SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File No. 0-20943
Intelligroup, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 11-2880025
- ---------------------------------- ------------------------------------
(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
-------------------------------
(Issuer's Telephone Number,
Including Area Code)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
---- ----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of August 2, 1999:
Class Number of Shares
----- ----------------
Common Stock, $.01 par value 15,558,751
<PAGE>
INTELLIGROUP, INC. and SUBSIDIARIES
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements........................... 1
Consolidated Balance Sheets
as of June 30, 1999 (unaudited)
and December 31, 1998 ...................................... 2
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Three Months and Six Months Ended
June 30, 1999 and 1998 (unaudited).......................... 3
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1999 and 1998 (unaudited).......................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 20
SIGNATURES................................................................ 21
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
- 1 -
<PAGE>
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................... $ 3,749,000 $ 4,245,000
Accounts receivable, less allowance for doubtful accounts
of $2,480,000 at June 30, 1999 and $1,053,000 at
December 31, 1998.......................................... 35,978,000 33,622,000
Unbilled services............................................ 13,868,000 10,842,000
Deferred income taxes........................................ 823,000 808,000
Other current assets......................................... 5,870,000 4,197,000
----------- -----------
Total current assets.................................... 60,288,000 53,714,000
Property and equipment, net..................................... 10,200,000 9,506,000
Cost in excess of fair value of net assets acquired, net........ 6,990,000 5,629,000
Other assets.................................................... 993,000 716,000
----------- -----------
$ 78,471,000 $ 69,565,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................. $ 3,961,000 $ 5,347,000
Accrued payroll and related taxes............................ 7,753,000 6,254,000
Accrued expenses and other liabilities....................... 5,213,000 2,999,000
Accrued restructuring costs.................................. 3,351,000 --
Accrued acquisition costs.................................... 618,000 3,302,000
Income taxes payable......................................... -- 3,160,000
Current portion of long-term debt and obligations under
capital leases............................................. 10,756,000 11,000
----------- -----------
Total current liabilities............................... 31,652,000 21,073,000
----------- -----------
Long-term debt and obligations under capital leases, less
current portion............................................... 681,000 60,000
----------- -----------
Deferred income taxes........................................... 533,000 483,000
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding..................... -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 15,559,000 and 15,393,000 shares issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively............................................... 155,000 154,000
Additional paid-in capital................................... 37,770,000 35,263,000
Retained earnings............................................ 8,788,000 13,077,000
Currency translation adjustments............................. (1,108,000) (545,000)
----------- -----------
Total shareholders' equity ............................... 45,605,000 47,949,000
----------- -----------
$ 78,471,000 $ 69,565,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
For the Three Months and Six Months Ended June 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................................. $ 46,434,000 $ 40,046,000 $ 93,178,000 $ 73,324,000
Cost of sales........................... 29,819,000 24,854,000 60,932,000 45,802,000
---------- ---------- ---------- ----------
Gross profit........................ 16,615,000 15,192,000 32,246,000 27,522,000
---------- ---------- ---------- ----------
Selling, general and administrative
expenses................................ 15,119,000 9,847,000 28,055,000 17,811,000
Acquisition expenses.................... -- 434,000 2,115,000 434,000
Restructuring and other special charges. 7,328,000 -- 7,328,000 --
---------- ---------- ---------- ----------
Total operating expenses............ 22,447,000 10,281,000 37,498,000 18,245,000
---------- ---------- ---------- ----------
Operating income (loss)............. (5,832,000) 4,911,000 (5,252,000) 9,277,000
Other income (expense), net............. 107,000 (105,000) 46,000 (56,000)
Interest income (expense), net.......... (207,000) 29,000 (267,000) 96,000
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes........................... (5,932,000) 4,835,000 (5,473,000) 9,317,000
Provision (benefit) for income taxes.... (1,899,000) 1,012,000 (1,354,000) 1,906,000
---------- ---------- ---------- ----------
Net income (loss)....................... $ (4,033,000) $ 3,823,000 $ (4,119,000) $ 7,411,000
========== ========== ========== ==========
Earnings per share:
Basic earnings per share:
Net income (loss) per share.... $ (0.26) $ 0.25 $ (0.26) $ 0.49
========== ========== ========== ==========
Weighted average number of
common shares - Basic............. 15,549,000 15,221,000 15,548,000 15,157,000
========== ========== ========== ==========
Diluted earnings per share:
Net income (loss) per share.... $ (0.26) $ 0.24 $ (0.26) $ 0.48
========== ========== ========== ==========
Weighted average number of
common shares - Diluted........... 15,549,000 15,645,000 15,548,000 15,577,000
========== ========== ========== ==========
Comprehensive Income (Loss)
- ---------------------------
Net income (loss)....................... $ (4,033,000) $ 3,823,000 $ (4,119,000) $ 7,411,000
Other comprehensive income -
Currency translation adjustments.. (234,000) (173,000) (563,000) (360,000)
---------- ---------- ---------- ----------
Comprehensive income (loss)............. $ (4,267,000) $ 3,650,000 $ (4,682,000) $ 7,051,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ (4,119,000) $ 7,411,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization............................ 1,668,000 405,000
Provision for doubtful accounts.......................... 2,410,000 610,000
Deferred income taxes.................................... (276,000) (197,000)
Changes in operating assets and liabilities:
Accounts receivable...................................... (3,855,000) (10,727,000)
Unbilled services........................................ (3,026,000) (1,107,000)
Other current assets..................................... (1,617,000) (1,536,000)
Other assets............................................. (277,000) (874,000)
Accounts payable......................................... (1,391,000) 1,669,000
Accrued payroll and related taxes........................ 1,426,000 1,614,000
Accrued restructuring charges............................ 3,351,000 --
Accrued expenses and other liabilities................... 1,670,000 1,344,000
Income taxes payable..................................... (3,348,000) 108,000
---------- -----------
Net cash used in operating activities................ (7,384,000) (1,280,000)
---------- -----------
Cash flows from investing activities:
Purchase of equipment........................................ (1,476,000) (2,621,000)
Acquisition of businesses.................................... (1,682,000) --
---------- -----------
Net cash used in investing activities................ (3,158,000) (2,621,000)
---------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options...................... 9,000 382,000
Proceeds from line of credit borrowings, net................. 10,625,000 --
Proceeds from other loans.................................... 151,000 162,000
Principal payments under capital leases...................... (6,000) (4,000)
Shareholder dividends........................................ (170,000) --
---------- -----------
Net cash provided by financing activities............ 10,609,000 540,000
---------- -----------
Effect of foreign currency exchange rate changes on cash..... (563,000) (832,000)
---------- -----------
Net decrease in cash and cash equivalents ........... (496,000) (4,193,000)
Cash and cash equivalents at beginning of period................ 4,245,000 8,825,000
---------- -----------
Cash and cash equivalents at end of period...................... $ 3,749,000 $ 4,632,000
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for income taxes................................... $ 2,308,000 $ 2,148,000
Cash paid for interest....................................... 314,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INTELLIGROUP, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements and accompanying financial
information as of June 30, 1999 and for the three and six months ended June 30,
1999 and 1998 are unaudited and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position of the
Company at such dates and the operating results and cash flows for those
periods. The financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the instructions of
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1998,
which were included as part of the Company's Form S-3 declared effective by the
Securities and Exchange Commission on June 14, 1999.
The Company's 1998 Financial Statements have been restated to include the
results of the acquisitions of each of (i) CPI Resources Limited; (ii) Azimuth
Consulting Limited, Azimuth Holdings Limited, Braithwaite Richmond Limited and
Azimuth Corporation Limited; and (iii) Empower Solutions, LLC and its affiliate
Empower, Inc. (the "Empower Companies") in accordance with pooling of interests
accounting.
Results for interim periods are not necessarily indicative of results for
the entire year.
(2) EARNINGS PER SHARE
Basic earnings per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common stock outstanding
for the period. Diluted earnings per share reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock, unless they are antidilutive.
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<PAGE>
A reconciliation of weighted average number of common shares outstanding to
weighted average common shares outstanding assuming dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of common
shares 15,549,000 15,221,000 15,548,000 15,157,000
Common share equivalents of outstanding
stock options -- 424,000 -- 420,000
---------- ---------- ---------- ----------
Weighted average number of common
shares assuming dilution 15,549,000 15,645,000 15,548,000 15,577,000
========== ========== ========== ==========
</TABLE>
All stock options outstanding as of June 30, 1999 were excluded from the
computation of net loss per common share, as they are antidilutive. Certain
stock options outstanding at June 30, 1998 were not included in the computations
of earnings per share assuming dilution because the options' exercise prices
were greater than the average price of the common shares.
(3) ACQUISITIONS
On January 8, 1999, the Company consummated the acquisition of all of the
shares of outstanding capital stock of Network Publishing, Inc. The acquisition
was accounted for utilizing purchase 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, and resulted in costs in excess of fair value
of net assets acquired of $1.6 million. In addition, the purchase price includes
an earn-out payment of up to $2,212,650 in restricted shares of the Company'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. Pro-forma financial
information has not been presented as this acquisition was deemed immaterial to
the Company's operations as a whole.
On February 16, 1999, the Company, by way of merger transactions,
consummated the acquisition of the Empower Companies. Such mergers were
accounted for as a pooling of interests. The Company issued an aggregate of
1,831,091 restricted shares of the Company's Common Stock. The Company may be
required to issue additional shares of its restricted Common Stock which may be
issued in connection with the net worth adjustment as of the closing date. The
pre-merger results of the Empower Companies were revenues of $16.3 million and
net income of $4.9 million for the six months ended June 30, 1999 and revenues
of $7.1 million and net income of $3.2 million for the six months ended June 30,
1998. In connection with this merger, acquisition expenses of $2.1 million were
expensed during 1999. These costs primarily relate to professional fees incurred
in connection with the merger.
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<PAGE>
(4) RESTRUCTURING AND OTHER SPECIAL CHARGES
In connection with management's plan to reduce costs and improve operating
efficiencies, the Company incurred a non-recurring charge of $5.6 million
related to restructuring initiatives during the six months ended June 30, 1999.
The restructuring charge included settlement of the former Chief Executive
Officer's employment agreement and additional severance payment, expenses
associated with the termination of certain employees in the United States and
the United Kingdom, the closing of certain satellite offices in the United
States and an additional office in Belgium, and costs to exit certain
contractual obligations.
Activity in accrued costs for restructuring and other special charges
during the six month period ended June 30, 1998 is as follows:
Charges to Costs Accrued Costs
Operations Paid June 30, 1999
---------- -------- -------------
Severance and related costs....... $ 5,027 $ 2,054 $ 2,973
Other costs primarily to exit
facilities, contracts, and
certain activities................ 601 223 378
------- ------- -------
$ 5,628 $ 2,277 $ 3,351
======= ======= =======
Additionally, the Company recorded a reserve of approximately $1.7 million
against an outstanding receivable from a large ERP account, whose parent
corporation filed for protection under Chapter 11 of the U.S. bankruptcy laws.
(5) CREDIT FACILITY
On January 29, 1999, the Company entered into an unsecured three-year $30
million Revolving Credit Loan Agreement (the "Loan Agreement") with PNC Bank,
N.A. (the "Bank"). The proceeds of the credit facility may be used by the
Company for financing acquisitions and general corporate purposes. At the
Company'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
such terms are defined in the Loan Agreement. The Company's obligations under
the credit agreement are payable at the expiration of such facility on January
29, 2002. Approximately $10.6 million was outstanding under this credit facility
at June 30, 1999.
The credit agreement contains financial covenants which require the Company
to (i) maintain a consolidated cash flow leverage ratio equal to or less than
2.5 to 1.0 for the period of four fiscal quarters preceding the date of
determination taken together as one accounting period ("Consolidated Cash Flow
Leverage Ratio"), (ii) maintain a consolidated net worth of not less than
consolidated net worth of the prior fiscal year plus 50% of positive net income
for such fiscal year ("Consolidated Net Worth"), (iii) not enter into any
agreement to purchase and/or pay for, or
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<PAGE>
become obligated to pay for capital expenditures, long term leases, capital
leases or sale lease-backs, in an amount at any time outstanding aggregating in
excess of $5,000,000 during any fiscal year, provided, however, in a one year
carry-forward basis, the Company may incur capital expenditures not to exceed
$8,000,000 during any fiscal year, and (iv) shall not cause or permit the
minimum fixed charge coverage ratio, calculated on the basis of a rolling four
quarters to be less than 1.4 to 1.0 as at the end of each fiscal quarter.
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, at June 30, 1999, the Company was not in
compliance with the Consolidated Cash Flow Leverage Ratio and Consolidated Net
Worth financial covenants. As of the date of this filing, the Company is in
discussions with the Bank regarding a waiver and amendment to the Loan Agreement
with respect to such covenants. There can be no assurance that the Company will
obtain a waiver or an amendment on terms acceptable to the Company, if at all.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The Company provides a wide range of information technology services,
including management consulting, enterprise-wide business process solutions,
Internet applications services, applications outsourcing and maintenance, web
site design and customization, IT training solutions, systems integration and
custom software development based on leading technologies. The Company has grown
rapidly since 1994 when it made a strategic decision to diversify its customer
base by expanding the scope of its integration and development services and to
utilize software developed by SAP as a primary tool to implement enterprise-wide
business process solutions. In 1995, the Company achieved the status of a SAP
National Implementation Partner. In the same year, the Company also began to
utilize Oracle's ERP application products to diversify its service offerings. In
1997, the Company enhanced its partner status with SAP, by first achieving
National Logo Partner status and then AcceleratedSAP Partner Status. Also, in
1997, the Company further diversified its ERP-based service offerings, by
beginning to provide PeopleSoft and Baan implementation services. In July 1997,
the Company was awarded PeopleSoft implementation partnership status. In
September 1997, the Company was awarded Baan international consulting
partnership status. In June 1998, the Company also expanded its Oracle
applications implementation services practice and added upgrade services to meet
market demand of mid-size to large companies that are implementing or upgrading
Oracle applications.
The Company generates revenue from professional services rendered to
customers. Revenue is recognized as services are performed. The Company's
services range from providing customers with a single consultant to
multi-personnel full-scale projects. The Company provides these services to its
customers primarily on a time and materials basis and pursuant to written
contracts which can be terminated with limited advance notice, typically not
more than 30 days, and without significant penalty, generally limited to fees
earned and expenses incurred by the Company through the date of termination. The
Company provides its services directly to end-user organizations or as a member
of a consulting team assembled by another information technology consulting firm
to Fortune 1000 and other large and mid-sized companies. The Company generally
bills its customers semi-monthly for the services provided by its consultants at
contracted rates. Where contractual provisions permit, customers also are billed
for reimbursement of expenses incurred by the Company on the customers' behalf.
The Company has provided and continues to provide services on certain
projects in which it, at the request of the clients, offered a fixed price for
its services. For the year ended December 31, 1998, revenues derived from
projects under fixed-price contracts represented approximately 4% of the
Company's total revenue. No single fixed-price contract was material to the
Company's business during 1998. However, one fixed price project, which began
late in 1998 and is expected to be completed in early 2000, represented
approximately 3% of the Company's revenue during the quarter ended June 30,
1999. Fixed price contracts, in the aggregate, represented approximately 10% of
the Company's total revenue during such quarter. The Company believes that, as
it pursues its strategy of making turnkey project management a larger portion of
its business, it will continue to offer fixed price projects. The Company has
had limited prior experience in pricing and performing under fixed price
arrangements and believes that there are certain risks related thereto and thus
prices such arrangements to reflect the associated risk. There
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<PAGE>
can be no assurance that the Company will be able to complete such projects
within the fixed price timeframes. The failure to perform within such fixed
price contracts, if entered into, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of customers and
projects. For the six months ended June 30, 1999 and the year ended December 31,
1998, the Company's ten largest customers accounted for in the aggregate,
approximately 34% and 38% of its revenue, respectively. For the six months ended
June 30, 1999 and the year ended December 31, 1998, no customer accounted for
more than 10% of revenue. During the six months ended June 30, 1999 and the year
ended December 31, 1998, 44% and 52%, respectively, of the Company's total
revenue was derived from projects in which the Company implemented software
developed by SAP. During the six months ended June 30, 1999 and the year ended
December 31, 1998, approximately 8% and 11%, respectively, of the Company's
total revenue was derived from projects in which the Company implemented
software developed by Oracle. During the six months ended June 30, 1999 and the
year ended December 31, 1998, approximately 27% and 19%, respectively, of the
Company's total revenue was derived from engagements in which the Company
implemented software developed by PeopleSoft.
The Company's most significant cost is project personnel expenses, which
consist of consultant salaries, benefits and payroll-related expenses. Thus, the
Company's financial performance is based primarily upon billing margin (billable
hourly rate less the cost to the Company of a consultant on an hourly basis) and
personnel utilization rates (billable hours divided by paid hours). The Company
believes that turnkey project management assignments typically carry higher
margins. The Company has been shifting to such higher-margin turnkey management
assignments and more complex projects by leveraging its reputation, existing
capabilities, proprietary implementation methodology, development tools and
offshore development capabilities with expanded sales and marketing efforts and
new service offerings to develop turnkey project sales opportunities with both
new and existing customers. The Company's inability to continue its shift to
higher-margin turnkey management assignments and more complex projects may
adversely impact the Company's future growth.
Since late 1994, the Company has made substantial investments in its
infrastructure in order to support its rapid growth. For example, in 1994, the
Company established and funded an operations facility in India, the Advanced
Development Center (the "ADC"), and in 1995 established a sales office in Foster
City, California. In addition, from 1994 to date, the Company has incurred
expenses to develop proprietary development tools and its proprietary
accelerated implementation methodology and toolset. Since 1995, the Company has
also been increasing its sales force and its marketing, finance, accounting and
administrative staff, in order to manage its growth. The Company currently
maintains its headquarters in Edison, New Jersey, and branch offices in Chicago,
Detroit, Foster City (California), Reston (Virginia), Dallas, Atlanta, Phoenix,
and Washington, D.C. The Company also currently maintains offices in Europe (the
United Kingdom and Denmark), and Asia Pacific (Australia, India, New Zealand,
the Philippines, Japan and Singapore). The Company leases its headquarters in
Edison, New Jersey, totaling approximately 48,475 square feet. Such lease has an
initial term of ten (10) years, which commenced in September 1998.
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<PAGE>
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements regarding the Company's intention to shift to
higher margin turnkey management assignments and more complex projects and to
utilize its proprietary implementation methodology in an increasing number of
projects. In addition, statements regarding the Company's plans to expand its
service offerings through internal growth and acquisitions are also
forward-looking statements. Such forward-looking statements include risks and
uncertainties, including, but not limited to:
o the substantial variability of the Company's quarterly operating results
caused by a variety of factors, many of which are not within the Company's
control, including (a) patterns of software and hardware capital spending
by customers, (b) information technology outsourcing trends, (c) the
timing, size and stage of projects, (d) timing and impact of acquisitions,
(e) new service introductions by the Company or its competitors and the
timing of new product introductions by the Company's ERP partners, (f)
levels of market acceptance for the Company's services, (g) general
economic conditions, (h) the hiring of additional staff and (i) fixed price
contracts;
o changes in the Company's billing and employee utilization rates;
o the Company's ability to manage its growth effectively, which will require
the Company (a) to continue developing and improving its operational,
financial and other internal systems, as well as its business development
capabilities, (b) to attract, train, retain, motivate and manage its
employees, (c) to continue to maintain high rates of employee utilization
at profitable billing rates, (d) to successfully integrate the personnel
and businesses acquired by the Company, and (e) to maintain project
quality, particularly if the size and scope of the Company's projects
increase;
o the Company's ability to maintain an effective internal control structure;
o the Company's reliance on a continued relationship with SAP America and the
Company's present status as a SAP National Logo Partner;
o the Company's substantial reliance on key customers and large projects;
o the highly competitive nature of the markets for the Company's services;
o the Company's ability to successfully address the continuing changes in
information technology, evolving industry standards and changing customer
objectives and preferences;
o the Company's reliance on the continued services of its key executive
officers and leading technical personnel;
o the Company's ability to attract and retain a sufficient number of highly
skilled employees in the future;
o the Company's ability to continue to diversify its offerings, including
growth in its Oracle, Baan and PeopleSoft and Internet services;
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<PAGE>
o uncertainties resulting from pending litigation matters and from potential
administrative and regulatory immigration and tax law matters;
o the Company's ability to protect its intellectual property rights; and
o Year 2000 compliance of vendors' products and related issues, including
impact of the Year 2000 problem on customer buying patterns.
As a result of these factors and others, the Company's actual results may
differ materially from the results disclosed in such forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:
<TABLE>
<CAPTION>
Percentage of Revenue
---------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue............................... 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 64.2 62.1 65.4 62.5
-------- -------- -------- --------
Gross profit...................... 35.8 37.9 34.6 37.5
Selling, general and administrative
expenses............................ 32.6 24.6 30.1 24.3
Acquisition expenses.................. -- 1.1 2.3 0.6
Restructuring and other special
charges............................... 15.8 -- 7.9 --
-------- -------- -------- --------
Operating income (loss)........... (12.6) 12.2 (5.7) 12.6
Interest and other income
(expense), net........................ (0.2) (0.2) (0.3) --
-------- -------- -------- --------
Income (loss) before provision for
income taxes....................... (12.8) 12.0 (6.0) 12.6
Provision (benefit) for income taxes.. (4.1) 2.5 (1.5) 2.6
-------- -------- -------- --------
Net income (loss)..................... (8.7)% 9.5% (4.5)% 10.0%
======== ======== ======= ========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenue. Revenue increased by 16.0%, or $6.4 million, from $40.0 million
during the three months ended June 30, 1998 to $46.4 million during the three
months ended June 30, 1999. This increase was attributable primarily to
increased demand for the Company's PeopleSoft implementation services as
compared with the same period in the prior year, and, to a lesser extent, an
increase in management consulting revenues, as well as growth in internet
development services, partially related to the Company's acquisition of Network
Publishing, Inc. on January 8, 1999. Revenue for the three month period ended
June 30, 1999, included a fixed price project which accounted for approximately
3.0% of revenue.
Gross profit. The Company's cost of sales includes primarily the cost of
salaries to consultants and related employee benefits and payroll taxes. The
Company's cost of sales increased by 20.0%, or $4.9 million, from $24.9 million
during the three months ended June 30, 1998 to $29.8 million during the three
months ended June 30, 1999. The increase was due to increased personnel costs
resulting from the hiring of additional consultants to support the
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<PAGE>
increase in demand for the Company's services. The Company's gross profit
increased by 9.4%, or $1.4 million, from $15.2 million during the three months
ended June 30, 1998 to $16.6 million during the three months ended June 30,
1999. Gross profit margin decreased from 37.9% of revenue during the three
months ended June 30, 1998 to 35.8% of revenue during the three months ended
June 30, 1999. While revenue from implementation services increased from the
same period in 1998, the Company continued to experience a decline in its
consultant staff utilization during the second quarter of 1999, a result of
changing ERP market dynamics. As a consequence, gross margins were adversely
affected during the current period.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of administrative salaries, and
related benefits costs, occupancy costs, sales person compensation, travel and
entertainment, costs associated with the ADC and related development costs and
professional fees. Selling, general and administrative expenses increased by
53.5%, or $5.3 million, from $9.8 million during the three months ended June 30,
1998 to $15.1 million during the three months ended June 30, 1999, and increased
as a percentage of revenue from 24.6% to 32.6%, respectively. The increases in
such expenses in absolute dollars and as a percentage of revenue were due
primarily to the increase in salaries and related benefits, reflecting headcount
increases in the Company's sales force and its marketing, finance, accounting
and administrative staff through acquisitions and in order to manage its growth.
The Company's occupancy costs increased as a result of the relocation of our
corporate headquarters into approximately 48,000 square feet of office space,
from our former location which consisted of approximately 17,000 square feet. In
addition, the Company experienced increases in sales and management recruiting
costs, occupancy costs as additional offices were opened in the United States,
support services and the provision for doubtful accounts.
Acquisition expense. During the three months ended June 30, 1998, the
Company incurred costs of $434,000 in connection with the acquisition of CPI
Resources Limited, which was accounted for as a pooling of interests. These
costs primarily consisted of professional fees associated with the acquisition.
Restructuring and other special charges. In connection with management's
plan to reduce costs and improve operating efficiencies, the Company incurred a
non-recurring charge of $5.6 million related to restructuring initiatives during
the three months ended June 30, 1999. The restructuring charge included
settlement of the former Chief Executive Officer's employment agreement and
additional severance payment, expenses associated with the termination of
certain employees in the United States and the United Kingdom, the closing of
certain satellite offices in the United States and an additional office in
Belgium, and costs to exit certain contractual obligations. Additionally, the
Company recorded a reserve of approximately $1.7 million against an outstanding
receivable from a large ERP account, whose parent corporation filed for
protection under Chapter 11 of the U.S. bankruptcy laws.
Interest income (expense). Interest income has been earned on interest
bearing cash accounts and short term investments. In accordance with investment
guidelines approved by the Company's Board of Directors, cash balances in excess
of those required to fund operations have been invested in short-term U.S.
Treasury securities and commercial paper with a credit rating no lower than
A1/P1. The Company incurred approximately $200,000 in interest expense during
the three months ended June 30, 1999, primarily related to its borrowings under
its line of credit. Borrowings under the line of credit were used to fund
operating activities.
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<PAGE>
Provision (benefit) for income taxes. The Company's effective tax rate was
(32.0)% and 21.0% for the three months ended June 30, 1999, and June 30, 1998,
respectively. In 1996, the Company elected a five year tax holiday in India, in
accordance with a local tax incentive program whereby no income tax will be due
in such period. For the three months ended June 30, 1999, the tax holiday
impacted the Company's effective tax rate by approximately (3.0)%, while the
favorable effect in the three months ended June 30, 1998 was 6.0%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenue. Revenue increased by 27.1%, or $19.9 million, from $73.3 million
during the six months ended June 30, 1998 to $93.2 million during the six months
ended June 30, 1999. This increase was attributable primarily to increased
demand for the Company's PeopleSoft implementation services as compared with the
same period in the prior year, and, to a lesser extent, an increase in
management consulting revenues, as well as grown in internet development
services, partially related to the Company's acquisition of Network Publishing,
Inc. on January 8, 1999. Revenue for the six month period ended June 30, 1999,
included a fixed price project which accounted for approximately 4% of revenue.
Gross profit. The Company's cost of sales increased by 33.0%, or $15.1
million, from $45.8 million during the six months ended June 30, 1998 to $60.9
million during the six months ended June 30, 1999. The increase was due to
increased personnel costs resulting from the hiring of additional consultants to
support the increase in demand for the Company's services. The Company's gross
profit increased by 17.2% or $4.7 million, from $27.5 million during the six
months ended June 30, 1998 to $32.2 million during the six months ended June 30,
1999. Gross profit margin decreased from 37.5% of revenue during the six months
ended June 30, 1998 to 34.6% of revenue during the six months ended June 30,
1999. While revenue from implementation services increased from the same period
in 1998, the Company continued to experience a decline in its consultant staff
utilization during the six months ended June 30, 1999, a result of the changing
ERP market dynamics. As a consequence, gross margins were adversely affected
during the six months ended June 30, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 57.5% or $10.2 million, from $17.8 million
during the six months ended June 30, 1998 to $28.0 million during the six months
ended June 30, 1999, and increased as a percentage of revenue from 24.3% to
30.1%, respectively. The increases in such expenses in absolute dollars and as a
percentage of revenue were due primarily to the increase in salaries and related
benefits, reflecting headcount increases in the Company's sales force and its
marketing, finance, accounting and administrative staff through acquisitions and
in order to manage its growth. The Company's occupancy costs increased as a
result of the relocation of our corporate headquarters into approximately 48,000
square feet of office space, from our former location which consisted of
approximately 17,000 square feet. In addition, the Company experienced increases
in sales and management recruiting costs, occupancy costs as additional offices
were opened in the United States, support services and the provision for
doubtful accounts.
Acquisition expense. During the six months ended June 30, 1999, the Company
incurred costs of $2.1 in connection with the acquisition of the Empower
Companies.
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<PAGE>
Restructuring and other special charges. In connection with management's
plan to reduce costs and improve operating efficiencies, the Company incurred a
non-recurring charge of $5.6 million related to restructuring initiatives during
the six months ended June 30, 1999. The restructuring charge included settlement
of the former Chief Executive Officer's employment agreement and additional
severance payment, expenses associated with the termination of certain employees
in the United States and the United Kingdom, the closing of certain satellite
offices in the United States and an additional office in Belgium, and costs to
exit certain contractual obligations. Additionally, the Company recorded a
reserve of approximately $1.7 million against an outstanding receivable from a
large ERP account, whose parent corporation filed for protection under Chapter
11 of the U.S. bankruptcy laws.
Interest income (expense). Interest income has been earned on interest
bearing cash accounts and short term investments. In accordance with investment
guidelines approved by the Company's Board of Directors, cash balances in excess
of those required to fund operations have been invested in short-term U.S.
Treasury securities and commercial paper with a credit rating no lower than
A1/P1. The Company incurred approximately $300,000 in interest expense during
the six months ended June 30, 1999, primarily related to its borrowings under
its line of credit. Borrowings under the line of credit were used to fund
operating activities, purchases of computer equipment and office furniture and
fixtures, as well as for acquisitions.
Provision (benefit) for income taxes. The Company's effective tax rate was
(25.0)% and 21.0% for the six months ended June 30, 1999, and June 30, 1998,
respectively. In 1996, the Company elected a five year tax holiday in India, in
accordance with a local tax incentive program whereby no income tax will be due
in such period. For the six months ended June 30, 1999, the tax holiday impacted
the Company's effective tax rate by approximately (7.0)%, while the favorable
effect in the six months ended June 30, 1998 was 6.0%.
BACKLOG
The Company normally enters into written contracts with its customers at
the time it commences work on a project. These written contracts contain varying
terms and conditions and the Company does not generally believe it is
appropriate to characterize such written contracts as creating backlog. In
addition, because these written contracts often provide that the arrangement can
be terminated with limited advance notice and without significant penalty, the
Company does not believe that projects in process at any one time are a reliable
indicator or measure of expected future revenue. In the event that a customer
terminates a project, the customer remains obligated to pay the Company for
services performed by it through the date of termination.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $3.7 million at June 30, 1999,
and $4.2 million at December 31, 1998. The Company had working capital of $28.6
million at June 30, 1999, and $32.6 million at December 31, 1998.
Cash used in operating activities was $7.4 million during the six months
ended June 30, 1999, resulting primarily from the net loss, as well as growth in
accounts receivable and unbilled services. Cash used in operating activities for
the six months ended June 30, 1998 was $1.3 million.
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<PAGE>
The Company invested $1.5 million and $2.6 million in computer equipment
and furniture during the six months ended June 30, 1999 and 1998, respectively.
The increase reflects both the purchases of computer and telecommunication
equipment for consultants and administrative staff, and office furniture and
fixtures.
On January 29, 1999, the Company entered into an unsecured three-year $30
million Revolving Credit Loan Agreement (the "Loan Agreement") with PNC Bank,
N.A. (the "Bank"). The proceeds of the credit facility may be used by the
Company for financing acquisitions and general corporate purposes. At the
Company'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
such terms are defined in the Loan Agreement. The Company's obligations under
the credit agreement are payable at the expiration of such facility on January
29, 2002. Approximately $10.6 million was outstanding under this credit facility
at June 30, 1999.
The credit agreement contains financial covenants which require the Company
to (i) maintain a consolidated cash flow leverage ratio equal to or less than
2.5 to 1.0 for the period of four fiscal quarters preceding the date of
determination taken together as one accounting period ("Consolidated Cash Flow
Leverage Ratio"), (ii) maintain a consolidated net worth of not less than
consolidated net worth of the prior fiscal year plus 50% of positive net income
for such fiscal year ("Consolidated Net Worth"), (iii) not enter into any
agreement to purchase and/or pay for, or become obligated to pay for capital
expenditures, long term leases, capital leases or sale lease-backs, in an amount
at any time outstanding aggregating in excess of $5,000,000 during any fiscal
year, provided, however, in a one year carry-forward basis, the Company may
incur capital expenditures not to exceed $8,000,000 during any fiscal year, and
(iv) shall not cause or permit the minimum fixed charge coverage ratio,
calculated on the basis of a rolling four quarters to be less than 1.4 to 1.0 as
at the end of each fiscal quarter.
As a result of the restructuring and other special charges incurred during
the quarter ended June 30, 1999, at June 30, 1999, the Company was not in
compliance with the Consolidated Cash Flow Leverage Ratio and Consolidated Net
Worth financial covenants. As of the date of this filing, the Company is in
discussions with the Bank regarding a waiver and amendment to the Loan Agreement
with respect to such covenants. There can be no assurance that the Company will
obtain a waiver or an amendment on terms acceptable to the Company, if at all.
The Company believes that its available funds, together with current credit
arrangements and the cash flows expected to be generated from operations, will
be adequate to satisfy its current and planned operations through at least the
next 12 months.
YEAR 2000 COMPLIANCE
Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 Problem". The Company believes that it
has sufficiently assessed its state of readiness with respect to its Year 2000
compliance. Based on its assessment, the Company does not believe that Year 2000
compliance will result in material investments by the Company, nor does the
Company anticipate that the Year 2000 Problem will have any adverse effects on
the business operations or financial performance of the
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<PAGE>
Company. The Company does not believe that it has any material exposure to the
Year 2000 Problem with respect to its own information systems and believes that
all of its business-critical systems correctly define the Year 2000 and
subsequent years. Based upon its assessment, the Company has established no
reserve nor instituted any contingency plans. There can be no assurance,
however, that the Year 2000 problem will not adversely affect the Company's
business operating results and financial condition.
However, the purchasing patterns of customers and potential customers may
be affected by issues associated with the Year 2000 Problem. As companies expend
significant resources to correct their current data storage solutions, these
expenditures may result in reduced funds to purchase products or undertake
projects such as those offered by the Company. There can be no assurance that
the Year 2000 Problem, as it relates to customers, potential customers and other
third-parties, will not adversely affect the Company's business, operating
results and financial condition. Conversely, the Year 2000 Problem may cause
other companies to accelerate purchases, thereby causing an increase in
short-term demand and a consequent decrease in long-term demand for the
Company's products.
EUROPEAN MONETARY UNION (EMU)
The euro was introduced on January 1, 1999, at which time the eleven
participating EMU member countries established fixed conversion rates between
their existing currencies (legacy currencies) and the euro. The legacy
currencies will continue to be used as legal tender through January 1, 2002;
thereafter, the legacy currencies will be canceled and euro bills and coins will
be used for cash transactions in the participating countries. The Company's
European sales and operations offices affected by the euro conversion have
established plans to address the systems issues raised by the euro currency
conversion and are cognizant of the potential business implications of
converting to a common currency. The Company is unable to determine the ultimate
financial impact of the conversion on its operations, if any, given that the
impact will be dependent upon the competitive situations which exist in the
various regional markets in which the Company participates and the potential
actions which may or may not be taken by the Company's competitors and
suppliers.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 13, 1998, Russell Schultz, a former employee of the Company,
filed a complaint in the Superior Court of New Jersey, Law Division, Monmouth
County, naming the Company as a defendant. The complaint, which seeks damages,
alleges, among other things, that the Company misrepresented plaintiff's job
description in order to induce plaintiff to leave his prior employer, failed to
provide stock options to the plaintiff and violated plaintiff's written
employment contract. The Company was served with the complaint on March 16,
1998. Subsequently, on July 10, 1998, upon the Company's Motion to Compel
Arbitration, the court dismissed the plaintiff's complaint without prejudice.
Subsequently, the plaintiff's motion to reconsider the dismissal was denied. The
plaintiff filed his demand for Arbitration with the American Arbitration
Association on February 17, 1999 and the Company filed its answer on February
26, 1999. An arbitration hearing is expected to take place in October 1999. It
is too early in the dispute process to determine the impact, if any, that such
dispute will have upon the Company's business, financial condition or results of
operations.
On January 20, 1999, Tony Knight, a former employee of the Company, filed a
complaint in the Superior Court of the State of California, San Mateo County,
naming the Company, among others, as a defendant. The complaint, which seeks
damages, alleges, among other things, that the Company discriminated against
plaintiff because of his race, ancestry, religious creed and national origin and
thereafter wrongfully terminated the plaintiff's employment with the Company.
The Company, through its counsel, acknowledged receipt of the summons and
complaint on April 20, 1999. On May, 19, 1999, the Company removed the action
from the California Superior Court to the United States District Court for the
Northern District of California. It is too early in the litigation process to
determine the impact, if any, that such litigation will have upon the Company's
business, financial condition or results of operations.
There is no other material litigation pending to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 19, 1999, subsequent to the end of the quarter, the Company held
its Annual Meeting of Shareholders ("Annual Meeting").
There were present at the meeting in person or by proxy shareholders
holding an aggregate of 10,007,596 shares of Common Stock. The results of the
vote taken at such meeting with respect to each nominee for director were as
follows:
Common Stock Nominees For Withheld
--------------------- --- --------
Ashok Pandey 9,960,525 47,044
Rajkumar Koneru 9,960,525 47,044
Nagarjun Valluripalli 9,960,525 47,044
Klaus P. Besier 9,959,525 48,044
Maxine Ballen 9,959,525 48,044
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<PAGE>
In addition, a vote was taken on the proposal to amend the Company's 1996
Stock Plan (the "Plan") to increase the maximum number of shares of Common Stock
available for issuance under the Plan from 2,200,000 to 4,700,000 shares and to
reserve an additional 2,500,000 shares of Common Stock of the Company for
issuance upon the exercise of stock options granted or for the issuance of stock
purchase rights under the Plan. Of the shares present at the meeting in person
or by proxy, 9,769,379 shares of Common Stock were voted in favor of such
proposal, 230,957 shares of Common Stock were voted against such proposal and
7,233 shares of Common Stock abstained from voting.
Finally, a vote was taken on the proposal to ratify the appointment of
Arthur Andersen LLP as the independent auditors of the Company for the fiscal
year ending December 31, 1999. Of the shares present at the meeting in person or
by proxy, 9,998,936 shares of Common Stock were voted in favor of such proposal,
5,500 shares of Common Stock were voted against such proposal and 3,133 shares
of Common Stock abstained from voting.
ITEM 5. OTHER INFORMATION.
Management Restructuring. On May 24, 1999, the Company completed a
management restructuring. The Company named Nagarjun Valluripalli as its
Chairman of the Board and each of Rajkumar Koneru and Ashok Pandey as Co-Chief
Executive Officers. Each of Messrs. Valluripalli, Koneru and Pandey were
founders of the Company and have resumed their active role in the management of
the Company's operations. In addition, Stephen A. Carns resigned effective May
24, 1999 as the Company's President and Chief Executive Officer and as a
director. Mr. Carns had served in such capacities since 1998.
As part of the management restructuring, also on May 24, 1999, the
Company's three outside directors, David A. Finley, Kevin P. Mohan and John E.
Steuri, resigned from the Board of Directors of the Company (the "Board").
A former director, Klaus P. Besier, who resigned from the Board in April,
1999, rejoined the Board upon his election by the reconstituted Board following
the aforementioned management restructuring.
Adjournment of Annual Meeting of Shareholders. In light of the management
restructuring and Board resignations, the Company adjourned its Annual Meeting
of Shareholders originally scheduled for Tuesday, May 25, 1999 in order to
designate a new slate of director nominees and to prepare additional proxy
material. The Company rescheduled and held its Annual Meeting on Monday, July
19, 1999. See "Item 4, Submission of Matters to a Vote of Security Holders."
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 1996 Stock Plan, as amended
27.1 Financial Data Schedule for the six-month period ended June
30, 1999.
27.2 Financial Data Schedule for the three-month period ended
June 30, 1999.
27.3 Financial Data Schedule for the six-month period ended June
30, 1998.
27.4 Financial Data Schedule for the three-month period ended
June 30, 1998.
(b) Reports on Form 8-K.
On May 3, 1999, the Company filed a report on form 8-K/A relating
to the Company's acquisition of Empower Solutions, L.L.C., and
its affiliate Empower, Inc.
On May 27, 1999, the Company filed a report on Form 8-K relating
to the Company's management restructuring, resignation of certain
outside directors, election of a former outside director and the
adjournment of the Company's Annual Meeting of Shareholders.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Intelligroup, Inc.
DATE: August 16, 1999 By: /s/ Ashok Pandey
--------------------------------
Ashok Pandey,
Co-Chief Executive Officer
(Principal Executive Officer)
DATE: August 16, 1999 By: /s/ Gerard E. Dorsey
--------------------------------
Gerard E. Dorsey,
Executive Vice President
Finance and Administration
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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INTELLIGROUP, INC.
1996 STOCK PLAN, AS AMENDED
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, non-Employee
members of the Board and Consultants of the Company and its Subsidiaries and to
promote the success of the Company's business. Options granted under the Plan
may be incentive stock options (as defined under Section 422 of the Code) or
non-statutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder. Stock purchase
rights may also be granted under the Plan.
2. Certain Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Intelligroup, Inc., a New Jersey corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
<PAGE>
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange for the last market
trading day prior to the time of determination as reported in the Wall
Street Journal or such other source as the Administrator deems reliable or;
(ii) If the Common Stock is quoted on Nasdaq (but not on the
National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high and low asked prices for the
Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Common Stock subject to an Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1996 Stock Plan.
(s) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of stock purchase rights under Section 11 below.
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<PAGE>
(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(u) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 4,700,000 shares of Common Stock if an initial public offering
of Common Stock shall have been consummated, and 700,000 shares of Common Stock
if an initial public offering of Common Stock shall not have been consummated.
The shares may be authorized, but unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers. With
respect to grants of Options or stock purchase rights to Employees who are
also officers or directors of the Company, the Plan shall be administered
by (A) the Board if the Board may administer the Plan in compliance with
Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") with respect to a plan intended to qualify thereunder as a
discretionary plan, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted in such a manner
as to permit the Plan to comply with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan. Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options or stock purchase rights to
Employees who are neither directors nor officers of the Company or to
Consultants, the Plan shall be administered by
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<PAGE>
(A) the Board, if the Board may administer the Plan in compliance with Rule
16b-3, or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the legal requirements relating
to the administration of incentive stock option plans, if any, of New
Jersey corporate law and applicable securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time
to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and stock purchase rights may from time to time be granted
hereunder;
(iii) to determine whether and to what extent Options and stock
purchase rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but
not limited to, the share price and any restriction or limitation or waiver
of forfeiture restrictions regarding any Option or other award and/or the
shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common
Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount, if any, of any deemed earnings on any deferred amount during any
deferral period);
-4-
<PAGE>
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(x) to determine the terms and restrictions applicable to
stock purchase rights and the Restricted Stock purchased by exercising such
stock purchase rights.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
-5-
<PAGE>
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that
-6-
<PAGE>
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the option is
exercised, (6) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (7) by
delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement, (8)
any combination of the foregoing methods of payment, or (9) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth
-7-
<PAGE>
in the Option Agreement), exercise his Option to the extent that Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of the Option shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee.
-8-
<PAGE>
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock purchase rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer stock purchase rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the stock purchase right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the Committee
may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the stock purchase right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock purchase right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or stock purchase right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold
-9-
<PAGE>
from the Shares to be issued upon exercise of the Option, or the Shares to
be issued in connection with the stock purchase right, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or stock purchase
right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into
-10-
<PAGE>
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another corporation or the sale of all or substantially all of the Company's
assets (hereinafter, a "merger"), the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Board shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger, the Option or right confers the
right to purchase, for each Share of stock subject to the Option immediately
prior to the merger, the consideration (whether stock, cash, or other securities
or property) received in the merger by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its Parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option, for each Share of stock subject to the
Option, to be solely common stock of the successor corporation or its Parent
equal in Fair Market Value to the per share consideration received by holders of
Common Stock in the merger or sale of assets.
14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
-11-
<PAGE>
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options and stock purchase rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
-12-
<PAGE>
20. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED 6/30/99 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016439
<NAME> Intelligroup, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,749
<SECURITIES> 0
<RECEIVABLES> 52,326
<ALLOWANCES> 2,480
<INVENTORY> 0
<CURRENT-ASSETS> 60,288
<PP&E> 14,362
<DEPRECIATION> 4,162
<TOTAL-ASSETS> 78,471
<CURRENT-LIABILITIES> 31,652
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 45,450
<TOTAL-LIABILITY-AND-EQUITY> 78,471
<SALES> 93,178
<TOTAL-REVENUES> 93,178
<CGS> 60,932
<TOTAL-COSTS> 98,430
<OTHER-EXPENSES> (46)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 267
<INCOME-PRETAX> (5,473)
<INCOME-TAX> (1,354)
<INCOME-CONTINUING> (4,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,119)
<EPS-BASIC> .26 <F1>
<EPS-DILUTED> .26 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED 6/30/99 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016439
<NAME> Intelligroup, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 46,434
<TOTAL-REVENUES> 46,434
<CGS> 29,819
<TOTAL-COSTS> 52,266
<OTHER-EXPENSES> (107)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207
<INCOME-PRETAX> (5,932)
<INCOME-TAX> 1,899
<INCOME-CONTINUING> (4,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,033)
<EPS-BASIC> .26 <F1>
<EPS-DILUTED> .26 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED 6/30/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016439
<NAME> Intelligroup, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 73,324
<TOTAL-REVENUES> 73,324
<CGS> 45,802
<TOTAL-COSTS> 64,047
<OTHER-EXPENSES> 56
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (96)
<INCOME-PRETAX> 9,317
<INCOME-TAX> 1,906
<INCOME-CONTINUING> 7,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,411
<EPS-BASIC> .49 <F1>
<EPS-DILUTED> .48 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED 6/30/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016439
<NAME> Intelligroup, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-01-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 40,046
<TOTAL-REVENUES> 40,046
<CGS> 24,854
<TOTAL-COSTS> 35,135
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29)
<INCOME-PRETAX> 4,835
<INCOME-TAX> 1,012
<INCOME-CONTINUING> 3,823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,823
<EPS-BASIC> .25 <F1>
<EPS-DILUTED> .24 <F2>
<FN>
<F1> This amount represents Basic Earnings per Share in accordance with the
requirements of Statement of Financial Accounting Standards No. 128 -
"Earnings per Share".
<F2> This amount represents Diluted Earnings per Share in accordance with
the requirements of Statement of Financial Accounting Standards No.
128 - "Earnings per Share".
</FN>
</TABLE>
