERESTS. (a) To the extent that any of the SeraNova Assets consists of shares of stock of any corporate entity (collectively, the "Stock"), upon the execution hereof, the certificates representing the Stock, if any, shall be delivered to SeraNova, duly endorsed in blank, or accompanied by stock powers duly executed in blank, with all necessary transfer tax and other revenue stamps, acquired at the expense of Intelligroup, affixed and canceled. Intelligroup agrees to cure any deficiencies with respect to the endorsement of the certificates representing the Stock owned by Intelligroup or with respect to the stock power accompanying any such certificates. (b) To the extent that any of SeraNova Assets consists of uncertificated securities, Intelligroup agrees to make such ledger entries, or instruct appropriate agents or government agencies to make such entries, and to otherwise take such steps as reasonably necessary to transfer such uncertificated securities to SeraNova, including without limitation the payment of any transfer fees or taxes. 2.3 ADJUSTMENT OF ASSETS AND LIABILITIES. The parties acknowledge and agree that the information set forth in the Exhibits and Schedules hereto, including -6- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 29 SCHEDULE 2.4 DELAYED ASSET TRANSFERS o All assets of Intelligroup Asia Private Limited relating to its Internet services and solutions business shall be transferred to Intelligroup India Private Limited, a corporation organized under the laws of India, as soon as practicable after the Closing Date. o All of the equity interest owned by Intelligroup, Inc. or any of its subsidiaries in Intelligroup India Private Limited and each of its subsidiaries, if any, shall be transferred to SeraNova, Inc. as soon as practicable after the Closing Date. 30 SCHEDULE 2.7 LIST OF PROPERTIES 31
---------------------------------------------------------------------------- PERCENTAGE OF PREMISES LOCATION AND/OR BRANCH ALLOCATED TO SERANOVA ---------------------------------------------------------------------------- 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 ----------------------------------------------------------------------------
32 SCHEDULE 3.1 EXCLUDED CONSENTS 33 EXCLUDED CONSENTS
------------------------------------------ CONTRACT DATE ------------------------------------------ AMERICAN EXPRESS 3/22/98 ------------------------------------------ AUDI 1/1/99 ------------------------------------------ HEWLETT PACKARD 2/4/99 ------------------------------------------ LIQUIDPRICE INC. 8/13/99 ------------------------------------------ VIGNETTE CORPORATION 9/29/99 ------------------------------------------ VOLKSWAGEN OF AMERICA 1/1/99 ------------------------------------------
34 SCHEDULE 7.1 INDIVIDUALS TO WHOM OFFERS SHALL BE MADE 35 NA - NORTH AMERICA, IND - INDIA, AP - ASIA PACIFIC, EUR - EUROPE
Organiz- Number ation Code EMPLOYEE NAME Title - --------------------------------------------------------------------------------------- 1 IND A KESHAV NARSIPUR TEAM LEADER 2 IND A MANI KANDAN PROGRAMMER 3 IND A SUNEETHA MADHUKAR PROGRAMMER 4 NA PHD ABHIJIT BARDE ASSOCIATE SOFTWARE ENGINEER 5 NA PHD AKSHAY SHAH ASSOCIATE SOFTWARE ENGINEER 6 NA PHA ALAN MATSUMOTO TEMPORARY 7 AP MC ALEXANDER FRATER MANAGER 8 AP MC ALISTAIR MCLEOD TENNANT PRINCIPAL CONSULTANT 9 IND ALLAM BHARATH REDDY PROGRAMMER 10 NA PRD ALLISON ADMIN 11 AP APA AMANDA LOUISE TALBOT TYPIST RECEPTIONIST 12 IND AMIT AGARWAL CONTENT ENTRY ANALYST 13 NA PHD ANAND MANI SOFTWARE ENGINEER 14 NA NJD ANAND REDDY YEDULLA SOFTWARE ENGINEER 15 IND ANAND V KOTHAMANGALAM CONTENT ENTRY ANALYST 16 IND ANAND VENKATESHAN TESTING ANALYST 17 NA PRA ANDELIN, BRIAN D. FINANCE 18 NA PRD ANDERSON, DAN PRINCIPAL CONSULTANT MC 19 AP MC ANGELA MARY REYNOLDS PRINCIPAL CONSULTANT 20 IND ANIESH CHAWLA PROGRAMMER 21 IND ANIL OGGI PROGRAMMER 22 NA PHD ANIL SINGH MANAGER 23 IND ANITA SUBBIAH CONTENT ENTRY ANALYST 24 AP MC ANTHONY IAN CULLODEN PRINCIPAL CONSULTANT 25 AP MC ANTHONY JOHN BOOTH MANAGER 26 AP APA ANTHONY MICHAEL DUFFIN CORPORATE SERVICES EXECUTIVE 27 NA PHD ANURADHA PANDEY ASSOCIATE SOFTWARE ENGINEER 28 NA PHD ARATI MADHINENI ASSOCIATE SOFTWARE ENGINEER 29 IND ARATIKATLA SHANTI PROGRAMMER 30 IND ARJUN MUKHERJEE TEAM LEADER 31 IND ARUN GUPTA PROGRAMMER 32 NA PRD ASAY, TAYLOR SOFTWARE ENGINEER 33 IND ASHOK NATRAJAN PROGRAMMER 34 IND DEL ASHUTOSH YADAV VP - DELIVERY 35 NA OPS ASHWIN ROYADURG RECRUITING MANAGER 36 IND BABANBHAI ABDUL RAHEEM PROGRAMMER 37 NA PRD BAIRD, J. RUSSELL MANAGER 38 NA DEL BALAJI KODALI ASSOCIATE SOFTWARE ENGINEER 39 NA PRD BALAJI KRISHNAMURTHY SOFTWARE ENGINEER 40 IND OPS BALAJI VENKATACHALAM VP - OPERATIONS 41 IND BALASUBRAMANIAN MARISWARAN PROGRAMMER 42 IND BALU HERBERT PROGRAMMER 43 NA PHD BALU SRINIVASAN SOFTWARE ENGINEER 44 AP MC BAREND KEITH CRAIG MANAGER 45 AP MC BARNEY HESLOP MANAGER
36 46 AP MC BARRY DENNIS MAWER MANAGER 47 AP APS BARRY JOHN OLD REGIONAL ACCOUNT DIRECTOR 48 AP APA BELINDA JANE BOETTCHER OFFICE MANAGER 49 IND BENOY JOSE PROGRAMMER 50 AP VL BERNADINE CLARE MARWICK KNOWLEDGE MANAGER 51 AP APA BEVERLEY ANNE ELLIS RECEPTIONIST 52 NA PHD BHARAT AGARWAL SOFTWARE ENGINEER 53 NA OPS BHARAT RAJU RECRUTING MANAGER 54 IND BHASKAR PRASAD MULUGU PROGRAMMER 55 IND BHASKAR RAJAGOPAL TEAM LEADER 56 IND BHASKAR REDDY B V PROGRAMMER 57 IND BHEEMI KRISHNA MOHAN PROGRAMMER 58 NA PHD BIJU NAIR SOFTWARE ENGINEER 59 IND BIJU RUHAMMA L PROGRAMMER 60 NA PHD BISWAJIT SARKAR SOFTWARE ENGINEER 61 AP MC BRIAN CHARLES BERNON PRINCIPAL CONSULTANT 62 AP MC BRIAN FAIR PRINCIPAL CONSULTANT 63 AP MC BRUCE TINSLEY PRINCIPAL CONSULTANT 64 AP MC BRUCE WOOD MANAGER 65 AP MC BRYCE JAMES POTTINGER MANAGER 66 IND BULUSU MONMOHANAMURALI S CONTENT ENTRY ANALYST 67 NA PHD BURTON MACHADO SOFTWARE ENGINEER 68 NA PRD BUTLER MELISSA K. INTERACTIVE DESIGNER 69 IND C LEENA RANI PROGRAMMER 70 IND CANDIDA ADMIN 71 NA PHA CAROL WRIGHT PEOPLE SERVICES MANAGER 72 NA PHD CAROLYN LIM SOFTWARE ENGINEER 73 NA FCD CHAKIB JABER SOFTWARE ENGINEER 74 IND CHANDAN MISHRA PROGRAMMER 75 NA PHD CHANDRAMOHAN LINGAM ASSOCIATE SOFTWARE ENGINEER 76 IND CHIRENJEEVI MIS 77 EUR EUR CHRIS MANAGING DIRECTOR - EUROPE 78 AP APA CHRISTINE ELIZABETH BOONZAIER EXECUTIVE ASSISTANT 79 AP APA CHRISTINE JOAN NESBIT OFFICE MANAGER 80 NA DC CHRISTOPHER AROKIRAJ ASSOCIATE SOFTWARE ENGINEER 81 AP MC CHRISTOPHER ARTHUR MARSHALL PRINCIPAL CONSULTANT 82 NA PHD CHRISTOPHER BRINSON ASSOCIATE SOFTWARE ENGINEER 83 AP MC CLARE LOUISE ENGEL PRINCIPAL CONSULTANT 84 NA MKT CLAUDIO BURGOS CREATIVE DIRECTOR 85 AP MC CLIFFORD JOHN BLAKELY PRINCIPAL CONSULTANT 86 AP MC COLIN DINN MANAGER 87 AP APS COLIN GRAHAM BUTLER REGIONAL ACCOUNT DIRECTOR 88 NA SOL COOPER, TYLER B. MANAGER 89 NA PRD CORONEL, CARLOS ASSOCIATE INTERACTIVE DESIGNER 90 NA PRD CRAGUN, BRIAN B. ASSOCIATE CONTENT ANALYST 91 IND D KALYAN CHAKRAVARTHI PROGRAMMER 92 NA VLM D.K. CHAKRAVARTHY METHODOLOGIST 93 IND DASARADHI AGNIHOTRAM V S PROGRAMMER 94 NA OPS DAVE FERGUSON RECRUITING MANAGER 95 AP MC DAVID GEORGE GALE PRINCIPAL CONSULTANT
37 96 AP MC DAVID HAWKINS PRINCIPAL CONSULTANT 97 AP MC DAVID JOHN KELLY PRINCIPAL CONSULTANT 98 NA PHD DAVID LYONS SOFTWARE ENGINEER 99 AP MC DAVID NIGEL NIVEN PRINCIPAL CONSULTANT 100 AP MC DAVID RAINE OSWALD PRINCIPAL CONSULTANT 101 NA DAVID ROGERS CONTROLLER 102 NA PRD DAVIS, MATTHEW M. INTERACTIVE DESIGNER 103 IND DEBIPRASAD BENERJEE PROGRAMMER 104 NA DEL DEEP VASWANI SOFTWARE ENGINEER 105 NA NJD DEEPA BALAJI ASSOCIATE SOFTWARE ENGINEER 106 IND DEEPAK S AGARWAL PROGRAMMER 107 AP APS DENIS ALLAN PARKINSON REGIONAL ACCOUNT MANAGER 108 NA PHD DEREK AU SOFTWARE ENGINEER 109 AP MC DEREK PAUL LISTER PRINCIPAL CONSULTANT 110 NA PHD DEVANATH DESIKAN ASSOCIATE SOFTWARE ENGINEER 111 NA PHD DEVENDRA KUMAR ASSOCIATE SOFTWARE ENGINEER 112 NA PHD DHANANJAY NANIWADEKAR ASSOCIATE SOFTWARE ENGINEER 113 IND DHANASEKARAN. K PROGRAMMER 114 NA SOL DHARMA KATKURI PRINCIPAL CONSULTANT 115 NA SOL DONAHUE, MICHAEL P. DIRECTOR - SOLUTIONS 116 AP APM DONALD TRISTRAM MOORE SVP - INTERNATIONAL 117 NA PHD DUANE MATSEN SOFTWARE ENGINEER 118 IND EDWARD SAMRAJ N PROGRAMMER 119 AP APS EILEEN WILD PRINCIPAL CONSULTANT 120 NA NAM ELIZABETH MASSIMO ADMIN. ASSISTANT 121 NA PHD ERIC ECKERT PRINCIPAL SOFTWARE ENGINEER 122 NA PHD FARIZA AHSANUDDIN ASSOCIATE SOFTWARE ENGINEER 123 NA PRM FARR, RICHARD L. DIRECTOR 124 NA MGT FERESHTEH AZAD PRINCIPAL CONSULTANT 125 AP MC FIONA ALLAN OFFICE MANAGER 126 AP MC FRANCIS BENEDICT KELLY PRINCIPAL CONSULTANT 127 AP MC FRANCISCO ALMEDA TANKING PRINCIPAL CONSULTANT 128 AP MC FREDERICK GEOFFREY FURKERT PRINCIPAL CONSULTANT 129 AP APS FREDRICK JOHN PETER (BILL) BOYD DIRECTOR - AUSTRALIA 130 NA SOL G.VENKAT PRINCIPAL CONSULTANT 131 IND GADDE RAMESH PROGRAMMER 132 NA NJD GAJAPATHY SENTHIL KUMAR SOFTWARE ENGINEER 133 NA NJD GANESH NEMMANI ASSOCIATE SOFTWARE ENGINEER 134 NA PHD GANESHBABU SUBRAMANIAN SOFTWARE ENGINEER 135 IND GANTI SUBBA RAO ADMIN 136 AP MC GARY PARKER PRINCIPAL CONSULTANT 137 IND GAUTAM DESHPANDE PROGRAMMER 138 NA PRD GEARY, MICHAEL INTERACTIVE ARCHITECT 139 AP APA GENEVIEVE RUTH FRASER ACCOUNTANT 140 EUR EUR GEOFF BAKER DIRECTOR SOLUTIONS - EUROPE 141 AP MC GEOFFREY ALLEN SMITH PRINCIPAL CONSULTANT 142 AP MC GEORGE HEATHERWICK FINDLAY PRINCIPAL CONSULTANT 143 IND GEORGE KORAH MIS 144 NA AU GEORGE MORAETES PRINCIPAL CONSULTANT 145 NA PRD GIBBONS, THOMAS W. MANAGER 146 NA OPS GREG KILLPACK RECRUITING MANAGER
38 147 NA PRA GUILBERT, DERRILL E. IS 148 NA PHD GUNILLA SUNDSTROM MANAGER 149 NA PHD GUNJAN VIJAYVERGIA SOFTWARE ENGINEER 150 IND GURU PRASAD VINJAMURI PROGRAMMER 151 IND GURUBACHAN SINGH SARDAR PROGRAMMER 152 NA VLM GURURAJ MANAGULI DIRECTOR - METHODOLOGY 153 NA PRD HALL, CRAIG ASSOCIATE CONTENT ANALYST 154 IND HARI BABU PROGRAMMER 155 IND HARILAL KANAKAVALLI PROGRAMMER 156 AP MC HARRY CHOPRA DIRECTOR SOLUTIONS PRACTICE 157 IND HARSHA KIRAN ADMIN 158 AP APS HARVEY DAVID CALDER ASSOCIATE DIRECTOR 159 NA PHD HIMANSHU KOHLI SOFTWARE ENGINEER 160 NA SOL HITESH SETH PRINCIPAL CONSULTANT 161 NA PRA HOKANSON, AMIE FINANCE 162 NA PRD HOKANSON, NATHAN D. SOFTWARE ENGINEER 163 IND I STEPHEN MOSSES PROGRAMMER 164 AP MC IAIN MICHAEL BARRACLOUGH PRINCIPAL CONSULTANT 165 AP MC IAN HAMISH RODERIK MCFADYEN PRINCIPAL CONSULTANT 166 AP APM IAN HUGH TAYLOR MANAGING DIRECTOR - ASIA PACIFIC 167 AP APS IAN JOHNSON DIRECTOR, BANKING AND FINANCE 168 AP MC IAN STEWART MAWSON PRINCIPAL CONSULTANT 169 IND J SABESAN PROGRAMMER 170 IND J V N D PRASAD TEAM LEADER 171 AP MC JACK EGON BOETTCHER PRINCIPAL CONSULTANT 172 NA MKT JACOBSON, RACHEL L. MARKETING EXECUTIVE 173 IND JAFFAR SULAIMANI PROGRAMMER 174 NA NJD JAGANADDA ELURI SOFTWARE ENGINEER 175 NA FCD JAGANNATH JAYAPAUL SOFTWARE ENGINEER 176 IND JAGANNATHAN GIRIDHAR TESTING ANALYST 177 IND JAMES ROZARIO TEAM LEADER 178 AP MC JAN JEREMIA OLIVIER PRINCIPAL CONSULTANT 179 NA OPS JAN JOHNSON RECRUITING MANAGER 180 IND JANDHYALA KALYAN CHARAVARTHY 181 NA PRA JANELLE JACKSON FINANCE 182 IND JASMIT SINGH RECRUITER 183 NA AU JAY KRALL ASSOCIATE DIRECTOR 184 IND JAYA SHANKAR REDDY P CONTENT ENTRY ANALYST 185 IND JAYARAM GOLI PROGRAMMER 186 IND JAYENDARAJ RAMAMURTHI PROGRAMMER 187 NA MKT JEFF PASTERNAK 188 NA NAS JEFF SCHULMANN ASSSOCIATE DIRECTOR 189 AP APS JEFFREY GORDON ROBERTS DIRECTOR - ASIA 190 NA PRA JENNIFER RECEPTIONIST 191 AP APA JENNIFER JANE WYNNE-JONES PAYROLL ADMINISTRATOR 192 NA PRA JENSEN, BREA HUMAN RESOURCES 193 IND JEROME AMIRTHARAJ UA TEAM LEADER 194 AP MC JILLIAN KUCH HUMAN RESOURCE MANAGER 195 IND JITENDRA KUMAR RAI PROGRAMMER 196 NA PRD JOCHETZ, CHRISTOPHER INTERACTIVE ARCHITECT
39 197 NA PHD JOE JENKINS SOFTWARE ENGINEER 198 NA SOL JOE POSTIGLIONE VICE PRESIDENT - EPROCUREMENT 199 AP MC JOHN CLIVE EMANUEL PRINCIPAL CONSULTANT 200 AP MC JOHN EDWARD CRISP PRINCIPAL CONSULTANT 201 NA NAS JOHN HARDIN PRINCIPAL CONSULTANT 202 NA SOL JOHN KIMBOROUGH MANAGER 203 AP MC JOHN LESLIE CALLCUT DIRECTOR, PROJECTS 204 NA SOL JOHN LLOYD JONES PRINCIPAL CONSULTANT 205 AP APS JOHN MURRAY DOWNES REGIONAL ACCOUNT MANAGER 206 NA AU JOHN PAS PRINCIPAL CONSULTANT 207 NA PRD JOHNSON, CLIFFORD N. CONTENT ANALYST 208 AP MC JONATHAN MARK ASHBY PRINCIPAL CONSULTANT 209 NA PRD JORDAN, CHRIS IS 210 JUDITH ROGERSON ADMIN TO CEO & VP BUSS DEV 211 NA DEL JYOTI NIGAM BUSINESS ANALYST 212 IND K SHRAVAN KUMAR PROGRAMMER 213 NA KALA BHATT ACCOUNTING 214 NA SOL KALYAN SUBRAMAIAN DIRECTOR 215 NA SOL KANTH MIRIYALA ASSOCIATE DIRECTOR 216 IND KATHIRESAN PALRAJ MIS 217 AP APA KATHLEEN ANN WARREN EXECUTIVE ASSISTANT 218 AP APA KATHRYN YOUNG PRINCIPAL CONSULTANT 219 NA PHD KAUSTUBH KUNTE SOFTWARE ENGINEER 220 NA PHD KAUSTUBH MULE SOFTWARE ENGINEER 221 IND KAVITHA V PROGRAMMER 222 IND KAVITHA VARAHABHATLA PROGRAMMER 223 AP APA KENNETH GEORGE FOULNER MANAGER 224 AP MC KERRY ANNE TROTTER REGIONAL ACCOUNT MANAGER 225 AP MC KEVAN MORAN PRINCIPAL CONSULTANT 226 IND KHAIRUNISA BEGUM PROGRAMMER 227 IND KILAMBI.V. RAMANUJAM TESTING ANALYST 228 AP APS KIMBERLY MICHELLE KLASBEEK PAYROLL ADMINISTRATOR 229 IND KIRAN KUMAR GUNDIMEDA PROGRAMMER 230 IND KIRAN KUMAR PALADUGU PROGRAMMER 231 NA PRD KIRKPATRICK, SAM PRINCIPAL SOFTWARE ENGINEER 232 IND KISHORE LAKSHMAN RAJETI PROGRAMMER 233 NA PRD KNAPP, STEVEN PRINCIPAL CONSULTANT MC 234 IND KOPPISETTI SURESH KUMAR PROGRAMMER 235 IND KRISHNA KANTH JANDHYALA PROGRAMMER 236 IND KRISHNA KOSURI PROGRAMMER 237 NA PHD KRISHNAMURTHY RAJAGOPAL ASSOCIATE SOFTWARE ENGINEER 238 NA NAS KRISTEN COSTA ADMIN ASSISTANT 239 IND KUMETA VIKRAM PROGRAMMER 240 NA PRD LAIDIG, ROBERT J. SOFTWARE ENGINEER 241 NA DEL LAKSHMI NARASIMHA KOTA SOFTWARE ENGINEER 242 IND LAKSHMIN NARASIMHAN SRIVATHS 243 NA PRD LARSON, BRENT ASSOCIATE CONTENT ANALYST 244 AP MC LAURENCE MILLAR DIRECTOR - TELECOMM 245 NA PHD LAXMIKANT DASH ASSOCIATE SOFTWARE ENGINEER 246 AP APA LESLIE FEARNLEY PRINCIPAL CONSULTANT
40 247 LISA CARNATO ACCOUNTING 248 AP MC LISA JENNIFER RICKMAN TYPIST 249 NA PRD LONO, ERIK N. INTERACTIVE DESIGNER 250 NA PRD LUBEAN, AARON R. SOFTWARE ENGINEER 251 NA PRD LUBEAN, JASON I. PRINCIPAL SOFTWARE ENGINEER 252 IND M LAXMI NARAYANA MIS 253 IND MADAN MOHAN REDDY B PROGRAMMER 254 NA NJD MADHUSMITA GUPTE ASSOCIATE SOFTWARE ENGINEER 255 IND MADHUSUDANA CHITTIBHATTA PROGRAMMER 256 NA DEL MAHENDRA BAIRAGI ASSOCIATE SOFTWARE ENGINEER 257 IND MAHESH KUMAR NAVALE PROGRAMMER 258 IND MALLESH KOTA PROGRAMMER 259 IND MANINDER SINGH CONTENT ENTRY ANALYST 260 NA PHD MANJULA TEKAL SOFTWARE ENGINEER 261 IND MANOJ BALRAJ BSA 262 NA MC MARCUS BURROWS MANAGER 263 AP MC MARGERY JANE ALLISON PRINCIPAL CONSULTANT 264 AP APA MARIA ANN MCKINLEY MANAGER 265 NA PHD MARK BI SOFTWARE ENGINEER 266 AP MC MARK RAYMOND GORDON PRINCIPAL CONSULTANT 267 NA NAS MARK SMITH REGIONAL ACCT MGR 268 AP MC MARK THOMAS TURKINGTON REGIONAL ACCOUNT MANAGER 269 AP MC MARTIN WILLIAM CHAMBERS PRINCIPAL CONSULTANT 270 NA NAS MATSON, JR. JAMES E. REGIONAL ACCOUNT MANAGER 271 NA PHD MATTHEW CRONIN SOFTWARE ENGINEER 272 AP MCS MATTHEW TAYLOR PRINCIPAL CONSULTANT 273 NA PRA MAW, KRISTIN FINANCE 274 NA PRM MAW, RICHARD W. DIRECTOR 275 NA PRD MECHAM, DAVID R. ASSOCIATE DIRECTOR 276 NA PHD MEENA GOPAKUMAR PRINCIPAL CONSULTANT MC 277 IND MEKALA SRINIVAS PROGRAMMER 278 NA PHA MELODY VOSGIER ADMIN. ASSISTANT 279 AP MC MICHAEL CARTLIDGE DIRECTOR - SOLUTIONS ASIA PACIFIC 280 AP MC MICHAEL COLIN CAMPBELL CONTROLLER - ASIA PACIFIC 281 AP MC MICHAEL JOHN WALLS PRINCIPAL CONSULTANT 282 AP APA MICHELE RUTH WEST PRINCIPAL CONSULTANT 283 NA PHD MIKE DUNN ASSOCIATE SOFTWARE ENGINEER 284 IND MOHAN KANNAPA PROGRAMMER 285 NA AU MORRELL, GREGORY D. MANAGER 286 NA PRD MOSS, NICOLAS ASSOCIATE CONTENT ANALYST 287 IND MOTHUKURI SRIDHAR CONTENT ENTRY ANALYST 288 IND MOTUPALLI SRINIVAS RAO PROGRAMMER 289 IND MRUDULA MADDIPATI PROGRAMMER 290 NA PHD MUBASHER AHMED SOFTWARE ENGINEER 291 IND MUDASSIR HUSSAIN MD PROGRAMMER 292 NA DEL MUNISH ARORA ASSOCIATE SOFTWARE ENGINEER 293 IND MURALI KRISHNA ERRAMILLI PROGRAMMER 294 NA PHD MURALI PALLIKONDA ASSOCIATE SOFTWARE ENGINEER 295 NA DEL MURLI SUBRAMANI SOFTWARE ENGINEER 296 AP MC MURRAY OSBORNE MANAGER 297 IND MUTHIAH PALANIAPPA PROGRAMMER
41 298 IND NAGA LANKA MIS 299 IND NAGA RAJU PARSA PROGRAMMER 300 NA SOL NAGARAJA SRIVATSAN DIRECTOR 301 IND NAGARAJU M PROGRAMMER 302 NA DEL NAGESHWAR RAO SANNIDHANAM SOFTWARE ENGINEER 303 IND NAGESWARA RAO PAIDI PROGRAMMER 304 NA PHD NANCY CSERVAK PRINCIPAL CONSULTANT MC 305 IND NARASIMHA MURTHY UPADHYAYULA S R 306 IND NARASIMHAIAH NARAHARI PROGRAMMER 307 NA PHD NARDESH KATOCH ASSOCIATE SOFTWARE ENGINEER 308 IND NARESH KUMAR G PROGRAMMER 309 NA NAS NEAL BISCHEL REGIONAL ACCOUNT DIRECTOR 310 IND NEERAJ VADDADI BSA 311 IND NEERAJA A. PROGRAMMER 312 AP MC NEIL NORMAN MCDOUGALL PRINCIPAL CONSULTANT 313 AP MC NEVILLE MERCER PRINCIPAL CONSULTANT 314 NA PHD NICHOLAS MORISSEAU PRINCIPAL CONSULTANT MC 315 AP MC NICOLA CHARLOTTE YOUNG ASSISTANT OFFICE MANAGER 316 NA MKT NICOLE ALTOBELLO MARKETING ASSISTANT 317 AP MC NIGEL EDWARDS REGIONAL ACCOUNT MANAGER 318 IND NITIN KUMAR BHATIA TESTING ANALYST 319 NA PHD NOOR HAQ SOFTWARE ENGINEER 320 IND NUTHIKATTU SAILAJA PROGRAMMER 321 NA PHD OSMON SUKHERA SOFTWARE ENGINEER 322 IND P.V.U.PAVAN KUMAR CONTENT ENTRY ANALYST 323 IND PAGUTHARIVU S PROGRAMMER 324 NA PRD PAINTER, TIMOTHY D. PRINCIPAL SOFTWARE ENGINEER 325 IND PANKAJ HEMNANI PROGRAMMER 326 NA PHD PARAG MATAPURKAR SOFTWARE ENGINEER 327 IND PARDHASARDHI V NEELISHETTY 328 IND PARDHASARDHI V NEELISHETTY PROGRAMMER 329 IND PARUL GUPTA PROGRAMMER 330 NA NAS PAT GARDNER ASSSOCIATE DIRECTOR 331 NA PHA PATRICK KELLY SYSTEM ADMIN 332 IND PAWAN KUMAR RAMSASTRY PROGRAMMER 333 AP APA PETER CHARLES BASHFORD MANAGER 334 NA NAS PETER EVANS ASSSOCIATE DIRECTOR 335 AP APS PETER JAMES HICKS REGIONAL ACCOUNT MANAGER 336 AP MC PETER LINDSAY SMITH PRINCIPAL CONSULTANT 337 IND PRABHAKAR K.M. PROGRAMMER 338 IND PRABHAKAR KOMPELLA TEAM LEADER 339 IND PRADEEP RAMNATH IYER PROGRAMMER 340 IND PRADEEP SUDHAKAR JOSHI PROGRAMMER 341 NA PHD PRASAD SAMAK SOFTWARE ENGINEER 342 IND PRASANN V.NADGIR TEAM LEADER 343 IND PRASANNA KARMARKAR PROGRAMMER 344 NA NJD PRASHANT GUPTE SENIOR SOFTWARE ENGINEER 345 NA PHD PRASHANTH CHAKRAPANI SOFTWARE ENGINEER 346 IND PRASHANTH MALLIKARJUN PROGRAMMER 347 IND PRAVAS RANJAN PATTNAYAK PROGRAMMER 348 NA PHD PRAVEEN JHURANI ASSOCIATE SOFTWARE ENGINEER
42 349 IND PRAVEENA SRIDHARA CONTENT ENTRY ANALYST 350 NA AU PREM VEDAMUTHU PRINCIPAL CONSULTANT 351 IND PULLAMRAJU HARISH TESTING ANALYST 352 IND R RAJASHREE PATHIPAKA CONTENT ENTRY ANALYST 353 IND R SUBHA PROGRAMMER 354 NA PHD RAGHU NEELAGIRI ASSOCIATE SOFTWARE ENGINEER 355 NA RAJ KONERU CEO 356 IND RAJAGOPALAN KASIRAMAN PROGRAMMER 357 IND RAJARATHINAM SINGARAVELU PROGRAMMER 358 IND RAJASHEKAR REDDY PROGRAMMER 359 NA PHD RAJASHEKHAR MUKKAVILLI ASSOCIATE SOFTWARE ENGINEER 360 IND RAJENDRA PRASAD CHADALAVADA 361 IND RAJESH BABU SV PROGRAMMER 362 NA OPS RAJESH IYER RECRUITING MANAGER 363 IND RAJESH K TEAM LEADER 364 IND RAJESH YADALI PROGRAMMER 365 NA PHD RAJMOHAN KARTHA ASSOCIATE SOFTWARE ENGINEER 366 IND RAMAA RAGHAVAN TESTING ANALYST 367 IND RAMACHANDRAN DITTAVI.J. TESTING ANALYST 368 IND RAMAKANTH P B S V PROGRAMMER 369 IND RAMAKRISHNAN PROGRAMMER 370 IND RAMANA MURTHY PROGRAMMER 371 IND RAMANUJ SINGH PROGRAMMER 372 NA PHD RAMBABU GONUGUNTLA ASSOCIATE SOFTWARE ENGINEER 373 IND RAVI GOJE TEAM LEADER 374 IND RAVI KIRAN G PROGRAMMER 375 IND RAVI SHANKAR LOLLA PROGRAMMER 376 NA RAVI SINGH CFO 377 NA PHD RAVINDRA MAHAJAN SOFTWARE ENGINEER 378 IND RAVINDRA REDDY KATUKURI PROGRAMMER 379 IND RAVINDRAKUMAR RASAMSETTI TESTING ANALYST 380 IND RAVINDRANATH Y.V. PROGRAMMER 381 NA RICHARD BEVIS VP, MARKETING 382 NA SOL RICHARD MCLAREN MANAGER 383 NA PHD RICHARD REESE SOFTWARE ENGINEER 384 AP APS RICHARD SHENTON RICE PRINCIPAL CONSULTANT 385 AP MC RICHARD STEPHEN HATFIELD PRINCIPAL CONSULTANT 386 NA PHA RICHARD VERDUGO SYSTEM ADMIN 387 NA PRD RICHEY, RONALD H. PRINCIPAL CONSULTANT MC 388 NA PRD RICHMOND, JOE INTERACTIVE DESIGNER 389 AP MC ROBERT ARTHUR BARCLAY PRINCIPAL CONSULTANT 390 AP MC ROBERT IAN LE GRICE PRINCIPAL CONSULTANT 391 AP MC ROBERT OWEN BARNES PRINCIPAL CONSULTANT 392 NA NAS ROGER COMORA REGIONAL ACCOUNT MANAGER 393 NA NJD ROGER THOMPSON ASSOCIATE SOFTWARE ENGINEER 394 IND ROKALA TARKESH REDDY PROGRAMMER 395 NA OPS RONY DANIEL RECRUITING MANAGER 396 AP MC RUSSELL JOHN ROLLAND PRINCIPAL CONSULTANT 397 NA PRA RYMER, RANDY L. PRINCIPAL SOFTWARE ENGINEER 398 IND S M KARTHIK PROGRAMMER 399 IND S PRAVEEN PROGRAMMER
43 400 IND S RAJESH PROGRAMMER 401 IND SAINATH P CHAWLA PROGRAMMER 402 NA PHD SAIRAM VENKATARAMAN ASSOCIATE SOFTWARE ENGINEER 403 IND SAMUEL JOHNSON PROGRAMMER 404 NA DEL SANDEEP GINDE SOFTWARE ENGINEER 405 IND SANGEETA KOUR TESTING ANALYST 406 IND SANJAY CHASWAL PROGRAMMER 407 NA PHD SANJAY MADAAN SOFTWARE ENGINEER 408 NA PHD SANJAY RAO SOFTWARE ENGINEER 409 NA DEL SANJAY SINHA SOFTWARE ENGINEER 410 NA DEL SANTOSH RAVINDRAN SOFTWARE ENGINEER 411 NA PHD SAPTARSHI SEN SOFTWARE ENGINEER 412 IND SATHYANARAYANA REDDY V PROGRAMMER 413 IND SATHYAPRASAD K PROGRAMMER 414 NA DEL SATISH ADITIWAR SOFTWARE ENGINEER 415 NA NAS SCOFFIELD, LANCE REGIONAL ACCOUNT MANAGER 416 NA AU SCOTT CROMPTON DIRECTOR 417 IND SELVI ARULRAJ TESTING ANALYST 418 NA PHD SENDHIL CHOKKALINGAM SOFTWARE ENGINEER 419 NA SOL SENTHIL KUNCHITHAPATHAM ASSOCIATE DIRECTOR 420 IND SHAIK ALTAFF MOHIDDIN PROGRAMMER 421 IND SHAIK MAHAMMAD ABBAS ALI TESTING ANALYST 422 AP MC SHARON ANN TAIT PRINCIPAL CONSULTANT 423 SHARON BARRIEN ACCOUNTING 424 NA DEL SHARON GLASER PRINCIPAL CONSULTANT 425 NA PHM SHASHI JASTHI DIRECTOR 426 IND SHASHIKANTH HANUMANTA RAO PROGRAMMER 427 IND SHIBU MATHEW PROGRAMMER 428 IND SHIRMILA RANI THOTA PROGRAMMER 429 NA PHD SHYAM CHALLAPALLI ASSOCIATE SOFTWARE ENGINEER 430 NA PHD SIVA CHILUKURI SOFTWARE ENGINEER 431 NA PHD SIVA PRASAD MARELLA ASSOCIATE SOFTWARE ENGINEER 432 NA PRD SMITH, RANDALL K. PRINCIPAL CONSULTANT MC 433 IND SMITHA PURANIK PROGRAMMER 434 IND SOMAYAJULU KOLLI.S.S.S TESTING ANALYST 435 IND SONAL J. ASHTIKAR PROGRAMMER 436 IND SOWMYA KATRAGADDA PROGRAMMER 437 NA PRD SPEARS, KRISTIN PRINCIPAL SOFTWARE ENGINEER 438 IND SREEJAY MULLAKANDY RECRUITING AND OPERATIONS MANAGER 439 IND SREEKANT GOTTIMUKKALA PROGRAMMER 440 IND SRI LAKSHMI DRONAMRAJU PROGRAMMER 441 IND SRIDHAR REDDY PROGRAMMER 442 NA DC SRIDHAR REDDY SOFTWARE ENGINEER 443 IND SRIDHAR VAMARAJU PROGRAMMER 444 NA PHD SRIKANTH KATAKAM SOFTWARE ENGINEER 445 IND SRIKANTH MURTHY PROGRAMMER 446 IND SRIKANTH S KONERU CONTENT ENTRY ANALYST 447 IND SRINATH VAMARAJU CONTENT ENTRY ANALYST 448 NA PHD SRINIVAS AKKINENI ASSOCIATE SOFTWARE ENGINEER 449 IND SRINIVAS GULLIPALLI PROGRAMMER 450 IND SRINIVAS KUMAR MUKKAMALA PROGRAMMER
44 451 NA PHD SRINIVAS NANDAMURI SOFTWARE ENGINEER 452 IND SRINIVAS PEDIREDLA PROGRAMMER 453 IND SRINIVAS RAO GANTI PROGRAMMER 454 IND SRINIVAS TATAVARTHY TEAM LEADER 455 IND SRINIVAS VEERAMACHANENI S CONTENT ENTRY ANALYST 456 NA PHD SRINIVASAN RAJAMANICKAM SOFTWARE ENGINEER 457 IND SRIRAM MUTHUGI PROGRAMMER 458 IND SRIRAM S CHARI TESTING ANALYST 459 IND SRIRAM SWAMINATHAN PROGRAMMER 460 IND SRIRANJANI VARADARAJAN Z PROGRAMMER 461 NA PHD STEFANIE SICARD ASSOCIATE SOFTWARE ENGINEER 462 NA SOL STEVEN HAGLER DIRECTOR 463 AP APA STEVEN HEATH SOLUTION PRACTICE MANAGER 464 NA PRD STOCKETT, Z. TED PRINCIPAL SOFTWARE ENGINEER 465 NA PRD STRINGHAM, MARK D. ASSOCIATE CONTENT ANALYST 466 IND SUBBA RAO A.S.V TEAM LEADER 467 IND SUBBU UPPULURI PROJECT MANAGER 468 NA PHD SUBHAJIT BHATTACHERJEE SOFTWARE ENGINEER 469 NA PHD SUDHEER MAHANKALI ASSOCIATE SOFTWARE ENGINEER 470 IND SUMAN SRINIVAS POTHULA PROGRAMMER 471 IND SUMATHI ATHULURI PROGRAMMER 472 NA PHD SUMIT SOOD SOFTWARE ENGINEER 473 NA PRD SUMNER, RICHARD E. PRINCIPAL CONSULTANT MC 474 IND SUNDAR RAJAN S TESTING ANALYST 475 NA PHD SUNIL FERNANDES PROGRAMMER 476 IND SUNITA CHARY RECRUITER 477 IND SURAJ PRABHU PROGRAMMER 478 IND SURENDER RAO KATIKINENI PROGRAMMER 479 IND SUSHANTO MUKHERJEE TEAM LEADER 480 IND SUSHEEL NAIR PROGRAMMER 481 NA PRD SWENSON, DAWNA S. PRINCIPAL CONSULTANT MC 482 IND SYED AMANULLAH KHAN TEAM LEADER 483 AP MC TADEUSZ JOZEF GAWOR MANAGER 484 NA TARUN CHANDRA VP, CORP STRATEGY 485 NA NAS TERI GALLO ASSSOCIATE DIRECTOR 486 AP MC TERRY ADAMS REGIONAL ACCOUNT MANAGER 487 NA AU TERRY BRADSHAW PRINCIPAL CONSULTANT 488 NA AU TERRY, STEPHANIE A. PRINCIPAL CONSULTANT 489 AP MC THOMAS MICHAEL HUNTER PRINCIPAL CONSULTANT 490 AP MC THOMAS WARD BRADSHAW OPERATIONS MANAGER 491 NA PRD THOMAS, JENNIFER MANAGER 492 NA FCD TIM LUPTON SOFTWARE ENGINEER 493 NA DEL TIRUMALESH KOWDLAY SOFTWARE ENGINEER 494 NA TOM BERNETICH SVP, NORTH AMERICA SALES 495 NA AU TROY MCLEAN MANAGER 496 IND TUMMALA SURESH PROGRAMMER 497 NA PHD UDAY POTHAKAMURY ASSOCIATE SOFTWARE ENGINEER 498 NA DEL UDIPI CHARYA SOFTWARE ENGINEER 499 IND UGRAPPA VINAY.K. PROGRAMMER 500 IND INDA UNNAMED CONTROLLER 501 IND INDA UNNAMED DIRECTOR - HR
45 502 IND UPADYAULA RAGHU PROGRAMMER 503 IND UPPALA SRIKANTH TESTING ANALYST 504 AP APS UTAM SINGH PANNU PRINCIPAL CONSULTANT 505 IND V MAHESH YADAV PROGRAMMER 506 IND V S PAVAN KUMAR PROGRAMMER 507 IND VAMSEE KRISHNA KARUMUDI CONTENT ENTRY ANALYST 508 NA PRD VARKALA, VENKAT SOFTWARE ENGINEER 509 IND VARUN KUMAR BSA 510 NA DC VENKATESH KUMAR KIRUPAKARAN ASSOCIATE SOFTWARE ENGINEER 511 NA PHD VENKATESH RAO SOFTWARE ENGINEER 512 IND VENKATESH SADAGOPAN BSA 513 NA PHD VENKATESH SRINIVAS RAO SOFTWARE ENGINEER 514 NA PHD VENKATESH THIRUMALISAMY SOFTWARE ENGINEER 515 IND VENKATESHWARA RAO PROGRAMMER 516 NA NAS VENU RAGHAVAN ACCOUNT MANAGER 517 VERONICA SOTO ADMIN TO FINANCE 518 AP MC VICTOR IAN WARDROP PRINCIPAL CONSULTANT 519 NA NAS VICTORIA HEDRICK ACCOUNT MANAGER 520 IND VIDHYA M R PROGRAMMER 521 NA OPS VIDYA SHAKER RECRUITING MANAGER 522 NA PHA VIJAY PULSANI SYSTEM ADMIN 523 IND VIJAYA KUMAR RAO PROGRAMMER 524 IND VIJAYA SARATHI TVR PROGRAMMER 525 IND VIJAYABHASKAR Reddy Talugula 526 IND VIKRANTH PATHAK PROGRAMMER 527 NA PHD VINAY BHAT SOFTWARE ENGINEER 528 NA DEL VINAYAK PADAKI SOFTWARE ENGINEER 529 IND VINEESH DEGAPUDI PROGRAMMER 530 NA DEL VINOD MANDHANA SOFTWARE ENGINEER 531 IND VISWESHWAR RAO M PROGRAMMER 532 AP MC WARREN TOPP PRINCIPAL CONSULTANT 533 AP OPS WILLEM ABRAHAM GEERTS PRINCIPAL CONSULTANT 534 AP MC WILLIAM JOHNSON DIRECTOR - PHILLIPINES 535 NA PRD WIMMER, JASON CONTENT ANALYST 536 NA PRD WING, BRENT PRINCIPAL CONSULTANT MC 537 NA PRA WUEHLER, MICHAEL T. IS 538 IND YERUKALA CHANDRA PROGRAMMER 539 NA PHD YOGENDRA YADAV SOFTWARE ENGINEER 540 NA DEL YUVRAJ JOSHI SOFTWARE ENGINEER 541 IND ZEENAT VASTAD PROGRAMMER 542 NA PRD ZIMMERMAN, JOEL PRINCIPAL CONSULTANT MC 543 NA FCA ZINA ALBANO ADMIN. ASSISTANT
46 EXHIBIT A ANCILLARY AGREEMENTS The term "ANCILLARY AGREEMENTS" includes the following agreements: (i) Services Agreement; (ii) Tax Sharing Agreement; (iii) Space Sharing Agreement; (iv) Distribution Agreement; and (v) Promissory Note. 47 EXHIBIT B SERANOVA ASSETS The term "SERANOVA ASSETS" includes: - - Assets Related to the Conduct of the SeraNova Business in the United States by Intelligroup, Inc. (attached hereto): - - All of the equity interests of Intelligroup in the following companies: 1. NetPub; 2. Azimuth and each of its subsidiaries; and 3. Intelligroup India Private Limited and each of its subsidiaries. 48 SERANOVA ASSETS AS OF DECEMBER 31, 1999 (in thousands)
ASSETS VALUE RECIPIENT CONTRIBUTING ENTITY SERANOVA INTELLIGROUP Current Assets: Cash $ -- Accounts receivable, net of allowance for doubtful accounts of $225 3,289 Unbilled services 2,872 Other current assets 185 ------ Total Current Assets 6,346 Property and equipment, net 1,072 Intangible assets, net -- Other assets -- Total Assets $7,418 ======
ASSETS VALUE RECIPIENT CONTRIBUTING ENTITY NETWORK NETWORK (1) PUBLISHING PUBLISHING Current Assets: Cash $ 380 Accounts receivable, net of allowance for doubtful accounts of $128 2,164 Unbilled services -- Other current assets 49 ------ Total Current Assets 2,593 Property and equipment, net 529 Intangible assets, net 3,492 Other assets -- Total Assets $6,614 ======
(1)Intelligroup will contribute 100% of outstanding Common Stock of Network Publishing.
ASSETS VALUE RECIPIENT CONTRIBUTING ENTITY AZIMUTH AZIMUTH (2) Current Assets: Cash $ 219 Accounts receivable, net of allowance for doubtful accounts of $0 2,003 Unbilled services 808 Other current assets 117 ------ Total Current Assets 3,147 ------ Property and equipment, net 253 Intangible assets, net Other assets 9 Total Assets $3,409 ======
(2)Intelligroup, Inc will contribute 100% of outstanding Common Stock of Azimuth. 49
ASSETS VALUE RECIPIENT CONTRIBUTING ENTITY INDIA INTELLIGROUP Current Assets: Cash $ 12 Accounts receivable, net of allowance for doubtful accounts of $0 Unbilled services Other current assets 379 ------ Total Current Assets 391 Property and equipment, net intangible assets, net other assets 1,009 ------ Total Assets $1,400 ======
ASSETS VALUE RECIPIENT CONTRIBUTING ENTITY UK INTELLIGROUP Current Assets: Cash Accounts receivable, net of allowance for doubtful accounts of $0 Unbilled services Other current assets 39 ------ Total Current Assets 39 Property and equipment, net intangible assets, net other assets ------ Total Assets $ 39 ======
50
COMPUTERS DATE DESCRIPTION PRICE 4/8/98 Scanner for Sastry & Zip Drive for Rajan Nair 287.45 4/30/98 Laptop for Bharat Raju 3,133.00 8/5/98 Desktops for ISS Projects 10,432.20 8/28/98 Desktops for Phoenix 22,174.44 8/28/98 Server for Phoenix 16,443.32 9/2/98 Laptop Accessories for Phoenix 2,244.29 9/2/98 Laptops, Memory, SW, Server, Licenses, Catalyst, Media Pack for 6,751.15 Phoenix 9/14/98 Laptops for Phoenix 15,982.72 9/17/98 Desktops for Phoenix 22,865.37 10/19/98 Desktops for Phoenix 31,649.23 10/29/98 PostOffice Upgrade and Maintenance for Phoenix 2,295.00 11/11/98 Desktops for Phoenix 40,716.09 1/15/99 Desktops for Phoenix 22,207.81 1/19/99 Printer for Phoenix 1,573.70 1/25/99 Laptop Accessories for Sastry 557.84 3/10/99 Adtran CSU/DSU for Phoenix 671.00 3/11/99 Swiftsite Hardware Equipment for Phoenix 9,876.20 3/31/99 Server for Dharma 18,991.87 4/15/99 Laptops for Phoenix 9,052.53 4/26/99 Desktop for Phoenix 6,409.90 5/18/99 Laptops for Phoenix 29,441.87 5/24/99 Laptop for Scott Crompton 4,064.95 6/2/99 Laptop for Roger Comora 3,162.54 6/9/99 Token Ring Cards for Phoenix 964.24 6/10/99 Laptop for Arvind Ramachandran 3,841.21 6/11/99 Memory for Phoenix 1,227.56 6/15/99 PC Cards for Phoenix 616.06 6/21/99 Laptops for Phoenix 19,806.00 7/8/99 Desktops for Phoenix 20,260.90 7/8/99 Hub, Printer, Mice, Cartridges for Phoenix 1,626.15 7/12/99 Desktops for Phoenix 20,260.90 7/13/99 Hub for Phoenix 914.06 7/29/99 Desktop for Security System in Phoenix 563.99 7/29/99 Hard Drives for Phoenix 965.20 7/30/99 Turbo and Lan Cards for Phoenix 868.73 7/31/99 Laptop Purchase for ATD 3,572.00 8/4/99 Ethernet Cards for Phoenix 186.99 8/10/99 Laptop for Scott Crompton 3,762.22 8/13/99 Desktops for Phoenix 9,599.00 8/13/99 3Com Hub for Phoenix 955.39 8/16/99 CD Recorder for Arvind Ramamchandran 426.00 8/21/99 Memory for Laptops for ISS Consultants (3) 421.58 8/31/99 Laptop Purchase for ATD 2,156.00 8/31/99 Ethernet Card for ATD 616.20 9/8/99 Desktops for Phoenix Office 8,557.22 9/13/99 Desktops for Phoenix Office 17,114.42 9/16/99 Printer for Phoenix Office 1,468.41 9/22/99 Laptops for Phoenix Office 21,960.15 9/23/99 Laptop for Chakib Jaber 4,076.75 9/24/99 Memory for Phoenix Office 1,800.99 9/24/99 Token Ring Cards for Phoenix Office 230.00 9/24/99 Docking Station for Chakib Jaber 144.41 9/28/99 Server for ISS 5,039.01 9/29/99 Hub/PCI Cards for Phoenix Office 2,809.20 9/30/99 Port Switches/Mouse/Transceiver for Phoenix 3,503.30 TOTAL COMPUTERS 441,298.71
FURNITURE INVENTORY
QUANTITY PURCHASE COUNT TOTAL Executive Desks* 6 35,880 Manager Desks* 19 79,610 Workstation/Desks** 49 131,320 Conference 3 21,750 Tables*** Sofa 1 894 Armchair 1 894 Total Edison 270,347
QUANTITY PURCHASE COUNT TOTAL Managers Office 4 15,860 Support Workstations 59 146,910 Conference/Training Area 1 3,200 Conference Rooms 3 4,800 Additional Furniture 1 16,480 Total Phoenix 187,250 TOTAL FURNITURE & FIXTURES 457,597
51 TRANSFERRED INTELLECTUAL PROPERTY 1. All processes and methodologies related to SeraNova's Time-to-Market approach. 2. All documents relating to SPEC Solution Frameworks, including I-Discover, I-Supplier, I-Partner, I-Employee and I-Customer. 3. All documents outlining application development standards: (a) Java Coding Standard; (b) Visual Basic Standard; (c) GUI Standard; and (d) PowerBuilder Standard. 52 EXHIBIT C SERANOVA COMBINED BALANCE SHEET (in thousands)
FOR THE NINE-MONTH FOR THE PERIOD YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, FOR THE YEARS ENDED MARCH 31, 1999 1998 1998 1997 -------- ------- ------- ------- ASSETS Current Assets: Cash $ 611 $ 677 $ 368 $ 635 Accounts receivable, net of allowance for doubtful accounts of $353, $200, $207, $127, $0, respectively 7,456 3,096 2,169 1,230 Unbilled services 3,680 900 252 4 Other current assets 769 286 112 41 -------- ------- ------- ------- Total Current Assets 12,516 4,959 2,901 1,910 Property and equipment, net 2,863 816 315 492 Intangible assets, net 3,492 -- -- -- Other assets 9 -- -- -- -------- ------- ------- ------- Total Assets $ 18,880 $ 5,775 $ 3,216 $ 2,402 ======== ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 120 $ -- $ -- $ -- Notes payable to Parent 8,397 1,541 816 -- Accounts payable 872 526 276 137 Accrued payroll and related Costs 1,551 1,039 965 997 Accrued expenses and other liabilities 2,352 2,352 2,277 699 211 -------- ------- ------- ------- Total Current Liabilities 13,292 5,383 2,756 1,345 Long-Term Debt, net of current portion 618 -- 219 521 -------- ------- ------- ------- Total Liabilities 13,910 5,383 2,975 1,866 Shareholders' Equity: Preferred stock $.01 par value, 5,000,000 shares authorized, none issued or outstanding -- -- -- -- Common stock, $.01 par value, 40,000,000 shares authorized, 1,000 shares issued and outstanding as of December 31, 1999 -- -- -- -- Parent company investment 7,250 1,353 727 701 Currency Translation Adjustment (34) 24 (53) 15 Accumulated deficit (2,246) (985) (433) (180) -------- ------- ------- ------- Total Shareholders' Equity 4,970 392 241 536 -------- ------- ------- ------- Total Liabilities and Shareholder's Equity $ 18,880 $ 5,775 $ 3,216 $ 2,402 ======== ======= ======= =======
53 EXHIBIT D SERANOVA CONTRACTS 54 SERANOVA CONTRACTS
CUSTOMER NAME DATE - ------------- ---- Accident Compensation Corp 9/6/99 Agilent Inc. 12/6/99 Air New Zealand Limited 6/29/98 Altiris 2/5/99 American Express 3/22/98 Armstrong Inc. 9/15/99 Asian Terminals Inc 11/22/99 Aspect Telecommunications 5/23/99 Auckland City 10/12/99 Audi 1/1/99 Berli Jucker Public Company Ltd 12/19/99 Big Planet 3/9/99 Canterbury Meat Packers Ltd 10/12/99 Cedenco Australia Limited 8/25/99 Cerebos Gregg's Limited 8/25/99 College Enterprises, Inc. 9/15/99 Deloitte Touche Tomatsu 12/7/99 Department of Defence 8/5/99 Department of Labour 9/30/99 Department of Lands 11/18/99 Dominion Salt Limited 8/25/99 EMI Music Publishing 1/4/99 Fragomen, Del Rey & Bernsen 1/7/99 Genesis Power 4/6/99 Globe Telecoms 12/7/99 Heinz Wattie's Australasia 8/26/99 Hewlett Packard 2/4/99 IAccess.com 3/22/99 IBM, Cable&Wireless A/c 10/18/99 IHomeroom.com Corporation 9/17/99 Inland Revenue 8/30/99 Intermountain Health Care 9/14/99 J.R. Simplot Company 6/9/99 Liquidprice Inc. 8/13/99 LWR Industries Limited 9/11/99 McKesson Corporation 1/1/99 Medical Assurance Society 11/15/99 Merrill, Scott and Associate 2/3/99 Mighty River Power 9/20/99 Net Seed Development 5/11/99 New Zealand Dairy Board 10/12/99 New Zealand Police 11/8/99 North Shore City Council 9/8/99 Novell Electronic Marketing 6/28/99 Novell, Inc. 2/9/99 Ohgolly.com 9/16/99 Palmerston North CC 4/20/99 Penreco 3/8/99 Philippine National Oil 12/3/99 Philippines Long Distance 1/15/98 Phillip Morris Philippines 12/10/99 Powerco 10/21/99 PricewaterhouseCoopers 7/16/99 Rio Bravo Entertainment 2/5/99 Royal Canadian Government 9/28/99 Santa Cruz Operations 3/1/99 Sento Corporation 7/15/99 Simplot 4/1/99 Tacit Group 11/15/99 Telecom New Zealand Limited 10/4/99 Telecom New Zealand Ltd 10/11/99 Telephone Authority of Thailand 12/15/99 Television New Zealand 8/2/99 The Forums Group 1/29/99 The Slaymaker Group, Inc. 6/17/99 The University of Auckland 10/18/99 TransAlta New Zealand Ltd 4/15/98 US Cellular Corporation 10/6/99 Utah.com 1/6/99 Vignette Corporation 9/29/99 Vilas Development Corporation 10/20/99 Volkswagen of America 1/1/99 WebMethods, Inc. 9/16/99 Work and Income NZ 11/12/99 Zuellig Pharma 7/30/99 Zuellig Pharma Corporation 12/6/98
55 EXHIBIT E SERANOVA LIABILITIES The term "SERANOVA LIABILITIES" includes: Liabilities assumed from Intelligroup, Inc. with respect to the conduct of SeraNova Business in the United States (attached hereto): 56 SERANOVA LIABILITIES
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY SeraNova Intelligroup Current Liabilities: Current portion of long-term debt $ -- Notes payable to Parent 6,880 Accounts payable -- ------ Accrued payroll and related costs 836 Accrued expenses and other liabilities 682 ------ Total Current Liabilities 8,398 Long-Term Debt, net of current portion -- ------ Total Liabilities $8,398 ======
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY Network Publishing Network Publishing (1) Current Liabilities: Current portion of long-term debt $ 120 Notes payable to Parent 45 Accounts payable 53 Accrued payroll and related costs 206 Accrued expenses and other liabilities 591 ------ Total Current Liabilities 1,015 Long-Term Debt, net of current portion 618 ------ Total Liabilities $1,633 ======
(1) Intelligroup will contribute 100% of outstanding Common Stock of Network Publishing.
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY Azimuth Azimuth (2) Current Liabilities: Current portion of long-term debt $ -- Notes payable to Parent 1,389 Accounts payable 573 Accrued payroll and related costs 505 Accrued expenses and other liabilities 1,079 ------ Total Current Liabilities 3,546 Long-Term Debt, net of current portion -- Total Liabilities $3,546 ======
(2) Intelligroup, Inc will contribute 100% of outstanding Common Stock of Azimuth. 57
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY INDIA INTELLIGROUP Current Liabilities: Current portion of long-term debt Notes payable to Parent Accounts payable 195 ---- Accrued payroll and related costs Accrued expenses and other liabilities Total Current Liabilities 195 Long-Term Debt, net of current portion -- Total Liabilities $195 ====
LIABILITIES VALUE RECIPIENT CONTRIBUTING ENTITY UK INTELLIGROUP Current Liabilities: Current portion of long-term debt Notes payable to Parent 83 Accounts payable 51 Accrued payroll and related costs 4 Accrued expenses and other liabilities -- ---- Total Current Liabilities 138 Long-Term Debt, net of current portion -- ---- Total Liabilities $138 ====
58 EXHIBIT F PERMITTED LIENS - - Liens granted to PNC Bank N.A. pursuant to that certain Revolving Credit Loan Agreement dated January 29, 1999 and the First Amendment to Revolving Credit Loan Agreement dated January 26, 2000. 59 EXHIBIT G LICENSED INTELLECTUAL PROPERTY 1. All processes and tools related to 4 Sight Methodology. 2. All documents outlining the software selection process including, Business Process Templates, Flow Process Diagrams and Organizational Chart Templates. 60 EXHIBIT H INTERCOMPANY DEBT 61 INTERCOMPANY DEBT SeraNova has a loan payable to Intelligroup as of December 31, 1999, in the amount of $8,397,000. Additional amounts may become payable to Intelligroup stemming from income taxes and/or cash flow requirements for the periods subsequent to December 31, 1999 and prior to proposed spin-off. A note bearing an interest rate equal to the current prime rate will be negotiated prior to the proposed spin-off. EX-10.2 5 SERVICES AGREEMENT DATED AS OF JANUARY 1, 2000 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 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- 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- 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- 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- 6 12. INDEMNIFICATION. (a) Indemnity by SERANOVA. SERANOVA shall indemnify ITIG from and defend ITIG against, any liability or expenses (including reasonable attorneys' fees) arising out of or relating to any claim, loss, damage, cost, liability, or expense ("Claim"): 1. Relating to the employment or termination thereof of any Retained Employee; 2. Relating to (a) a violation of Federal, state, or other laws (including common law) or regulations, including but not limited to a violation of Federal, state, or other laws (including common law) or regulations for the protection of persons or members of a protected class or category of persons by SERANOVA, its employees, or agents, (b) sexual discrimination or harassment by SERANOVA, its employees, or agents, and (c) work-related injury except as maybe covered by SERANOVA's worker's compensation or death caused by SERANOVA, its employees, or agents; 3. Relating to amounts, including taxes, interest, and penalties, assessed against ITIG which are the obligations of SERANOVA pursuant to Section 5(b); and 4. the extent directly related to personal injury or tangible personal property, damage resulting from any Retained Employee's (prior to such Retained Employee's Transfer Date but after SERANOVA becomes a publicly held entity) and SERANOVA's negligent acts or omissions. (b) Indemnity by ITIG. ITIG shall indemnify SERANOVA from and defend SERANOVA against, any liability or expenses (including reasonable attorneys' fees) arising out of or relating to any Claim: 1. Relating to (a) a violation of Federal, state, or other laws (including common law) or regulations, including but not limited to a violation of Federal, state, or other laws or regulations for the protection of persons or members of a protected class or category of persons by ITIG, its employees, or agents, (b) sexual discrimination or harassment by ITIG, its employees, or agents, and (c ) work-related injury except as may be covered by ITIG's worker's compensation or death caused by ITIG, its employees, or agents; 2. Relating to amounts, including taxes, interest, and penalties, assessed against SERANOVA which are the obligations of ITIG pursuant to Section 5(b); 3. Relating to ITIG's non-compliance with legal or regulatory requirements applicable to ITIG; and 4. To the extent directly related to personal injury or tangible personal property damage resulting from ITIG's negligent acts or omissions excluding the acts or omissions of any Retained Employees (prior to such Retained Employee's Transfer Date but after SERANOVA becomes a publicly held entity). (c) The party seeking indemnification under any provision of this Agreement shall promptly notify the party against whom the indemnification is sought in writing of any claim for indemnification, specifying in detail the basis of such claim, the -6- 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- 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- 9 to make an award or impose a remedy that could not be made or imposed by a court deciding the matter in the same jurisdiction. 4. No discovery shall be permitted in connection with the arbitration unless expressly authorized by the arbitration panel upon a showing of substantial need by the party seeking discovery. All aspects of the arbitration shall be treated as confidential. Neither the parties nor the arbitrators may disclose the existence, content or results of the arbitration, except as necessary to comply with legal or regulatory requirements. Before making any such disclosure, a party shall give written notice to all other parties and afford such parties a reasonable opportunity to protect their interest. The result of the arbitration shall be a final decision that is binding on the parties, and judgment on the arbitrators' award may be entered in any court having jurisdiction. 15. CONFIDENTIALITY. (a) SERANOVA and ITIG shall each (i) hold the Confidential Information (as defined below) of the other in trust and confidence and avoid the disclosure or release thereof to any other person or entity by using the same degree of care as it uses to avoid unauthorized use, disclosure, or dissemination of its own Confidential Information of a similar nature, but not less than reasonable care, and (ii) not use the Confidential Information of the other party for any purpose whatsoever except as expressly contemplated under this Agreement. Each party shall disclose the Confidential Information of the other only to those of its employees having a need to know such Confidential Information and shall take all reasonable precautions to ensure that its employees comply with the provisions of this Section 15. (b) The term "Confidential Information" shall mean any and all information or proprietary materials (in every form and media) not generally known in the relevant trade or industry and which has been or is hereafter disclosed or made available by either party (the "disclosing party") to the other (the "receiving party") in connection with the efforts contemplated hereunder, including (i) all trade secrets, (ii) existing or contemplated products, services, designs, technology, processes, technical data, engineering, techniques, methodologies and concepts and any information related thereto, and (iii) information relating to business plans, sales or marketing methods and customer lists or requirements. (c) The obligations of either party under this Section 15 will not apply to information that the receiving party can demonstrate (i) was in its possession at the time of disclosure and without restriction as to confidentiality, (ii) at the time of disclosure is generally available to the public or after disclosure becomes generally available to the public through no breach of agreement or other wrongful act by the receiving party, (iii) has been received from a third party without restriction on disclosure and without breach of agreement or other -9- 10 wrongful act by the receiving party, (iv) is independently developed by the receiving party without regard to the Confidential Information of the other party, or (v) is required to be disclosed by law or order of a court of competent jurisdiction or regulatory authority, provided that the receiving party shall furnish prompt written notice of such required disclosure and reasonably cooperate with the disclosing party, at the disclosing party's cost and expense, in any effort made by the disclosing party to seek a protective order or other appropriate protection of its Confidential Information. 16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by either party hereto without the prior written consent of the other party except ITIG may, upon prior written notice to SERANOVA (but without any obligation to obtain the consent of SERANOVA), assign this Agreement or any of its rights hereunder to any affiliate of ITIG, or to any entity who succeeds (by purchase, merger, operation of law or otherwise) to all or substantially all of the capital stock, assets or business of ITIG, if such entity agrees in writing to assume and be bound by all of the obligations of ITIG under this Agreement. 17. NO THIRD-PARTY BENEFICIARIES. Nothing expressed or implied in this Agreement shall be construed to give any person or entity other than the parties any legal or equitable rights under this Agreement. 18. WAIVERS. No term or provision hereof shall be deemed waived and no breach excused unless such waiver or consent shall be in writing and signed by an authorized representative of the party claiming to have waived or consented. No consent by either party to, or waiver of, a breach by the other, whether express or implied, shall constitute a consent to, waiver of, or excuse for any different or subsequent breach. 19. NOTICES. All notices given in connection with this Agreement shall be in writing and transmitted by (i) hand delivery; (ii) courier delivery; (iii) U.S. certified mail, return receipt requested, postage prepaid; or (iv) telecopier to the addressed listed below. Delivery of said notices shall be deemed given upon the date of (a) receipt of courier delivery; (b) certified mail return receipt is signed or delivery is rejected; or (c) receipt of written confirmation of telecopier transmittal. If to ITIG: Intelligroup, Inc. 499 Thornall Street Edison, New Jersey 08837 Attn: President Fax No.: (732) 362-2100 If to SERANOVA: SeraNova, Inc. 499 Thornall Street -10- 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 -11- 12 of each party including product and completed operations and contractual liability against claims for personal bodily injury and property damage with a liability limit not less than $1,000,000 per occurrence/annual aggregate. - Errors & Omission Insurance: Covering loss or damage arising out of negligent acts or errors or omissions which arise from professional Services provided by ITIG under this Agreement and any services provided by SERANOVA (using the Retained Employees after SERANOVA becomes a publicly held entity but prior to such employee's Transfer Date) with limits no less than $1,000,000 per occurrence. Such insurance coverage as is required under this Agreement shall be in form and with insurance carriers licensed to do business in the state where the services are provided, unless otherwise provided herein. As evidence of said coverage, ITIG shall forward Certificates of Insurance, or copies of insurance policies, to SERANOVA, which shall contain a provision to endeavor to notify SERANOVA in writing of a cancellation or nonrenewal of said coverages not less than thirty (30) days before its effective date. The foregoing statements as to the types and limits of insurance coverage to be maintained by ITIG, is not intended to and shall not in any manner limit or qualify the liabilities and obligations otherwise assumed by ITIG pursuant to this Agreement, including but not limited to the provisions concerning indemnification. 27. PUBLICITY. Neither party shall use the name of the other party in any materials, statements or press releases without the prior written consent of the other party. IN WITNESS WHEREOF, this Agreement has been executed effective as of the date first above written. WITNESSES INTELLIGROUP, INC. _____________________________ _____________________________ BY: /s/ Ashok Pandey _____________________________ Ashok Pandey Co-Chief Executive Officer SERANOVA, INC. _____________________________ _____________________________ By: Raj Koneru _____________________________ Raj Koneru, CEO -12- 13 EXHIBIT A DESCRIPTION OF SUPPORT SERVICES AND APPLICABLE FEES INFORMATION SYSTEMS & SUPPORT Monthly Access and Support Fee for SAP system: - - Fixed charge of $4,000 per month; - - Includes application support and consultation; - - Does not include enhancement or modification of the underlying software or configuration, except as needed to correct for system malfunction or programming "bugs". PC Applications and Hardware Support Services/Procurement: - - Fixed monthly charge of $10,000 for January; $8,000 per month thereafter; - - Support for desktop systems and network management applications for Edison, N.J. location o Ordering, receiving and configuring of new PC's and Laptops as needed (exclusive of actual cost of hardware and software components). - - Continued access and support for Lotus Notes e-mail system currently installed; - - Additional charges may be invoiced for the actual cost incurred to extend or add user licenses should these be required (based upon increases in registered users over baseline number, determined as of December 31, 1999). The parties acknowledge that Intelligroup has entered into contractual relationships with various software vendors for use of the software. Intelligroup will permit SeraNova a right to use the software or provide services to SeraNova to the extent Intelligroup is permitted under its applicable agreements with the software vendors. SeraNova will take all reasonable actions requested by Intelligroup, so that SeraNova may use the software or receive services from Intelligroup. Upon SeraNova becoming a publicly held entity, SeraNova, at its sole cost and expense, may have to enter into separate agreements with such software vendors and may no longer have the right to use the software or receive services from Intelligroup. GENERAL ADMINISTRATIVE SUPPORT Mail Delivery & Facilities Management - - Fixed charge of $3,000 per month, adjustable upon mutual agreement to reflect changes in usage or underlying costs to Intelligroup; - - Monthly charge includes handling and distribution of mail and other deliveries, incidental office supplies, copy machine usage, and general facilities management; - - Additional charges will be invoiced for actual costs of "expressmails" (including but not limited to Federal Express, U.S. Postal Service Exerts Mail, Airborne Express); - - Additional charge of $1,000 per month for postage, adjustable upon mutual agreement to reflect changes in usage or underlying costs to Intelligroup; Receptionist - - Fixed charge of $1,700 per month. 14 Human Resources - - Fixed charge of $2,500 per month, adjustable upon mutual agreement to reflect changes in underlying employee mix; - - Administrative support related to 401(k) Plans, applicable medical benefit plans, employee manual; o Employee orientation and hiring support will be invoiced at a rate of $100 per new "in-house" employee hired (covers such incidentals as key cards, name plates, etc Billing Support - - Fixed monthly charge of $1,000; - - Provides assistance with setting up and transferring A/R, and Billing functions from Intelligroup; o Covers the cost of continued invoice processing by Intelligroup required to clear historical amounts. Payroll Support - - Fixed charge of $1,500 per month for the months of January through March, 2000; then at a rate of $500 per month thereafter; - - Provides administrative and processing assistance for the months of January through March, 2000, including assistance with quarterly tax reporting; - - Also provides for on-going advisory support in connection with payroll processing; o External charges (such as Ceridian Payroll Service) are to be directly billed to SeraNova. Immigration - - Per case charge of $100 to cover administrative costs and access to Immigration Staff; - - All external charges, including but not limited to legal (Fragomen) and I.N.S. fees are to be directly billed to SeraNova. Other Support and Administrative Costs The above assumes that certain external costs will be directly invoiced to SeraNova. In the event that any such costs, directly attributable to SeraNova, are invoiced by a third party to Intelligroup, these will be recoverable by Intelligroup upon presentment of such costs to SeraNova in the form of an invoice or other written request for payment (which will detail the costs and purposes for such costs). Certain other costs may be incurred by Intelligroup on behalf of both parties, which may include but are not be limited to (i) cost of general liability, property and casualty, and other business insurance coverages (prior to SeraNova becoming a publicly held entity); and (ii) costs of outside retained recruiting firms. Intelligroup may recover a proportionate share of such costs from SeraNova upon presentment to SeraNova in the form of an invoice or other written request for payment (which will detail the costs and purposes for such costs). Such proportion will be determined by mutual agreement of the parties. 15 INTELLIGROUP MONTHLY BILLING SCHEDULE FOR 2000 FOR CHARGES UNDER EXHIBIT A OF THE SERVICES AGREEMENT
Jan-00 Feb-00 Mar-00 Apr-00 May-00 ------ ------ ------ ------ ------ Monthly Fixed Charges Information Systems and Support SAP systems access and support $5,500 $5,500 $5,500 $5,500 $5,500 PC applications and H/W support $11,000 $11,000 $11,000 $11,000 $11,000 General Administrative Support Mail room and facilities $3,000 $3,000 $3,000 $3,000 $3,000 Postage $1,000 $1,000 $1,000 $1,000 $1,000 Receptionist $1,700 $1,700 $1,700 $1,700 $1,700 H/R support $3,500 $3,500 $3,500 $3,500 $3,500 Billing support $1,000 $1,000 $1,000 $1,000 $1,000 Payroll support $1,500 $1,500 $1,500 $500 $500 =================================================================== Total Fixed Charges for Services $28,200 $28,200 $28,200 $27,200 $27,200 =================================================================== Variable ("Per drink") charges H/R support - $100 per new in-house hire Immigration support - $100 per case
Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 ------ ------ ------ ------ ------ Monthly Fixed Charges Information Systems and Support SAP systems access and support $5,500 $5,500 $5,500 $5,500 $5,500 PC applications and H/W support $11,000 $11,000 $11,000 $11,000 $11,000 General Administrative Support Mail room and facilities $3,000 $3,000 $3,000 $3,000 $3,000 Postage $1,000 $1,000 $1,000 $1,000 $1,000 Receptionist $1,700 $1,700 $1,700 $1,700 $1,700 H/R support $3,500 $3,500 $3,500 $3,500 $3,500 Billing support $1,000 $1,000 $1,000 $1,000 $1,000 Payroll support $500 $500 $500 $500 $500 ================================================================ Total Fixed Charges for Services $27,200 $27,200 $27,200 $27,200 $27,200 ================================================================ Variable ("Per drink") charges H/R support - $100 per new in-house hire Immigration support - $100 per case
Nov-00 Dec-00 ------ ------ Monthly Fixed Charges Information Systems and Support SAP systems access and support $5,500 $5,500 PC applications and H/W support $11,000 $11,000 General Administrative Support Mail room and facilities $3,000 $3,000 Postage $1,000 $1,000 Receptionist $1,700 $1,700 H/R support $3,500 $3,500 Billing support $1,000 $1,000 Payroll support $500 $500 ======================== Total Fixed Charges for Services $27,200 $27,200 ======================== Variable ("Per drink") charges H/R support - $100 per new in-house hire Immigration support - $100 per case
INTELLIGROUP MONTHLY BILLING SCHEDULE FOR RENT AND UTILITIES CHARGES UNDER THE SPACE SHARING AGREEMENT Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 ------ ------ ------ ------ ------ ------
INTELLIGROUP MONTHLY BILLING SCHEDULE FOR RENT AND UTILITIES CHARGES UNDER THE SPACE SHARING AGREEMENT
Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 ------ ------ ------ ------ ------ ------
16 EXHIBIT B RETAINED EMPLOYEES
NAME ID# NAME ID# Badola, Anil # 2280 Natarajan, Sambamoorthy # 228 Balakrishnan, Sridhar # 2036 Nath, Mohan # 706 Boghra, Arunkumar # 479 Padmala, Srinivas Rao # 1816 Chandran, Karthikeyan # 2010 Palvai, Sreedhar # 1898 Dasari, Nageswararao # 2251 Parekh, Hitesh # 1683 Desai, Sheetal # 2221 Pavuluri, Kiran # 1509 Errangutla, Mahesh # 606 Prasani, Vineet Rayroth # 159 Gadre, Veerdhaval # 761 Rajagopal, Raghu # 326 Gaur, Harish # 1970 Ramachandran, Aravind # 1554 Gorde, Ajay # 285 Ramaswamy, Prakash # 2300 Guduru, Vidyasaagar # 2298 Rao, Shashikant # 1859 Kalapatapu, Rama Sastry # 827 Ray, Pragnesh # 1813 Kalvit, Hemant # 910 Reddy, Venugopal # 97 Kanyan, Mathew # 1847 Roche, Conrad # 2290 Kelwalkar, Anil Balakrishna # 1931 Roy, Ashok # 1596 Keswani, Haresh # 1635 Sahoo, Rabi Narayan # 1877 Kolukuluri, Trivikram # 808 Sahu, Gajendra Kumar # 2163 Koneru, Padma # 628 Sawant, Sudhir # 535 Krishnan, Vilayanur P. # 2155 Sheth, Tushar # 1592 Kumar, Manish # 2128 Sindhwani, Manesh # 1846 Kumar, Raj # 629 Soman, Kshitish # 708 Kuttalingam, Vannamuthu # 1524 Srinivasan, Girish # 1958 Lanka , Kutumba # 413 Srinivasan, Sridhar # 562 Madhavi, Nandyala # 767 Suki, Geetanjali # 2023 Madhineni, Madhukar # 684 Sunkam, Sreehari # 638 Mathur, Praveen # 1932 Susarla, Bharat # 1710 Mohammad, Asif # 348 Thirugnanam, Gomathi # 1963 Mopati, Krishna # 369 Vedavyas, Balram # 725 Morarji, Dhirendra # 1522 Wahi, Saurabh # 181 Mysore, Prashanth # 1924 Zentelis , Nicolas # 1927 Nagwekar, Suraj # 1508 Kanthi, Hanumanth not assigned Nair, Rajan # 732 Guntupalli, Bharat not assigned Nallapaneni, Netaji # 831 Aruminathan, William S not assigned Narne, Aravind # 2327 Sharan, Jaya not assigned
EX-10.11 6 REGISTRATION RIGHTS AGREEMENT DATED 03/14/2000 1 10.11 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the "Company") and Evansville, Ltd. (the "Initial Investor" and together with any additional permitted investors who become signatories hereof under the terms of Section 12 hereto and their respective permitted transferees under Section 11 hereto, if any, being herein collectively referred to as the "Investors" ). WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement, dated as of the date hereof, between the Company and such Initial Investor (the "Purchase Agreement"), and the Company and the Initial Investor have agreed to enter into this Agreement in connection therewith; NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Certain Definitions. For purposes of this Agreement: (a) "Common Stock" means the Common Stock, par value $.01 per share, of the Company. (b) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (c) "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act. (d) "Person" means any individual, partnership, corporation, unincorporated organization or association, limited liability company, trust or other firm or entity. (e) "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. (f) "Registrable Securities" means any shares of Common Stock sold to an Investor pursuant to the Purchase Agreement or the terms of Section 12 hereof or transferred by the Initial Investor (or any additional permitted investors under Section 12 hereto) to permitted transferees pursuant to Section 11 hereto; provided, however, that any Registrable Securities sold by the Investors in a transaction in which such Investors' rights under this Agreement are not assigned pursuant to Section 12 below shall cease to be Registrable Securities from and after the time of such sale. Notwithstanding the foregoing, securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale. (g) "SEC" means the Securities and Exchange Commission. (h) "Securities Act" means the Securities Act of 1933, as amended. 1 2 (i) "Violation" means any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement under this Agreement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. 2. Request for Registration. (a) If the Company shall receive, at any time after the earlier of (i) five years after the date hereof or (ii) four (4) months after the closing of the Spin-Off (as defined in the Purchase Agreement), from one or more Investors cumulatively holding at least 30% of the Registrable Securities not previously registered (the "Initiating Investors") a written request that the Company file a registration statement under the Securities Act covering the registration of at least 25% of the Registrable Securities not previously registered (or any lesser number of shares if the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is reasonably expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall, subject to Section 2(b) below: (i) Promptly give written notice of the proposed registration to all other Investors (if any); and (ii) As soon as practicable, use its reasonable diligent efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the portion of the Registrable Securities as are specified in the Qualifying Request, together with the portion of the Registrable Securities of any Investor joining in such Qualifying Request as are specified in a written request made by such Investor(s) and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor(s). (b) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2: (i) after the Company has initiated one such registration pursuant to this Section 2 (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which securities have been sold), (ii) during any period starting 60 days prior to the proposed filing date of a registration statement of the Company and ending 180 days after the effective date of such registration statement or (iii) if the Registrable Securities requested to be included in a registration pursuant to this Section 2 may be registered on Form S-3 pursuant to Section 4 hereof. (c) Subject to Section 2(b) above, the Company shall file a registration statement covering the Registrable Securities requested to be registered pursuant to Section 2(a) as soon as practicable after receipt of the Qualifying Request; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company such registration would not be in the best interests of the Company at such time, and (ii) the Company shall furnish to the Initiating Investors a certificate signed by an authorized officer of the Company to such effect, then the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the Qualifying Request; and, further provided, that the Company shall not defer its obligation in this manner more than once in any twelve-month period. (d) The registration statement required to be filed pursuant to a Qualifying Request may, subject to the provisions of Section 2(e) hereof, include other securities of the Company with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. 2 3 (e) If the Initiating Investors intend to distribute the Registrable Securities covered by their Qualifying Request by means of an underwriting, they shall so advise the Company as part of their Qualifying Request made pursuant to Section 2(a), and the Company shall include such information in its written notice referred to in Section 2(a)(i). In such event, the right of any Investor to registration pursuant to this Section 2 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. If the Company requests inclusion in any registration pursuant to this Section 2 of securities being sold for its own account, or if other Persons shall request inclusion in any registration pursuant to this Section 2, the Initiating Investors shall, on behalf of all Investors, offer to include such securities in the underwriting and may condition such offer on the Company's and such Persons' acceptance of the applicable provisions of this Agreement. The Company shall (together with all Investors and other Persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Registrable Securities held by the Initiating Investors, which underwriters must be reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Investors and the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, then the number of shares sought to be included by the Company and any Persons other than the Investors requesting inclusion in such registration shall be reduced to the extent required by the representative of the underwriters and the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all such other securities are first entirely excluded; thereafter, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 8 hereof. If a Person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2(e), then the Company shall offer to all Investors who have retained rights to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Investors in accordance with Section 8. 3. Company Registration. (a) Subject to Section 3(e) below, if at any time or times after the date hereof the Company determines to register any of its equity securities either for its own account or the account of a security holder or holders exercising its or their demand registration rights, the Company will: (i) Promptly give to each Investor written notice thereof; and (ii) Use its reasonable diligent efforts to include in such registration (and any related qualifications under applicable blue sky or other state securities laws and other compliance with the Securities Act), except as set forth in Section 3(c) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request made by any Investor and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor. Such written request may specify all or a part of an Investor's Registrable Securities. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Investors as a part of the written notice given pursuant to Section 3(a)(i) above. In such event, the right of any Investor to registration 3 4 pursuant to this Section 3 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. All Investors proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company that have exercised their registration rights to participate therein and are distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Notwithstanding any other provision of this Section 3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the Company shall so advise all Investors holding Registrable Securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated (i) first to the Company for securities being sold for its own account and to security holders that have exercised their demand registration rights with respect to such registration, (ii) then to all other holders of equity securities of the Company included in such registration, including any Investors, on a pro rata basis. If any Person does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. (d) If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to any Investors who have retained the right to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration, provided that the number of shares of Registrable Securities, and the other securities entitled to be included in such registration in respect of such withdrawn shares, shall be allocated in accordance with the first sentence of Section 3(c). (e) This Section 3 shall not apply to a registration on any registration form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities or to registrations relating solely to (i) any Company employee benefit plan or (ii) transactions pursuant to Rule 145 or any other similar rule promulgated under the Securities Act. 4. Registration on Form S-3. (a) After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Agreement, the Investors holding at least 10% of the Registrable Securities not previously registered shall have the right to request a registration on Form S-3 (such requests shall be in writing and shall state the number of Registrable Securities to be sold by such Investors and the intended method of disposition). As soon as practicable after receiving such request, the Company shall effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the Registrable Securities requested to be included in such registration; provided, however, that the Company shall not be obligated to effect, or take any action to effect, any such registration if (i) Form S-3 is not then available for use in such offering; (ii) the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is not reasonably expected to exceed $3,000,000; (iii) the Company shall furnish to the requesting Investors the certification described in Section 2(c) (but subject to the limitations set forth therein); (iv) the Company shall have already completed two registrations on Form S-3 during the prior 12 months (counting for this purpose only registrations which have been declared or ordered effective); (v) the sale of Registrable Securities in such offering would occur in any 4 5 jurisdiction in which the Company would be required to qualify to do business (and in which it would not otherwise be required to qualify but for the sale of such Registrable Securities) or to file a general consent to service of process; or (vi) the sale of Registrable Securities in such offering would occur during any period starting on the effective date of any registration statement of the Company (other than such Form S-3) and ending 180 days after the effective date of such registration statement. (b) Regardless of whether any Investor has completed the sale of its Registrable Securities covered by a Form S-3, if, at any time after the effective date of such Form S-3, the Company notifies such Investor that such Form S-3 includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, then the Company may require such Investor to cease such Investor's sales of Registrable Securities covered by such Form S-3 until such time as the Company files an amendment to such Form S-3 correcting such untrue statement or including such material fact, which amendment shall be filed by the Company no later than 90 days after the date of the Company's notice given to such Investor under this Section 4(b). 5. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as soon as practicable: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective, and, upon the request of any of the Investors holding Registrable Securities being registered thereunder, keep such registration statement effective for up to 90 days or until the Investors have completed the distribution referred to in such registration statement, whichever occurs first; provided, however, that before filing such registration statement or any amendment thereto, the Company will furnish to the Investors holding Registrable Securities covered by such registration statement copies of all such documents proposed to be filed. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement. (c) Furnish to the Investors holding Registrable Securities covered by such registration statement such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as the Investors holding Registrable Securities covered by such registration statement may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the representative of the underwriters of such offering. (e) Notify each Investor holding Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact 5 6 required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (f) Notify each Investor holding Registrable Securities covered by such registration statement: (i) when the registration statement has become effective; (ii) when any post-effective amendment to the registration statement becomes effective; and (iii) of any request by the SEC for any amendment or supplement to the registration statement or prospectus or for additional information. (g) Notify each Investor holding Registrable Securities covered by such registration statement if at any time the SEC should institute or threaten to institute any proceedings for the purpose of issuing, or should issue, a stop order suspending the effectiveness of such registration statement. Upon the occurrence of any of the events mentioned in the preceding sentence, the Company will use its reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as reasonably possible. The Company will advise each Investor holding Registrable Securities covered by such registration statement promptly of any order or communication of any public board or body addressed to the Company suspending or threatening to suspend the qualification of any Registrable Securities for sale in any jurisdiction. (h) As soon as practicable after the effective date of such registration statement, and in any event within 16 months thereafter, have "made generally available to its security holders" (within the meaning of Rule 158 under the Securities Act) an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of such registration statement and otherwise complying with Section 11(a) of the Securities Act. 6. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such Registrable Securities as shall be required to effect the registration of such Investor's Registrable Securities. 7. Expenses of Demand Registration. All expenses, other than underwriting discounts and commissions relating to Registrable Securities, incurred in connection with registrations pursuant to this Agreement (for this purpose only registrations which have been declared or ordered effective), including, without limitation, all registration, filing and qualification fees, printers' and accounting fees relating or apportionable thereto, the fees and disbursements of one counsel for the security holders of the Company participating in such registration up to a maximum amount of $15,000 and the fees and disbursements of counsel to the Company shall be borne by the Company. 8. Allocation of Registration Opportunities. In any circumstance in which all of the Registrable Securities requested to be included in a registration on behalf of the Investors cannot be so included as a result of limitations imposed by any underwriter or underwriters of the aggregate number of Registrable Securities that may be so included, the number of Registrable Securities that may be so included shall be allocated among the Investors requesting inclusion pro rata on the basis of the number of Registrable Securities that would be held by such Investors; provided, however, that if any Investor does not request inclusion of the minimum number of shares of Registrable Securities allocated to such Investor pursuant to the above-described procedure, the remaining portion of such Investor's allocation shall be reallocated among those requesting Investors whose allocations did not satisfy their requests, pro rata on the basis of the number of Registrable Securities that would be held by such Investors, and this procedure shall be repeated until all of the Registrable Securities which may be included in the registration on behalf of the requesting Investors have been so allocated. 6 7 9. Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Investor and each Investor's officers and directors, any underwriter (as defined in the Securities Act) for such Investor and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such Investor or underwriter against any losses, claims, damages or liabilities, whether or not involving a third party, to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon a Violation by the Company (provided, however, that the Company will not be required to indemnify any of the foregoing Persons on account of any losses, claims, damages or liabilities arising out of or based upon a Violation by the Company if and to the extent that such Violation was made in a preliminary prospectus and was corrected in a subsequent prospectus that was required by law to be delivered to the Person making the claim with respect to which indemnification is sought hereunder (and such subsequent prospectus was made available by the Company to permit delivery of such prospectus in a timely manner) and such subsequent prospectus was not so delivered to such Person); and the Company will pay to each indemnified party under this Section 9(a), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case to a particular indemnified party for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation by the Company which occurs in reliance upon and in conformity with written information furnished by or on behalf of such indemnified party expressly for use in connection with any registration. (b) Each selling Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) the Company, any underwriter (as defined in the Securities Act), any other Investor or other Person selling securities covered by such registration statement and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such underwriter or other Investor or Person, against any losses, claims, damages or liabilities, whether or not involving a third party, to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon a Violation by the selling Investor, in each case to the extent that such Violation by the selling Investor occurs in reliance upon and in conformity with written information furnished by or on behalf of the indemnifying Investor expressly for use in connection with any registration; and each indemnifying Investor will pay to each indemnified party under this Section 9(b), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnifying Investor (which consent shall not be unreasonably withheld); and further provided, that in no event shall the liability of any Investor under this Section 9(b) exceed the net proceeds from the offering received by such Investor. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, deliver to the indemnifying party a written notice of the commencement of such action, and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any 7 8 other indemnifying party similarly noticed, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party. The failure to deliver written notice to the indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 9 except if, and only to the extent that, the indemnifying party is actually prejudiced thereby; and such failure to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. (d) The obligations of the Company to any particular Investor and of such Investor to the Company shall survive for a period of two (2) years from the completion of any offering of Registrable Securities of such Investor pursuant to the last registration statement under this Agreement in which such Investor's Registrable Securities were included. (e) If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by or on behalf of the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of fraudulent misrepresentation. Notwithstanding anything to the contrary in this Section 9, no Investor shall be required, pursuant to this Section 9, to contribute any amount in excess of the net proceeds received by such Investor from the sale of Registrable Securities in the offering to which the losses, claims, damages, liabilities or expenses of the indemnified party relate. 10. Termination. The rights of any Investor to request registration or inclusion in any registration pursuant to this Agreement shall terminate upon the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii) such time when Rule 144(k) or another similar exception under the Securities Act is available for the sale of all of the Registrable Securities of the Investors during any three-month period without registration; provided, however, that the obligations of the parties contained in Section 9 hereof shall survive as contemplated by Section 9(d). 11. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned in whole or in part only by an Investor to one or more transferees or assignees permitted under the Stockholders' Agreement dated as of the date hereof by and among the Company, the Initial Investor and Intelligroup, Inc. (the "Stockholders' Agreement"); provided that, in each case, as a condition to such transfer or assignment, the transferring Investor shall give prior written notice to the Company of such transfer or assignment (which notice shall set forth the identity of the transferee or assignee) and such transferee or assignee shall deliver to the Company a written instrument by which such transferee or assignee agrees to be bound by the obligations imposed on the transferring Investor under this Agreement, to the same extent as if such transferee or assignee was a party hereto. 12. Additional Investors. The Initial Investor acknowledges and agrees that: (i) following the date of this Agreement, the Company may sell additional Common Stock (as defined in the Purchase Agreement) to other parties (the "Additional Purchasers") on the same terms and conditions as are contained in the Purchase Agreement, the Stockholders' Agreement and this Agreement, including but not limited to under the terms of the Option Letter (as defined in the Purchase Agreement), (ii) promptly 8 9 following such sale, this Agreement may be amended to add such Additional Purchasers of Common Stock as parties hereto or such Additional Purchasers may enter into Registration Rights Agreements with the Company with terms and conditions which are the same as the terms and conditions of this Agreement, and (iii) following such actions, such Additional Purchasers of Common Stock, shall be deemed "Investors" with the same registration and other rights hereunder as the Initial Investor and their securities shall be deemed "Registrable Securities" hereunder. 13. Changes in Registrable Securities. If, and as often as, there are any changes in the Registrable Securities by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions of this Agreement, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Registrable Securities as so changed. Without limiting the generality of the foregoing, the Company will require any successor by merger or consolidation to assume and agree to be bound by the terms of this Agreement as a condition to any such merger or consolidation. 14. Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement. 15. Amendment; Waiver. Any term, covenant, agreement or condition of this Agreement may be amended, and compliance therewith may be waived (either generally or in a particular circumstance and either retroactively or prospectively), (i) as to the Company, by a written instrument signed by the Company, and (ii) as to the Investors, by one or more written instruments signed by all the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investors and the Company. 16. Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or (i) forty-eight (48) hours after being deposited in the U.S. mail in the case of mail sent within the United States and (ii) five (5) days after being deposited in the mail in the case of mail sent to or from a location outside the United States, as certified or registered mail, with postage prepaid, as follows: If to the Company to: 499 Thornall Street Edison, New Jersey 08837 Attention: President with a copy to: Carter, Ledyard & Milburn Two Wall Street New York, New York 10005 Attention: James E. Abbott, Esq. If to an Investor: At the address set forth on the signature page hereof 9 10 or at such other address or facsimile number as shall be designated by such party in a notice to the other party provided in accordance with this Section 16. 17. Severability. In the event one or more of the provisions of this Agreement should for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 18. Counterparts. This Agreement may be executed in any number of counterparts, and by facsimile, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one instrument. 19. Entire Agreement. This Agreement, the Stockholders' Agreement and the Purchase Agreement constitute the entire agreement among the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement, the Stockholders' Agreement and the Purchase Agreement. [SIGNATURE PAGE FOLLOWS] 10 11 IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed and delivered as of the date first written above. SERANOVA, INC. By: /s/ Ravi Singh _______________________________ Name: Title: INVESTOR Evansville Limited By: /s/ Alan G. Quasha _______________________________ Name: Alan G. Quasha Title: Address: PO Box 438 Roadtown, Tortola British Virgin Islands 11 EX-10.12 7 REGISTRATION RIGHTS AGREEMENT DATED 03/14/2000 1 Exhibit 10.12 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the "Company") and Ampal-American Israel Corporation (the "Initial Investor" and together with any additional permitted investors who become signatories hereof under the terms of Section 12 hereto and their respective permitted transferees under Section 11 hereto, if any, being herein collectively referred to as the "Investors"). WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement, dated as of the date hereof, between the Company and such Initial Investor (the "Purchase Agreement"), and the Company and the Initial Investor have agreed to enter into this Agreement in connection therewith; NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Certain Definitions. For purposes of this Agreement: (a) "Common Stock" means the Common Stock, par value $.01 per share, of the Company. (b) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (c) "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act. (d) "Person" means any individual, partnership, corporation, unincorporated organization or association, limited liability company, trust or other firm or entity. (e) "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. (f) "Registrable Securities" means any shares of Common Stock sold to an Investor pursuant to the Purchase Agreement or the terms of Section 12 hereof or transferred by the Initial Investor (or any additional permitted investors under Section 12 hereto) to permitted transferees pursuant to Section 11 hereto; provided, however, that any Registrable Securities sold by the Investors in a transaction in which such Investors' rights under this Agreement are not assigned pursuant to Section 12 below shall cease to be Registrable Securities from and after the time of such sale. Notwithstanding the foregoing, securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale. (g) "SEC" means the Securities and Exchange Commission. (h) "Securities Act" means the Securities Act of 1933, as amended. 1 2 (i) "Violation" means any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement under this Agreement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. 2. Request for Registration. (a) If the Company shall receive, at any time after the earlier of (i) five years after the date hereof or (ii) four (4) months after the closing of the Spin-Off (as defined in the Purchase Agreement), from one or more Investors cumulatively holding at least 30% of the Registrable Securities not previously registered (the "Initiating Investors") a written request that the Company file a registration statement under the Securities Act covering the registration of at least 25% of the Registrable Securities not previously registered (or any lesser number of shares if the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is reasonably expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall, subject to Section 2(b) below: (i) Promptly give written notice of the proposed registration to all other Investors (if any); and (ii) As soon as practicable, use its reasonable diligent efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the portion of the Registrable Securities as are specified in the Qualifying Request, together with the portion of the Registrable Securities of any Investor joining in such Qualifying Request as are specified in a written request made by such Investor(s) and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor(s). (b) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2: (i) after the Company has initiated one such registration pursuant to this Section 2 (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which securities have been sold), (ii) during any period starting 60 days prior to the proposed filing date of a registration statement of the Company and ending 180 days after the effective date of such registration statement or (iii) if the Registrable Securities requested to be included in a registration pursuant to this Section 2 may be registered on Form S-3 pursuant to Section 4 hereof. (c) Subject to Section 2(b) above, the Company shall file a registration statement covering the Registrable Securities requested to be registered pursuant to Section 2(a) as soon as practicable after receipt of the Qualifying Request; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company such registration would not be in the best interests of the Company at such time, and (ii) the Company shall furnish to the Initiating Investors a certificate signed by an authorized officer of the Company to such effect, then the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the Qualifying Request; and, further provided, that the Company shall not defer its obligation in this manner more than once in any twelve-month period. (d) The registration statement required to be filed pursuant to a Qualifying Request may, subject to the provisions of Section 2(e) hereof, include other securities of the Company with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. 2 3 (e) If the Initiating Investors intend to distribute the Registrable Securities covered by their Qualifying Request by means of an underwriting, they shall so advise the Company as part of their Qualifying Request made pursuant to Section 2(a), and the Company shall include such information in its written notice referred to in Section 2(a)(i). In such event, the right of any Investor to registration pursuant to this Section 2 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. If the Company requests inclusion in any registration pursuant to this Section 2 of securities being sold for its own account, or if other Persons shall request inclusion in any registration pursuant to this Section 2, the Initiating Investors shall, on behalf of all Investors, offer to include such securities in the underwriting and may condition such offer on the Company's and such Persons' acceptance of the applicable provisions of this Agreement. The Company shall (together with all Investors and other Persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Registrable Securities held by the Initiating Investors, which underwriters must be reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Investors and the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, then the number of shares sought to be included by the Company and any Persons other than the Investors requesting inclusion in such registration shall be reduced to the extent required by the representative of the underwriters and the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all such other securities are first entirely excluded; thereafter, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 8 hereof. If a Person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2(e), then the Company shall offer to all Investors who have retained rights to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Investors in accordance with Section 8. 3. Company Registration. (a) Subject to Section 3(e) below, if at any time or times after the date hereof the Company determines to register any of its equity securities either for its own account or the account of a security holder or holders exercising its or their demand registration rights, the Company will: (i) Promptly give to each Investor written notice thereof; and (ii) Use its reasonable diligent efforts to include in such registration (and any related qualifications under applicable blue sky or other state securities laws and other compliance with the Securities Act), except as set forth in Section 3(c) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request made by any Investor and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor. Such written request may specify all or a part of an Investor's Registrable Securities. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Investors as a part of the written notice given pursuant to Section 3(a)(i) above. In such event, the right of any Investor to registration 3 4 pursuant to this Section 3 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. All Investors proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company that have exercised their registration rights to participate therein and are distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Notwithstanding any other provision of this Section 3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the Company shall so advise all Investors holding Registrable Securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated (i) first to the Company for securities being sold for its own account and to security holders that have exercised their demand registration rights with respect to such registration, (ii) then to all other holders of equity securities of the Company included in such registration, including any Investors, on a pro rata basis. If any Person does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. (d) If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to any Investors who have retained the right to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration, provided that the number of shares of Registrable Securities, and the other securities entitled to be included in such registration in respect of such withdrawn shares, shall be allocated in accordance with the first sentence of Section 3(c). (e) This Section 3 shall not apply to a registration on any registration form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities or to registrations relating solely to (i) any Company employee benefit plan or (ii) transactions pursuant to Rule 145 or any other similar rule promulgated under the Securities Act. 4. Registration on Form S-3. (a) After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Agreement, the Investors holding at least 10% of the Registrable Securities not previously registered shall have the right to request a registration on Form S-3 (such requests shall be in writing and shall state the number of Registrable Securities to be sold by such Investors and the intended method of disposition). As soon as practicable after receiving such request, the Company shall effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the Registrable Securities requested to be included in such registration; provided, however, that the Company shall not be obligated to effect, or take any action to effect, any such registration if (i) Form S-3 is not then available for use in such offering; (ii) the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is not reasonably expected to exceed $3,000,000; (iii) the Company shall furnish to the requesting Investors the certification described in Section 2(c) (but subject to the limitations set forth therein); (iv) the Company shall have already completed two registrations on Form S-3 during the prior 12 months (counting for this purpose only registrations which have been declared or ordered effective); (v) the sale of Registrable Securities in such offering would occur in any 4 5 jurisdiction in which the Company would be required to qualify to do business (and in which it would not otherwise be required to qualify but for the sale of such Registrable Securities) or to file a general consent to service of process; or (vi) the sale of Registrable Securities in such offering would occur during any period starting on the effective date of any registration statement of the Company (other than such Form S-3) and ending 180 days after the effective date of such registration statement. (b) Regardless of whether any Investor has completed the sale of its Registrable Securities covered by a Form S-3, if, at any time after the effective date of such Form S-3, the Company notifies such Investor that such Form S-3 includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, then the Company may require such Investor to cease such Investor's sales of Registrable Securities covered by such Form S-3 until such time as the Company files an amendment to such Form S-3 correcting such untrue statement or including such material fact, which amendment shall be filed by the Company no later than 90 days after the date of the Company's notice given to such Investor under this Section 4(b). 5. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as soon as practicable: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective, and, upon the request of any of the Investors holding Registrable Securities being registered thereunder, keep such registration statement effective for up to 90 days or until the Investors have completed the distribution referred to in such registration statement, whichever occurs first; provided, however, that before filing such registration statement or any amendment thereto, the Company will furnish to the Investors holding Registrable Securities covered by such registration statement copies of all such documents proposed to be filed. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement. (c) Furnish to the Investors holding Registrable Securities covered by such registration statement such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as the Investors holding Registrable Securities covered by such registration statement may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the representative of the underwriters of such offering. (e) Notify each Investor holding Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact 5 6 required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (f) Notify each Investor holding Registrable Securities covered by such registration statement: (i) when the registration statement has become effective; (ii) when any post-effective amendment to the registration statement becomes effective; and (iii) of any request by the SEC for any amendment or supplement to the registration statement or prospectus or for additional information. (g) Notify each Investor holding Registrable Securities covered by such registration statement if at any time the SEC should institute or threaten to institute any proceedings for the purpose of issuing, or should issue, a stop order suspending the effectiveness of such registration statement. Upon the occurrence of any of the events mentioned in the preceding sentence, the Company will use its reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as reasonably possible. The Company will advise each Investor holding Registrable Securities covered by such registration statement promptly of any order or communication of any public board or body addressed to the Company suspending or threatening to suspend the qualification of any Registrable Securities for sale in any jurisdiction. (h) As soon as practicable after the effective date of such registration statement, and in any event within 16 months thereafter, have "made generally available to its security holders" (within the meaning of Rule 158 under the Securities Act) an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of such registration statement and otherwise complying with Section 11(a) of the Securities Act. 6. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such Registrable Securities as shall be required to effect the registration of such Investor's Registrable Securities. 7. Expenses of Demand Registration. All expenses, other than underwriting discounts and commissions relating to Registrable Securities, incurred in connection with registrations pursuant to this Agreement (for this purpose only registrations which have been declared or ordered effective), including, without limitation, all registration, filing and qualification fees, printers' and accounting fees relating or apportionable thereto, the fees and disbursements of one counsel for the security holders of the Company participating in such registration up to a maximum amount of $15,000 and the fees and disbursements of counsel to the Company shall be borne by the Company. 8. Allocation of Registration Opportunities. In any circumstance in which all of the Registrable Securities requested to be included in a registration on behalf of the Investors cannot be so included as a result of limitations imposed by any underwriter or underwriters of the aggregate number of Registrable Securities that may be so included, the number of Registrable Securities that may be so included shall be allocated among the Investors requesting inclusion pro rata on the basis of the number of Registrable Securities that would be held by such Investors; provided, however, that if any Investor does not request inclusion of the minimum number of shares of Registrable Securities allocated to such Investor pursuant to the above-described procedure, the remaining portion of such Investor's allocation shall be reallocated among those requesting Investors whose allocations did not satisfy their requests, pro rata on the basis of the number of Registrable Securities that would be held by such Investors, and this procedure shall be repeated until all of the Registrable Securities which may be included in the registration on behalf of the requesting Investors have been so allocated. 6 7 9. Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Investor and each Investor's officers and directors, any underwriter (as defined in the Securities Act) for such Investor and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such Investor or underwriter against any losses, claims, damages or liabilities, whether or not involving a third party, to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon a Violation by the Company (provided, however, that the Company will not be required to indemnify any of the foregoing Persons on account of any losses, claims, damages or liabilities arising out of or based upon a Violation by the Company if and to the extent that such Violation was made in a preliminary prospectus and was corrected in a subsequent prospectus that was required by law to be delivered to the Person making the claim with respect to which indemnification is sought hereunder (and such subsequent prospectus was made available by the Company to permit delivery of such prospectus in a timely manner) and such subsequent prospectus was not so delivered to such Person); and the Company will pay to each indemnified party under this Section 9(a), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case to a particular indemnified party for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation by the Company which occurs in reliance upon and in conformity with written information furnished by or on behalf of such indemnified party expressly for use in connection with any registration. (b) Each selling Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) the Company, any underwriter (as defined in the Securities Act), any other Investor or other Person selling securities covered by such registration statement and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such underwriter or other Investor or Person, against any losses, claims, damages or liabilities, whether or not involving a third party, to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon a Violation by the selling Investor, in each case to the extent that such Violation by the selling Investor occurs in reliance upon and in conformity with written information furnished by or on behalf of the indemnifying Investor expressly for use in connection with any registration; and each indemnifying Investor will pay to each indemnified party under this Section 9(b), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnifying Investor (which consent shall not be unreasonably withheld); and further provided, that in no event shall the liability of any Investor under this Section 9(b) exceed the net proceeds from the offering received by such Investor. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, deliver to the indemnifying party a written notice of the commencement of such action, and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any 7 8 other indemnifying party similarly noticed, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party. The failure to deliver written notice to the indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 9 except if, and only to the extent that, the indemnifying party is actually prejudiced thereby; and such failure to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. (d) The obligations of the Company to any particular Investor and of such Investor to the Company shall survive for a period of two (2) years from the completion of any offering of Registrable Securities of such Investor pursuant to the last registration statement under this Agreement in which such Investor's Registrable Securities were included. (e) If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by or on behalf of the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of fraudulent misrepresentation. Notwithstanding anything to the contrary in this Section 9, no Investor shall be required, pursuant to this Section 9, to contribute any amount in excess of the net proceeds received by such Investor from the sale of Registrable Securities in the offering to which the losses, claims, damages, liabilities or expenses of the indemnified party relate. 10. Termination. The rights of any Investor to request registration or inclusion in any registration pursuant to this Agreement shall terminate upon the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii) such time when Rule 144(k) or another similar exception under the Securities Act is available for the sale of all of the Registrable Securities of the Investors during any three-month period without registration; provided, however, that the obligations of the parties contained in Section 9 hereof shall survive as contemplated by Section 9(d). 11. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned in whole or in part only by an Investor to one or more transferees or assignees permitted under the Stockholders' Agreement dated as of the date hereof by and among the Company, the Initial Investor and Intelligroup, Inc. (the "Stockholders' Agreement"); provided that, in each case, as a condition to such transfer or assignment, the transferring Investor shall give prior written notice to the Company of such transfer or assignment (which notice shall set forth the identity of the transferee or assignee) and such transferee or assignee shall deliver to the Company a written instrument by which such transferee or assignee agrees to be bound by the obligations imposed on the transferring Investor under this Agreement, to the same extent as if such transferee or assignee was a party hereto. 12. Additional Investors. The Initial Investor acknowledges and agrees that: (i) following the date of this Agreement, the Company may sell additional Common Stock (as defined in the Purchase Agreement) to other parties (the "Additional Purchasers") on the same terms and conditions as are contained in the Purchase Agreement, the Stockholders' Agreement and this Agreement, including but not limited to under the terms of the Option Letter (as defined in the Purchase Agreement), (ii) promptly 8 9 following such sale, this Agreement may be amended to add such Additional Purchasers of Common Stock as parties hereto or such Additional Purchasers may enter into Registration Rights Agreements with the Company with terms and conditions which are the same as the terms and conditions of this Agreement, and (iii) following such actions, such Additional Purchasers of Common Stock, shall be deemed "Investors" with the same registration and other rights hereunder as the Initial Investor and their securities shall be deemed "Registrable Securities" hereunder. 13. Changes in Registrable Securities. If, and as often as, there are any changes in the Registrable Securities by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions of this Agreement, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Registrable Securities as so changed. Without limiting the generality of the foregoing, the Company will require any successor by merger or consolidation to assume and agree to be bound by the terms of this Agreement as a condition to any such merger or consolidation. 14. Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement. 15. Amendment; Waiver. Any term, covenant, agreement or condition of this Agreement may be amended, and compliance therewith may be waived (either generally or in a particular circumstance and either retroactively or prospectively), (i) as to the Company, by a written instrument signed by the Company, and (ii) as to the Investors, by one or more written instruments signed by all the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investors and the Company. 16. Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or (i) forty-eight (48) hours after being deposited in the U.S. mail in the case of mail sent within the United States and (ii) five (5) days after being deposited in the mail in the case of mail sent to or from a location outside the United States, as certified or registered mail, with postage prepaid, as follows: If to the Company to: 499 Thornall Street Edison, New Jersey 08837 Attention: President with a copy to: Carter, Ledyard & Milburn Two Wall Street New York, New York 10005 Attention: James E. Abbott, Esq. If to an Investor: At the address set forth on the signature page hereof 9 10 or at such other address or facsimile number as shall be designated by such party in a notice to the other party provided in accordance with this Section 16. 17. Severability. In the event one or more of the provisions of this Agreement should for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 18. Counterparts. This Agreement may be executed in any number of counterparts, and by facsimile, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one instrument. 19. Entire Agreement. This Agreement, the Stockholders' Agreement and the Purchase Agreement constitute the entire agreement among the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement, the Stockholders' Agreement and the Purchase Agreement. [SIGNATURE PAGE FOLLOWS] 10 11 IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed and delivered as of the date first written above. SERANOVA, INC. By: /s/ Ravi Singh _______________________________ Name: Title: INVESTOR Ampal-American Israel Corporation By: /s/ Eli Goldberg _______________________________ Name: Eli Goldberg Title: Secretary Address: 1177 Ave Americas NY, NY 10056 11 EX-10.13 8 REGISTRATION RIGHTS AGREEMENT, SERANOVA & NSA 1 Exhibit 10.13 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the "Company") NSA Investments, Inc. (the "Initial Investor" and together with any additional permitted investors who become signatories hereof under the terms of Section 12 hereto and their respective permitted transferees under Section 11 hereto, if any, being herein collectively referred to as the "Investors" ). WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement, dated as of the date hereof, between the Company and such Initial Investor (the "Purchase Agreement"), and the Company and the Initial Investor have agreed to enter into this Agreement in connection therewith; NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Certain Definitions. For purposes of this Agreement: (a) "Common Stock" means the Common Stock, par value $.01 per share, of the Company. (b) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (c) "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act. (d) "Person" means any individual, partnership, corporation, unincorporated organization or association, limited liability company, trust or other firm or entity. (e) "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. (f) "Registrable Securities" means any shares of Common Stock sold to an Investor pursuant to the Purchase Agreement or the terms of Section 12 hereof or transferred by the Initial Investor (or any additional permitted investors under Section 12 hereto) to permitted transferees pursuant to Section 11 hereto; provided, however, that any Registrable Securities sold by the Investors in a transaction in which such Investors' rights under this Agreement are not assigned pursuant to Section 12 below shall cease to be Registrable Securities from and after the time of such sale. Notwithstanding the foregoing, securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale. (g) "SEC" means the Securities and Exchange Commission. (h) "Securities Act" means the Securities Act of 1933, as amended. 1 2 (i) "Violation" means any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement under this Agreement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. 2. Request for Registration. (a) If the Company shall receive, at any time after the earlier of (i) five years after the date hereof or (ii) four (4) months after the closing of the Spin-Off (as defined in the Purchase Agreement), from one or more Investors cumulatively holding at least 30% of the Registrable Securities not previously registered (the "Initiating Investors") a written request that the Company file a registration statement under the Securities Act covering the registration of at least 25% of the Registrable Securities not previously registered (or any lesser number of shares if the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is reasonably expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall, subject to Section 2(b) below: (i) Promptly give written notice of the proposed registration to all other Investors (if any); and (ii) As soon as practicable, use its reasonable diligent efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the portion of the Registrable Securities as are specified in the Qualifying Request, together with the portion of the Registrable Securities of any Investor joining in such Qualifying Request as are specified in a written request made by such Investor(s) and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor(s). (b) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2: (i) after the Company has initiated one such registration pursuant to this Section 2 (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which securities have been sold), (ii) during any period starting 60 days prior to the proposed filing date of a registration statement of the Company and ending 180 days after the effective date of such registration statement or (iii) if the Registrable Securities requested to be included in a registration pursuant to this Section 2 may be registered on Form S-3 pursuant to Section 4 hereof. (c) Subject to Section 2(b) above, the Company shall file a registration statement covering the Registrable Securities requested to be registered pursuant to Section 2(a) as soon as practicable after receipt of the Qualifying Request; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company such registration would not be in the best interests of the Company at such time, and (ii) the Company shall furnish to the Initiating Investors a certificate signed by an authorized officer of the Company to such effect, then the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the Qualifying Request; and, further provided, that the Company shall not defer its obligation in this manner more than once in any twelve-month period. (d) The registration statement required to be filed pursuant to a Qualifying Request may, subject to the provisions of Section 2(e) hereof, include other securities of the Company with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. 2 3 (e) If the Initiating Investors intend to distribute the Registrable Securities covered by their Qualifying Request by means of an underwriting, they shall so advise the Company as part of their Qualifying Request made pursuant to Section 2(a), and the Company shall include such information in its written notice referred to in Section 2(a)(i). In such event, the right of any Investor to registration pursuant to this Section 2 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. If the Company requests inclusion in any registration pursuant to this Section 2 of securities being sold for its own account, or if other Persons shall request inclusion in any registration pursuant to this Section 2, the Initiating Investors shall, on behalf of all Investors, offer to include such securities in the underwriting and may condition such offer on the Company's and such Persons' acceptance of the applicable provisions of this Agreement. The Company shall (together with all Investors and other Persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Registrable Securities held by the Initiating Investors, which underwriters must be reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Investors and the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, then the number of shares sought to be included by the Company and any Persons other than the Investors requesting inclusion in such registration shall be reduced to the extent required by the representative of the underwriters and the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all such other securities are first entirely excluded; thereafter, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 8 hereof. If a Person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2(e), then the Company shall offer to all Investors who have retained rights to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Investors in accordance with Section 8. 3. Company Registration. (a) Subject to Section 3(e) below, if at any time or times after the date hereof the Company determines to register any of its equity securities either for its own account or the account of a security holder or holders exercising its or their demand registration rights, the Company will: (i) Promptly give to each Investor written notice thereof; and (ii) Use its reasonable diligent efforts to include in such registration (and any related qualifications under applicable blue sky or other state securities laws and other compliance with the Securities Act), except as set forth in Section 3(c) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request made by any Investor and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor. Such written request may specify all or a part of an Investor's Registrable Securities. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Investors as a part of the written notice given pursuant to Section 3(a)(i) above. In such event, the right of any Investor to registration 3 4 pursuant to this Section 3 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. All Investors proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company that have exercised their registration rights to participate therein and are distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Notwithstanding any other provision of this Section 3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the Company shall so advise all Investors holding Registrable Securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated (i) first to the Company for securities being sold for its own account and to security holders that have exercised their demand registration rights with respect to such registration, (ii) then to all other holders of equity securities of the Company included in such registration, including any Investors, on a pro rata basis. If any Person does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. (d) If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to any Investors who have retained the right to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration, provided that the number of shares of Registrable Securities, and the other securities entitled to be included in such registration in respect of such withdrawn shares, shall be allocated in accordance with the first sentence of Section 3(c). (e) This Section 3 shall not apply to a registration on any registration form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities or to registrations relating solely to (i) any Company employee benefit plan or (ii) transactions pursuant to Rule 145 or any other similar rule promulgated under the Securities Act. 4. Registration on Form S-3. (a) After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Agreement, the Investors holding at least 10% of the Registrable Securities not previously registered shall have the right to request a registration on Form S-3 (such requests shall be in writing and shall state the number of Registrable Securities to be sold by such Investors and the intended method of disposition). As soon as practicable after receiving such request, the Company shall effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the Registrable Securities requested to be included in such registration; provided, however, that the Company shall not be obligated to effect, or take any action to effect, any such registration if (i) Form S-3 is not then available for use in such offering; (ii) the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is not reasonably expected to exceed $3,000,000; (iii) the Company shall furnish to the requesting Investors the certification described in Section 2(c) (but subject to the limitations set forth therein); (iv) the Company shall have already completed two registrations on Form S-3 during the prior 12 months (counting for this purpose only registrations which have been declared or ordered effective); (v) the sale of Registrable Securities in such offering would occur in any 4 5 jurisdiction in which the Company would be required to qualify to do business (and in which it would not otherwise be required to qualify but for the sale of such Registrable Securities) or to file a general consent to service of process; or (vi) the sale of Registrable Securities in such offering would occur during any period starting on the effective date of any registration statement of the Company (other than such Form S-3) and ending 180 days after the effective date of such registration statement. (b) Regardless of whether any Investor has completed the sale of its Registrable Securities covered by a Form S-3, if, at any time after the effective date of such Form S-3, the Company notifies such Investor that such Form S-3 includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, then the Company may require such Investor to cease such Investor's sales of Registrable Securities covered by such Form S-3 until such time as the Company files an amendment to such Form S-3 correcting such untrue statement or including such material fact, which amendment shall be filed by the Company no later than 90 days after the date of the Company's notice given to such Investor under this Section 4(b). 5. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as soon as practicable: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective, and, upon the request of any of the Investors holding Registrable Securities being registered thereunder, keep such registration statement effective for up to 90 days or until the Investors have completed the distribution referred to in such registration statement, whichever occurs first; provided, however, that before filing such registration statement or any amendment thereto, the Company will furnish to the Investors holding Registrable Securities covered by such registration statement copies of all such documents proposed to be filed. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement. (c) Furnish to the Investors holding Registrable Securities covered by such registration statement such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as the Investors holding Registrable Securities covered by such registration statement may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the representative of the underwriters of such offering. (e) Notify each Investor holding Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact 5 6 or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (f) Notify each Investor holding Registrable Securities covered by such registration statement: (i) when the registration statement has become effective; (ii) when any post-effective amendment to the registration statement becomes effective; and (iii) of any request by the SEC for any amendment or supplement to the registration statement or prospectus or for additional information. (g) Notify each Investor holding Registrable Securities covered by such registration statement if at any time the SEC should institute or threaten to institute any proceedings for the purpose of issuing, or should issue, a stop order suspending the effectiveness of such registration statement. Upon the occurrence of any of the events mentioned in the preceding sentence, the Company will use its reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as reasonably possible. The Company will advise each Investor holding Registrable Securities covered by such registration statement promptly of any order or communication of any public board or body addressed to the Company suspending or threatening to suspend the qualification of any Registrable Securities for sale in any jurisdiction. (h) As soon as practicable after the effective date of such registration statement, and in any event within 16 months thereafter, have "made generally available to its security holders" (within the meaning of Rule 158 under the Securities Act) an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of such registration statement and otherwise complying with Section 11(a) of the Securities Act. 6. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such Registrable Securities as shall be required to effect the registration of such Investor's Registrable Securities. 7. Expenses of Demand Registration. All expenses, other than underwriting discounts and commissions relating to Registrable Securities, incurred in connection with registrations pursuant to this Agreement (for this purpose only registrations which have been declared or ordered effective), including, without limitation, all registration, filing and qualification fees, printers' and accounting fees relating or apportionable thereto, the fees and disbursements of one counsel for the security holders of the Company participating in such registration up to a maximum amount of $15,000 and the fees and disbursements of counsel to the Company shall be borne by the Company. 8. Allocation of Registration Opportunities. In any circumstance in which all of the Registrable Securities requested to be included in a registration on behalf of the Investors cannot be so included as a result of limitations imposed by any underwriter or underwriters of the aggregate number of Registrable Securities that may be so included, the number of Registrable Securities that may be so included shall be allocated among the Investors requesting inclusion pro rata on the basis of the number of Registrable Securities that would be held by such Investors; provided, however, that if any Investor does not request inclusion of the minimum number of shares of Registrable Securities allocated to such Investor pursuant to the above-described procedure, the remaining portion of such Investor's allocation shall be reallocated among those requesting Investors whose allocations did not satisfy their requests, pro rata on the basis of the number of Registrable Securities that would be held by such Investors, and this procedure shall be repeated until all of the Registrable Securities which may be included in the registration on behalf of the requesting Investors have been so allocated. 6 7 9. Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Investor and each Investor's officers and directors, any underwriter (as defined in the Securities Act) for such Investor and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such Investor or underwriter against any losses, claims, damages or liabilities, whether or not involving a third party, to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon a Violation by the Company (provided, however, that the Company will not be required to indemnify any of the foregoing Persons on account of any losses, claims, damages or liabilities arising out of or based upon a Violation by the Company if and to the extent that such Violation was made in a preliminary prospectus and was corrected in a subsequent prospectus that was required by law to be delivered to the Person making the claim with respect to which indemnification is sought hereunder (and such subsequent prospectus was made available by the Company to permit delivery of such prospectus in a timely manner) and such subsequent prospectus was not so delivered to such Person); and the Company will pay to each indemnified party under this Section 9(a), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case to a particular indemnified party for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation by the Company which occurs in reliance upon and in conformity with written information furnished by or on behalf of such indemnified party expressly for use in connection with any registration. (b) Each selling Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) the Company, any underwriter (as defined in the Securities Act), any other Investor or other Person selling securities covered by such registration statement and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such underwriter or other Investor or Person, against any losses, claims, damages or liabilities, whether or not involving a third party, to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon a Violation by the selling Investor, in each case to the extent that such Violation by the selling Investor occurs in reliance upon and in conformity with written information furnished by or on behalf of the indemnifying Investor expressly for use in connection with any registration; and each indemnifying Investor will pay to each indemnified party under this Section 9(b), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnifying Investor (which consent shall not be unreasonably withheld); and further provided, that in no event shall the liability of any Investor under this Section 9(b) exceed the net proceeds from the offering received by such Investor. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, deliver to the indemnifying party a written notice of the commencement of such action, and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any 7 8 other indemnifying party similarly noticed, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party. The failure to deliver written notice to the indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 9 except if, and only to the extent that, the indemnifying party is actually prejudiced thereby; and such failure to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. (d) The obligations of the Company to any particular Investor and of such Investor to the Company shall survive for a period of two (2) years from the completion of any offering of Registrable Securities of such Investor pursuant to the last registration statement under this Agreement in which such Investor's Registrable Securities were included. (e) If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by or on behalf of the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of fraudulent misrepresentation. Notwithstanding anything to the contrary in this Section 9, no Investor shall be required, pursuant to this Section 9, to contribute any amount in excess of the net proceeds received by such Investor from the sale of Registrable Securities in the offering to which the losses, claims, damages, liabilities or expenses of the indemnified party relate. 10. Termination. The rights of any Investor to request registration or inclusion in any registration pursuant to this Agreement shall terminate upon the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii) such time when Rule 144(k) or another similar exception under the Securities Act is available for the sale of all of the Registrable Securities of the Investors during any three-month period without registration; provided, however, that the obligations of the parties contained in Section 9 hereof shall survive as contemplated by Section 9(d). 11. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned in whole or in part only by an Investor to one or more transferees or assignees permitted under the Stockholders' Agreement dated as of the date hereof by and among the Company, the Initial Investor and Intelligroup, Inc. (the "Stockholders' Agreement"); provided that, in each case, as a condition to such transfer or assignment, the transferring Investor shall give prior written notice to the Company of such transfer or assignment (which notice shall set forth the identity of the transferee or assignee) and such transferee or assignee shall deliver to the Company a written instrument by which such transferee or assignee agrees to be bound by the obligations imposed on the transferring Investor under this Agreement, to the same extent as if such transferee or assignee was a party hereto. 12. Additional Investors. The Initial Investor acknowledges and agrees that: (i) following the date of this Agreement, the Company may sell additional Common Stock (as defined in the Purchase Agreement) to other parties (the "Additional Purchasers") on the same terms and conditions as are contained in the Purchase Agreement, the Stockholders' Agreement and this Agreement, including but not limited to under the terms of the Option Letter (as defined in the Purchase Agreement), (ii) promptly 8 9 following such sale, this Agreement may be amended to add such Additional Purchasers of Common Stock as parties hereto or such Additional Purchasers may enter into Registration Rights Agreements with the Company with terms and conditions which are the same as the terms and conditions of this Agreement, and (iii) following such actions, such Additional Purchasers of Common Stock, shall be deemed "Investors" with the same registration and other rights hereunder as the Initial Investor and their securities shall be deemed "Registrable Securities" hereunder. 13. Changes in Registrable Securities. If, and as often as, there are any changes in the Registrable Securities by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions of this Agreement, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Registrable Securities as so changed. Without limiting the generality of the foregoing, the Company will require any successor by merger or consolidation to assume and agree to be bound by the terms of this Agreement as a condition to any such merger or consolidation. 14. Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement. 15. Amendment; Waiver. Any term, covenant, agreement or condition of this Agreement may be amended, and compliance therewith may be waived (either generally or in a particular circumstance and either retroactively or prospectively), (i) as to the Company, by a written instrument signed by the Company, and (ii) as to the Investors, by one or more written instruments signed by all the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investors and the Company. 16. Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or (i) forty-eight (48) hours after being deposited in the U.S. mail in the case of mail sent within the United States and (ii) five (5) days after being deposited in the mail in the case of mail sent to or from a location outside the United States, as certified or registered mail, with postage prepaid, as follows: If to the Company to: 499 Thornall Street Edison, New Jersey 08837 Attention: President with a copy to: Carter, Ledyard & Milburn Two Wall Street New York, New York 10005 Attention: James E. Abbott, Esq. If to an Investor: At the address set forth on the signature page hereof 9 10 or at such other address or facsimile number as shall be designated by such party in a notice to the other party provided in accordance with this Section 16. 17. Severability. In the event one or more of the provisions of this Agreement should for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 18. Counterparts. This Agreement may be executed in any number of counterparts, and by facsimile, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one instrument. 19. Entire Agreement. This Agreement, the Stockholders' Agreement and the Purchase Agreement constitute the entire agreement among the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement, the Stockholders' Agreement and the Purchase Agreement. [SIGNATURE PAGE FOLLOWS] 10 11 IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed and delivered as of the date first written above. SERANOVA, INC. By: /s/ Ravi Singh ---------------------------------------- Name: Title: INVESTOR By: /s/ Prashanth Rao Palakurthy ---------------------------------------- Name: Prashanth Rao Palakurthy Title: Managing Partner Address: NSA Investments LLC 1420 Providence Hwy Suite #266 Norwood MA - 02062 11 EX-10.14 9 REGISTRATION RIGHTS AGREEMENT, SERANOVA & SSB, LTD 1 Exhibit 10.14 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of March 14th, 2000 between SERANOVA, INC., a New Jersey corporation (the "Company") SSB, Ltd. (the "Initial Investor" and together with any additional permitted investors who become signatories hereof under the terms of Section 12 hereto and their respective permitted transferees under Section 11 hereto, if any, being herein collectively referred to as the "Investors" ). WHEREAS, the Initial Investor is a party to a Stock Purchase Agreement, dated as of the date hereof, between the Company and such Initial Investor (the "Purchase Agreement"), and the Company and the Initial Investor have agreed to enter into this Agreement in connection therewith; NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Certain Definitions. For purposes of this Agreement: (a) "Common Stock" means the Common Stock, par value $.01 per share, of the Company. (b) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (c) "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act. (d) "Person" means any individual, partnership, corporation, unincorporated organization or association, limited liability company, trust or other firm or entity. (e) "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. (f) "Registrable Securities" means any shares of Common Stock sold to an Investor pursuant to the Purchase Agreement or the terms of Section 12 hereof or transferred by the Initial Investor (or any additional permitted investors under Section 12 hereto) to permitted transferees pursuant to Section 11 hereto; provided, however, that any Registrable Securities sold by the Investors in a transaction in which such Investors' rights under this Agreement are not assigned pursuant to Section 12 below shall cease to be Registrable Securities from and after the time of such sale. Notwithstanding the foregoing, securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale. (g) "SEC" means the Securities and Exchange Commission. (h) "Securities Act" means the Securities Act of 1933, as amended. 1 2 (i) "Violation" means any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement under this Agreement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. 2. Request for Registration. (a) If the Company shall receive, at any time after the earlier of (i) five years after the date hereof or (ii) four (4) months after the closing of the Spin-Off (as defined in the Purchase Agreement), from one or more Investors cumulatively holding at least 30% of the Registrable Securities not previously registered (the "Initiating Investors") a written request that the Company file a registration statement under the Securities Act covering the registration of at least 25% of the Registrable Securities not previously registered (or any lesser number of shares if the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is reasonably expected to exceed $5,000,000) (a "Qualifying Request"), then the Company shall, subject to Section 2(b) below: (i) Promptly give written notice of the proposed registration to all other Investors (if any); and (ii) As soon as practicable, use its reasonable diligent efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the portion of the Registrable Securities as are specified in the Qualifying Request, together with the portion of the Registrable Securities of any Investor joining in such Qualifying Request as are specified in a written request made by such Investor(s) and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor(s). (b) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2: (i) after the Company has initiated one such registration pursuant to this Section 2 (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which securities have been sold), (ii) during any period starting 60 days prior to the proposed filing date of a registration statement of the Company and ending 180 days after the effective date of such registration statement or (iii) if the Registrable Securities requested to be included in a registration pursuant to this Section 2 may be registered on Form S-3 pursuant to Section 4 hereof. (c) Subject to Section 2(b) above, the Company shall file a registration statement covering the Registrable Securities requested to be registered pursuant to Section 2(a) as soon as practicable after receipt of the Qualifying Request; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company such registration would not be in the best interests of the Company at such time, and (ii) the Company shall furnish to the Initiating Investors a certificate signed by an authorized officer of the Company to such effect, then the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the Qualifying Request; and, further provided, that the Company shall not defer its obligation in this manner more than once in any twelve-month period. (d) The registration statement required to be filed pursuant to a Qualifying Request may, subject to the provisions of Section 2(e) hereof, include other securities of the Company with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. 2 3 (e) If the Initiating Investors intend to distribute the Registrable Securities covered by their Qualifying Request by means of an underwriting, they shall so advise the Company as part of their Qualifying Request made pursuant to Section 2(a), and the Company shall include such information in its written notice referred to in Section 2(a)(i). In such event, the right of any Investor to registration pursuant to this Section 2 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. If the Company requests inclusion in any registration pursuant to this Section 2 of securities being sold for its own account, or if other Persons shall request inclusion in any registration pursuant to this Section 2, the Initiating Investors shall, on behalf of all Investors, offer to include such securities in the underwriting and may condition such offer on the Company's and such Persons' acceptance of the applicable provisions of this Agreement. The Company shall (together with all Investors and other Persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Registrable Securities held by the Initiating Investors, which underwriters must be reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Investors and the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, then the number of shares sought to be included by the Company and any Persons other than the Investors requesting inclusion in such registration shall be reduced to the extent required by the representative of the underwriters and the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all such other securities are first entirely excluded; thereafter, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 8 hereof. If a Person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2(e), then the Company shall offer to all Investors who have retained rights to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Investors in accordance with Section 8. 3. Company Registration. (a) Subject to Section 3(e) below, if at any time or times after the date hereof the Company determines to register any of its equity securities either for its own account or the account of a security holder or holders exercising its or their demand registration rights, the Company will: (i) Promptly give to each Investor written notice thereof; and (ii) Use its reasonable diligent efforts to include in such registration (and any related qualifications under applicable blue sky or other state securities laws and other compliance with the Securities Act), except as set forth in Section 3(c) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request made by any Investor and received by the Company within 20 days after the written notice from the Company described in clause (i) above is received by such Investor. Such written request may specify all or a part of an Investor's Registrable Securities. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Investors as a part of the written notice given pursuant to Section 3(a)(i) above. In such event, the right of any Investor to registration 3 4 pursuant to this Section 3 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. All Investors proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company that have exercised their registration rights to participate therein and are distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Notwithstanding any other provision of this Section 3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the Company shall so advise all Investors holding Registrable Securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated (i) first to the Company for securities being sold for its own account and to security holders that have exercised their demand registration rights with respect to such registration, (ii) then to all other holders of equity securities of the Company included in such registration, including any Investors, on a pro rata basis. If any Person does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, and the securities so excluded shall also be withdrawn from such registration. (d) If shares are so withdrawn from the registration and if the number of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to any Investors who have retained the right to include Registrable Securities in the registration the right to include additional Registrable Securities (that were initially requested to be included in such registration) in such registration, provided that the number of shares of Registrable Securities, and the other securities entitled to be included in such registration in respect of such withdrawn shares, shall be allocated in accordance with the first sentence of Section 3(c). (e) This Section 3 shall not apply to a registration on any registration form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities or to registrations relating solely to (i) any Company employee benefit plan or (ii) transactions pursuant to Rule 145 or any other similar rule promulgated under the Securities Act. 4. Registration on Form S-3. (a) After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Agreement, the Investors holding at least 10% of the Registrable Securities not previously registered shall have the right to request a registration on Form S-3 (such requests shall be in writing and shall state the number of Registrable Securities to be sold by such Investors and the intended method of disposition). As soon as practicable after receiving such request, the Company shall effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of the Registrable Securities requested to be included in such registration; provided, however, that the Company shall not be obligated to effect, or take any action to effect, any such registration if (i) Form S-3 is not then available for use in such offering; (ii) the anticipated aggregate offering price, without regard to underwriting discounts and commissions, is not reasonably expected to exceed $3,000,000; (iii) the Company shall furnish to the requesting Investors the certification described in Section 2(c) (but subject to the limitations set forth therein); (iv) the Company shall have already completed two registrations on Form S-3 during the prior 12 months (counting for this purpose only registrations which have been declared or ordered effective); (v) the sale of Registrable Securities in such offering would occur in any 4 5 jurisdiction in which the Company would be required to qualify to do business (and in which it would not otherwise be required to qualify but for the sale of such Registrable Securities) or to file a general consent to service of process; or (vi) the sale of Registrable Securities in such offering would occur during any period starting on the effective date of any registration statement of the Company (other than such Form S-3) and ending 180 days after the effective date of such registration statement. (b) Regardless of whether any Investor has completed the sale of its Registrable Securities covered by a Form S-3, if, at any time after the effective date of such Form S-3, the Company notifies such Investor that such Form S-3 includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, then the Company may require such Investor to cease such Investor's sales of Registrable Securities covered by such Form S-3 until such time as the Company files an amendment to such Form S-3 correcting such untrue statement or including such material fact, which amendment shall be filed by the Company no later than 90 days after the date of the Company's notice given to such Investor under this Section 4(b). 5. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as soon as practicable: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective, and, upon the request of any of the Investors holding Registrable Securities being registered thereunder, keep such registration statement effective for up to 90 days or until the Investors have completed the distribution referred to in such registration statement, whichever occurs first; provided, however, that before filing such registration statement or any amendment thereto, the Company will furnish to the Investors holding Registrable Securities covered by such registration statement copies of all such documents proposed to be filed. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement. (c) Furnish to the Investors holding Registrable Securities covered by such registration statement such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents as the Investors holding Registrable Securities covered by such registration statement may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the representative of the underwriters of such offering. (e) Notify each Investor holding Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact 5 6 required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (f) Notify each Investor holding Registrable Securities covered by such registration statement: (i) when the registration statement has become effective; (ii) when any post-effective amendment to the registration statement becomes effective; and (iii) of any request by the SEC for any amendment or supplement to the registration statement or prospectus or for additional information. (g) Notify each Investor holding Registrable Securities covered by such registration statement if at any time the SEC should institute or threaten to institute any proceedings for the purpose of issuing, or should issue, a stop order suspending the effectiveness of such registration statement. Upon the occurrence of any of the events mentioned in the preceding sentence, the Company will use its reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as reasonably possible. The Company will advise each Investor holding Registrable Securities covered by such registration statement promptly of any order or communication of any public board or body addressed to the Company suspending or threatening to suspend the qualification of any Registrable Securities for sale in any jurisdiction. (h) As soon as practicable after the effective date of such registration statement, and in any event within 16 months thereafter, have "made generally available to its security holders" (within the meaning of Rule 158 under the Securities Act) an earnings statement (which need not be audited) covering a period of at least 12 months beginning after the effective date of such registration statement and otherwise complying with Section 11(a) of the Securities Act. 6. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities of any Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such Registrable Securities as shall be required to effect the registration of such Investor's Registrable Securities. 7. Expenses of Demand Registration. All expenses, other than underwriting discounts and commissions relating to Registrable Securities, incurred in connection with registrations pursuant to this Agreement (for this purpose only registrations which have been declared or ordered effective), including, without limitation, all registration, filing and qualification fees, printers' and accounting fees relating or apportionable thereto, the fees and disbursements of one counsel for the security holders of the Company participating in such registration up to a maximum amount of $15,000 and the fees and disbursements of counsel to the Company shall be borne by the Company. 8. Allocation of Registration Opportunities. In any circumstance in which all of the Registrable Securities requested to be included in a registration on behalf of the Investors cannot be so included as a result of limitations imposed by any underwriter or underwriters of the aggregate number of Registrable Securities that may be so included, the number of Registrable Securities that may be so included shall be allocated among the Investors requesting inclusion pro rata on the basis of the number of Registrable Securities that would be held by such Investors; provided, however, that if any Investor does not request inclusion of the minimum number of shares of Registrable Securities allocated to such Investor pursuant to the above-described procedure, the remaining portion of such Investor's allocation shall be reallocated among those requesting Investors whose allocations did not satisfy their requests, pro rata on the basis of the number of Registrable Securities that would be held by such Investors, and this procedure shall be repeated until all of the Registrable Securities which may be included in the registration on behalf of the requesting Investors have been so allocated. 6 7 9. Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) The Company will indemnify and hold harmless each Investor and each Investor's officers and directors, any underwriter (as defined in the Securities Act) for such Investor and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such Investor or underwriter against any losses, claims, damages or liabilities, whether or not involving a third party, to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon a Violation by the Company (provided, however, that the Company will not be required to indemnify any of the foregoing Persons on account of any losses, claims, damages or liabilities arising out of or based upon a Violation by the Company if and to the extent that such Violation was made in a preliminary prospectus and was corrected in a subsequent prospectus that was required by law to be delivered to the Person making the claim with respect to which indemnification is sought hereunder (and such subsequent prospectus was made available by the Company to permit delivery of such prospectus in a timely manner) and such subsequent prospectus was not so delivered to such Person); and the Company will pay to each indemnified party under this Section 9(a), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case to a particular indemnified party for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation by the Company which occurs in reliance upon and in conformity with written information furnished by or on behalf of such indemnified party expressly for use in connection with any registration. (b) Each selling Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) the Company, any underwriter (as defined in the Securities Act), any other Investor or other Person selling securities covered by such registration statement and each Person, if any, who controls (within the meaning of the Securities Act or the Exchange Act) such underwriter or other Investor or Person, against any losses, claims, damages or liabilities, whether or not involving a third party, to which any of the foregoing Persons may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon a Violation by the selling Investor, in each case to the extent that such Violation by the selling Investor occurs in reliance upon and in conformity with written information furnished by or on behalf of the indemnifying Investor expressly for use in connection with any registration; and each indemnifying Investor will pay to each indemnified party under this Section 9(b), as incurred, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnifying Investor (which consent shall not be unreasonably withheld); and further provided, that in no event shall the liability of any Investor under this Section 9(b) exceed the net proceeds from the offering received by such Investor. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, deliver to the indemnifying party a written notice of the commencement of such action, and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any 7 8 other indemnifying party similarly noticed, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party. The failure to deliver written notice to the indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 9 except if, and only to the extent that, the indemnifying party is actually prejudiced thereby; and such failure to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9. (d) The obligations of the Company to any particular Investor and of such Investor to the Company shall survive for a period of two (2) years from the completion of any offering of Registrable Securities of such Investor pursuant to the last registration statement under this Agreement in which such Investor's Registrable Securities were included. (e) If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by or on behalf of the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of fraudulent misrepresentation. Notwithstanding anything to the contrary in this Section 9, no Investor shall be required, pursuant to this Section 9, to contribute any amount in excess of the net proceeds received by such Investor from the sale of Registrable Securities in the offering to which the losses, claims, damages, liabilities or expenses of the indemnified party relate. 10. Termination. The rights of any Investor to request registration or inclusion in any registration pursuant to this Agreement shall terminate upon the earlier of: (i) three (3) years after the closing of the Spin-Off and (ii) such time when Rule 144(k) or another similar exception under the Securities Act is available for the sale of all of the Registrable Securities of the Investors during any three-month period without registration; provided, however, that the obligations of the parties contained in Section 9 hereof shall survive as contemplated by Section 9(d). 11. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned in whole or in part only by an Investor to one or more transferees or assignees permitted under the Stockholders' Agreement dated as of the date hereof by and among the Company, the Initial Investor and Intelligroup, Inc. (the "Stockholders' Agreement"); provided that, in each case, as a condition to such transfer or assignment, the transferring Investor shall give prior written notice to the Company of such transfer or assignment (which notice shall set forth the identity of the transferee or assignee) and such transferee or assignee shall deliver to the Company a written instrument by which such transferee or assignee agrees to be bound by the obligations imposed on the transferring Investor under this Agreement, to the same extent as if such transferee or assignee was a party hereto. 12. Additional Investors. The Initial Investor acknowledges and agrees that: (i) following the date of this Agreement, the Company may sell additional Common Stock (as defined in the Purchase Agreement) to other parties (the "Additional Purchasers") on the same terms and conditions as are contained in the Purchase Agreement, the Stockholders' Agreement and this Agreement, including but not limited to under the terms of the Option Letter (as defined in the Purchase Agreement), (ii) promptly 8 9 following such sale, this Agreement may be amended to add such Additional Purchasers of Common Stock as parties hereto or such Additional Purchasers may enter into Registration Rights Agreements with the Company with terms and conditions which are the same as the terms and conditions of this Agreement, and (iii) following such actions, such Additional Purchasers of Common Stock, shall be deemed "Investors" with the same registration and other rights hereunder as the Initial Investor and their securities shall be deemed "Registrable Securities" hereunder. 13. Changes in Registrable Securities. If, and as often as, there are any changes in the Registrable Securities by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions of this Agreement, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Registrable Securities as so changed. Without limiting the generality of the foregoing, the Company will require any successor by merger or consolidation to assume and agree to be bound by the terms of this Agreement as a condition to any such merger or consolidation. 14. Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement. 15. Amendment; Waiver. Any term, covenant, agreement or condition of this Agreement may be amended, and compliance therewith may be waived (either generally or in a particular circumstance and either retroactively or prospectively), (i) as to the Company, by a written instrument signed by the Company, and (ii) as to the Investors, by one or more written instruments signed by all the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Investors and the Company. 16. Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or (i) forty-eight (48) hours after being deposited in the U.S. mail in the case of mail sent within the United States and (ii) five (5) days after being deposited in the mail in the case of mail sent to or from a location outside the United States, as certified or registered mail, with postage prepaid, as follows: If to the Company to: 499 Thornall Street Edison, New Jersey 08837 Attention: President with a copy to: Carter, Ledyard & Milburn Two Wall Street New York, New York 10005 Attention: James E. Abbott, Esq. If to an Investor: At the address set forth on the signature page hereof 9 10 or at such other address or facsimile number as shall be designated by such party in a notice to the other party provided in accordance with this Section 16. 17. Severability. In the event one or more of the provisions of this Agreement should for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 18. Counterparts. This Agreement may be executed in any number of counterparts, and by facsimile, each of which shall be deemed an original and enforceable against the parties actually executing such counterpart, and all of which together shall constitute one instrument. 19. Entire Agreement. This Agreement, the Stockholders' Agreement and the Purchase Agreement constitute the entire agreement among the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement, the Stockholders' Agreement and the Purchase Agreement. [SIGNATURE PAGE FOLLOWS] 10 11 IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed and delivered as of the date first written above. SERANOVA, INC. By: /s/ Ravi Singh ------------------------------- Name: Title: INVESTOR By: /s/ Ashok Pamani ------------------------------- Name: Ashok Pamani Title: Address: SSB Investments Ltd. 79 Wyndham Street 2nd FL, Hong Kong 11 EX-10.15 10 COMMON STOCK PURCHASE OPTION AGREEMENT 1 Exhibit 10.15 March 15, 2000 SeraNova, Inc. 499 Thornall Street Edison, New Jersey 08837 Re: Common Stock Purchase Dear Sirs: You have provided us with copies of the form of Stock Purchase Agreement, Stockholders Agreement and Registration Rights Agreement (the "Investment Agreements"), pursuant to which certain investors are on the date hereof purchasing 50 shares of Common Stock of SeraNova, Inc. (the "Company"). In consideration of the payment of $10,000 and other valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound hereby, Global Emerging Markets North America Inc. ("GEM") hereby covenants and agrees that, at the Company's option exercisable by written notice to GEM at any time prior to April 15, 2000, GEM will, or will cause its affiliates to, purchase from the Company up to 25 shares of Company Common Stock (the number of shares, up to but not exceeding 25, to be designated by the Company in its exercise notice to GEM). Such purchase and sale of Company Common Stock will be completed at the price and on the other terms and conditions as are contained in the Investment Agreements, and the parties hereto agree to execute and deliver comparable agreements upon the closing of the investment by GEM or its affiliates (which shall occur as promptly as practicable) if the Company exercises its option hereunder. Confirmed and Agreed: GLOBAL EMERGING MARKETS NORTH AMERICA INC. By: /s/ Sanjay Pai -------------------- Name: Sanjay Pai Title: Director Confirmed and Agreed: SERANOVA, INC. By: /s/ Ravi Singh -------------------------------- Name: Ravi Singh Title: Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----