SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Intelligroup, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
July 1, 1999
INTELLIGROUP, INC.
499 Thornall Street
Edison, New Jersey 08837
To Our Shareholders:
You are most cordially invited to attend the 1999 Annual Meeting of
Shareholders of Intelligroup, Inc. at 10:00 A.M., local time, on Monday, July
19, 1999, at the Woodbridge Hilton, 120 Wood Avenue South, Iselin, New Jersey.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to ensure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your shares represented by signing, dating and returning your
proxy in the enclosed envelope, which requires no postage if mailed in the
United States, as soon as possible. Your shares will be voted in accordance with
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
Ashok Pandey
Co-Chief Executive Officer
<PAGE>
INTELLIGROUP, INC.
499 Thornall Street
Edison, New Jersey 08837
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Monday, July 19, 1999
The Annual Meeting of Shareholders (the "Meeting") of INTELLIGROUP,
INC., a New Jersey corporation (the "Company"), will be held at the Woodbridge
Hilton, 120 Wood Avenue South, Iselin, New Jersey, on Monday, July 19, 1999, at
10:00 A.M., local time, for the following purposes:
(1) To elect five directors to serve until the next Annual Meeting of
Shareholders and until their respective successors shall have been duly
elected and qualified;
(2) To amend the Company's 1996 Stock Plan (the "1996 Plan") to increase the
maximum number of shares of Common Stock available for issuance under
the 1996 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 1996 Plan;
(3) To ratify the appointment of Arthur Andersen LLP as independent auditors
for the year ending December 31, 1999; and
(4) To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on June 15,
1999 are entitled to notice of and to vote at the Meeting, or any adjournment or
adjournments thereof. A complete list of such shareholders will be open to the
examination of any shareholder at the Meeting. The Meeting may be adjourned from
time to time without notice other than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER
OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY
BE REVOKED BY THE SHAREHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS
VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE
REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE
SIGNED AND RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
Ashok Pandey
Co-Chief Executive Officer
Edison, New Jersey
July 1, 1999
THE COMPANY'S 1998 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
INTELLIGROUP, INC.
499 Thornall Street
Edison, New Jersey 08837
-----------------------------------------------------
PROXY STATEMENT
-----------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Intelligroup, Inc. (the "Company") of proxies to be
voted at the Annual Meeting of Shareholders of the Company to be held on Monday,
July 19, 1999 (the "Meeting"), at the Woodbridge Hilton, 120 Wood Avenue South,
Iselin, New Jersey, at 10:00 A.M., local time, and at any adjournment or
adjournments thereof. Holders of record of shares of Common Stock, $.01 par
value ("Common Stock"), as of the close of business on June 15, 1999, will be
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 15,558,751 shares of Common
Stock issued and outstanding and entitled to vote. Each share of Common Stock is
entitled to one vote on any matter presented at the Meeting.
If proxies in the accompanying form are properly executed and returned, the
shares of Common Stock represented thereby will be voted in the manner specified
therein. If not otherwise specified, the shares of Common Stock represented by
the proxies will be voted (i) FOR the election of the five nominees named below
as Directors, (ii) FOR a proposal to amend the Company's 1996 Stock Plan (the
"1996 Plan"), to increase the maximum number of shares of Common Stock available
for issuance under the 1996 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 1996 Plan, (iii) FOR the ratification of the
appointment of Arthur Andersen LLP as independent auditors for the year ending
December 31, 1999, and (iv) in the discretion of the persons named in the
enclosed form of proxy, on any other proposals which may properly come before
the Meeting or any adjournment or adjournments thereof. Any shareholder who has
submitted a proxy may revoke it at any time before it is voted, by written
notice addressed to and received by the Secretary of the Company, by submitting
a duly executed proxy bearing a later date or by electing to vote in person at
the Meeting. The mere presence at the Meeting of the person appointing a proxy
does not, however, revoke the appointment.
The presence, in person or by proxy, of holders of the shares of Common
Stock having a majority of the votes entitled to be cast at the Meeting shall
constitute a quorum. The affirmative vote by the holders of a plurality of the
shares of Common Stock represented at the Meeting is required for the election
of Directors, provided a quorum is present in person or by proxy. All actions
proposed herein other than the election of Directors may be taken upon the
affirmative vote of shareholders possessing a majority of the shares of Common
Stock represented at the Meeting, provided a quorum is present in person or by
proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being mailed
to the shareholders of the Company on or about July 1, 1999. The Company's
Annual Report to shareholders of the Company for the year ended December 31,
1998, including financial statements (the "Annual Report"), is being mailed
together with this Proxy Statement to all shareholders of record as of June 15,
1999. In addition, the Company has provided brokers, dealers, banks, voting
trustees and their nominees, at the Company's expense, with additional copies of
the Annual Report so that such record holders could supply such materials to
beneficial owners as of June 15, 1999.
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, five Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Shareholders and until their successors shall have
been elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the shares of Common Stock represented thereby, unless otherwise specified
in the proxy, for the election as Directors of the persons whose names and
biographies appear below. The persons whose names and biographies appear below
are at present Directors of the Company. In the event any of the nominees should
become unavailable or unable to serve as a Director, it is intended that votes
will be cast for a substitute nominee designated by the Board of Directors. The
Board of Directors has no reason to believe that the nominees named will be
unable to serve if elected. Each of the nominees has consented to being named in
this Proxy Statement and to serve if elected.
The current members of the Board of Directors who are also nominees for
election to the Board are:
Served as a Positions with
Name Age Director Since the Company
- ---- --- -------------- -----------
Ashok Pandey........... 41 1987 Co-Chief Executive Officer
and Director
Rajkumar Koneru........ 29 1994 Co-Chief Executive Officer
and Director
Nagarjun Valluripalli.. 30 1994 Chairman of the Board and
President of International
Operations
Klaus P. Besier........ 47 1996 Director
An additional nominee for election to the Board who is not a current member
of the Board of Directors is:
Name Age
- ---- ---
Maxine Ballen.......... 49
The principal occupations and business experience, for at least the past
five years, of each nominee is as follows:
Ashok Pandey founded the Company and currently serves as Co-Chief Executive
Officer and as a Director. From April 1998 until May 1999, Mr. Pandey served as
Co-Chairman of the Board of the Company. From October 1997 until April 1998, Mr.
Pandey served as President of Corporate Services of the Company. From the
Company's inception in 1987 through October 1997, Mr. Pandey served as President
and Chief Executive Officer of the Company. Prior to founding the Company, Mr.
Pandey was a consultant to AT&T and Bell Laboratories. He has more than fourteen
years of experience in developing systems and application software.
Rajkumar Koneru joined the Company in April 1996 and currently serves as
Co-Chief Executive Officer and as a Director. From April 1998 until May 1999,
Mr. Koneru served as Co-Chairman of the Board of the Company. From October 1997
until April 1998, Mr. Koneru served as President of U.S. Operations of the
Company. From April 1996 through October 1997, Mr. Koneru served as an Executive
Vice President of the Company. In May 1993, Messrs. Koneru and Valluripalli
co-founded Oxford Systems Inc., a systems integration
-2-
<PAGE>
company ("Oxford"). In March 1994, Messrs. Koneru and Valluripalli sold all of
the issued and outstanding capital stock of Oxford to the Company. From June
1992 through December 1992, Mr. Koneru was a consultant with Super Solutions
Corporation and, from March 1993 until March 1996 he was a consultant for the
Boston Group, each an information technology consulting firm. Following
consummation of the Company's transaction with Oxford, Mr. Koneru continued to
be employed by the Boston Group, which subcontracted Mr. Koneru's services to
the Company.
Nagarjun Valluripalli joined the Company in March 1994 and currently serves
as Chairman of the Board and President of International Operations of the
Company. From March 1994 through October 1997, Mr. Valluripalli served as an
Executive Vice President of the Company. In May 1993, Messrs. Koneru and
Valluripalli co-founded Oxford, at which Mr. Valluripalli was responsible for
business development. In March 1994, Messrs. Koneru and Valluripalli sold all of
the issued and outstanding capital stock of Oxford to the Company. Prior to
founding Oxford, from 1990, Mr. Valluripalli was marketing manager for VJ
Infosystems, a software training and services company.
Klaus P. Besier served as a Director of the Company from December 1996
until his resignation in April 1999. Mr. Besier rejoined the Board upon his
election by the Board in May 1999. Since July 1997, Mr. Besier has served as
President and Chief Executive Officer of FirePond, Inc., a privately-held
provider of technology-enabled selling solutions. Prior to that, from early 1996
to June 1997, Mr. Besier was Chairman and Chief Executive Officer of OneWave,
Inc., a provider of intranet and internet business solutions. Prior to joining
OneWave, Inc., Mr. Besier served from 1994 to early 1996 as Chief Executive
Officer and from 1992 to 1993 as President of SAP America, Inc., a subsidiary of
SAP AG and a leading provider of client/servicer business application solutions
software. Prior to joining SAP America, Inc., Mr. Besier was Corporate Vice
President and a general manager of a subsidiary of Hoechst Celanese. Mr. Besier
is also a director of OneWave, Inc.
Maxine Ballen co-founded the New Jersey Technology Council in January 1996
and currently serves as its President, a position she has held since its
inception. The New Jersey Technology Council provides recognition, networking,
information and services for New Jersey's technology businesses. Prior to that,
Ms. Ballen founded the South Jersey Entrepreneurs Network in 1991 and served as
its Executive Director until December 1995.
All Directors hold office until the next Annual Meeting of Shareholders and
until their successors are duly elected and qualified. There are no family
relationships among any of the executive officers, Directors and key employees
of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
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 the Company.
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.
-3-
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has a Compensation Committee, which administers the
Company's 1996 Stock Plan and approves salaries and certain incentive
compensation for management and key employees of the Company; and an Audit
Committee, which reviews the results and scope of the audit and other services
provided by the Company's independent public accountants. The Company's Option
Committee was consolidated with its Compensation Committee in December 1998. The
Compensation Committee currently consists of Ashok Pandey and Klaus P. Besier.
The Compensation Committee was established in June 1996 and held one meeting
during 1998. During 1998, action that could have been taken by the Compensation
Committee was taken by the full Board of Directors on four separate occasions.
The Audit Committee currently consists of Ashok Pandey and Klaus P. Besier. It
is anticipated that Ms. Ballen, if elected by the shareholders of the Company,
will also serve on the Audit Committee and Compensation Committee. The Audit
Committee was established in June 1996 and held three meetings during 1998.
There were twelve meetings of the Board of Directors during 1998. Each incumbent
Director attended at least 75% of the aggregate of all meetings of the Board of
Directors held during the period in which he served as a Director and the total
number of meetings held by the committee on which he served during the period,
if applicable.
COMPENSATION OF DIRECTORS
On April 27, 1999, the Company's Board of Directors adopted a policy to
compensate each non-employee Director who is elected to the Company's Board of
Directors after such date. The Board of Directors established a cash payment of
$1,500 per meeting for each meeting attended in person by each such Director
($750 per meeting for each meeting attended by conference call) Additionally,
the Board of Directors established a cash payment of $500 per Committee meeting
attended, whether in person or by conference call and including Committee
meetings attended in person in conjunction with a regularly scheduled Board
meeting. Other than Mr. Besier, who is compensated pursuant to such policy,
Directors do not otherwise receive cash compensation for services on the
Company's Board of Directors. The Company does provide, however, reimbursement
to Directors for reasonable and necessary expenses incurred in connection with
attendance at meetings of the Board of Directors.
In addition, on June 3, 1996, the Board of Directors approved and
shareholders adopted the Company's 1996 Non-Employee Director Stock Option Plan
(the "Director Plan") which became effective on July 12, 1996. The Director Plan
provides for the grant of options to purchase a maximum of 140,000 shares of
Common Stock of the Company to non-employee Directors of the Company. The
Director Plan is administered by the Board of Directors.
Each person who was a Director of the Company on the effective date of the
Company's initial public offering or became or will become a Director of the
Company thereafter, and who is not also an employee or officer of the Company,
was or shall be granted, on the date of such initial public offering or the date
on which he or she became or becomes a Director, whichever is later, an option
to purchase 20,000 shares of Common Stock, at an exercise price per share equal
to the then fair market value of the shares. No subsequent grants are permitted
to such individuals under the Director Plan. All options become exercisable in
five equal annual installments commencing one year after the date of grant
provided that the optionee then remains a Director at the time of vesting of the
installments. The right to exercise annual installments of options will be
reduced proportionately based on the optionee's actual attendance at Directors'
meetings if the optionee fails to attend at least 80% of the Board of Directors'
meetings held in any calendar year. The term of each option will be for a period
of ten years from the date of grant, unless sooner terminated in accordance with
the Director Plan. Options may not be transferred except by will or by the laws
of descent and distribution or pursuant to a domestic relations order and are
exercisable to the extent vested at any time prior to the scheduled expiration
date of the option. The Director Plan terminates on the earlier of May 31, 2006
or at such time as all shares of Common Stock currently or hereafter reserved
for issuance shall have been issued.
-4-
<PAGE>
During 1998, the following former Director was granted options to purchase
shares of Common Stock under the Company's Director Plan.
Number of
Shares Underlying Exercise Price
Director Options Granted Grant Date Per Share
-------- --------------- ---------- ---------
John E. Steuri 20,000 August 31, 1998 $20.875
Members of the Board of Directors, including non-employee Directors, also
are eligible to receive option grants pursuant to the 1996 Plan. To date, no
options have been granted pursuant to the 1996 Plan to non-employee Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors, officers and stockholders who
beneficially own more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act (collectively, the
"Reporting Persons") to file initial statements of beneficial ownership of
securities and statements of changes in beneficial ownership of securities with
respect to the Company's equity securities with the Securities and Exchange
Commission (the "SEC"). All Reporting Persons are required by SEC regulation to
furnish the Company with copies of all reports that such Reporting Persons file
with the SEC pursuant to Section 16(a). Except as set forth below, based solely
on the Company's review of the copies of such forms received by the Company and
upon written representations of the Company's Reporting Persons received by the
Company, the Company believes that there has been compliance with all Section
16(a) filing requirements applicable to such directors, officers and 10%
beneficial owners.
The Company is aware that each of Stephen A. Carns, who resigned as the
Company's President and Chief Executive Officer on May 24, 1999, and Klaus P.
Besier, a Director of the Company, filed a Form 4 with the SEC on August 31,
1998 and December 14, 1998, respectively. The Company believes that each such
Form 4 should have been filed no later than June 10, 1998 and August 10, 1998,
respectively.
The Company is aware that Paul Coombs, who resigned as an officer and
employee of the Company on March 9, 1999, filed a Form 5 on February 22, 1999 to
report multiple sales of the Company's Common Stock which Form 5 should have
been filed no later than February 16, 1999. The Company believes that such sales
should have been reported on Forms 4 no later than August 10, 1998, September
10, 1998 and October 10, 1998, respectively.
-5-
<PAGE>
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
Capacities in In Current
Name Age Which Served Position Since
- ---- --- ------------ --------------
Ashok Pandey............. 41 Co-Chief Executive Officer 1999
and Director
Rajkumar Koneru.......... 29 Co-Chief Executive Officer 1999
and Director
Nagarjun Valluripalli.... 30 Chairman of the Board and 1997
President of International
Operations
Gerard E. Dorsey(1) ..... 52 Senior Vice President- 1998
Finance, Chief Financial
Officer and Secretary
- -----------
(1) Gerard E. Dorsey joined the Company in April 1998 and currently serves as
Senior Vice President-Finance, Chief Financial Officer and Secretary. From
May 1995 until joining the Company, Mr. Dorsey served as Senior Vice
President-Finance and Chief Financial Officer of Ariel Corporation, a data
communications company. Prior to joining Ariel Corporation, from 1991 until
1995, Mr. Dorsey served as Chief Financial Officer of Information
Management Technologies Corporation, a printing and office services
outsourcing company. From 1987 until 1990, Mr. Dorsey served as Treasurer
of Loral Corporation.
None of the Company's executive officers is related to any other executive
officer or to any Director of the Company. Executive officers of the Company are
elected annually by the Board of Directors and serve until their successors are
duly elected and qualified.
-6-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to
each person who served as the Company's Chief Executive Officer at any time
during 1998 and each other executive officer of the Company whose aggregate cash
compensation exceeded $100,000 (collectively, the "Named Executives") during the
years ended December 31, 1996, 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Long-Term
Annual Compensation Compen-
sation
---------------------------------------------------------------
Awards
---------------------------------------------------------------
Other Securities All Other
Annual Underlying Compen-
Name and Principal Position Year Salary Bonus Compensa- Options sation
tion
($) ($) ($) (#) ($)
(a) (b) (c) (d) (e)(1) (g) (i)(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Carns............ 1998 228,431 300,000 -- 300,000 --
President and Chief 1997 -- -- -- -- --
Executive Officer (3)(4) 1996 -- -- -- -- --
Ashok Pandey................ 1998 220,400 -- 4,700 -- 11,570
Co-Chairman of the 1997 219,233 -- 1,214 -- 14,970
Board 1996 208,461 -- 12,290 -- 11,570
Rajkumar Koneru............. 1998 220,400 -- -- -- 3,312
Co-Chairman of the 1997 219,233 -- -- -- 1,690
Board (3) 1996 141,667 -- 7,678 -- --
Nagarjun Valluripalli....... 1998 220,400 -- -- -- 3,552
Co-Chairman of the 1997 219,233 -- -- -- 6,760
Board and President of 1996 200,000 -- -- -- --
International Operations
Gerard E. Dorsey............ 1998 141,867 60,000 -- 100,000 --
Senior Vice 1997 -- -- -- -- --
President-Finance, 1996 -- -- -- -- --
Chief Financial Officer
and Secretary
- -------------
<FN>
(1) Represents car insurance payments by the Company.
(2) Represents the value of insurance premiums paid by the Company with
respect to whole life insurance for the benefit of the Named Executive.
(3) Rajkumar Koneru served as the Company's Chief Executive Officer until
April 29, 1998. Stephen A. Carns was appointed Chief Executive Officer
of the Company on April 29, 1998.
(4) On May 24, 1999, Stephen A. Carns resigned as the Company's President
and Chief Executive Officer.
</FN>
</TABLE>
-7-
<PAGE>
OPTION GRANTS IN 1998
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1996 Plan during 1998 to each of
the Named Executives. The Company has never granted any stock appreciation
rights.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
NAME UNDERLYING GRANTED TO EXERCISE OR EXPIRATION PRICE APPRECIATION FOR
OPTIONS EMPLOYEES BASE PRICE DATE OPTION TERM(3)
GRANTED IN FISCAL
YEAR(2)
(#) (1) ($/SH) 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Carns....... 100,000 8.1% 17.125 4/7/08 1,076,991 2,729,211
200,000 16.2% 18.50 5/12/08 2,326,930 5,896,690
Ashok Pandey........... -- -- -- -- -- --
Rajkumar Koneru........ -- -- -- -- -- --
Nagarjun Valluripalli.. -- -- -- -- -- --
Gerard E. Dorsey....... 100,000 8.1% 15.875 4/26/08 998,379 2,529,999
- -----------
<FN>
(1) Such options were granted pursuant to the Company's 1996 Plan. The 1996
Plan was adopted by the Board of Directors and approved by the
shareholders of the Company on June 3, 1996, and became effective on
July 12, 1996. A total of 2,200,000 shares are reserved for issuance
upon the exercise of options and/or stock purchase rights granted under
the 1996 Plan, 2,060,819 of which have been granted as of December 31,
1998. Those eligible to receive stock option grants or stock purchase
rights under the 1996 Plan include employees, non-employee Directors and
consultants. The 1996 Plan is administered by the Compensation Committee
of the Board of Directors of the Company. Subject to the provisions of
the 1996 Plan, the administrator of the 1996 Plan has the discretion to
determine the optionees and/or grantees, the type of options to be
granted (incentive stock options ("ISOs") or non-qualified stock options
("NQSOs")), the vesting provisions, the terms of the grants and such
other related provisions as are consistent with the 1996 Plan. The
exercise price of an ISO may not be less than the fair market value per
share of the Common Stock on the date of grant or, in the case of an
optionee who beneficially owns 10% or more of the outstanding capital
stock of the Company, not less than 110% of the fair market value per
share on the date of grant. The exercise price of a NQSO may not be less
than 85% of the fair market value per share of the Common Stock on the
date of grant or, in the case of an optionee who beneficially owns 10%
or more of the outstanding capital stock of the Company, not less than
110% of the fair market value per share on the date of grant. The
purchase price of shares issued pursuant to stock purchase rights may
not be less than 50% of the fair market value of such shares as of the
offer date of such rights. The options terminate
</FN>
-8-
<PAGE>
<FN>
not more than ten years from the date of grant, subject to earlier
termination on the optionee's death, disability or termination of
employment with the Company, but provide that the term of any options
granted to a holder of more than 10% of the outstanding shares of capital
stock may be no longer than five years. Options are not assignable or
otherwise transferable except by will or the laws of descent and
distribution. 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 in which the successor corporation does not assume
outstanding options or issue equivalent options, the Board of Directors of
the Company is required to provide accelerated vesting of outstanding
options. The 1996 Plan terminates on July 11, 2006 unless sooner terminated
by the Board of Directors.
(2) Based on an aggregate of 1,236,130 options granted to employees in 1998,
including options granted to the Named Executives.
(3) Based on a grant date fair market value of $17.125 and $18.50 for the
grants to Mr. Carns and $15.875 for the grant to Mr. Dorsey.
</FN>
</TABLE>
-9-
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1998 by each of the Named Executives and the year-end number and
value of unexercised options held by each of the Named Executives.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- -------------------------------------------------------------------------------------------------
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal
Shares Fiscal Year-End
Acquired on Value Year-End ($)(1)
Name Exercise Realized (#) Exercisable/
(#) ($) Exercisable/ Unexercisable
(a) (b) (c) Unexercisable (e)
(d)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen A. Carns....... -- -- -- /300,000 -- /75,000
Ashok Pandey........... -- -- -- / -- -- / --
Rajkumar Koneru........ -- -- -- / -- -- / --
Nagarjun Valluripalli.. -- -- -- / -- -- / --
Gerard E. Dorsey....... -- -- -- /100,000 --/200,000
- ----------
<FN>
(1) Based on a year-end fair market value of the underlying securities equal to $17.875
less the exercise price for such shares.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS, CHANGE-IN-CONTROL AGREEMENTS, INDEMNIFICATION AGREEMENTS,
NON-COMPETITION, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENTS
Mr. Carns entered into a three-year employment agreement with the Company
commencing April 27, 1998. On May 24, 1999, Mr. Carns resigned as the Company's
President and Chief Executive Officer and as a director. As a result of such
resignation, Mr. Carns entered into a separation agreement with the Company. Mr.
Dorsey entered into an "employment at will" employment agreement with the
Company commencing on April 22, 1998. The Company entered into a
change-in-control agreement with Mr. Dorsey commencing November 4, 1998.
The above described agreements require each individual to maintain the
confidentiality of Company information. In addition, each of such persons has
agreed that during the term of his respective agreement and thereafter for a
period of two years (except for Mr. Carns, for which the period is one year),
such person will not compete with the Company in any state or territory of the
United States, or any other country, where the Company does business by engaging
in any capacity in any business which is competitive with the business of the
Company. The employment agreements also provide that for a period of two years
following the termination of employment, each such individual shall not solicit
the Company's customers or employees.
-10-
<PAGE>
In addition to the foregoing employment contracts, the Company has executed
indemnification agreements with each of its executive officers and Directors
pursuant to which the Company has agreed to indemnify such party to the full
extent permitted by law, subject to certain exceptions, if such party becomes
subject to an action because such party is a Director, officer, employee, agent
or fiduciary of the Company.
Substantially all of the Company's employees have agreed, pursuant to
written agreement, not to compete with the Company, not to disclose Company
information and not to solicit Company employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Ashok Pandey and Klaus P.
Besier. Mr. Pandey serves as a Director of the Board and an officer of the
Company. There are no, and during 1998 there were no, Compensation Committee
Interlocks.
-11-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq Market
Index and Peer Group Index (capitalization weighted) for the period beginning on
the date on which the SEC declared effective the Company's Form 8-A Registration
Statement pursuant to Section 12 of the Exchange Act and ending on the last day
of the Company's last completed fiscal year. The stock performance shown on the
graph below is not indicative of future price performance.
<TABLE>
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)
Among the Company, a Nasdaq Market Index
and Peer Group Index(3)(4)
(Capitalization Weighted)
[OBJECT OMITTED]
<CAPTION>
9/26/96 12/31/96 12/31/97 12/31/98
------- -------- -------- --------
<S> <C> <C> <C> <C>
Intelligroup, Inc........................ $100.00 $ 81.48 $141.67 $132.41
Nasdaq Market Index...................... $100.00 $104.71 $128.08 $180.64
1999 Peer Group Index (Capitalization
Weighted)(3)........................... $100.00 $108.50 $139.92 $135.84
1998 Peer Group Index (Capitalization
Weighted)(4)........................... $100.00 $105.32 $122.67 $ 96.28
</TABLE>
(1) Graph assumes $100 invested on September 26, 1996 in the Company's
Common Stock, the Nasdaq Composite Index and the Peer Group Index
(capitalization weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) The Company has constructed a Peer Group Index of other information
technology consulting firms consisting of Cambridge Technology Partners,
Inc., Sapient Corporation, Technology Solutions Company, Metamor
Worldwide Inc., Renaissance Worldwide Inc., Answer Think Consulting
Group, Inc., Whittman-Hart, Inc., Mastech Corporation, Complete Business
Solutions, Inc. and Computer Horizons Corp. This group of companies
represents a change from the companies included in the Company's Proxy
Statement relating to its 1998 Annual Meeting of Shareholders. The
Company believes that these companies more closely resemble the
Company's current business mix and that their performance is
representative of its industry.
(4) The Company's Peer Group Index included in its Proxy Statement for its
1998 Annual Meeting of Shareholders consisted of Cambridge Technology
Partners, Inc., Sapient Corporation, Technology Solutions Company,
Metamor Worldwide Inc. and Claremont Technology Group.
-12-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of shareholders by basing a portion
of compensation on corporate performance.
Some of the Named Executives are subject to employment agreements which
establish salaries and other terms of employment. The Compensation Committee,
however, generally reviews and approves base salary levels for executive
officers of the Company at or about the start of the fiscal year and approves
actual bonuses after the end of the fiscal year based upon Company and
individual performance. The Compensation Committee also administers the
Company's 1996 Plan.
The Company's executive officer compensation program is comprised of base
salary, discretionary annual cash bonuses, stock options and various other
benefits, including medical insurance and a 401(k) Plan, which are generally
available to all employees of the Company.
Salaries, whether established pursuant to contract or otherwise, are
established in accordance with industry standards through review of publicly
available information concerning the compensation of officers of comparable
companies. Consideration is also given to relative responsibility, seniority,
individual experience and performance. Salary increases are generally made based
on increases in the industry for similar companies with similar performance
profiles and/or attainment of certain division or Company goals.
Bonuses are paid on an annual basis and are discretionary. The amount of
bonus is based on criteria which are designed to effectively measure a
particular executive's attainment of goals which relate to his or her duties and
responsibilities as well as overall Company performance. In general, the annual
incentive bonus is based on operational and financial results of the Company and
focuses on the contribution to these results of a business unit or division, and
the executive's individual performance in achieving the results.
The stock option program is designed to relate executives' and certain
middle managers' and other key personnel long-term interests to shareholders'
long-term interests. In general, stock option awards are granted if warranted by
the Company's growth and profitability. Stock options are awarded on the basis
of individual performance and/or the achievement of internal strategic
objectives.
Based on review of available information, the Committee believes that the
current Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for computer products and services and other industry
factors. No specific weight was assigned to any of the criteria relative to the
Chief Executive Officer's compensation.
Compensation Committee Members
(as constituted at year end)
Ashok Pandey
John E. Steuri
Klaus P. Besier
-13-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK
There are, as of June 15, 1999, approximately 58 holders of record and
3,500 beneficial holders of the Company's Common Stock. The following table sets
forth certain information, as of June 15, 1999, with respect to holdings of the
Company's Common Stock by (i) each person known by the Company to beneficially
own more than 5% of the total number of shares of Common Stock outstanding as of
such date, (ii) each of the Company's Directors (which includes all nominees)
and Named Executives, and (iii) all Directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(2)
- ------------------------------------ -------------------- --------
<S> <C> <C>
(i) Certain Beneficial Owners:
Ashok K. Pandey Retained Annuity Trust (3)(4).. 1,500,000 9.6%
Ashok Pandey (4)(5)............................ 580,083 3.7%
Rajkumar Koneru (4)(5)......................... 2,202,220 14.2%
Nagarjun Valluripalli (4)(5)................... 2,202,221 14.2%
Pilgrim Baxter & Associates Ltd. (6)........... 1,221,800 7.9%
Capital Guardian Trust Company (7)............. 876,000 5.6%
(ii) Directors (which includes all nominees)
and Named Executives who are not set
forth above:
Gerard E. Dorsey (8) .......................... 27,500 *
Klaus Besier (9)............................... 15,000 *
(iii) All Directors and officers as a
group (5 persons) (10)................. 6,527,024 41.9%
- --------------
* Less than one percent.
<FN>
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Applicable percentage of ownership is based on 15,558,751 shares of
Common Stock outstanding on June 15, 1999, plus any presently
exercisable stock options held by each such holder, and options which
will become exercisable within 60 days after June 15, 1999.
(3) Represents 1,500,000 shares of Common Stock which were transferred, by
way of gift, on July 23, 1998, by Ashok Pandey into the Trust. Pursuant
to the terms and conditions of such Trust, Mr. Pandey and David Sorin,
as trustees, have the sole power to vote or to direct the vote of and to
dispose of or direct the disposition of 1,500,000 shares.
(4) The address for each of Messrs. Pandey, Koneru, Valluripalli and the
Ashok K. Pandey Retained Annuity Trust is c/o Intelligroup, Inc., 499
Thornall Street, Edison, New Jersey 08837.
(5) Ashok Pandey, Rajkumar Koneru, and Nagarjun Valluripalli, each has sole
power to vote or to direct the vote of and to dispose of or direct the
disposition of 580,083, 2,202,220, and 2,202,221 shares, respectively,
provided, however, that 63,889 of each such individual's shares are
subject to: (i) the terms
</FN>
-14-
<PAGE>
<FN>
and conditions of that certain Amended and Restated Indemnification
Agreement (the "Agreement") dated as of July 16, 1996, by and among
each of Ashok Pandey, Rajkumar Koneru and Nagarjun Valluripalli, on
the one hand, and the Company, on the other; (ii) that certain Pledge
Agreement, as contemplated by the Agreement, dated as of September 26,
1996 by Ashok Pandey, Rajkumar Koneru and Nagarjun Valluripalli; and
(iii) that certain Escrow Agreement, as contemplated by the Agreement,
dated as of September 26, 1996 by and among each of Ashok Pandey,
Rajkumar Koneru and Nagarjun Valluripalli, the Company and the Escrow
Agent, defined therein.
(6) The address for Pilgrim Baxter & Associates Ltd. is 825 Duportail Road,
Wayne, Pennsylvania 19087. The information set forth on the table is
based solely upon data derived from a Schedule 13-G/A filed by such
shareholder.
(7) The address for Capital Guardian Trust Company is 11100 Santa Monica
Boulevard, Los Angeles, California 90025-3384. The information set forth
on the table is based solely upon data derived from a Schedule 13-G/A
filed by such shareholder.
(8) Represents 2,500 shares of Common Stock owned of record and 25,000
shares of Common Stock underlying options which are exercisable as of
June 15, 1999 or sixty (60) days after such date. Excludes 75,000 shares
underlying options which become exercisable over time after June 15,
1999 or sixty (60) days after such date.
(9) Includes 5,000 shares of Common Stock owned of record, 2,000 shares of
Common Stock owned indirectly as spouse and 8,000 shares of Common Stock
underlying options, granted to Mr. Besier as a director of the Company,
which are exercisable as of June 15, 1999 or sixty (60) days after such
date.
(10) Includes 1,500,000 shares of Common Stock owned of record by the Ashok
K. Pandey Retained Annuity Trust and an aggregate of 33,000 shares of
Common Stock underlying options granted to Directors and officers listed
in the table which are exercisable as of June 15, 1999 or within sixty
(60) days after such date. Excludes 87,000 shares underlying options
granted to executive officers and Directors which become exercisable
over time after such period.
</FN>
</TABLE>
-15-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Pandey, Koneru and Valluripalli were the sole shareholders of
Intelligroup Asia Private Ltd. ("Intelligroup Asia"). Historically, Intelligroup
Asia operated the Advanced Development Center in Hyderabad, India for the sole
and exclusive use and benefit of the Company and all contracts and commercial
arrangements of Intelligroup Asia were subject to prior approval by the Company.
The Company and Messrs. Pandey, Koneru and Valluripalli entered into an
agreement pursuant to which the Company would, subject to necessary Indian
government approvals, acquire the shares of Intelligroup Asia for nominal
consideration. Such Indian government approvals were received in September 1997.
As a result, the Company currently owns 99.8% of the shares of Intelligroup
Asia. The remaining shares are expected to be transferred to the Company by
Messrs. Pandey, Koneru and Valluripalli later this year. Upon consummation of
such transfer, Intelligroup Asia will then be a wholly-owned subsidiary of the
Company.
In April 1996, the Company repurchased from Messrs. Pandey, Koneru and
Valluripalli an aggregate of 4,881,066 shares of Common Stock for an aggregate
cash payment of $1.5 million, or $500,000 to each such shareholder, at a price
per share equal to $0.31. The repurchased shares were canceled upon consummation
of such transaction.
In November 1996, the Company commenced operations in Singapore with the
incorporation of Intelligroup Singapore Private Ltd. ("Intelligroup Singapore").
Each of the Company and Mr. Koneru owns 50% of Intelligroup Singapore.
Subsequent to December 31, 1995, the Company determined that it had
unrecorded and unpaid federal and state payroll-related taxes for certain
employees. As a result of the Company's voluntary disclosure to the Internal
Revenue Service of certain unpaid tax liabilities, on June 5, 1996, the Company
received an audit assessment from the Internal Revenue Service for unpaid 1994
and 1995 federal income tax withholding, FICA and FUTA taxes in the aggregate
amount of $814,000, of which approximately $800,000 was paid in 1996. No
interest or penalties were assessed. Reserves, aggregating $1.0 million,
including the amount of the Internal Revenue Service audit assessment, were
recorded at December 31, 1995. No assurance may be given, however, that
interest, penalties or additional state or federal taxes will not be assessed in
the future. The Company's principal shareholders, Messrs. Pandey, Koneru and
Valluripalli, have agreed to indemnify the Company for any and all losses which
the Company may sustain, in excess of the $1.0 million reserve, net of any tax
benefits realized by the Company, arising from or relating to federal or state
tax, interest or penalty payment obligations resulting from the above subject
matter. To secure such indemnification obligations, Messrs. Pandey, Koneru and
Valluripalli have pledged to the Company an aggregate of $450,000 and 191,667
shares of Common Stock owned by them.
The Board of Directors of the Company has adopted a policy requiring that
any future transactions between the Company and its officers, directors,
principal shareholders and their affiliates be on terms no less favorable to the
Company than could be obtained from unrelated third parties. In addition, New
Jersey law requires that any such transactions be approved by a majority of the
disinterested members of the Company's Board of Directors.
During 1998, the Company provided services to FirePond, Inc. (formerly
Clear With Computers, Inc.) ("FirePond") which produced revenues for the Company
totaling approximately $1.7 million. A member of the Company's Board of
Directors, Klaus P. Besier, serves as the Chief Executive Officer of FirePond.
The Company provided implementation services to various end clients, as a
sub-contractor to FirePond. Services were priced at rates comparable to other
similar sub-contracting arrangements in which the Company regularly
participates.
-16-
<PAGE>
PROPOSED AMENDMENT TO THE 1996 STOCK PLAN
SUMMARY OF CURRENT PLAN
The 1996 Plan, as amended, was adopted by the Board of Directors and
approved by the shareholders of the Company on June 3, 1996 and became effective
on July 12, 1996. Those eligible to receive stock option grants or stock
purchase rights under the 1996 Plan include employees, non-employee directors
and consultants. The 1996 Plan was adopted 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. Currently there are 2,200,000 shares of Common Stock
reserved for issuance upon the exercise of options and/or stock purchase rights
granted under the 1996 Plan.
The 1996 Plan is administered by the Compensation Committee, which is
comprised of Ashok Pandey, and Klaus P. Besier. The Compensation Committee
determines, among other things, the nature of the options to be granted, the
persons who are to receive options (each a "Grantee"), the number of shares to
be subject to each option, the exercise price of the options and the vesting
schedule of the options. The 1996 Plan provides for the granting of options
intended to qualify as incentive stock options ("ISOs") as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), to employees
of the Company as well as non-qualified stock options ("NQSOs") to employees,
non-employee directors and consultants who perform services for the Company or
its subsidiaries. The exercise price of all ISOs granted under the 1996 Plan may
not be less than the fair market value of the shares at the time the option is
granted. In addition, no ISO may be granted to an employee who owns more than
10% of the total combined voting power of all classes of stock of the Company
unless the exercise price as to that employee is at least 110% of the fair
market value of the stock at the time of the grant. No employee may be granted
ISOs which are exercisable for the first time in any calendar year to the extent
that the aggregate fair market value of such option shares exceeds $100,000 as
of the date of grant. Options may be exercisable for a period of not more than
ten years from the date of grant, provided, however that the term of an ISO
granted to an employee who owns more that 10% of the total combined voting power
of all classes of stock of the Company may not exceed five years. The exercise
price of NQSOs granted under the 1996 Plan may not be less than 85% of the fair
market value per share of the Common Stock on the date of grant. No NQSO may be
granted to a person who owns more than 10% of the total combined voting power of
all classes of stock of the Company unless the exercise price to that person is
at least 110% of the fair market value of the stock at the time of the grant.
The exercise price must be paid in full at the time an option is exercised, and
at the Compensation Committee's discretion, all or part of the exercise price
may be paid with previously owned shares or other approved methods of payment.
An option is exercisable as determined by the Compensation Committee. The 1996
Plan will terminate on July 11, 2006.
Subject to the terms as specified in any option agreement, if a Grantee's
employment or consulting relationship terminates on account of disability, the
Grantee may exercise any outstanding option for one year following the
termination. If a Grantee dies while in the employ of the Company or during the
period of the consulting arrangement, the Grantee's estate may exercise any
outstanding option for one year following the Grantee's death. If termination is
for any other reason, the Grantee may exercise any outstanding option for 90
days following such termination. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution and shall be
exercisable during the Grantee's lifetime only by the Grantee.
The 1996 Plan also permits the awarding of stock purchase rights at not
less than 50% of the fair market value of the shares as of the date offered. The
1996 Plan requires the execution of a restricted stock purchase agreement in a
form determined by the Compensation Committee. Once a stock purchase right is
exercised, the purchaser will have the rights of a shareholder and will be a
shareholder when the purchase is entered on the Company's records.
The 1996 Plan provides that, in the event of a reorganization,
recapitalization, stock split, stock dividend, combination of or
reclassification of shares, or any other change in the corporate structure or
shares of the
-17-
<PAGE>
Company, the Board of Directors shall make adjustments with respect to the
shares that may be issued under the 1996 Plan or that are covered by outstanding
options, or in the option price per share.
In the event of a dissolution or liquidation of the Company, the Board
shall notify the Grantee at least fifteen days prior to such proposed action. To
the extent not previously exercised, the outstanding options 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 outstanding options will be assumed or an equivalent option will
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 outstanding options or to substitute equivalent options, the
Board of Directors will, in lieu of such assumption or substitution, provide for
the Grantee to have the right to exercise all of his outstanding options. If the
Board of Directors makes an option fully exercisable in lieu of assumption or
substitution, in the event of a merger, the Board of Directors shall notify the
Grantee that the option will be fully exercisable for a period of fifteen days
from the date of such notice, and the option will terminate upon the expiration
of such period. The option will be considered assumed if, following the merger,
the option confers the right to purchase, for each share of Common 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). If such
consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Board of Directors may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of an 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.
The Board may at any time amend, alter, suspend or discontinue the 1996
Plan, but no amendment, alteration, suspension or discontinuation will be made
which would impair the rights of any Grantee under any grant theretofore made,
without such Grantee's 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 National Association of Securities Dealers or an established
stock exchange), the Company shall obtain shareholder approval of any 1996 Plan
amendment in such a manner and to such a degree as required. Any such amendment
or termination of the 1996 Plan is not permitted to affect options already
granted and such options will remain in full force and effect as if the 1996
Plan had not been amended or terminated, unless mutually agreed otherwise
between the Grantee and the Board of Directors, which agreement must be in
writing and signed by the Grantee and the Company.
FEDERAL INCOME TAX ASPECTS
(a) INCENTIVE STOCK OPTIONS
Some options to be issued under the Plan will be designated as ISOs and are
intended to qualify under Section 422 of the Code. Under the provisions of that
Section and the related regulations, an optionee will not be required to
recognize any income for Federal income tax purposes at the time of grant of an
ISO. Additionally, the Company will not be entitled to any deduction. The
exercise of an ISO also is not a taxable event, although the difference between
the option price and the fair market value on the date of exercise is an item of
tax preference for purposes of the alternative minimum tax. The taxation of gain
or loss upon the sale of stock acquired upon exercise of an ISO depends in part
on whether the stock is disposed of at least two years after the date the option
was granted and at least one year after the date the stock was transferred to
the optionee, referred to as the ISO Holding Period.
If the ISO Holding Period is not met, then, upon disposition of such
shares, referred to as a disqualifying disposition, the optionee will realize
compensation, taxable as ordinary income, in an amount equal to the excess of
the fair market value of the shares at the time of exercise over the option
price, limited, however to the gain on sale. Any additional gain would be
taxable as capital gain (see discussion of capital gains under the section
relating to NQSOs, below). If the optionee disposes of the shares in a
disqualifying disposition at a price that is below the fair
-18-
<PAGE>
market value of the shares at the time the ISO was exercised and such
disposition is a sale or exchange to an unrelated party, the amount includible
as compensation income to the optionee will be limited to the excess of the
amount received on the sale or exchange over the exercise price.
If the optionee recognizes ordinary income upon a disqualifying
disposition, the Company generally will be entitled to a tax deduction in the
same amount.
Effective as of January 1, 1998 the holding period for long-term capital
gain treatment is reduced to one year. Hence, if the ISO Holding Period is met,
any disposition on or after January 1, 1998 would be taxable as a long-term
capital gain or loss; any such gains are taxable at a maximum rate of 20%.
A maximum capital gains rate of 18% will apply to certain sales after
December 31, 2000 of shares acquired upon the exercise of an ISO if such shares
have been held for at least five years.
If the ISO is exercised by delivery of previously owned shares of Common
Stock in partial or full payment of the option price, no gain or loss will
ordinarily be recognized by the optionee on the transfer of such previously
owned shares. However, if the previously owned transferred shares were acquired
through the exercise of an ISO, the optionee may realize ordinary income with
respect to the shares used to exercise an ISO if such transferred shares have
not been held for the ISO Holding Period. If an ISO is exercised through the
payment of the exercise price by the delivery of Common Stock, to the extent
that the number of shares received exceeds the number of shares surrendered,
such excess shares will possibly be considered ISO stock with a zero basis.
(b) NON-QUALIFIED STOCK OPTIONS
Some options to be issued under the Plan will be designated as NQSOs. If
(as in the case of NQSOs granted under the Plan at this time) the NQSO does not
have a "readily ascertainable fair market value" at the time of the grant, the
NQSO is not included as compensation income at the time of grant. Rather, the
optionee realizes compensation income only when the NQSO is exercised and the
optionee has become substantially vested in the shares transferred. The shares
are considered to be substantially vested when they are either transferable or
not subject to a substantial risk of forfeiture. The amount of income realized
is equal to the excess of the fair market value of the shares at the time the
shares become substantially vested over the sum of the exercise price plus the
amount, if any, paid by the optionee for the NQSO. If a NQSO is exercised
through payment of the exercise price by the delivery of Common Stock, to the
extent that the number of shares received by the optionee exceeds the number of
shares surrendered, ordinary income will be realized by the optionee at that
time only in the amount of the fair market value of such excess shares, and the
tax basis of such excess shares will be such fair market value. When the
optionee disposes of the shares acquired pursuant to a NQSO, the optionee will
recognize capital gain or loss equal to the difference between the amount
received for the shares and the optionee's basis on the shares.
Under the Plan, the optionee's basis in the shares will be the exercise
price plus the compensation income realized at the time of exercise. Under tax
legislation which became effective as of January 1, 1998 the capital gain or
loss will be short-term (with gains generally subject to tax as ordinary income)
if the shares are disposed of within one year after the option is exercised and
long term (with gains generally subject to tax at a maximum rate of 20%) if the
shares are disposed of more than one year after the option is exercised.
A maximum capital gains rate of 18% will apply to certain sales, after
December 31, 2000, of shares acquired upon the exercise of an NQSO if such
shares have been held for at least five years.
The Company is generally entitled to a deductible compensation expense in
an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee.
Except as otherwise indicated, the preceding discussion is based upon
Federal tax laws and regulations in effect on the date of the preparation of
this Summary, which are subject to change, and upon an interpretation of the
relevant sections of the Code, their legislative histories and the income tax
regulations which interpret similar
-19-
<PAGE>
provisions of the Code. Furthermore, the forgoing is only a general discussion
of the Federal income tax aspects of the Plan and does not purport to be a
complete description of all Federal income tax aspects of the Plan. Optionees
may also be subject to state and local taxes in connection with the grant or
exercise of options granted under the Plan and the sale or other disposition of
shares acquired upon exercise of the options. Each key employee receiving a
grant of options should consult with his or her personal tax advisor regarding
the Federal, state and local tax consequences of participating in the Plan.
-20-
<PAGE>
PREVIOUSLY GRANTED OPTIONS UNDER THE 1996 PLAN
As of June 15, 1999, the Company had granted options to purchase an
aggregate of 1,810,101(1) shares of Common Stock under the 1996 Plan at an
average exercise price of $12.92 per share. As of June 15, 1999, 504,944 options
to purchase shares were vested and 242,628 options to purchase shares had been
exercised under the 1996 Plan. The following table sets forth the options
granted under the 1996 Plan to (i) the Named Executives; (ii) all current
executive officers as a group; (iii) each nominee for election as a Director;
(iv) all current Directors who are not executive officers as a group; (v) each
associate of any of such Directors, executive officers or nominees; (vi) each
person who has received or is to receive 5% of such options or rights; and (vii)
all employees, including all current officers who are not executive officers, as
a group:
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED WEIGHTED AVERAGE
- ---- THROUGH JUNE 15, 1999 EXERCISE PRICE
--------------------- --------------
<S> <C> <C>
Ashok Pandey -- $ --
Rajkumar Koneru -- --
Nagarjun Valluripalli -- --
Gerard E. Dorsey(2) 100,000 15.88
Klaus Besier -- --
All current executive officers as a group (4 100,000 15.88
persons)
All current Directors who are not executive -- --
officers as a group (1 person)
All employees, including all current 1,710,101 12.74
officers who are not executive officers as a
group (460 persons)
As of June 15, 1999, the market value of the Common Stock underlying the
1996 Plan was $6.75 per share.
- ---------
<FN>
(1) Of the total options granted since the inception of the 1996 Plan,
795,527 of such options have been canceled as of June 15, 1999 and may be
reissued by the Company.
(2) See "Executive Compensation - Aggregated Option Exercises in Fiscal
1998 and Year-End Option Values" and "Security Ownership of Beneficial
Owners and Management" for information relating to exercisability of
options.
</FN>
</TABLE>
-21-
<PAGE>
PROPOSED AMENDMENT
Shareholders are being asked to consider and vote upon a proposed amendment
(the "Amendment") to the 1996 Plan to increase the maximum number of shares of
Common Stock available for issuance under the 1996 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 1996 Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees with an opportunity to invest in the
Company rewards them appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has, subject to shareholder approval,
retained Arthur Andersen LLP as independent auditors of the Company for the year
ending December 31, 1999. Arthur Andersen LLP also served as independent
auditors of the Company for 1998. Neither the accounting firm nor any of its
members has any direct or indirect financial interest in or any connection with
the Company in any capacity other than as auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY
FOR THE YEAR ENDING DECEMBER 31, 1999.
One or more representatives of Arthur Andersen LLP is expected to attend
the Meeting and to have an opportunity to make a statement and/or respond to
appropriate questions from shareholders.
-22-
<PAGE>
SHAREHOLDERS' PROPOSALS
Shareholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 2000 Annual Meeting of
Shareholders must advise the Secretary of the Company of such proposals in
writing by April 2, 2000.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, officers and other employees of
the Company who will not be specially compensated for these services. The
Company will also request that brokers, nominees, custodians and other
fiduciaries forward soliciting materials to the beneficial owners of shares held
of record by such brokers, nominees, custodians and other fiduciaries. The
Company will reimburse such persons for their reasonable expenses in connection
therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and officers of the Company is
based upon information received from the individual Directors and officers.
INTELLIGROUP, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, INCLUDING FINANCIAL STATEMENTS
AND SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS SHAREHOLDERS OF
RECORD ON JUNE 15, 1999, AND TO EACH BENEFICIAL SHAREHOLDER ON THAT DATE UPON
WRITTEN REQUEST MADE TO THE SECRETARY OF THE COMPANY. A REASONABLE FEE WILL BE
CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
Gerard E. Dorsey,
Secretary
Edison, New Jersey
July 1, 1999
-23-
<PAGE>
INTELLIGROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints Ashok Pandey and Gerard E.
Dorsey, and each of them, his or her true and lawful agent and proxy with full
power of substitution in each, to represent and to vote on behalf of the
undersigned all of the shares of Common Stock of Intelligroup, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at the Woodbridge Hilton, 120 Wood Avenue
South, Iselin, New Jersey at 10:00 A.M., local time, on Monday, July 19, 1999
and at any adjournment or adjournments thereof, upon the following proposals
more fully described in the Notice of Annual Meeting of Shareholders and Proxy
Statement for the Meeting (receipt of which is hereby acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2 and 3.
(continued and to be signed on reverse side)
<PAGE>
1. ELECTION OF DIRECTORS.
Nominees: Ashok Pandey
FOR all nominees listed to the right Rajkumar Koneru
(except as indicated to the contrary below) | | Nagarjun Valluripalli
Klaus P. Besier
VOTE FOR all nominees listed at right, except vote Maxine Ballen
withheld from the following nominees (if any). To
withhold authority to vote for any individual
nominee, write that nominee's name in the space
provided below.
- -----------------------------------------------------
WITHHOLDING AUTHORITY to vote for all nominees listed | |
to the right
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK PLAN TO INCREASE THE
MAXIMUM NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE 1996
STOCK PLAN FROM 2,200,000 TO 4,700,000 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 1996
STOCK PLAN.
FOR | | AGAINST | | ABSTAIN | |
3. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1999.
FOR | | AGAINST | | ABSTAIN | |
4. In his discretion, the proxy is authorized to vote upon other matters as
may properly come before the Meeting.
Dated: , 1999 NOTE: This proxy must be signed
-------------------------- exactly as the name appears hereon.
When shares are held by joint
-------------------------------- tenants, both should sign. If the
Signature of Shareholder signer is a corporation, please sign
full corporate name by duly authorized
---------------------------------- officer, giving full title as such. If
Signature of Shareholder if held the signer is a partnership, please
jointly sign in partnership name by authorized
person.
I will | | will not | | attend the
Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
Appendix A
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.
-2-
<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
-3-
<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-
