<PAGE> 1
As filed with the Securities and Exchange Commission on June 1, 1998
Registration No. 333-50889
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL INTEGRATION INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 7371 04-3169145
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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101 MAIN STREET
CAMBRIDGE, MA 02142
(617) 250-2500
(ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL PEHL
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
INTERNATIONAL INTEGRATION INCORPORATED
101 MAIN STREET
CAMBRIDGE, MA 02142
(617) 250-2500
(NAME, ADDRESS AND TELEPHONE
NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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PETER B. TARR, ESQ. JOHN A. MELTAUS, ESQ.
JEFFREY A. STEIN, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
HALE AND DORR LLP 125 HIGH STREET
60 STATE STREET BOSTON, MASSACHUSETTS 02110
BOSTON, MASSACHUSETTS 02109 TELEPHONE: (617) 248-7000
TELEPHONE: (617) 526-6000 TELECOPY: (617) 248-7100
TELECOPY: (617) 526-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
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=========================================================================================================================
<CAPTION>
PROPOSED
AMOUNT MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value............ 2,875,000 $13.00 $37,375,000 $11,026
=========================================================================================================================
</TABLE>
(1) Includes 375,000 shares which the Underwriters have the option to purchase
from the Company and certain stockholders of the Company to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued June 1, 1998
2,500,000 Shares
(i-Cube Logo)
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $11 AND $13 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
------------------------
APPLICATION HAS BEEN MADE TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ICUB."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- ------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
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- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $950,000.
The Company has agreed to pay the expenses of the Selling Stockholders,
other than underwriting discounts and commissions.
(3) The Company and the Selling Stockholders have granted the Underwriters
an option, exercisable within 30 days of the date hereof, to purchase up
to an aggregate of 375,000 additional Shares (105,000 of which will be
provided by the Company and 270,000 of which will be provided by the
Selling Stockholders) at the price to public less underwriting discounts
and commissions for the purpose of covering over-allotments, if any. If
the Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1998 at the
offices of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
UBS SECURITIES
, 1998
<PAGE> 3
[ARTWORK PORTRAYING THE COMPANY'S SERVICES. THE TEXT CONTAINED WITHIN THE
ARTWORK IS AS FOLLOWS:
[Introduction]
Transforming the Business World
As the business world changes, legacy systems have limited the ability of many
enterprises to compete. The gap between where they are -- with their existing
inflexible information technology infrastructure -- and where they want to be --
agile enough to rapidly adopt new competitive strategies -- is quickly growing.
i-Cube helps Fortune 1000 and other large enterprises close that gap.
[Section 1:]
The Business Situation:
Businesses today face the constant need to react quickly to changes in their
marketplace.
Deregulation, industry consolidation, globalization of product and vendor
markets, demand for more responsive customer service -- all create a need to
continually develop and implement new strategies rapidly.
A need to overcome the restrictive aspects of legacy systems.
i-Cube helps companies eliminate these constraints, while preserving the
investment they have made in their existing systems.
So applications can respond to the new demands of business.
Can interface with emerging technologies.
Can be better prepared for a future of changing business requirements.
<PAGE> 4
[Case study:]
For McDonnell Douglas (The Boeing Company), i-Cube migrated four legacy systems
into one common client/server-based system that coordinates all contractual
requirements. While the rearchitected system provides screens and functions
familiar to users -- minimizing training costs -- the application now runs on an
open systems framework that supports swift enhancement.
[Section 2:]
The Business Methods:
i-Cube helps some of the largest organizations in the world meet their business
challenges.
With iMPACT, a suite of services including Information Systems Consulting,
Application Implementation Services and Customer Support.
Services designed to help i-Cube customers improve their competitiveness.
Services that incorporate a proven set of software tools, technologies and
methodologies.
The i-Structure.
A set of methodologies and technologies supporting the development and migration
of scalable, multi-tier, client/server applications.
Applications that are independent of the hardware and operating systems on which
they operate.
That are adaptable to future technology or business changes.
That are easily maintainable.
i-Cube uses the i-Structure for constructing large-scale, complex applications
in a rapid, predictable, low-risk manner.
<PAGE> 5
And for migrating legacy applications by deconstructing them and reconstructing
their components into an enhanced, open systems environment.
Providing an application infrastructure with the flexibility customers need to
adapt their IT environments as their businesses evolve.
[GRAPHIC: A stylized depiction of the main lines of service provided by i-Cube,
with separate sections labeled accordingly. Section #1 reads: Information
Systems Consulting -- Solutions Workshops, Application Staging & Planning
(ASAP); Section #2 reads: Application Implementation Services -- Application
Design (Application Migration, including Rearchitect, Rapid Enhancement
Deployment), Custom Development (Rapid Application Development), and Application
Integration; Section #3 reads: Customer Support -- Skills Enhancement &
Empowerment, Rollout & Transitional Maintenance.]
[CAPTION: i-Cube iMPACT Services]
[Case study:]
For Mercedes-Benz Lease Finanz, i-Cube performed a complete overhaul of the
company's lease finance system to support creative new finance options for
private customers and allow rapid feedback on credit applications to
potential customers. i-Cube helped the company achieve its goal of reducing
finance approval time from one to two days to 15 minutes.
[i-Cube logo]
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................... 3
Risk Factors............................... 4
The Company................................ 12
Use of Proceeds............................ 12
Dividend Policy............................ 12
Capitalization............................. 13
Dilution................................... 14
Selected Consolidated Financial Data....... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 16
Business................................... 22
</TABLE>
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PAGE
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<S> <C>
Management................................. 34
Certain Transactions....................... 44
Principal Stockholders..................... 45
Description of Capital Stock............... 47
Shares Eligible for Future Sale............ 50
Underwriters............................... 52
Legal Matters.............................. 53
Experts.................................... 53
Change in Accountants...................... 54
Additional Information..................... 54
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
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The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and with quarterly reports
for the first three quarters of each year containing unaudited consolidated
interim financial information.
------------------------
i-Cube, Transforming the Business World, i-Structure, iMPACT and the i-Cube
logo are service marks of the Company. This Prospectus also includes other
service marks, trademarks and trade names of the Company and of companies other
than the Company.
------------------------
Except as set forth in the consolidated financial statements or as
otherwise indicated herein, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option; (ii) assumes the filing
prior to the effective date of the Registration Statement of which this
Prospectus is a part of the Amended and Restated Certificate of Incorporation of
the Company (the "Restated Certificate of Incorporation") increasing the
authorized shares of Common Stock, and implementing certain provisions described
below under "Description of Capital Stock -- Delaware Law and Certain Charter
and By-Law Provisions; Anti-Takeover Effects," and the receipt of stockholder
approval therefor; and (iii) reflects a three-for-two split of the Company's
Common Stock effected in February 1997. See "Description of Capital Stock,"
"Underwriters" and Note 5 of Notes to Consolidated Financial Statements. As used
in this Prospectus, the "Company" and "i-Cube" refer to International
Integration Incorporated and its subsidiaries.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified by the more detailed information and
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
International Integration Incorporated ("i-Cube" or the "Company") provides
application migration and custom software development services on a fixed-price,
fixed-time basis to Fortune 1000 companies and other large enterprises. The
Company believes that through these services, its customers can cost-effectively
and rapidly improve their competitiveness and narrow the gap between the demands
of their business strategies and the capabilities of their information
technology ("IT") environments. The Company offers a full range of services,
known as iMPACT, including information systems consulting, application
migration, custom software development and customer support.
The Company utilizes its proprietary development methodologies and
technologies, known as i-Structure, to implement large-scale, complex
application migration and custom development projects based on a multi-tier
client/server architecture. i-Structure's proprietary technologies include
transformation tools used to separate legacy applications into their smallest
logical components, methodologies to populate an Application Repository that
contains the components of and critical information about an application, and
runtime tools used to access and integrate application components. i-Structure
provides the Company with a repeatable and consistent development framework,
applicable to both its application migration and custom development projects,
that increases the speed and reduces the risk and cost of the development of
strategic, core business applications. The applications custom developed or
migrated using i-Structure are not dependent on any single hardware provider or
operating system, are adaptable to future technologies and business changes, and
are easily maintainable. In addition, i-Structure enables the Company to migrate
legacy software applications into multi-tier client/server applications,
allowing customers to preserve the core functionality and other benefits of
their legacy applications while eliminating the constraints of legacy system
architectures. The Company believes that i-Structure enhances the productivity
of its IT professionals and the Company's continued investment in i-Structure is
a key component of its growth strategy.
The Company believes that the expertise gained from completing large-scale,
strategic application migration and custom development projects since its
founding in 1992 provides a significant competitive advantage. Recent
engagements include projects for Cooper Cameron Corporation, Daimler-Benz AG,
Hewlett-Packard Company, IBM, McDonnell Douglas Corporation (now part of The
Boeing Company), Rockwell Automation/Reliance Electric, and Wisconsin Power and
Light Company.
THE OFFERING
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Common Stock offered........................................ 2,500,000 shares
Common Stock to be outstanding after this offering.......... 15,967,233 shares(1)
Use of proceeds............................................. For general corporate purposes, including working
capital, capital expenditures and potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...................... ICUB
</TABLE>
- ---------------
(1) Based on shares of Common Stock outstanding as of March 31, 1998. Excludes
(i) 5,539,782 shares of Common Stock issuable upon exercise of stock options
outstanding as of March 31, 1998, of which options to purchase 1,657,628
shares were then exercisable, and (ii) 4,064,578 shares of Common Stock
reserved for future issuance under the Company's stock plans. See
"Description of Capital Stock," "Management -- Benefit Plans" and Note 7 of
Notes to Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
----- ------ ------ ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues................................................ $ 833 $2,893 $9,197 $14,479 $26,859 $5,598 $8,828
Operating income............................................ 197 792 3,408 2,580 6,694 1,471 2,119
Net income.................................................. 124 485 2,076 1,615 4,325 929 1,372
Earnings per share(1):
Basic..................................................... $ .01 $ .04 $ .17 $ .13 $ .34 $ .07 $ .10
Diluted................................................... $ .01 $ .04 $ .15 $ .12 $ .29 $ .07 $ .09
Weighted average shares outstanding(1):
Basic..................................................... 9,353 12,114 12,323 12,425 12,627 12,519 13,244
Diluted................................................... 9,353 12,114 13,465 13,682 15,163 14,256 16,031
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,833 $36,783
Working capital............................................. 9,174 36,124
Total assets................................................ 19,518 46,468
Long-term obligations, net of current maturities............ 623 623
Total stockholders' equity.................................. 11,043 37,993
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(1) For an explanation of the determination of the number of shares used in
computing earnings per share, see Note 6 of Notes to Consolidated Financial
Statements.
(2) Adjusted to give effect to the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$12.00 per share (the midpoint of the range set forth on the cover of this
Prospectus), after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
3
<PAGE> 8
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this Prospectus before purchasing the shares of Common Stock
offered hereby. This Prospectus contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including but not limited to
the matters set forth below, which could cause actual results to differ
materially from those indicated by such forward-looking statements.
Fluctuations in Results of Operations. The Company's results of operations
have varied significantly in the past and may vary significantly in the future,
on a quarterly and annual basis, as a result of a variety of factors, many of
which are outside the Company's control. These factors include, without
limitation: (i) the timing and size of new contracts; (ii) the Company's ability
to accurately estimate the time and expense associated with providing services
under its customer contracts; (iii) the Company's ability to attract and retain
employees having qualifications and experience appropriate for the Company's
engagements; (iv) employee utilization, the number and type of engagements
performed by the Company during a particular period and the payment terms, other
contractual terms and degree of completion of such engagements; (v) the
Company's ability to execute the large, complex and lengthy engagements
characteristic of the Company's business, including without limitation its
ability to staff and manage the appropriate level of IT professionals; (vi) any
unexpected cancellation or termination of large engagements; (vii) demand for
the Company's services; (viii) the efforts and performance of the Company's
marketing partners; (ix) the costs associated with the opening of new offices;
(x) changes in customer budgets; (xi) the publication of opinions about the
Company and its services, or its competitors or their services, by industry
analysts; (xii) competitive conditions in the industry; and (xiii) general
domestic and international economic conditions. The Company's expense levels are
based, in significant part, on anticipated contract requirements and on other
expectations of future revenues and are relatively fixed in the short term.
Consequently, if revenue levels are below expectations, including without
limitation as a result of an unanticipated delay in or termination of a customer
engagement, expense levels could be disproportionately high as a percentage of
net revenues, and the Company's business, financial condition and results of
operations would be materially adversely affected. See "-- Project and Customer
Concentration," "-- Fixed-Price, Fixed-Time Contracts" and "Business --
Customers."
The Company also believes that the purchase of its services generally
involves a significant commitment of a customer's capital resources. Therefore,
any downturn in a customer's business could have a material adverse effect on
the Company's business, financial condition and results of operations. To the
extent that projects progress faster than expected, results of operations for
subsequent quarters may be materially adversely affected. Due to these and other
factors, the Company's quarterly revenues, expenses and results of operations
could vary significantly in the future. Accordingly, period-to-period
comparisons of operating results are not necessarily meaningful and operating
results for any period should not be relied upon as indications of future
performance. There can be no assurance that the Company will be able to increase
its net revenues or operating income in future periods or be able to sustain its
level of net revenues or operating income or its rate of growth on a quarterly
or annual basis. See "-- Project Risks," "-- Length of Sales Cycle" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Due to all of the foregoing factors, it is possible that in some future
quarter, the Company's results of operations will be below the expectations of
public market analysts and investors. In such event, the market price of the
Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Project and Customer Concentration. The Company has historically derived,
and may in the future derive, a significant amount of its net revenues from
major engagements with a relatively small number of customers. In each of 1995
and 1996, the Company had three customers which individually accounted for 10%
or more of the Company's net revenues, and in 1997 the following five customers
each accounted for 10% or
4
<PAGE> 9
more of the Company's net revenues: Salt River Project (29%); IBM (19%);
Daimler-Benz AG (14%); PEMEX/Integrated Trade Systems (11%); and Wisconsin Power
and Light Company (10%). For the first three months of 1998, the following five
customers each accounted for 10% or more of the Company's net revenues: IBM
(23%); PEMEX/Integrated Trade Systems (17%); Salt River Project (16%); Rockwell
Automation/Reliance Electric (11%); and Hewlett-Packard Company (10%). Although
the Company's largest customers have varied from period to period, the Company
anticipates that its results of operations in any given period will continue to
depend to a significant extent upon large contracts with a small number of
customers. The Company has a limited history of obtaining additional projects
from certain of its major customers, and there can be no assurance that any
major customer will not decrease or discontinue its level of business with the
Company following completion of existing projects or during the course of an
engagement, or that the Company will be able to replace on a timely basis any
discontinued business with engagements from new customers. The loss of or a
reduction in the level of services provided to one or more major customers would
have a material adverse effect on the Company's business, financial condition
and results of operations. If a major customer were unable or unwilling to
proceed with a project or to pay the Company for its services on a timely basis,
the Company's business, financial condition and results of operations could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Customers" and Note
1 of Notes to Consolidated Financial Statements.
Project Risks. Many of the Company's projects are large, complex
engagements that are performed by the Company over extended periods of time. The
Company is generally paid for these projects in installments, based on the
achievement of certain milestones. The Company's ability to successfully
complete these projects and to earn the milestone payments is based on factors
within and outside the Company's control, including the Company's ability to
hire and retain the requisite IT professionals, the Company's project management
capabilities, the abilities and cooperation of its customers, changes in project
goals and the Company's technical expertise, and accordingly, there can be no
assurance that the Company will successfully achieve milestone payments on the
timetable projected by the Company, if at all. Furthermore, because of the
significant numbers of IT professionals assigned by the Company to these large
projects, unexpected early terminations of any of such engagements could result
in underutilization of project personnel until such persons can be redeployed to
other projects. Conversely, an unexpected delay in the completion of a major
engagement could result in a delay in the redeployment of project personnel to
new assignments for which the Company is contractually committed to achieve
milestones on a timely basis. For these and other reasons, the failure of the
Company to successfully complete its large engagements within the time frame
projected by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's failure or inability to meet a customer's expectations in the
performance of its services could give rise to claims against the Company or
damage the Company's reputation and adversely affect its ability to attract new
business.
Fixed-Price, Fixed-Time Contracts. The Company generally undertakes
projects on a fixed-price, fixed-time basis, and warrants defined project
deliverables as specified in mutually agreed upon statements of work. In making
proposals for fixed-price, fixed-time contracts, the Company relies on its
estimated costs and timing for completing the project. These estimates reflect,
among other factors, judgments as to the efficiencies of the Company's
methodologies, technologies, and IT professionals as applied to the project. Any
increased or unexpected costs or unanticipated delays in connection with the
performance of fixed-price, fixed-time contracts, including delays caused by
factors outside the Company's control, could affect the profitability of these
contracts and have a material adverse effect on the Company's business,
financial condition and results of operations. In the past, the Company has been
required to commit unanticipated additional resources to complete certain
projects, which may have negatively affected the Company's anticipated
profitability on such projects. The Company recognizes that it may experience
similar situations in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Management of Growth. The Company has experienced growth in net revenues
and expansion of its operations which have placed, and are expected to continue
to place, significant demands on the Company's managerial, operational and
financial resources. The Company must continue to manage its financial,
operational and management controls, reporting systems and procedures, and
expand, train, manage and
5
<PAGE> 10
motivate its work force. Given the scale and complexity of the Company's
technology consulting engagements and the Company's expansion of its operations
to date, the Company must continue to improve its ability to timely and
accurately predict and to staff and manage the IT professional resources
required for those engagements. The Company expects to implement an
enterprise-wide accounting and human resources software application in the
second half of 1998 to support its anticipated growth. There can be no assurance
that the Company will be able to implement this new application without
disruption, or that the Company's systems, procedures or controls will otherwise
be adequate to support the Company's expanding operations. In addition, in the
event the Company is required to expand its office facilities, there can be no
assurance that such facilities will be available on acceptable terms, if at all,
or that any expansion or relocation will not have a disruptive effect on the
Company's operations. If the Company's management is unable to manage growth
effectively, the Company's business, financial condition and results of
operations would be materially adversely affected. See "Business -- i-Cube
Culture and Professional Resources" and "Management -- Executive Officers,
Directors and Certain Key Officers."
Competitive Market for IT Professionals. The Company's success depends to
a significant extent on its ability to attract, train, motivate and retain
highly skilled IT professionals, particularly project managers, software
engineers and other senior technical personnel. There is currently a shortage
of, and significant competition for, software development and other IT
professionals with the advanced technological skills necessary to perform the
services offered by the Company. This shortage has caused wages for such
professionals to increase, which increases operating costs to IT service
providers such as the Company. The Company's ability to maintain existing
engagements and obtain new business therefore depends, in large part, on its
ability to hire and retain additional technical personnel with the IT skills
required to keep pace with continuing changes in information processing
technology, evolving industry standards and changing customer preferences. In
addition, the Company generally incurs substantial costs in recruiting, hiring
and training IT professionals before these employees become productive. There
can be no assurance that the Company will be successful in attracting and
retaining future employees or retaining current employees, or that such
employees will continue to achieve high performance levels. An inability to hire
a sufficient number of qualified employees or an inability to retain employees
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, even if the Company is able to
expand its team of highly skilled IT professionals, the resources required to
attract and retain such employees may adversely affect the Company's operating
margins. See "Business -- i-Cube Culture and Professional Resources."
Length of Sales Cycle. The time between the date of initial contact with a
potential customer and the execution of a contract with that customer is often
lengthy, typically ranging from six weeks for smaller engagements to nine months
or more for the Company's larger engagements, and is subject to delays over
which the Company has little or no control, including customers' budgetary
constraints, customers' internal acceptance reviews, the success and continued
internal support of customers' own development efforts, and the possibility of
cancellation or delay of projects by customers. During such sales cycle, the
Company may expend substantial funds and management resources and yet not obtain
project awards or revenues. See "Business -- Sales and Marketing."
Dependence on Third Party Marketing Relationships. The Company has
developed and may continue to develop marketing relationships with third parties
that offer products or services that are complementary to those offered by the
Company. The Company currently has joint marketing relationships with Hewlett-
Packard Company and debis Systemhaus, the IT services subsidiary of Daimler-Benz
AG. The Company believes that the customer referrals and partner endorsements
provided by these relationships have contributed significantly to the award of
new business to the Company in the past. To date, these relationships have been
mutually non-exclusive and do not require any minimum level of business or
revenue. There can be no assurance that the Company can successfully maintain
these relationships or establish similar relationships with others. If the
Company's marketing partners were to reduce their efforts on behalf of the
Company, the Company's business, financial condition and results of operations
could be materially adversely affected. See "Business -- Marketing
Relationships."
6
<PAGE> 11
Rapid Technological Change; Dependence on Client/Server Architectures. The
market for the Company's services is characterized by innovation and rapid
technological change, evolving industry standards and changing customer
preferences. Both the needs of potential customers and the technologies
available for meeting those needs can change significantly within a short period
of time. The Company has derived a significant portion of its revenues from
projects based primarily on client/server architectures. These technologies are
continuing to develop and are subject to rapid change. Any factors negatively
affecting the acceptance of such technologies could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's future will depend in part on its ability to continually
enhance its services, to develop services that address the needs of its
customers and potential customers, and to continue to improve its i-Structure
methodologies and technologies. There can be no assurance that the Company will
be successful in developing and marketing services that respond to technological
changes, that the Company will enhance its i-Structure methodologies and
technologies on a timely or cost-effective basis, or that the Company's
services, methodologies and technologies will adequately meet the requirements
of the marketplace. The failure of the Company to respond to rapidly changing
technologies could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Industry
Background," "Business -- Technology" and "Business -- Research and
Development."
Dependence on Key Personnel. The Company's future success depends to a
significant extent on Michael Pehl, its Chief Executive Officer and Chairman of
the Board of Directors, and its other executive officers and key employees. The
loss of the services of any one or more of these individuals could have a
material adverse effect on the Company's business, financial condition and
results of operations. None of these individuals is contractually obligated to
remain in the employ of the Company for any specified period of time. The
Company does not have, and is not considering securing, key-man life insurance
on any of its executive officers or other key employees.
Highly Competitive Market. The Company operates in a highly competitive
and rapidly changing market and competes with a variety of organizations that
offer services similar to those offered by the Company. The market includes
participants from a variety of market segments, including other IT service
providers, large accounting and other professional service firms, packaged
software vendors and services groups of computer equipment companies, as well as
the internal IT staffs of its customers and potential customers. Many of these
competitors have significantly greater financial, technical, sales and marketing
resources and greater name recognition than the Company. In addition, there are
relatively low barriers to entry into the market in which the Company competes
and the Company has faced, and expects to continue to face, additional
competition from new entrants into this market. There can be no assurance that
the Company will be able to continue to compete successfully with its existing
competitors or that it will be able to compete successfully with new
competitors. See "Business -- Competition."
Dependence on Proprietary Rights. The Company's success and its ability to
compete is dependent, in part, upon its proprietary rights, including its rights
in i-Structure methodologies and technologies. The Company relies primarily on a
combination of copyright, trademark and trade secret laws to establish and
protect its proprietary rights. There can be no assurance that such measures
will be adequate to protect the Company's proprietary rights. In addition, the
Company seeks to protect its proprietary rights through the use of
confidentiality agreements with employees, consultants, advisors and others.
There can be no assurance that any such agreements will provide adequate
protection for the Company's proprietary rights in the event of any unauthorized
use or disclosure, that employees of the Company, consultants, advisors or
others will maintain the confidentiality of such proprietary information, or
that such proprietary information will not otherwise become known, or be
independently developed, by competitors.
The Company historically has restricted access to the source codes of its
software tools and other technologies. The Company regards its source codes as
proprietary information, and attempts to protect the confidentiality of these
source codes, some of which are embedded in the developed application and
licensed to the customer for runtime use. In certain cases, the Company has also
licensed the source code version to
7
<PAGE> 12
customers for internal use, to enable them to maintain their transformed
applications, and in other cases, the Company has entered into arrangements to
make its source code available upon the occurrence of certain events, such as
the bankruptcy or insolvency of the Company or certain material breaches of the
Company's application development contract. In the event of any release of the
source code pursuant to such arrangements, the customer's license is generally
limited to use of the source code for specific purposes. Despite the Company's
precautions, it may be possible for unauthorized parties to copy or otherwise
reverse engineer portions of the Company's software or otherwise obtain and use
information that the Company regards as proprietary.
The Company does not possess any patents or copyright registrations in the
United States or any other jurisdiction. Existing copyright and trade secret
laws only offer limited protection, and the laws of certain countries in which
the Company provides services may not protect the Company's intellectual
property rights to the same extent as the laws of the United States. Certain
provisions of the agreements entered into by the Company, including provisions
protecting against unauthorized use, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions, and the Company is
required to negotiate limits on these provisions from time to time.
Although the Company believes that its services and technologies do not
infringe on the intellectual property rights of others, there can be no
assurance that infringement claims will not be asserted against the Company in
the future. Such claims, if resolved against the Company, could adversely affect
the Company's reputation, preclude it from offering certain services, and have a
material adverse effect on the Company's business, financial condition and
results of operations. In its agreements with its customers, the Company agrees
to indemnify its customers for any expenses or liabilities resulting from
claimed infringements of patents, trademarks or copyrights of third parties. In
certain instances, the amount of such indemnities may be greater than the
revenues the Company may have received from the customer. There can be no
assurance that third parties will not assert infringement or misappropriation
claims against the Company in the future with respect to current or future
services. Any claims or litigation, with or without merit, could be
time-consuming, result in costly litigation or delays, or require the Company to
enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to the
Company, if at all, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
received notice from a company located in the Netherlands that it believes that
its rights to use the i-Cube name in the Netherlands, Belgium and Luxembourg are
superior to those of the Company. In the event that the Company agrees with the
claims of such company, or in the event that the Company elects not to challenge
the assertions of such company, the Company may not be able to market its
services in those countries under the i-Cube name.
The Company's business includes the development of custom software in
connection with specific customer engagements. The Company frequently assigns to
its customers the copyright and other intellectual property rights in certain
aspects of the software and documentation developed for these customers.
Although the Company's contracts with its customers provide that it retains the
rights to its intellectual property, there can be no assurance that customers
will not assert rights in, and seek to limit the Company's use of, such
intellectual property.
Contract Liability. The Company's agreements with its customers typically
contain provisions designed to limit the Company's exposure to claims relating
to the Company's professional services and the applications developed by it.
However, it is possible that the limitation of liability provisions contained in
the Company's agreements may not adequately protect the Company or be effective
under the laws of certain jurisdictions. Although the Company has not
experienced any such liability claims to date, there can be no assurance that
the Company will not be subject to such claims in the future. A liability claim
brought against the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risk of Software Defects. Software applications as complex as those
developed by the Company frequently contain errors or defects, especially when
first implemented. Any such defects or errors could result
8
<PAGE> 13
in delayed or lost revenues, adverse customer reaction, negative publicity
regarding the Company and its services and harm to the Company's reputation, or
could require expensive corrections, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risks Associated with International Operations. In 1996, 1997 and the
first three months of 1998, net revenues from customers located outside of the
United States accounted for 9%, 14% and 7%, respectively, of the Company's net
revenues in such period. The Company expects that net revenues from
international operations, principally in Europe, may account for an increasingly
significant amount of the Company's net revenues. As a result, the Company is
subject to a number of risks, including, among other things, difficulties
relating to administering its business globally, managing foreign operations
(including the Company's office in Germany), currency fluctuations, restrictions
against the repatriation of earnings, the burdens of complying with a wide
variety of foreign laws, the uncertainty of laws and enforcement in certain
jurisdictions relating to the protection of intellectual property rights and
multiple and possibly overlapping tax structures. Other factors that can
adversely affect international operations are changes in import/export duties
and quotas, introduction of tariff or non-tariff barriers and economic or
political changes in international markets. In addition, a substantial portion
of the Company's operating expenses and capital expenditures relating to the
Company's international operations continue to be denominated in United States
dollars, while the Company anticipates that an increasing amount of its net
revenues will be generated in foreign currencies. As a result, the Company may
be exposed to fluctuations in the foreign exchange rates between the United
States dollar and the currency in which a particular engagement is transacted.
To date, the Company has not sought to hedge the risks associated with
fluctuations in foreign exchange rates. The realization of any of the foregoing
risks could have a material adverse effect on the Company's business, financial
condition and results of operations.
Year 2000 Compliance Issues. The Company believes that the purchasing
patterns of customers and potential customers may be significantly affected by
Year 2000 issues. Many companies are expending significant resources to correct
or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software services
such as those offered by the Company. Conversely, Year 2000 issues may cause
other companies to accelerate purchases, thereby causing an increase in
short-term demand and a consequent decrease in long-term demand for software
services.
The Company does not believe that it has material exposure to the Year 2000
issue with respect to its own information systems because its existing systems
correctly define the year 2000. Although the Company believes that the
information systems of its major partners and vendors (insofar as they relate to
the Company's business) comply with Year 2000 requirements, there can be no
assurance that the Year 2000 issue will not affect the information systems of
the Company's major partners and vendors as they relate to the Company's
business, or that any such impact of a major partner's or vendor's information
system would not have a material adverse effect on the Company.
Control by Principal Stockholders. Following this offering, approximately
45% of the outstanding shares of Common Stock of the Company will be held by
Sundar Subramaniam, a founder of the Company, and certain trusts and
partnerships for the benefit of Mr. Subramaniam or members of his family. Prior
to the completion of this offering, all of such shares are held in a voting
trust, for which State Street Bank and Trust Company is acting as trustee. Under
the terms of the voting trust agreement, the trustee has the right to vote the
shares following discussion with certain non-management members of the Board of
Directors, but without consulting the holders of the voting trust certificates,
except with respect to certain specific actions. The voting trust agreement will
terminate upon the closing of this offering. As a result, Mr. Subramaniam and
members of his family will have the ability to substantially influence the
business and affairs of the Company, including the election of the Company's
directors, and to otherwise affect the outcome of certain actions requiring
stockholder approval, including the adoption of amendments to the Company's
Restated Certificate of Incorporation and certain mergers, sales of assets, and
other business acquisitions or dispositions. See "Principal Stockholders."
9
<PAGE> 14
No Prior Trading Market; Potential Volatility of Stock Price. Prior to
this offering, there has been no public market for the Company's Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after this offering or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price will be determined solely by negotiations between the Company and the
Representatives of the Underwriters and therefore may not be indicative of
prices that will prevail in the trading market after this offering. The market
price of the Company's Common Stock could be subject to wide fluctuations in
response to, and may be adversely affected by, variations in quarterly results
of operations, changes in earnings estimates by analysts, adverse earnings or
other financial or business announcements by the Company and its customers or
competitors and market conditions in the industry, as well as general economic
conditions. In addition, the stock market has experienced extreme price and
volume fluctuations that have particularly affected the market prices for many
companies' stocks and that often have been unrelated to the operating
performance of such companies. These market fluctuations may adversely affect
the market price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." See "Underwriters"
for a discussion of the factors to be considered in determining the initial
public offering price.
Shares Eligible for Future Sale. Sales of substantial amounts of shares of
the Company's Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. In addition to the
2,500,000 shares offered hereby (2,875,000 shares if the over-allotment option
is exercised in full), approximately 2,374.5 additional shares of Common Stock
outstanding as of March 31, 1998, which are not subject to 180-day lock-up
agreements (the "Lock-up Agreements") with the Representatives of the
Underwriters, will be eligible for sale in the public market in accordance with
Rule 144(k) under the Securities Act of 1933, as amended (the "Securities Act"),
on the date of this Prospectus. Upon expiration of the Lock-up Agreements, 180
days after the date of this Prospectus, approximately 12,932,841.5 additional
shares of Common Stock will be available for sale in the public market, subject
to the provisions of Rule 144 under the Securities Act. At March 31, 1998,
approximately 3,107,837.5 shares of Common Stock were issued or issuable
pursuant to vested options or pursuant to other rights granted under the
Company's stock plans, of which approximately 59,617.5 shares are not subject to
Lock-up Agreements with the Representatives of the Underwriters and will be
eligible for sale in the public market in accordance with Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus. The Company
intends to file one or more registration statements on Form S-8 under the
Securities Act following the date of this Prospectus to register up to 5,539,782
shares of Common Stock subject to outstanding stock options granted pursuant to
the Company's stock option program as of March 31, 1998, including the 1,657,628
shares of Common Stock subject to options vested as of March 31, 1998, and
4,064,578 shares of Common Stock issuable pursuant to the Company's stock plans.
Such registration statements are expected to become effective upon filing. See
"Shares Eligible for Future Sale" and "Underwriters."
Broad Management Discretion as to Use of Proceeds. The anticipated net
proceeds of this offering to the Company have not been designated for specific
uses. Therefore, the Company's management will have broad discretion with
respect to the use of the net proceeds of this offering to the Company. See "Use
of Proceeds."
Immediate and Substantial Dilution. Purchasers of shares of Common Stock
offered hereby will suffer an immediate and substantial dilution in the net
tangible book value per share of the Common Stock from the initial public
offering price. See "Dilution."
Potential Adverse Effects of Anti-Takeover Provisions; Availability of
Preferred Stock for Issuance. Following the closing of this offering, the
Company's Board of Directors will have the authority to issue up to 1,000,000
shares of Preferred Stock without any further vote or action by the
stockholders, and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of such shares. Since the Preferred Stock
could be issued with voting, liquidation, dividend and other rights superior to
those of the Common Stock, the rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
such Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of
10
<PAGE> 15
making it more difficult for a third party to acquire, or could discourage a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company. Further, certain provisions of the Company's Restated
Certificate of Incorporation, including provisions that create a classified
Board of Directors, and certain provisions of the Company's Amended and Restated
By-laws and of Delaware law could have the effect of delaying or preventing a
change in control of the Company. See "Description of Capital Stock -- Delaware
Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects."
11
<PAGE> 16
THE COMPANY
The Company was incorporated in Massachusetts in 1992 and was
reincorporated in Delaware in 1996. The principal executive offices of the
Company are located at 101 Main Street, Cambridge, Massachusetts 02142. The
Company's telephone number is (617) 250-2500.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$26,950,000 ($28,121,800 if the Underwriters' over-allotment option is exercised
in full), assuming an initial public offering price of $12.00 per share (the
midpoint of the range set forth on the cover of this Prospectus) and after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company.
The principal purposes of this offering are to establish a public market
for the Company's Common Stock, to increase the Company's visibility in the
marketplace, to facilitate future access to public capital markets and to obtain
additional working capital.
The Company expects to use the net proceeds for general corporate purposes,
including working capital and capital expenditures. A portion of the net
proceeds may also be used for the acquisition of other companies, assets,
products and technologies that are complementary to the Company's business,
although the Company has no commitments or agreements with respect to any such
acquisitions, and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the net proceeds to the Company from
this offering will be invested in investment grade, interest-bearing securities.
As of the date of this Prospectus, none of the proceeds have been designated for
specific uses.
DIVIDEND POLICY
No cash dividends have ever been declared or paid on the Company's capital
stock and the Company does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. The Company currently intends to retain
all of its future earnings, if any, for use in the operation of the business. In
addition, the Company's bank facility contains a covenant prohibiting the
payment of cash dividends without the bank's consent. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
12
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 (i) on an actual basis, and (ii) as adjusted to reflect the issuance
and sale of the 2,500,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $12.00 per share (the midpoint of
the range set forth on the cover of this Prospectus), after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
ACTUAL AS ADJUSTED
--------- -------------
(UNAUDITED, IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C>
Long-term obligations, net of current maturities............ $ 623 $ 623
Stockholders' equity(1):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding............ -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized; 13,467,233 shares outstanding, actual;
15,967,233 shares issued and outstanding, as
adjusted(2)............................................ 134 159
Additional paid-in capital................................ 1,566 28,491
Treasury stock............................................ (8) (8)
Note receivable from stockholder.......................... (533) (533)
Retained earnings......................................... 9,884 9,884
------- -------
Total stockholders' equity............................. 11,043 37,993
------- -------
Total capitalization.............................. $11,666 $38,616
======= =======
</TABLE>
- ---------------
(1) Gives effect to the filing of the Restated Certificate of Incorporation of
the Company prior to the effective date of the Registration Statement of
which this Prospectus is a part.
(2) Excludes (i) 5,539,782 shares of Common Stock issuable upon exercise of
stock options outstanding as of March 31, 1998, of which options to purchase
1,657,628 shares were then exercisable, and (ii) 4,064,578 shares of Common
Stock reserved for future issuance under the Company's stock plans. See
"Management -- Benefit Plans" and Note 7 of Notes to Consolidated Financial
Statements.
13
<PAGE> 18
DILUTION
The net tangible book value of the Company as of March 31, 1998 was
approximately $11,043,000, or $0.82 per share of Common Stock. Net tangible book
value per share is determined by dividing the Company's tangible net worth
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $12.00 per share (the midpoint of the range set forth on the cover of this
Prospectus) and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company, the net tangible book
value of the Company as of March 31, 1998 would have been $37,993,000, or $2.38
per share of Common Stock. This represents an immediate increase in such net
tangible book value of $1.56 per share to existing stockholders and an immediate
dilution of $9.62 per share to new investors. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Net tangible book value per share before this offering.... $ .82
Increase in net tangible book value per share attributable
to new investors....................................... 1.56
Net tangible book value per share after this offering....... 2.38
------
Dilution per share to new investors(2)...................... $ 9.62
======
</TABLE>
The following table summarizes, as of March 31, 1998, the difference
between the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company, and the average price per share paid by
existing stockholders and by new investors at an assumed initial public offering
price of $12.00 per share (the midpoint of the range set forth on the cover of
this Prospectus) before deduction of estimated underwriting discounts and
commissions and offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 13,467,233 84.3% $ 997,632 3.2% $ .07
New investors................ 2,500,000 15.7 30,000,000 96.8 12.00
---------- ----- ----------- -----
Total................... 15,967,233 100.0% $30,997,632 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Sales by the Company and the Selling Stockholders upon the exercise in full
of the Underwriters' over-allotment option will reduce the number of shares
of Common Stock held by existing stockholders to 13,197,233 shares, or 82.1%
of the total number of shares of Common Stock to be outstanding after this
offering and will increase the number of shares of Common Stock held by new
investors to 2,875,000 shares, or 17.9% of the total number of shares to be
outstanding after this offering. See "Principal Stockholders."
The foregoing table assumes no exercise of stock options outstanding at
March 31, 1998. As of March 31, 1998, there were options outstanding to purchase
5,539,782 shares of Common Stock at a weighted average exercise price of $2.51
per share and 4,064,578 shares reserved for future issuance under the Company's
stock plans. To the extent all of these options are exercised, net tangible book
value per share after this offering would be $2.41 and total dilution per share
to new investors would be $9.59. See "Management -- Benefit Plans" and Note 7 of
Notes to Consolidated Financial Statements.
14
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto, and with Management's Discussion and Analysis of Financial Condition
and Results of Operations, included elsewhere in this Prospectus. The selected
consolidated statement of income data set forth below for the three years in the
period ended December 31, 1997 and the selected consolidated balance sheet data
at December 31, 1996 and December 31, 1997 are derived from consolidated
financial statements of the Company audited by Coopers & Lybrand L.L.P.,
independent public accountants, which are included elsewhere in this Prospectus.
The selected consolidated statement of income data for the year ended December
31, 1994 and the selected consolidated balance sheet data at December 31, 1994
and 1995 are derived from consolidated financial statements of the Company
audited by Coopers & Lybrand L.L.P. which are not included in this Prospectus.
The selected consolidated statement of income data for the year ended December
31, 1993 and the selected consolidated balance sheet data at December 31, 1993
are derived from audited financial statements of the Company which are not
included in this Prospectus. The selected consolidated financial data for the
three months ended March 31, 1997 and March 31, 1998 are derived from the
Company's unaudited Consolidated Financial Statements included elsewhere in this
Prospectus. The unaudited Consolidated Financial Statements have been prepared
by the Company on a basis consistent with the Company's audited financial
statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods. Results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998 or any other future period.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------ ----------------
1993 1994 1995 1996 1997 1997 1998
---- ------ ------ ------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues.................................... $833 $2,893 $9,197 $14,479 $26,859 $5,598 $ 8,828
Project personnel and software costs............ 288 1,372 2,521 5,308 10,385 2,000 3,612
---- ------ ------ ------- ------- ------ -------
Gross profit.............................. 545 1,521 6,676 9,171 16,474 3,598 5,216
Operating expenses:
Selling and marketing......................... 95 329 897 1,580 3,046 630 850
General and administrative.................... 253 400 2,371 5,011 6,734 1,497 2,247
---- ------ ------ ------- ------- ------ -------
Total operating expenses.................. 348 729 3,268 6,591 9,780 2,127 3,097
---- ------ ------ ------- ------- ------ -------
Operating income................................ 197 792 3,408 2,580 6,694 1,471 2,119
Other income, net............................... -- 9 92 85 391 52 130
---- ------ ------ ------- ------- ------ -------
Income before income taxes................ 197 801 3,500 2,665 7,085 1,523 2,249
Provision for income taxes...................... 73 316 1,424 1,050 2,760 594 877
---- ------ ------ ------- ------- ------ -------
Net income................................ $124 $ 485 $2,076 $ 1,615 $ 4,325 $ 929 $ 1,372
==== ====== ====== ======= ======= ====== =======
Earnings per share(1):
Basic......................................... $.01 $ .04 $ .17 $ .13 $ .34 $ .07 $ .10
==== ====== ====== ======= ======= ====== =======
Diluted....................................... $.01 $ .04 $ .15 $ .12 $ .29 $ .07 $ .09
==== ====== ====== ======= ======= ====== =======
Weighted average shares outstanding(1):
Basic......................................... 9,353 12,114 12,323 12,425 12,627 12,519 13,244
Diluted....................................... 9,353 12,114 13,465 13,682 15,163 14,256 16,031
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---- ------ ------ ------ ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 6 $1,062 $3,064 $ 3,889 $10,822 $ 9,833
Working capital....................................... 169 541 2,067 3,855 7,853 9,174
Total assets.......................................... 360 1,537 7,656 10,502 21,112 19,518
Long-term obligations, net of current maturities...... 59 -- -- -- 672 623
Total stockholders' equity............................ 132 619 2,695 4,561 9,616 11,043
</TABLE>
- ---------------
(1) For an explanation of the determination of the number of shares used in
computing earnings per share, see Note 6 of Notes to Consolidated Financial
Statements.
15
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The following discussion contains certain trend
analysis and other statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective investors
are cautioned that such statements are only predictions and that actual results
or events may differ materially. In evaluating such statements, prospective
investors should specifically consider the risk factors identified in this
Prospectus, particularly the matters set forth under the caption "Risk Factors,"
which could cause actual results to differ materially from those indicated by
such forward-looking statements.
OVERVIEW
The Company provides application migration and custom software development
services on a fixed-price, fixed-time basis to Fortune 1000 companies and other
large enterprises. The Company was founded in 1992 and has been profitable each
year since it began operations in 1993. The Company has financed its operations
principally through cash generated from operations.
The Company derives substantially all of its revenues from technology
consulting services. The Company's services are principally provided on a
fixed-price basis. See "Risk Factors -- Project Risks" and "Risk
Factors -- Fixed-Price, Fixed-Time Contracts." In 1997, 96% of net revenues of
the Company were derived from fixed-price contracts. In developing the
fixed-price of a project, the Company follows a process that assesses the
technical complexity of the project, the nature of the work, the functions to be
performed, the resources required to complete the engagement, and the extent to
which the Company will deploy its internally-developed software tools to deliver
the solution. Net revenues exclude reimbursable expenses charged to customers.
Revenue from fixed-price projects is recognized using
percentage-of-completion accounting, based on the ratio of labor hours incurred
to date as compared to the estimated total labor hours needed to complete the
project. Because the Company's operating results may be adversely affected by
inaccurate estimates of project completion, the Company has a series of project
review processes to help provide accurate project estimates, including a
detailed review at the end of each reporting period to determine project percent
completion. As a part of determining the estimates of the costs to complete, the
Company conservatively estimates the time to complete and project resources in
the early phases of the contract, considering such factors as project complexity
and technical risks. This estimation process may have the effect of deferring
contract revenue to the later phases of the contract period when the risk
factors are reduced, which results in an appropriate match of revenue to costs.
The cumulative impact of any revision in estimates of the time and resources
required for completion and losses on projects in process are reflected in the
period in which they become known. Revenue from maintenance contracts is
deferred and recognized ratably over the contractual periods during which the
services are performed. Revenue related to time and materials engagements is
recognized when the services are performed.
The Company typically receives a substantial advance payment from its
customers upon contract signing, with additional payments required upon the
attainment of project milestones. Deferred revenues consist principally of
amounts billed in advance for the Company's technology consulting contracts that
will be recognized upon performance and amounts received from customers in
excess of revenues recognized to date.
The Company has traditionally depended upon a few major customers for a
majority of its net revenues. During the three months ended March 31, 1998, net
revenues from its five largest customers accounted for 23%, 17%, 16%, 11% and
10%, respectively, of the Company's net revenues. During 1997, net revenues from
the Company's five largest customers accounted for 29%, 19%, 14%, 11% and 10%,
respectively, of the Company's net revenues. Although the Company's strategy is
to broaden its customer base, there can be no assurance that such customer
concentration will actually diminish, and the Company anticipates that its
results of operations in any given period will continue to depend to a
significant extent upon large contracts with a small number of customers. See
"Risk Factors -- Project and Customer Concentration" and Note 1 of
16
<PAGE> 21
Notes to Consolidated Financial Statements. In 1996, 1997 and the first three
months of 1998, net revenues from customers located outside of the United States
accounted for 9%, 14% and 7%, respectively, of the Company's net revenues in
such period.
The Company's results of operations are influenced to a significant extent
by its ability to attract, train, motivate and retain highly skilled IT
professionals. As a consequence, the Company's most significant expense is the
cost of hiring and training personnel, wages and related employee costs. The
ability of the Company to manage employee utilization and to contain turnover
and payroll costs will have a significant impact on its profitability. See "Risk
Factors -- Competitive Market for IT Professionals."
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Company's
Consolidated Statements of Income as a percentage of net revenues for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Project personnel and software costs............... 27.4 36.7 38.7 35.7 40.9
----- ----- ----- ----- -----
Gross profit............................. 72.6 63.3 61.3 64.3 59.1
Operating expenses:
Selling and marketing............................ 9.7 10.9 11.3 11.3 9.6
General and administrative....................... 25.8 34.6 25.1 26.7 25.5
----- ----- ----- ----- -----
Total operating expenses................. 35.5 45.5 36.4 38.0 35.1
----- ----- ----- ----- -----
Operating income................................... 37.1 17.8 24.9 26.3 24.0
Other income, net.................................. 1.0 0.6 1.5 0.9 1.5
----- ----- ----- ----- -----
Income before income taxes............... 38.1 18.4 26.4 27.2 25.5
Provision for income taxes......................... 15.5 7.2 10.3 10.6 9.9
----- ----- ----- ----- -----
Net income............................... 22.6% 11.2% 16.1% 16.6% 15.6%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
Net Revenues. The Company's net revenues increased by $3.2 million, or
57.7%, from $5.6 million in the first three months of 1997 to $8.8 million for
the comparable period in 1998. This increase in net revenues was primarily
attributable to an increased volume of projects from new customers and the
leveraging of existing customer relationships to obtain repeat business.
Project Personnel and Software Costs. Project personnel and software costs
consist primarily of compensation and related costs of personnel dedicated to
customer assignments and personnel assigned to developing and enhancing the
Company's methodologies and technologies deployed during the project delivery
process. Project personnel and software costs also include fees paid to
subcontractors for work performed in connection with projects and non-reimbursed
project travel expenses. Project personnel and software costs increased by
$1.6 million, or 80.6%, from $2.0 million in the first three months of 1997 to
$3.6 million for the comparable period in 1998. As a percentage of net revenues,
these costs were 35.7% and 40.9%, respectively, in such periods. The increase in
project personnel and software costs in absolute dollars was primarily
attributable to the hiring of additional and more experienced personnel required
to deliver the Company's services and increases in per person compensation
costs. The increase in project personnel and software costs as a percentage of
net revenues was primarily attributable to an increase in per person
compensation. Project personnel headcount increased from 103 employees at
March 31, 1997 to 138 employees at March 31, 1998.
17
<PAGE> 22
Selling and Marketing. Selling and marketing costs consist primarily of
compensation and related costs of sales and marketing personnel, travel
expenses, and marketing program and promotion costs. Selling and marketing costs
increased by $220,000, or 35.0%, from $630,000 in the first three months of 1997
to $850,000 for the comparable period in 1998. As a percentage of net revenues,
these costs were 11.3% and 9.6% in the first three months of 1997 and 1998,
respectively. The increase in selling and marketing costs in absolute dollars
was primarily attributable to increased spending on promotional activities and
the hiring of more experienced sales personnel. Sales and marketing personnel
increased from 13 employees at March 31, 1997 to 14 employees at March 31, 1998.
General and Administrative. General and administrative costs consist
primarily of compensation and related costs of the Company's management and
administrative functions, including finance and accounting, human resources,
internal information technology, and the costs of the Company's facilities and
other general corporate expenses. General and administrative costs increased
$750,000, or 50.1%, from $1.5 million in the first three months of 1997 to
$2.2 million for the comparable period in 1998. As a percentage of net revenues,
these costs were 26.7% and 25.5%, respectively, in such periods. The decline in
general and administrative costs as a percentage of net revenues reflected a
decline in administrative staff as a percentage of total staff and more
efficient space utilization of the Company's facilities in the first three
months of 1998. The increase in general and administrative costs in absolute
dollars was primarily attributable to an increase in general and administrative
personnel from 17 at March 31, 1997 to 26 at March 31, 1998. In addition,
expenditures for recruiting and leased equipment contributed to the dollar
increase in general and administrative costs.
Other Income, Net. Other income, net consists primarily of interest income
from the Company's cash balances and interest expense associated with fixed
asset purchases made under the Company's equipment line of credit and
obligations under capital leases. Other income, net was approximately $52,000
and $130,000 for the first three months of 1997 and 1998, respectively.
Provision for Income Taxes. The Company's effective rate for Federal and
state income taxes was 39.0% for the first three months of 1997 and 1998.
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Net Revenues. Net revenues increased by $5.3 million, or 57.4%, from
$9.2 million in 1995 to $14.5 million in 1996 and increased by $12.4 million, or
85.5%, to $26.9 million in 1997. The increases each year represent an increase
in the number of customer projects from both new and existing customers plus an
increase in the average size of projects. Net revenues from the Company's five
largest customers represented approximately 83.8%, 78.8% and 83.4% of the
Company's net revenues for 1995, 1996 and 1997, respectively.
Project Personnel and Software Costs. Project personnel and software costs
increased by $2.8 million, or 110.6%, from $2.5 million in 1995 to $5.3 million
in 1996 and by $5.1 million, or 95.6%, to $10.4 million in 1997. As a percentage
of net revenues, project personnel and software costs were 27.4%, 36.7% and
38.7% for 1995, 1996 and 1997, respectively. The increases in project personnel
and software costs in absolute dollars were primarily attributable to an
increase in the number of personnel required to deliver projects and increased
per person compensation costs. The increases in project personnel and software
costs as a percentage of net revenues were primarily attributable to an increase
in compensation on both an absolute and per employee basis. Project personnel
headcount was 65, 87 and 120 at December 31, 1995, 1996 and 1997, respectively.
Selling and Marketing. Selling and marketing costs increased by $683,000,
or 76.1%, from $897,000 in 1995 to $1.6 million in 1996 and by $1.4 million, or
92.8%, to $3.0 million in 1997. As a percentage of net revenues, selling and
marketing costs were 9.7%, 10.9% and 11.3% in 1995, 1996 and 1997, respectively.
The increased selling and marketing costs reflect the expansion of sales and
marketing personnel from five at December 31, 1995 to nine at December 31, 1996
and to 17 at December 31, 1997. In 1996 and 1997, the Company also increased its
promotional and public relations activities.
General and Administrative. General and administrative costs increased by
$2.6 million, or 111.3%, from $2.4 million in 1995 to $5.0 million in 1996 and
by $1.7 million, or 34.4%, to $6.7 million in 1997. As a percentage of net
revenues, general and administrative costs were 25.8%, 34.6% and 25.1% for 1995,
1996 and
18
<PAGE> 23
1997, respectively. The increase in general and administrative costs in absolute
dollars resulted from an increase in general and administrative personnel from
nine employees at December 31, 1995 to 15 employees at December 31, 1996 and to
21 employees at December 31, 1997. In 1996 and 1997, the Company hired several
new officers including the Chief Executive Officer, the Chief Financial Officer
and the Vice President, Human Resources and added resources in finance, human
resources and information technology to support the Company's rapid growth. In
addition, in 1996, the Company paid a $1.0 million bonus to Michael Pehl to
secure his services as Chairman and Chief Executive Officer and a $150,000 bonus
to Lawrence P. Begley to secure his services as Chief Financial Officer and
Treasurer.
Other Income, Net. Other income, net consists primarily of interest income
from the Company's cash balances and interest expense associated with fixed
asset purchases made under the Company's equipment line of credit and
obligations under capital leases. Other income, net in 1995, 1996 and 1997 was
approximately $92,000, $85,000 and $391,000, respectively.
Provision for Income Taxes. The Company's effective rate for Federal and
state income taxes was 40.7%, 39.4% and 39.0% for 1995, 1996 and 1997,
respectively.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly financial
information for the five quarters in the period ended March 31, 1998 in dollars
and as a percentage of net revenues. This information is derived from unaudited
consolidated financial statements and has been prepared on the same basis as the
Company's Consolidated Financial Statements which appear elsewhere in this
Prospectus. In the opinion of the Company's management, this information
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information when read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto. The
results for any quarter are not necessarily indicative of future quarterly
results of operations, and the Company believes that period-to-period
comparisons should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues................. $5,598 100.0% $6,633 100.0% $7,093 100.0% $7,535 100.0% $8,828 100.0%
Project personnel and
software costs............. 2,000 35.7 2,474 37.3 2,914 41.1 2,998 39.8 3,612 40.9
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit............. 3,598 64.3 4,159 62.7 4,179 58.9 4,537 60.2 5,216 59.1
Operating expenses:
Selling and marketing...... 630 11.3 808 12.2 770 10.9 838 11.1 850 9.6
General and
administrative........... 1,497 26.7 1,672 25.2 1,690 23.8 1,875 24.9 2,247 25.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total operating
expenses............... 2,127 38.0 2,480 37.4 2,460 34.7 2,713 36.0 3,097 35.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income............. 1,471 26.3 1,679 25.3 1,719 24.2 1,824 24.2 2,119 24.0
Other income, net............ 52 0.9 76 1.1 115 1.6 148 2.0 130 1.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income before income
taxes.................. 1,523 27.2 1,755 26.4 1,834 25.8 1,972 26.2 2,249 25.5
Provision for income taxes... 594 10.6 684 10.3 715 10.1 766 10.2 877 9.9
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net income............... $ 929 16.6% $1,071 16.1% $1,119 15.7% $1,206 16.0% $1,372 15.6%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
The Company's results of operations have varied significantly in the past
and may vary significantly in the future, on a quarterly and annual basis, as a
result of a variety of factors, many of which are outside the Company's control.
See "Risk Factors -- Fluctuations in Results of Operations." The Company
believes that the purchase of its services generally involves a significant
commitment of a customer's capital resources. Therefore, any downturn in a
customer's business could have a material adverse effect on the Company's
19
<PAGE> 24
business, financial condition and results of operations. To the extent that
projects progress faster than expected, results of operations for subsequent
quarters may be materially adversely affected.
Although the Company has achieved significant historical quarter-to-quarter
growth in net revenues and income from operations, the Company has no assurance
that this growth rate is sustainable. In addition, throughout 1996 and 1997, the
Company's total number of employees and average per employee compensation
expense has increased each quarter and is expected to continue to increase. As a
result, the Company's gross profit margin has declined. Additionally, the
Company continues to invest in corporate infrastructure and expects to maintain,
as a percentage of net revenues, its spending on selling and marketing expenses
as well as general and administrative expenses. These costs and investments are
expected to cause the Company's operating income margin to decline.
Due to all the foregoing factors, it is possible that in some future
quarter, the Company's results of operations will be below the expectations of
public market analysts and investors. In such event, the market price of the
Company's Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
cash provided by operations.
The Company's cash balances were $3.1 million, $3.9 million, $10.8 million
and $9.8 million at December 31, 1995, 1996 and 1997, and at March 31, 1998,
respectively. The Company's working capital was $2.1 million, $3.9 million,
$7.9 million and $9.2 million at December 31, 1995, 1996 and 1997, and at March
31, 1998, respectively.
The Company's operating activities provided cash from operations of
$3.1 million, $523,000 and $8.2 million in the years ended December 31, 1995,
1996 and 1997, respectively, and used $728,000 for the three-month period ended
March 31, 1998. The decrease in cash provided from operations in 1996 as
compared to 1995 was due principally to lower net income, an increase in
accounts receivable and a decrease in accrued expenses and accrued income taxes.
The increase in cash provided from operations in 1997 as compared to 1996 was
due mainly to an increase in net income, decreases in accounts receivable and an
increase in accrued expenses. The cash used for operations for the three month
period ended March 31, 1998 was mainly attributable to a decrease in accrued
expenses due to payment of bonuses and a decrease in deferred revenues resulting
from the timing of milestone billings on certain contracts.
The Company used cash of $672,000, $375,000, $1.7 million and $258,000 for
investing activities in the years ended December 1995, 1996 and 1997 and the
three month period ended March 31, 1998, respectively. Cash used for investing
activities in 1995 and 1996 consisted primarily of purchases of property and
equipment, principally computer equipment and software to support the growing
base of employees and required infrastructure. In 1997, in addition to property
and equipment, the Company purchased approximately $540,000 of furniture as part
of its expansion of office facilities in Cambridge, Massachusetts and in the
City of Industry, California. At March 31, 1998, the Company had no significant
commitments for capital expenditures for 1998 but expects to continue to
purchase property and equipment to enhance its corporate infrastructure.
The Company's financing activities used cash of $392,000 in 1995 and
provided cash of $677,000 and $463,000 in 1996 and 1997, respectively, and was
relatively cash neutral for the three month period ended March 31, 1998. The use
of cash in 1995 was due mainly to an increase in an amount due from a related
party. In 1996, cash was provided by the repayment of the amount due from the
related party and the exercise of stock options. In 1997, the Company's
financing activities reflect proceeds from an equipment line of credit, offset
in part by payment on the Company's capital lease transactions entered into
during the period.
The Company maintains a $2.0 million working capital line of credit (the
"Line") with Silicon Valley Bank, which expires in August 1998. The interest
rate on all borrowings under the Line is prime plus 1/2% and will be reduced to
prime upon the closing of this offering. The Line is collateralized by
substantially all of the Company's assets. Under the Line, the Company may
borrow the lesser of $2.0 million or 75% of eligible accounts receivable, as
defined in the agreement. The Company is required to comply with certain
operational
20
<PAGE> 25
and financial covenants under the Line if there are borrowings under the Line.
At December 31, 1995, 1996 and 1997, and at March 31, 1998, the Company was in
compliance with these requirements and no borrowings have been made under the
Line. The Line contains a covenant prohibiting the payment of cash dividends
without the bank's consent.
The Company expects that cash flows from operations will continue to
provide the main source of liquidity for the Company. The Company expects that
existing cash and investment balances, together with the proceeds of this
offering and anticipated cash flows from operations, will be sufficient to meet
the Company's working capital requirements for at least the next 12 months.
INFLATION
The Company's most significant costs are the salaries and related benefits
for its IT professionals. Competition for IT professionals with the advanced
technological skills necessary to perform the services offered by the Company
has caused wages to increase at a rate greater than the general rate of
inflation. As with other IT service providers, the Company must adequately
anticipate wage increases. There can be no assurance that the Company will be
able to recover cost increases through increases in the prices that it charges
for its services. See "Risk Factors -- Competitive Market for IT Professionals."
THE YEAR 2000 ISSUE
The Company does not believe that it has material exposure to the Year 2000
issue with respect to its own information systems because its existing systems
correctly define the year 2000. Although the Company believes that the
information systems of its major partners and vendors (insofar as they relate to
the Company's business) comply with Year 2000 requirements, there can be no
assurance that the Year 2000 issue will not affect the information systems of
the Company's major partners and vendors as they relate to the Company's
business, or that any such impact of a major partner's or vendor's information
system would not have a material adverse effect on the Company.
21
<PAGE> 26
BUSINESS
International Integration Incorporated ("i-Cube" or the "Company") provides
application migration and custom software development services on a fixed-price,
fixed-time basis to Fortune 1000 companies and other large enterprises. The
Company believes that through these services, its customers can cost-effectively
and rapidly improve their competitiveness and narrow the gap between the demands
of their business strategies and the capabilities of their IT environments. The
Company offers a full range of iMPACT services including information systems
consulting, application migration, custom software development and customer
support.
The Company utilizes its proprietary development methodologies and
technologies, known as i-Structure, to implement large-scale, complex
application migration and custom development projects based on a multi-tier
client/server architecture. i-Structure's proprietary technologies include
transformation tools used to separate legacy applications into their smallest
logical components, methodologies to populate an Application Repository that
contains the components of and critical information about an application, and
runtime tools used to access and integrate application components. i-Structure
provides the Company with a repeatable and consistent development framework,
applicable to both its application migration and custom development projects,
that increases the speed and reduces the risk and cost of the development of
strategic, core business applications. The applications custom developed or
migrated using i-Structure are not dependent on any single hardware provider or
operating system, are adaptable to future technologies and business changes, and
are easily maintainable. In addition, i-Structure enables the Company to migrate
legacy software applications into multi-tier client/server applications,
allowing customers to preserve the core functionality and other benefits of
their legacy applications while eliminating the constraints of legacy system
architectures. The Company believes that i-Structure enhances the productivity
of its IT professionals and the Company's continued investment in i-Structure is
a key component of its growth strategy.
The Company believes that the expertise gained from completing large-scale,
strategic application migration and custom development projects since its
founding in 1992 provides a significant competitive advantage. Recent
engagements include projects for Cooper Cameron Corporation, Daimler-Benz AG,
Hewlett-Packard Company, IBM, McDonnell Douglas Corporation (now part of The
Boeing Company), Rockwell Automation/Reliance Electric, and Wisconsin Power and
Light Company.
INDUSTRY BACKGROUND
Businesses today face the constant need to react quickly to changes in
their marketplace. Factors such as deregulation, industry consolidations, the
globalization of product and vendor markets, the increasing demand for improved
and more responsive customer service and the emergence of the Internet as a
vehicle for commerce have intensified competition and have presented businesses
with the opportunity and the need to continually develop and implement new
strategies on a rapid basis. To meet these challenges, businesses require IT
infrastructures which can be cost-effectively and swiftly developed, deployed
and modified to support their business strategies.
Organizations continue to rely on inflexible legacy software applications
and systems to analyze and process vast amounts of business-critical data and
run core business processes. Furthermore, organizations have invested
significantly in their legacy systems. However, legacy software applications and
systems have significant constraints which limit the ability of organizations to
successfully and rapidly modify their IT infrastructures to support new business
strategies. Because legacy systems are typically based on proprietary
architectures, they are often incapable of incorporating technological
innovations quickly or easily, may be incompatible with other systems across the
enterprise, can be costly, time-consuming and difficult to maintain and modify
and are not easily scalable.
To overcome the restrictive aspects of legacy systems, organizations have
sought to deploy multi-tier client/server applications based on open systems.
These open, client/server applications are not dependent on a particular
vendor's hardware, software or operating system platform, and their multi-tier
structure facilitates modifications and enhances scalability. As a result, such
applications provide organizations with the freedom to choose "best of breed"
technologies without compromising business functionality. In addition, they
provide the organization with the ability to enhance ease-of-use through
graphical user interfaces and seamless
22
<PAGE> 27
integration with other applications and data sources on disparate platforms
within and outside the enterprise. These open, multi-tier client/server
applications can be key to increasing an organization's productivity, improving
access to information and decision-making, enhancing customer service,
shortening product development, delivery, and support times and ultimately
creating and sustaining a competitive advantage.
Organizations seeking to implement client/server technologies to replace
their core business legacy applications have traditionally had only two choices:
install a third-party package or develop a new, custom application. Third party
packages, while sometimes less expensive and less risky than the development of
a custom application, are limited in their utility because often, without
extensive modification, they require the organization to adapt its business
practices to meet the business rules embedded in the package and may be limited
for use in a specific technology environment. As a result, organizations often
choose to custom develop applications which are tailored to their business
practices. In order to justify their investment in these custom solutions,
organizations seek to leverage, where possible, their prior investment in their
legacy systems and to minimize the risk, expense and duration of the custom
development process. Organizations want solutions that (i) capture the benefits
of open, multi-tier client/server architectures, (ii) are integrated with other
systems throughout the enterprise, (iii) permit the application to meet changes
in the organization's business strategies and IT infrastructure and (iv)
continue to meet the needs of the organization as it grows.
THE I-CUBE SOLUTION
i-Cube provides fixed-price, fixed-time application migration and custom
software development services which enable organizations to align the
capabilities of their IT systems with their business strategies. The Company's
services incorporate its i-Structure methodologies and technologies, which
support the development, either through the migration of the customer's legacy
application or through a custom development process, of open, multi-tier
client/server applications which are flexible, scalable and easily maintainable.
The Company's iMPACT suite of services and i-Structure methodologies and
technologies are designed to address the large-scale, strategic application
projects of its customers. The Company's services are designed to offer
customers the following benefits:
Risk Reduction. The Company's ability to migrate legacy applications to
client/server architectures reduces the risks inherent in creating and
implementing entirely new solutions. The methodologies and technologies of
i-Structure provide the Company with a repeatable and consistent framework for
the migration process and automate certain critical transformation and
reconfiguration functions, thereby reducing the risk of the development process.
In addition, the Company uses the framework provided by i-Structure for building
custom applications. This consistent development approach is designed to ensure
that the developed application will be easily maintainable by the Company or by
the customer and to reduce the cost of future system redesign.
Cost-Effective, Rapid Delivery. The Company is able to complete projects
more cost-effectively and rapidly due to the methodologies and technologies of
i-Structure. Through the consistent application of these methodologies and
technologies, the Company's IT professionals increase their efficiency and
leverage knowledge acquired throughout the Company from prior projects. In
addition, the Company offers its services on a fixed-price, fixed-time basis.
The Company believes that fixed-price, fixed-time contracts are favored by
customers because they permit more accurate estimation of development costs and
because customers perceive that such contracts more closely align the Company's
interests with their own, resulting in shorter development cycles.
Preservation and Leverage of Core Functionality. Many organizations have
made significant investments in their legacy applications which are fundamental
to the operation of their business. The Company's ability to offer complex
application migration services enables its customers to preserve and leverage
the core business functionality, user interfaces and other benefits of the
legacy applications while eliminating the "technology lock" and other
constraints of legacy system architectures.
Adaptability and Flexibility. The Company's application migration and
custom development processes are designed to separate the application's business
rules from the technology through which the application is displayed. These
processes are based on the construction of essential "building blocks" which are
configured to
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define the business functionality of the application independently of the
application technology, database or graphical user interface utilized.
i-Structure's ability to support a multi-tier client/server architecture allows
the application logic, database and presentation technology of applications
developed by the Company to be logically separated from one another, thereby
resulting in applications that are flexible and adaptable in response to future
technology and business changes and that can be easily modified for future
maintenance.
Scalability. The Company's i-Structure methodologies and technologies
provide the basis for designing applications that are scalable to meet the
customer's organizational growth as well as increased system deployment
throughout the customer's enterprise. Opportunities for incremental performance
enhancements are incorporated into application design to permit the capabilities
of the system to grow as the customer's business evolves and its IT requirements
change.
GROWTH STRATEGY
The Company's objective is to enhance its position as a preferred provider
of application migration and custom software development services to Fortune
1000 companies and other large enterprises. i-Cube's strategy to achieve this
goal includes the following elements:
Expand Market Share. The Company believes its expertise in providing
large-scale migration and custom client/server development solutions
differentiates it from other IT service providers and is a key competitive
advantage. The Company intends to leverage this competitive advantage to
generate additional business from existing customers, establish new customer
relationships and expand its geographic presence. The Company develops new and
follow-on customer opportunities primarily through its senior executives and
direct sales force, through the efforts of its marketing partners and through
customer referrals. The Company has recently expanded its office in Germany in
order to service existing customers and to further broaden its European sales
opportunities. The Company is accepting smaller engagements which leverage its
application migration and custom development expertise in order to further
expand its base of customer relationships.
Preserve High Performance Culture. The Company believes that its high
performance culture is a major competitive advantage and a critical factor to
its success. The Company's culture emphasizes teamwork, entrepreneurship, a
passion for client satisfaction and individual responsibility and accountability
at all levels of the organization. The Company's investment in its people
includes extensive team-building exercises for employees, initial and on-going
training, mentoring, pay for performance, opportunities for accelerated career
advancement, a flexible work environment and stock ownership opportunities for
all employees. The Company believes that this emphasis on its culture and its
investment in its employees enables the Company to attract, retain and motivate
high caliber employees in a competitive employment environment.
Invest in i-Structure To Maintain Competitive Advantage. The Company's
i-Structure methodologies and technologies provide it with a competitive
differentiator in the planning and execution of its engagements. The Company
believes that i-Structure enables it to deliver its services in a rapid,
predictable and low-risk manner while providing the flexibility for customers to
adapt their IT environments as their businesses evolve. The Company has a
research and development team dedicated to enhancing i-Structure methodologies
and technologies and delivering next-generation enhancements. In addition, the
Company enhances i-Structure methodologies through a central knowledge database
that incorporates the Company's experience on prior projects. These efforts are
designed to ensure that i-Structure incorporates the latest technical advances
as well as the knowledge gained from the Company's various customer engagements.
Leverage and Expand Marketing Relationships. The Company has established
marketing relationships with Hewlett-Packard Company and debis Systemhaus (the
IT services subsidiary of Daimler-Benz AG). These relationships provide the
Company with access to incremental business development opportunities, an
expanded marketing reach and referenceable customer base, increased brand
recognition, and improved competitive positioning in certain sales situations.
The Company considers joint marketing arrangements to be appropriate in
situations where the joint marketing partner's products and services are
complementary to those of the Company and where the partner is committed to
marketing the Company's services in connection with its own product and service
offerings.
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SERVICES
The Company's process for delivering its information technology solutions
is based on its iMPACT suite of services, consisting of information systems
consulting, application implementation services and customer support, as
follows:
[CHART]
The document here contains a graphic portrayal of the Company's services. The
graphic shows the three categories of the Company's services: information
systems consulting; application implementation services and customer support.
Under the "Information Systems Consulting" heading are two service listings,
entitled "Solutions Workshop" and "Application Staging and Planning (ASAP)",
respectively. An arrow points from the Information Systems Consulting category
to the Application Implementation Services category. Under "Application
Implementation Services" is a box containing the words "Application Design".
Arrows point from the "Application Design" box to boxes entitled "Application
Migration" and "Custom Development", respectively. In the "Application Design"
box are the words: "rearchitect; rapid enhancement deployment", and in the
"Custom Development" box are the words "rapid application development". An arrow
points from each of these two boxes to the box entitled "Application
Integration". An arrow points from the Application Implementation Services"
category to the Customer Support category. Under the Customer Support category
are two boxes entitled "Skills Enhancement and Empowerment" and "Rollout &
Transitional Maintenance", respectively.
Information Systems Consulting
Each of the Company's engagements typically commences with an information
systems consulting phase, which helps the customer and the Company to understand
the customer's business objectives and to determine the technical requirements
of the application development project under consideration. As part of this
process, the Company prepares a detailed analysis of the customer's application
architecture and a fixed-price, fixed-time schedule for either the design alone
or the design and development phases of the project. The extent of the Company's
consulting services generally depends on the complexity of the development
project, and the services offered consist of the following:
Solutions Workshops
The Company's smaller engagements typically commence with brief, structured
scoping sessions that focus on a customer's business needs and the solutions to
address them. The Company and the customer review the functionality of the
customer's legacy applications and weigh the costs and benefits of migrating the
legacy application versus a custom development approach. These sessions, which
typically run from two days to two weeks, are custom-designed and typically
result in the delivery of a proof-of-concept or prototype.
Application Staging and Planning ("ASAP")
The Company's larger engagements typically commence with an intensive
staging and planning session involving the Company and business and technical
representatives of the customer. During the ASAP process, which typically takes
from four to six weeks, the Company assesses the customer's business strategies
and its strategic, core business applications, for purposes of identifying the
areas where the applications fail to match the customer's business objectives.
The Company also reviews important aspects of the applications, including the
architecture, coding standards, interfaces and batch requirements. In situations
where the legacy application generally satisfies the customer's business
requirements, the Company and the customer jointly
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determine whether the application is a good candidate for migration or whether a
new application should be custom developed.
Application Implementation Services
The Company's implementation services for an engagement typically include a
design phase, a development phase (migration or custom development) and an
integration phase. In the design phase, the Company develops a design of the
customer's application, including the definition and quantification of essential
elements. This design plan encompasses user interfaces, business logic, data
management, security considerations and hardware and software configurations.
The Company and the customer develop a detailed statement of work, including, if
not done as a part of the consulting engagement, a final, fixed-price,
fixed-time timetable for an implementation plan. The development phase involves
the migration of the customer's legacy application to a multi-tier client/server
architecture, or the construction of a new application as a custom development
project, depending on the recommendations of the Company developed during the
consulting phase. Application migration projects often also include custom
development components, to enhance the functionality of the new application
beyond that inherent in the legacy application from which it was migrated. The
Company's implementation services also include the integration of the
application with the customer's IT infrastructure, including other software
applications used by the customer. The implementation phase of the Company's
engagements typically ranges from three to six months for smaller projects to
over a year for larger engagements.
Application Migration
The Company's application migration services consist of the migration of
customers' existing legacy applications, each often containing millions of lines
of code, from technology-specific, legacy system architectures to open,
multi-tier client/server environments. Using i-Structure, the Company analyzes
the legacy application and deconstructs it down to its smallest logical
components, consisting of interface components, data components and business
function components which are then used by the Company as generic "building
blocks" to build a platform-independent solution. Following the migration, the
application can be rapidly enhanced by the Company or the customer through
custom development of additional features. The Company believes that the
migration of existing legacy applications is a cost-effective approach for the
development of large, multi-tier client/server applications in situations where
the customer has made significant investments in a legacy application which
satisfies many of the customer's business requirements.
Custom Development
The Company generally provides custom development services in situations
where the customer's legacy application does not meet its business objectives,
where the customer's application is too fragmented to allow for effective
migration, or where the customer has new business objectives that require the
construction of a new application. The Company's custom development services
utilize the methodologies and technologies of i-Structure to build applications
with an architecture similar to that utilized in the application migration
process, based on generic building blocks. The Company believes that this
consistent, common development framework optimizes the capabilities of a
multi-tier client/server architecture and facilitates the development process
and subsequent application support and expansion.
Customer Support
In order to reduce the customer's overall "cost of ownership" of an
application developed by the Company, the Company offers support services that
train the customer's users and IT personnel in the use, maintenance and
enhancement of the developed application. In addition, the Company offers
rollout support, to assist its customers in implementing the application on an
enterprise-wide basis. The Company offers transitional maintenance services,
pursuant to which it offers ongoing support and enhancements for defined periods
of time. From time to time, the Company licenses a portion of its i-Structure
tools to its customers to facilitate their support activities. The Company
believes that its support services are central to its strategy of establishing
and maintaining strong customer relationships and generating repeat business.
The Company's
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support services are generally offered on a fixed-price basis separately from
the Company's implementation services.
TECHNOLOGY
The Company has made a significant investment in resources for the creation
and enhancement of the methodologies and technologies included within
i-Structure. These methodologies and technologies support the development and
migration of scalable, multi-tier client/server applications that are
independent of the hardware and operating system on which they operate, are
adaptable to future technologies or business changes, and are easily
maintainable. For the Company's migration engagements, the Company believes that
i-Structure technologies automate a significant portion of the migration tasks,
thereby resulting in a more rapid, cost-effective and risk-reduced
implementation process.
The Company's proprietary technologies consist primarily of (i) the
transformation tools used to separate legacy applications into their smallest
logical components, (ii) its methodologies in populating the Application
Repository, an SQL database containing the components and critical information
about the application, and (iii) runtime tools, which enable the customer to
access and integrate the stored components. In addition, the Company relies on
its own or commonly available third party configuration, development, testing
and system management and administration tools to complete the migration or
custom development process. Other than the transformation tools, which are
relevant only to the Company's migration projects, the Company's methodologies
and technologies apply both to migration projects and to custom development
projects, resulting in a common system architecture regardless of the
implementation approach followed.
The Company utilizes its transformation tools in connection with migration
engagements to analyze the legacy application for purposes of identifying the
application logic, data types, presentation logic and job control language, and
to divide the application into its smallest logical components. These
components, as well as information about the application, are stored in the
Application Repository. For custom development engagements, the Company has
developed filtering tools that enable it to extract and segment information from
a variety of third party development tools, such as PowerBuilder and Visual
Basic, in order to populate the Application Repository.
The components and other application information are then reassembled by
one of the Company's proprietary runtime tools, called the Transaction Router,
which accesses the elements contained in the Application Repository in order to
integrate and implement the business functionality of the application. The
Transaction Router operates independently of the language or application
methodology utilized by the application, and can therefore access and integrate
a wide variety of graphical user interfaces, applications and databases.
i-Structure supports a variety of technology architectures. Customers can
change the presentation tier or support multiple presentation tiers while
keeping the legacy system as a database or application platform, and can
integrate new technologies, either on the client or the server. The Company
believes that the flexibility of applications developed through i-Structure
reduces the risk of the development process and helps customers narrow the gap
between the demands of their business strategies and the capabilities of their
IT environments as new technologies emerge.
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CUSTOMER ENGAGEMENTS
Examples of the Company's engagements are set forth below:
MCDONNELL DOUGLAS. As a government contractor, McDonnell Douglas
Corporation ("MDC"), an aerospace company (now part of The Boeing Company), has
thousands of active contracts, each with its own progress and performance
reporting requirements. MDC's legacy contract management system consisted of
four different applications residing on mainframes using primarily
non-relational databases, each dealing with an individual part of the contract
management process. Each contract management system performed adequately
separately, but the system was inefficient as a whole: contract data and changes
were entered into each system separately, multiple IT teams maintained the
geographically dispersed and functionally distinct systems, and contract billing
was a cumbersome process. Additionally, MDC's internal planning and reporting
needs required full integration of contract information, regardless of the
contract stage.
i-Cube was retained to consolidate MDC's contract management system by
migrating the four legacy applications into a single client/server system. The
Company rearchitected the baseline contract management application from the
mainframe to an open, three-tier client/server environment, removed duplicate
functionality and added new functionality to improve the government billing
process. The Company initiated the project in June 1995 and completed it in
October 1996 with a team averaging eight to ten IT professionals.
The new architecture provides a presentation tier containing graphical user
interfaces for PC and Macintosh clients using ANSI-standard C++ code, along with
reporting tools and client software for Macintosh, Windows 3.11 and Windows NT.
The functionality tier contains core business rules and transaction processing,
transformed from COBOL to ANSI-standard C code and encapsulated using i-Cube's
proprietary tools. In the data tier, an Oracle relational database holds the
business data transformed from DB2 and IMS (a non-relational database). The
rearchitected contract management system provides screens and functions familiar
to users of the legacy application, minimizing training costs, but with the
added benefit that the application now runs on an open systems framework that
supports swift enhancement.
The new system provides users with a single point of entry into the
contract management system and a streamlined process for contract data input.
The common, enterprise-wide application meets MDC's internal planning and
reporting needs for access to consistent and timely contract information. MDC
has been internally enhancing and maintaining the system since the engagement
completion date in 1996.
In addition to the contracts management system, the Company has completed
follow-on engagements to develop a decision support system for manufacturing and
a financial planning system for MDC.
WISCONSIN POWER AND LIGHT. Wisconsin Power and Light Company ("WPL")
provides natural gas, water and electricity to more than 400,000 customers
spread over 16,000 square miles in central and southern Wisconsin. Due to the
deregulation of the utility industry, WPL anticipated that competition for
customers would force utilities to compete on the basis of service as well as
price. To meet these new strategic challenges, WPL sought to overhaul its
Customer Information and Billing System ("CIS") to make it scalable, as well as
Internet-enabled to support electronic commerce with customers and suppliers.
The legacy CIS had more than 3.5 million lines of code, was increasingly costly
to maintain, and could not be easily enhanced for new services.
WPL selected i-Cube to rearchitect its legacy application. Through the use
of i-Structure, the Company rearchitected the CIS legacy application to a
three-tier client/server architecture in less than six months, with the total
transition project and roll-out into production taking a year and a half from
start to finish. The new architecture provides a presentation tier containing
graphical user interfaces for the PC client, along with reporting tools and
client software for Internet/intranet and Windows NT. The functionality tier
contains core business rules and transaction processing, transformed from COBOL
to ANSI-Standard C code and encapsulated using i-Cube's proprietary tools. In
the data tier, an Oracle relational database holds the business data transformed
from IMS, DB2 and flat files. The rearchitected CIS provides screens and
functions familiar to users of the legacy application, minimizing training
costs, but with the added benefit that the legacy application now runs on an
open-systems framework that supports swift enhancement.
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MERCEDES-BENZ LEASE FINANZ. In conjunction with the release of its new A
Class automobile model in Europe, Mercedes-Benz Lease Finanz (a subsidiary of
Daimler-Benz AG) decided on a complete overhaul of its Lease Finance system to
support creative new finance options and allow near real-time feedback to
potential private customers on finance and lease applications. Faced with credit
approval times of one to two days on the mainframe, the car maker's objective
was to bring the process down to 15 minutes. Most importantly, it was critical
that the application be fully functional before the A Class started shipping to
dealers, less than 12 months later.
Mercedes-Benz tried to deploy a two-tier client/server system to meet the
challenge to develop a product management system. This first attempt failed
because of inadequate system performance, so debis Systemhaus, Daimler-Benz' IT
services subsidiary, turned to i-Cube to assist in custom developing the FAST
System, a fully integrated three-tier finance application designed to be used by
dealers and customer service representatives in Mercedes-Benz' German call
center. The Company committed to and provided the solution in nine months.
Leveraging i-Structure, i-Cube met the requirement for a highly flexible new
application that was compatible with existing systems and adaptable for planned
changes to hardware and software and future changes in architecture. i-Cube
designed and custom developed a fully integrated and scalable credit application
and approval system which incorporates the existing functionality of the legacy
system as well as new functionality related to creative finance options for
retail buyers. The FAST System automates and integrates all aspects of the
finance application, which includes entering customer data, performing credit
checks, incorporating financial terms, creating required documents and
electronic interfaces to credit bureaus. The new system, which operates over a
wide-area network, has complex interfaces with the dealerships, credit approval,
and enterprise resource planning applications.
CUSTOMERS
Organizations to which the Company provided services within the past two
years include the following:
<TABLE>
<S> <C>
City of Columbus (Ohio) McDonnell Douglas Corporation
Cooper Cameron Corporation PEMEX/Integrated Trade Systems
Daimler-Benz AG Rockwell Automation/Reliance Electric
debis Systemhaus Salt River Project
Hewlett-Packard Company Wisconsin Power and Light Company
IBM
</TABLE>
The Company has historically derived, and may in the future derive, a
significant amount of its net revenues from major engagements with a relatively
small number of customers. In each of 1995 and 1996, the Company had three
customers which individually accounted for 10% or more of the Company's net
revenues, and in 1997 the following five customers each accounted for 10% or
more of the Company's net revenues: Salt River Project (29%); IBM (19%);
Daimler-Benz AG (14%); PEMEX/Integrated Trade Systems (11%); and Wisconsin Power
and Light Company (10%). For the first three months of 1998, the following five
customers each accounted for 10% or more of the Company's net revenues: IBM
(23%); PEMEX/Integrated Trade Systems (17%); Salt River Project (16%); Rockwell
Automation/Reliance Electric (11%); and Hewlett-Packard Company (10%).
I-CUBE CULTURE AND PROFESSIONAL RESOURCES
The Company believes that its high performance culture is a major
competitive advantage and enables it to attract, retain and motivate high
caliber employees in a competitive employment environment. The Company focuses
on building a culture around a strong values set that governs and guides
relationships with clients, fellow employees, team members, partners, the
community and other stakeholders. The Company's values include trust and
respect, integrity, commitment, teamwork, and the journey. The journey value
recognizes that, while reaching each major milestone in a project is a rewarding
experience for the team, it is equally important that employees feel challenged
and recognized every day. The Company's culture is built on teamwork, an
entrepreneurial spirit and a passion for making clients successful. i-Cube has a
company-wide performance review program, teamwork enhancement programs, and
management and professional develop-
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ment courses. Employees are rewarded for performing in accordance with Company
values. The Company's compensation packages include a competitive base salary,
Company and individual performance-driven incentive programs, and a
comprehensive benefits package. This package includes a broad-based incentive
stock option program that enables all employees to participate in the future
performance of the Company.
The Company has an intensive five-week orientation program designed to
provide new IT employees with the technical, professional and consulting skills
required to be successful with the Company. In addition, employees stay abreast
of technological advances and developments through a combination of on-the-job
exposure to relevant technology, selected training programs, peer review and
mentoring by senior personnel.
The Company's career development programs center on providing initial and
ongoing training and performance feedback on a routine basis, and allocating
assignments in accordance with employees' skills and career objectives. In
addition, the Company devotes substantial resources to developing and
continuously improving the project management abilities of its senior IT
professionals. The Company believes that its emphasis on skilled project
management strengthens its competitive position and enhances its ability to
complete fixed-price, fixed-time projects successfully and profitably. See "Risk
Factors -- Management of Growth."
The Company's recruiting methods include advertising in newspapers and
trade magazines, on the Company's web site and through participation in career
fairs and college recruiting events. The Company has established an employee
referral plan which rewards employees with cash or other incentives for
referring applicants who are hired by the Company, and actively involves
employees in screening candidates for new positions. As of March 31, 1998, the
Company employed seven full-time employees and two full-time contract recruiters
dedicated to recruiting IT professionals and managing its human resources.
As of March 31, 1998, the Company had 178 full-time employees, comprising
138 IT professionals, 14 sales and marketing personnel and 26 general and
administrative personnel. The Company's employees are not represented by any
labor union.
The Company believes that there is a shortage of, and significant
competition for, IT professionals and that its future success is highly
dependent upon its ability to attract, train, motivate and retain skilled IT
personnel with the advanced technical skills necessary to perform the services
offered by the Company. See "Risk Factors -- Competitive Market For IT
Professionals."
SALES AND MARKETING
The Company's target market is companies within the Fortune 1000 and other
large enterprises. Within this market, the Company targets companies that are
facing competitive pressures as a result of deregulation, industry
consolidations or other reasons, and whose existing IT systems lag their
business requirements.
The Company sells its services through its direct sales force located at
the Company's offices in Cambridge, Massachusetts, City of Industry, California,
and Mannheim, Germany, and through its marketing partners. The Company sells to
customers utilizing a team approach, consisting of members of the Company's
sales function (typically a senior sales executive supported by account
executives) and members of the Company's technical staff. At March 31, 1998, the
Company had eight full-time sales professionals. In addition, the Company
generates leads through its telemarketing staff located at the Company's
headquarters, its marketing partners and through customer referrals.
The Company's business development and marketing activities focus on
generating leads and building market awareness and name recognition for the
Company. The Company has an active public relations program and participates in
industry conferences and trade shows. In addition, the Company seeks to leverage
the sales and marketing activities of its marketing partners.
The Company's Solutions Workshops and Application Staging and Planning
sessions are an integral part of the Company's sales process. These sessions
enable the customer to identify its strategic and information technology goals
and to understand the Company's approach and technical capabilities in helping
the customer to meet them. In addition, these sessions enable the Company to
develop the specifications and
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<PAGE> 35
prepare a detailed analysis of the customer's application architecture, and a
fixed-price schedule and plan for the development project.
MARKETING RELATIONSHIPS
The Company is party to joint marketing agreements with Hewlett-Packard
Company and with debis Systemhaus MEB, the IT services subsidiary of
Daimler-Benz AG. Under its agreement with the Company, Hewlett-Packard has
agreed to provide a sales and delivery organization focused on identifying,
selling and delivering migration projects during the term of the agreement. The
Company has agreed to assist Hewlett-Packard in selling these migration
projects, and to staff an "application transformation center" where the
migration projects are to be performed. Migration engagements awarded to the
Company under the agreement will generally be provided by the Company under a
subcontractor agreement with Hewlett-Packard. Pursuant to the terms of its
agreement with Hewlett-Packard, the Company is required to deposit its software
tools into escrow in certain circumstances. In the event of certain defaults by
the Company, the tools in escrow are to be released from escrow to enable
Hewlett-Packard to fulfill the Company's obligations under ongoing statements of
work. See "Risk Factors -- Dependence on Proprietary Rights." The agreement
between the Company and Hewlett-Packard commenced in July 1997 and expires in
July 1999, subject to automatic renewal for additional one year terms until
terminated by either party.
The Company's agreement with debis Systemhaus MEB provides for joint
marketing of the Company's services, both within the debis Systemhaus entities
and among entities of the Daimler-Benz AG group of companies. Marketing efforts
are initially focused in Germany in the first stage but are expected to be
directed more broadly throughout Europe in a second stage. The agreement
provides for debis Systemhaus to establish a division, to be known as the
"Center of Competence", for purposes of managing sales and project handling-
related activities related to the agreement. The agreement expires in July 2002,
subject to extension for up to an additional three years; provided, however,
that the agreement may be terminated without cause by either party at the end of
any calendar year upon 12 months written notice, and may be terminated for cause
without notice.
The Company considers joint marketing arrangements to be appropriate in
situations where the joint marketing partner's products or services are
complementary to those of the Company and where the partner is committed to
marketing the Company's services. From time to time, the Company may consider
additional joint marketing relationships, although the Company is not engaged in
any material discussions with respect to any such relationships as of the date
of this Prospectus. See "Risk Factors -- Dependence on Third Party Marketing
Relationships."
COMPETITION
The Company operates in a highly competitive and rapidly changing market
and competes with a variety of organizations that offer services similar to
those offered by the Company. The market includes participants from a variety of
market segments, including other IT service providers, large accounting and
other professional service firms, packaged software vendors and services groups
of computer equipment companies, as well as the internal IT staffs of its
customers and potential customers. Many of these competitors have significantly
greater financial, technical, sales and marketing resources and greater name
recognition than the Company. In addition, there are relatively low barriers to
entry into the market in which the Company competes and the Company has faced,
and expects to continue to face, additional competition from new entrants into
this market. There can be no assurance that the Company will be able to continue
to compete successfully with its existing competitors or that it will be able to
compete successfully with new competitors.
The Company believes that the principal competitive factors in the market
in which it competes include: a willingness to offer fixed-price, fixed-time
projects, expertise in the development of large-scale, multi-tier client/server
applications, the ability to preserve the customer's investment in its legacy
application, the speed with which the application is developed, and the total
"cost of ownership" of the application, including the initial development and
implementation costs as well as ongoing maintenance costs. The Company believes
that it competes effectively in each of these areas. Nevertheless, there can be
no assurance that the Company
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will be able to compete successfully against current and future competitors, and
the failure to do so would have a material adverse effect upon the Company's
business, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company's success and its ability to compete is dependent, in part,
upon its proprietary rights, including its rights in i-Structure methodologies
and technologies. The Company relies primarily on a combination of copyright,
trademark and trade secret laws to establish and protect its proprietary rights.
There can be no assurance that such measures will be adequate to protect the
Company's proprietary rights. In addition, the Company seeks to protect its
proprietary rights through the use of confidentiality agreements with employees,
consultants, advisors and others. There can be no assurance that any such
agreements will provide adequate protection for the Company's proprietary rights
in the event of any unauthorized use or disclosure, that employees of the
Company, consultants, advisors or others will maintain the confidentiality of
such proprietary information, or that such proprietary information will not
otherwise become known, or be independently developed, by competitors.
The Company historically has restricted access to the source codes of its
software tools and other technologies. The Company regards its source codes as
proprietary information, and attempts to protect the confidentiality of these
source codes, some of which are embedded in the developed application and
licensed to the customer for runtime use. In certain cases, the Company has also
licensed the source code version to customers for internal use, to enable them
to maintain their transformed applications, and in other cases, the Company has
entered into arrangements to make its source code available upon the occurrence
of certain events, such as the bankruptcy or insolvency of the Company or
certain material breaches of the Company's application development contract. In
the event of any release of the source code pursuant to such arrangements, the
customer's license is generally limited to use of the source code for specific
purposes. Despite the Company's precautions, it may be possible for unauthorized
parties to copy or otherwise reverse engineer portions of the Company's software
or otherwise obtain and use information that the Company regards as proprietary.
The Company does not possess any patents or copyright registrations in the
United States or any other jurisdiction. Existing copyright and trade secret
laws only offer limited protection, and the laws of certain countries in which
the Company provides services may not protect the Company's intellectual
property rights to the same extent as the laws of the United States. Certain
provisions of the agreements entered into by the Company, including provisions
protecting against unauthorized use, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions, and the Company is
required to negotiate limits on these provisions from time to time.
The Company's competitive position may be affected by its ability to
protect its proprietary information. However, because the IT industry is
characterized by rapid technological change, the Company believes that patent,
trademark, copyright and other legal protections are less significant to the
Company's success than other factors such as the knowledge, ability and
experience of the Company's personnel, the development of new services, customer
service and ongoing support.
The Company's business includes the development of custom software in
connection with specific customer engagements. The Company frequently assigns to
its customers the copyright and other intellectual property rights in certain
aspects of the software and documentation developed for these customers.
Although the Company's contracts with its customers provide that the Company
retains the rights to its intellectual property, there can be no assurance that
customers will not assert rights in, and seek to limit the Company's use of,
such intellectual property.
The Company has received notice from a company located in the Netherlands
that it believes that its rights to use the i-Cube name in the Netherlands,
Belgium and Luxembourg are superior to those of the Company. See "Risk
Factors -- Dependence on Proprietary Rights."
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<PAGE> 37
MANAGEMENT INFORMATION SYSTEMS
The Company has invested significantly in its information technology and
management information systems in order to build a scalable environment. The
Company has an enterprise-wide groupware application that is utilized for global
e-mail and calendaring, knowledge management discussion databases, and forms
databases. The Company's United States offices are linked via a high-speed
network, and the Company expects to establish a similar connection with its
German office prior to the end of 1998. Many of the Company's human resource
administrative functions are managed on-line, including job requisitions and
approvals, performance reviews, training course registration, employee handbook
distribution and tuition reimbursement approvals. The Company expects to
implement an enterprise-wide accounting and human resources software application
in the second half of 1998 to support its anticipated growth. See "Risk
Factors -- Management of Growth."
FACILITIES
The Company's headquarters are located in approximately 46,700 square feet
of leased office space in Cambridge, Massachusetts. This facility is used by the
Company's senior management and its administrative, human resources and sales
and marketing personnel and serves as the Company's principal transformation and
development facility. The lease term extends to November 2001 with a five-year
renewal at the option of the Company. In addition, the Company leases
approximately 5,800 square feet of office space in City of Industry, California,
and approximately 4,000 square feet in Mannheim, Germany, in which it houses the
Company's European operations. The Company believes that its facilities will be
adequate to meet its needs for approximately the next 12 months.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
33
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND CERTAIN KEY OFFICERS
The executive officers, directors and certain key officers of the Company
and their ages as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Michael Pehl.............................. 36 Chief Executive Officer and Chairman of the Board
of Directors
Madhav Anand.............................. 31 President, Co-Founder and Director
Lawrence P. Begley........................ 42 Executive Vice President, Chief Financial Officer,
Treasurer and Director
Jane Callanan............................. 42 Vice President, Human Resources
Karl-Heinz Dette.......................... 46 Vice President and General Manager, European
Operations
Timothy D. Eager.......................... 39 Chief Technology Officer
James K. McCann........................... 41 Vice President, Operations
Thomas J. Meredith(1)..................... 47 Director
Joseph M. Tucci(2)........................ 50 Director
Gregory S. Young(1)....................... 41 Director
John A. Young(2).......................... 65 Director
Patrick J. Zilvitis(2).................... 55 Director
OTHER KEY OFFICERS
Maria A. Cirino........................... 34 Vice President, Sales and Marketing
Yannis Doganis............................ 33 Vice President and Co-Founder
Patricia M. Gilligan...................... 46 Vice President, Eastern Region Operations
Robert M. Lapides......................... 41 Vice President, Global Business Development
Gary C. Mekikian.......................... 34 Vice President
Michael A. Morin.......................... 44 Vice President
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Michael Pehl has served as Chief Executive Officer since June 1996. He was
elected Chairman of the Board of Directors of the Company in July 1996. From
March 1994 to May 1996, Mr. Pehl was Chief Executive Officer of Deloitte &
Touche Consulting Group/ICS, the global SAP and Baan package implementation
group of Deloitte Touche Tohmatsu International, a global accounting and
consulting firm. From January 1991 until March 1994, Mr. Pehl was Chief
Executive Officer of ICS, a systems implementation firm that he founded and sold
to Deloitte & Touche in 1994. Prior to founding ICS, Mr. Pehl was employed by
SAP AG and SAP America from July 1986 to December 1990 where he held various
positions in the consulting and development organizations. Mr. Pehl was a member
of the SAP AG team that relocated to the United States in 1987 and established
SAP America.
Madhav Anand co-founded the Company and has served as a Director since
inception. Since January 1993, Mr. Anand has served as President of the Company.
From April 1992 to December 1992, Mr. Anand was a project manager at Sapient
Corporation, an IT consulting firm. From May 1989 to April 1992, Mr. Anand was
an associate director for Cambridge Technology Partners, an IT consulting firm.
Lawrence P. Begley joined the Company in October 1996 as Chief Financial
Officer, Treasurer and a Director and became Executive Vice President in April
1998. From August 1988 to October 1996, Mr. Begley was employed by The Boston
Consulting Group ("BCG"), an international management consulting firm.
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<PAGE> 39
From August 1988 until December 1990, Mr. Begley was Director of Finance and
Corporate Controller of BCG. From December 1990 to October 1996, he was Chief
Financial Officer and Treasurer of BCG.
Jane Callanan joined the Company in March 1997 as Vice President, Human
Resources. From May 1993 to January 1997, Ms. Callanan was Vice President of
Human Resources at Shiva Corporation, a provider of remote access and
internetworking technology to Fortune 1000 companies. From July 1990 to March
1993, Ms. Callanan was Vice President of Human Resources at Cambridge Technology
Partners, an IT consulting firm.
Karl-Heinz Dette joined the Company in April 1998 as Vice President and
General Manager, European Operations. From July 1987 to March 1998, Mr. Dette
was employed by SAP AG where he held a variety of senior management positions
including Global Alliance Manager for Oracle and Siemens Nixdorf.
Timothy D. Eager joined the Company in September 1994 as Chief Technology
Officer. From November 1983 to August 1994, Mr. Eager was employed by
Hewlett-Packard Company. Mr. Eager held several positions at Hewlett-Packard
including Senior Consultant, Project Manager and Senior Systems Engineer.
James K. McCann joined the Company in June 1997 as Vice President,
Operations. From September 1974 until May 1997, Mr. McCann was employed by
Northrop Grumman, an international aerospace and defense electronics firm. From
June 1993 to May 1997, Mr. McCann was Vice President, Information Services at
Northrop Grumman. Prior to June 1993, Mr. McCann held several positions at
Northrop Grumman including Director, Information Technology Management,
Director, Information Technology Aircraft Division, and Program Director, B-2
Program Office.
Thomas J. Meredith has served as a Director of the Company since March
1998. Since November 1992, Mr. Meredith has been the Chief Financial Officer of
Dell Computer. In September 1995, Mr. Meredith was named Senior Vice President,
Finance and Information Systems of Dell Computer and retained the position of
Chief Financial Officer of Dell Computer. In July 1996, Mr. Meredith's title was
changed to Senior Vice President and Chief Financial Officer of Dell Computer.
Mr. Meredith is a director of i2 Technologies Inc.
Joseph M. Tucci has served as a Director of the Company since May 1995.
Since January 1993, he has been the President and Chief Executive Officer of
Wang Global (formerly Wang Laboratories, Inc.), and has been its Chairman of the
Board of Directors since October 1993.
Gregory S. Young has served as a Director of the Company since August 1995.
Since 1990, Mr. Young has been President of Teton Capital Management, a private
capital investment firm. Mr. Young is the son of John A. Young.
John A. Young has served as a Director of the Company since August 1995.
Mr. Young was the Chief Executive Officer and President of Hewlett-Packard
Company from 1978 to 1992. Mr. Young is a director of SmithKline Beecham p.l.c.,
Lucent Technologies, Chevron Corp., Novell, Inc., Wells Fargo Bank & Co. and
Affymetrix, Inc. Mr. Young is the father of Gregory S. Young.
Patrick J. Zilvitis has served as a Director of the Company since December
1997. Since November 1992, Mr. Zilvitis has been the Vice President, Corporate
Information Technology and Chief Information Officer of The Gillette Company.
Other key officers of the Company include:
Maria A. Cirino joined the Company in July 1997 as a Vice President in the
sales organization. In February 1998, she also assumed responsibility for
marketing. From January 1993 to June 1997, Ms. Cirino was employed by Shiva
Corporation, a provider of remote access and internetworking technology to
Fortune 1000 companies. Ms. Cirino held several positions at Shiva including
Vice President, Internet Business Group and Vice President of Sales, Americas.
From January 1991 to January 1993, Ms. Cirino was employed by Lotus Development
Corporation as Group Manager, Word Processing Division and Channel Marketing
Manager.
Yannis Doganis joined the Company as a co-founder in March 1993. Since June
1997, he has served as Vice President, Client Solutions Group. From March 1993
to June 1997, Mr. Doganis was Vice President,
35
<PAGE> 40
Operations. From October 1991 to March 1993, Mr. Doganis was a project manager
and technical team leader at Cambridge Technology Partners, an IT consulting
firm.
Patricia M. Gilligan joined the Company in June 1997. From June 1997 to
February 1998, Ms. Gilligan was Senior Director, Eastern Region Operations. In
February 1998, Ms. Gilligan became Vice President, Eastern Region Operations.
From December 1992 to June 1997, Ms. Gilligan was employed by Cahners
Publishing, a publishing company. Ms. Gilligan served as Director of
Applications for Cahners from December 1992 until December 1994, when she was
elected Chief Information Officer of Cahners.
Robert M. Lapides joined the Company in May 1997 as Vice President, Global
Business Development. From May 1984 to November 1996, Mr. Lapides was employed
by Liant Software Corporation, a provider of application development and data
access software tools. At Liant Software, Mr. Lapides held a variety of
positions including Senior Vice President, Worldwide Sales, Marketing and
Customer Service, and Vice President and General Manager, Language Products
Business Unit.
Gary C. Mekikian joined the Company in September 1994. From September 1994
to December 1996, Mr. Mekikian served as Vice President, Sales. From December
1996 to February 1998, Mr. Mekikian was Vice President, Western Region
Operations. In March 1998, Mr. Mekikian became a Vice President in the sales
organization. From January 1990 to September 1994, Mr. Mekikian was employed as
Manager, Major Accounts at Hewlett-Packard Company.
Michael A. Morin joined the Company in April 1996 as Northeast Area Sales
Manager. In October 1996, Mr. Morin was promoted to Vice President in the sales
organization. From February 1994 to April 1996, Mr. Morin was employed by i2
Technologies Inc., a provider of intelligent planning and scheduling software
for global supply chain management, as Northeast Regional Manager and Regional
Vice President of Sales. From March 1989 to January 1994, Mr. Morin was employed
by Consilium Incorporated, a supplier of integrated manufacturing execution
software and systems, where Mr. Morin was a regional and district manager.
See "Certain Transactions" and "Principal Stockholders" for certain
information concerning the Company's directors and executive officers.
ELECTION OF DIRECTORS
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Begley and G. Young will serve in the class whose term expires in 1999;
Messrs. Anand, J. Young and Zilvitis will serve in the class whose term expires
in 2000; and Messrs. Meredith, Pehl and Tucci will serve in the class whose term
expires in 2001. Upon the expiration of the term of a class of directors,
directors in such class will be elected for three-year terms at the annual
meeting of stockholders in the year in which such term expires.
COMPENSATION OF DIRECTORS
The Company reimburses non-employee directors for reasonable out-of-pocket
expenses incurred in attending meetings of the Board of Directors. Non-employee
directors of the Company will receive stock options under the Company's 1998
Non-Employee Director Stock Option Plan (the "Director Plan"). Under the
Director Plan, each director of the Company who is not also an employee or
officer of the Company is granted a nonqualified stock option to purchase 30,000
shares of Common Stock on the date such person is first elected to the Board of
Directors and each such director is granted a nonqualified stock option to
purchase 7,500 shares of Common Stock on the date of each Annual Meeting of
Stockholders of the Company commencing with the 1999 Annual Meeting of
Stockholders. The exercise price per share for all options granted under the
Director Plan will be equal to the fair market value of the Common Stock on the
date of grant. See "-- Benefit Plans." Since their election to the Board of
Directors, the Company has granted non-qualified options and issued restricted
stock to certain of its non-employee directors in the following aggregate
amounts: Mr. Joseph Tucci, 45,000 options and 37,500 shares of Common Stock; Mr.
Gregory S. Young, 82,500 options and 37,500 shares of Common Stock; Mr. John
Young, 45,000 options and 37,500 shares of
36
<PAGE> 41
Common Stock; Mr. Thomas Meredith, 30,000 options; and Mr. Patrick Zilvitis,
30,000 options. No director who is an employee of the Company will receive
separate compensation for services rendered as a director.
BOARD COMMITTEES
The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Tucci, J.
Young and Zilvitis, reviews executive salaries, administers any bonus, incentive
compensation and stock plans of the Company, and approves the salaries and other
benefits of the executive officers of the Company. In addition, the Compensation
Committee consults with the Company's management regarding pension and other
benefit plans and compensation policies and practices of the Company.
The Audit Committee, which consists of Messrs. Meredith and G. Young,
reviews the professional services provided by the Company's independent
auditors, the independence of such auditors from management of the Company, the
annual financial statements of the Company and the Company's system of internal
accounting controls. The Audit Committee also reviews such other matters with
respect to the accounting, auditing and financial reporting practices and
procedures of the Company as it may find appropriate or may be brought to its
attention.
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1997, the
cash compensation paid and shares underlying options granted to (i) the
Company's Chief Executive Officer and (ii) each of the four other most highly
compensated executive officers who received annual compensation in excess of
$100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(2)
---------------
AWARDS
---------------
ANNUAL COMPENSATION(1) SECURITIES
---------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS(#) COMPENSATION
--------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Michael Pehl............................. $260,000 $130,000 200,000 $ 8,771(3)
Chief Executive Officer and Chairman of
the Board of Directors
Madhav Anand............................. 150,000 51,060 -- --
President
Lawrence P. Begley....................... 250,000 96,600 -- 10,910(4)
Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Jane Callanan............................ 114,818 80,690 225,000 --
Vice President, Human Resources(5)
James K. McCann.......................... 116,667 128,175 225,000 --
Vice President, Operations(6)
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include medical, group life or
other benefits which are available to all salaried employees of the Company,
and certain perquisites and other benefits, securities or property which do
not exceed the lesser of $50,000 or 10% of the person's salary and bonus
shown in the table.
37
<PAGE> 42
(2) Represents stock options granted during the fiscal year ended December 31,
1997. The Company did not grant any restricted or stock appreciation rights
or make any long term incentive plan payouts during 1997 to its Named
Executive Officers.
(3) Represents life insurance premiums paid on behalf of Mr. Pehl.
(4) Represents life and health insurance premiums paid on behalf of Mr. Begley.
(5) Ms. Callanan joined the Company in March 1997. Ms. Callanan would have
earned a total annual salary of $180,000 had she been employed as an
executive officer of the Company for the entire year ended December 31,
1997. Ms. Callanan received a sign-on bonus of $49,000 when she joined the
Company in March 1997, which is included in the amount listed in the table
above after her name in the "Bonus" column.
(6) Mr. McCann joined the Company in June 1997. Mr. McCann would have earned a
total annual salary of $200,000 had he been employed as an executive officer
of the Company for the entire year ended December 31, 1997. Mr. McCann
received a sign-on and relocation bonus of $100,000 when he joined the
Company in June 1997, which is included in the amount listed in the table
above after his name in the "Bonus" column.
In the table above, columns required by the Regulations of the Securities
and Exchange Commission (the "Commission") have been omitted where no
information was required to be disclosed under those columns.
STOCK OPTIONS
The following table contains information concerning the grant of options to
purchase shares of the Company's Common Stock to each of the Named Executive
Officers of the Company during the fiscal year ended December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK APPRECIATION
SECURITIES OPTIONS GRANTED FOR OPTION TERM(3)
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
OPTIONS GRANTED IN FISCAL YEAR(1) ($/SHARE)(2) DATE 5% 10%
--------------- ----------------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Pehl.......... 200,000(4) 10.4% $3.00 06/24/07 $377,337 $ 956,245
Madhav Anand.......... -- -- -- -- -- --
Lawrence P. Begley.... -- -- -- -- -- --
Jane Callanan......... 225,000(5) 11.6 3.00 03/05/07 424,504 1,075,776
James K. McCann....... 225,000(6) 11.6 3.00 06/02/07 424,504 1,075,776
</TABLE>
- ---------------
(1) Based on an aggregate of 1,931,700 shares subject to options granted to
employees of the Company in 1997.
(2) All options were granted at or above fair market value as determined by the
Board of Directors on the date of grant. In determining fair market value of
the Company's Common Stock, the Board of Directors considered various
factors, including the value of contracts signed by the Company, the
expected value of contracts "in-process", the revenue-generating potential
of the Company's workforce and other relevant factors, including new
marketing partnerships signed and significant management hires.
(3) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming that the stock price on the date of grant appreciates
at the specified annual rates of appreciation, compounded annually over the
term of the option. These numbers are calculated based on the rules
promulgated by the Securities and Exchange Commission. The actual realizable
value of the options based on the price to the public in this offering will
substantially exceed the potential realizable value shown in this table,
which in accordance with the
38
<PAGE> 43
rules of the Securities and Exchange Commission was based on the fair market
value of the Company's Common Stock on the date such options were granted.
(4) By their terms, such options will become immediately exercisable upon the
closing of this offering.
(5) Such options become exercisable as follows: 37,496 shares on March 5, 1998;
18,751 shares on September 5, 1998; 18,750 shares on March 5, 1999; 18,751
shares on September 5, 1999; 18,751 shares on March 5, 2000; 18,750 shares
on September 5, 2000; 18,751 shares on March 5, 2001; and 75,000 shares on
March 5, 2004; provided that the options that become exercisable on March 5,
2004 are subject to immediate vesting if the Company attains certain market
capitalization thresholds.
(6) Such options become exercisable as follows: 37,496 shares on June 2, 1998;
18,751 shares on December 2, 1998; 18,750 shares on June 2, 1999; 18,751
shares on December 2, 1999; 18,751 shares on June 2, 2000; 18,750 shares on
December 2, 2000; 18,751 shares on June 2, 2001; and 75,000 shares on June
2, 2004; provided that the options that become exercisable on June 2, 2004
are subject to immediate vesting if the Company attains certain market
capitalization thresholds.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each of the Named Executive
Officers with respect to the value of options outstanding as of December 31,
1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> vvv <C> <C> <C> <C> <C> <C>
Michael Pehl......... -- -- 359,689 1,056,811 $1,054,067 $2,995,433
Madhav Anand......... -- -- 75,000 75,000 210,000 210,000
Lawrence P. Begley... -- -- 93,750 431,250 281,250 1,293,750
Jane Callanan........ -- -- -- 225,000 -- 450,000
James K. McCann...... -- -- -- 225,000 -- 450,000
</TABLE>
- ---------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, as permitted by the rules of the Commission, these values
have been calculated on the basis of the fair market value of the Company's
Common Stock as of December 31, 1997, of $5.00 per share, as determined by
the Board of Directors, less the aggregate exercise price. In determining
fair market value of the Company's Common Stock, the Board of Directors
considered various factors, including the value of contracts signed by the
Company, the expected value of contracts "in-process", the
revenue-generating potential of the Company's workforce and other relevant
factors, including new marketing partnerships signed and significant
management hires. The actual realizable value of the options based on the
price to the public in this offering will substantially exceed the potential
realizable value shown in this table, which in accordance with the rules of
the Securities and Exchange Commission was based on the fair market value of
the Company's Common Stock on December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, the members of the Compensation
Committee of the Company's Board of Directors were Messrs. Pehl, J. Young and
Tucci. Mr. Pehl has served as Chief Executive Officer of the Company since June
1996. No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. See "Certain Transactions" and "Principal Stockholders."
39
<PAGE> 44
EMPLOYMENT AGREEMENTS
The Company is party to a letter agreement with Michael Pehl, pursuant to
which Mr. Pehl received a $1,000,000 cash signing bonus, $50,000 to pay for
negotiation and relocation expenses and a $4,000,000 life insurance policy
(which will be terminated 91 days after the closing of this offering) as
inducements to join the Company. Under the agreement, Mr. Pehl is entitled to an
annual base salary of not less than $200,000. In addition, the agreement
provides that effective upon his employment, Mr. Pehl was entitled to receive
stock options to purchase 892,500 shares of the Company's Common Stock at an
exercise price of $2.00 per share. The agreement provides for vesting of the
options over a four-year period, subject to acceleration in full upon a change
of control and subject to an acceleration provision that is effective upon the
completion of an initial public offering, as follows: if, at the time of the
Company's initial public offering, less than 50% of Mr. Pehl's options have
vested, then 50% shall immediately vest, with the remaining 50% to vest in four
equal semi-annual installments starting six months after the initial public
offering. More than 50% of Mr. Pehl's options will have vested prior to this
offering. If Mr. Pehl's employment is terminated by the Company for cause, or if
he voluntarily leaves the Company or dies, the options will terminate (provided
that he or his estate may exercise any vested options). If Mr. Pehl's employment
is terminated without cause, the options that have vested as of the date of
termination will remain exercisable until the later of June 30, 1998 or ninety
days after the date of termination, whereupon they will expire. The agreement
also provides that effective upon his employment, Mr. Pehl was entitled to
receive two stock options, each to purchase 162,000 shares of the Company's
Common Stock at an exercise price of $2.00 per share. The agreement provides for
vesting of these options at the end of seven years from the date of the
agreement, subject to the following acceleration provisions. The first of the
options will completely vest if the Company achieves a total market
capitalization of $400 million while Mr. Pehl is employed by the Company or
within six months of the termination of Mr. Pehl's employment without cause. The
second of the options will completely vest if the Company achieves a total
market capitalization of $600 million while Mr. Pehl is employed by the Company
or within six months of the termination of Mr. Pehl's employment without cause.
The agreement provides that Mr. Pehl may provide advisory services to his former
employer, Deloitte & Touche Consulting Group/ICS, for a maximum of twelve days
per year.
The Company is party to a letter agreement with Lawrence P. Begley, dated
August 30, 1996. Pursuant to the agreement, Mr. Begley received a $150,000 cash
signing bonus and a $1,000,000 term life insurance policy as inducements to join
the Company. Under the agreement, Mr. Begley is entitled to an annual base
salary of not less than $250,000. In addition, the agreement provides that
effective upon his employment, Mr. Begley was entitled to receive stock options
to purchase 375,000 shares of the Company's Common Stock at an exercise price of
$2.00 per share. The agreement provides for vesting of the options over a
four-year period, subject to acceleration in full upon a change of control and
subject to an acceleration provision that is effective upon the completion of an
initial public offering, as follows: if, at the time of the Company's initial
public offering, less than 50% of Mr. Begley's options have vested, then 50%
shall immediately vest, with the remaining 50% to vest in four equal semi-annual
installments starting six months after the initial public offering. Less than
50% of Mr. Begley's options will have vested prior to this offering. The
agreement also provides that effective upon his employment, Mr. Begley was
entitled to receive two stock options, each to purchase 75,000 shares of the
Company's Common Stock at an exercise price of $2.00 per share. The agreement
provides for vesting of the options at the end of seven years from the date of
the agreement, subject to the following acceleration provisions. The first of
the options will completely vest if the Company achieves a total market
capitalization of $400 million while Mr. Begley is employed by the Company or
within six months of the termination of Mr. Begley's employment without cause.
The second of the options will completely vest if the Company achieves a total
market capitalization of $600 million while Mr. Begley is employed by the
Company or within six months of the termination of Mr. Begley's employment
without cause. If the Company terminates Mr. Begley's employment without cause
or if Mr. Begley resigns as a result of (i) any reduction in compensation below
$250,000 per year or (ii) a material diminution of his job responsibilities or
position within the Company without his consent within the first thirty-six
months after he commenced employment with the Company, then Mr. Begley will
continue to receive his annual base salary and benefits for the twelve-month
period following the effective date of termination.
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<PAGE> 45
The Company is party to a letter agreement with Karl-Heinz Dette dated
December 19, 1997. Pursuant to the agreement, Mr. Dette received a $100,000 cash
signing bonus as an inducement to join the Company. Under the agreement,
Mr. Dette is entitled to an annual base salary of $175,000, an annual bonus of
up to 20% of his annual base salary and an additional annual bonus of up to
$100,000, each bonus to be based upon the attainment of certain performance
criteria set by the Board of Directors, which include revenue, profitability and
client satisfaction. The agreement provides that for the first twelve-month
period of Mr. Dette's employment, the Company will guarantee a minimum
performance bonus of $50,000. The agreement also provides that effective upon
his employment, Mr. Dette was entitled to receive stock options to purchase
100,000 shares of the Company's common stock. The agreement provides for vesting
of the options over a four-year period. In the event that the Company ceases to
perform computer and consulting services and Mr. Dette elects to terminate his
employment with the Company, the Company will pay him a lump sum equal to twice
his annual base salary.
BENEFIT PLANS
1993 Stock Plan
In March 1993, the Company's Board of Directors approved the 1993 Stock
Plan (the "1993 Stock Plan"), which provided for the grant of options to
purchase, awards of and authorizations to purchase (collectively, "1993 Plan
Stock Rights") Common Stock of the Company to employees, officers and directors
of, and consultants or advisors to, the Company and its parent and subsidiary
corporations who are expected to contribute to the Company's future growth and
success. No grants have been made under this plan since December 1995 and the
plan was terminated by the Company's Board of Directors in April 1996. 1993 Plan
Stock Rights are not transferable by the grantee except by will or the laws of
descent and distribution. Generally, incentive stock options granted under the
1993 Stock Plan may not be exercised by an optionee more than two months
following the termination of employment, and such options expire not more than
ten years after the date of grant. As of March 31, 1998, options to purchase
915,175 shares had been granted and were outstanding and unexercised under the
1993 Stock Plan.
1996 Stock Plan
In January 1996, the Company's Board of Directors approved the 1996 Stock
Plan (the "1996 Stock Plan"), which provides for the grant of options to
purchase, awards of and rights to purchase (collectively, "1996 Plan Stock
Rights") shares of Common Stock of the Company to employees, officers and
directors of, and consultants or advisors to, the Company and its parent and
subsidiary corporations who are expected to contribute to the Company's future
growth and success. Upon the adoption of the 1998 Stock Incentive Plan in April
1998, the 1996 Stock Plan was terminated and no further grants will be made
under the 1996 Stock Plan. 1996 Plan Stock Rights are not transferable by the
grantee except by will or the laws of descent and distribution. Generally,
incentive stock options granted under the 1996 Stock Plan may not be exercised
by an optionee more than three months following the termination of employment,
and such options expire not more than ten years after the date of grant. As of
March 31, 1998, options to purchase 4,624,607 shares had been granted and were
outstanding and unexercised under the 1996 Stock Plan.
1998 Stock Incentive Plan
In April 1998, the Company's Board of Directors approved the 1998 Stock
Incentive Plan (the "1998 Stock Incentive Plan"), which provides for the grant
of incentive stock options, non-statutory stock options, stock appreciation
rights, performance shares and awards of restricted stock and unrestricted stock
("Awards"). The aggregate number of shares of Common Stock that may be issued
pursuant to the 1998 Stock Incentive Plan equals 3,432,078 shares plus such
additional number of shares subject to awards granted under the 1996 Stock Plan
or the 1993 Stock Plan that are not actually issued because such options expire
or otherwise result in shares not being issued, or in the case of restricted
stock, are repurchased by the Company pursuant to the terms of the applicable
stock restriction agreement.
The 1998 Stock Incentive Plan is administered by the Board of Directors and
the Compensation Committee. The Board has the authority to grant Awards under
the 1998 Stock Incentive Plan and to accelerate, waive or amend certain
provisions of outstanding Awards. The Board has authorized the
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<PAGE> 46
Compensation Committee to administer certain aspects of the 1998 Stock Incentive
Plan and has authorized the Chief Executive Officer of the Company to grant
Awards to non-executive officer employees.
Incentive Stock Options and Nonstatutory Options. Optionees receive the
right to purchase a specified number of shares of Common Stock at some time in
the future at an exercise price and subject to such terms and conditions as are
specified at the time of the grant. Incentive stock options and options that the
Board or Compensation Committee intends to qualify as performance-based
compensation under Section 162(m) of the Code may not be granted at an exercise
price less than the fair market value of the Common Stock on the date of grant
(or less than 110% of the fair market value in the case of incentive stock
options granted to optionees holding 10% or more of the voting stock of the
Company). All other options may be granted at an exercise price that may be less
than, equal to or greater than the fair market value of the Common Stock on the
date of grant.
Stock Appreciation Rights and Performance Shares. A stock appreciation
right ("SAR") is based on the value of Common Stock and entitles the SAR holder
to receive consideration to the extent that the fair market value on the date of
exercise of the shares of Common Stock underlying the SAR exceeds the fair
market value of the underlying shares on the date the SAR was granted. A
performance share award entitles the recipient to acquire shares of Common Stock
upon the attainment of specified performance goals.
Restricted and Unrestricted Stock. Restricted stock awards entitle
recipients to acquire shares of Common Stock, subject to the right of the
Company to repurchase all or part of such shares at their purchase price from
the recipient in the event that the conditions specified in the applicable stock
award are not satisfied prior to the end of the applicable restriction period
established for such award. The Company may also grant to participants shares of
Common Stock free of any restrictions under the 1998 Stock Incentive Plan.
All of the employees, officers, directors, consultants and advisors of the
Company who are expected to contribute to the Company's future growth and
success are eligible to participate in the 1998 Stock Incentive Plan.
Section 162(m) of the Code disallows a tax deduction to public companies
for certain compensation in excess of $1 million paid to a company's chief
executive officer or to any of the four other most highly compensated executive
officers. Certain compensation, including "performance-based compensation," is
not included in compensation subject to the $1 million limitation. The 1998
Stock Incentive Plan limits to 1,000,000 the maximum number of shares of Common
Stock with respect to which Awards may be granted to any employee in any
calendar year. This limitation is intended to preserve the tax deductions to the
Company that might otherwise be unavailable under Section 162(m) with respect to
certain Awards.
1998 Non-Employee Directors' Stock Option Plan
In April 1998, the Company's Board of Directors adopted the 1998
Non-Employee Director Stock Option Plan (the "Director Plan"), which provides
for the grant of options to purchase a maximum of 250,000 shares of Common Stock
of the Company to non-employee directors of the Company. The Director Plan is
administered by the Board of Directors.
Under the Director Plan, each director of the Company who is not also an
employee or officer of the Company is granted a nonqualified stock option to
purchase 30,000 shares of Common Stock on the date such person is first elected
to the Board of Directors and each such director is granted a nonqualified stock
option to purchase 7,500 shares of Common Stock on the date of each Annual
Meeting of the Stockholders of the Company commencing with the 1999 Annual
Meeting of Stockholders. The exercise price per share for all options granted
under the Director Plan will be equal to the fair market value of the Common
Stock on the date of grant. The options granted to a director are exercisable in
eight equal semi-annual installments, commencing six months following the date
of grant, provided that the optionee remains a director at such time. The term
of each option is ten years from the date of grant. In addition, the Director
Plan authorizes the Board of Directors to grant additional options to
non-employee directors and to determine the terms applicable to such options.
Notwithstanding the terms of the option grants set forth in the Director Plan,
the Board of Directors has the authority to grant options that are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
stock acquired by the optionee on exercise of an option in the event such
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<PAGE> 47
optionee's service as a director terminates for any reason. Except as otherwise
set forth in the option agreement or as determined by the Board of Directors,
options may not be assigned or transferred except by will or by the laws of
descent and distribution and are exercisable to the extent vested only while the
optionee is serving as a director of the Company and within one year after the
optionee ceases to serve as a director of the Company. No options to purchase
shares have been granted to date under the Director Plan. Upon a change in
control of the Company, as defined in the Director Plan, all outstanding options
under the Director Plan will immediately vest.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in April 1998. The Purchase Plan authorizes
the issuance of up to a total of 300,000 shares of Common Stock to participating
employees.
All employees of the Company who meet certain conditions, other than
officers of the Company, are eligible to participate in the Purchase Plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of the stock of the Company or any subsidiary are
not eligible to participate.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount to be deducted by the Company from
such pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the Purchase
Plan, the option price is an amount equal to 85% of the fair market value per
share of the Common Stock on either the first day or the last day of the
Offering Period, whichever is lower. An employee may purchase, in any one
Offering Period, a number of shares the aggregate purchase price of which is up
to 10% of the employee's compensation for the immediately preceding twelve-month
period divided by 85% of the market value of a share of Common Stock on the
commencement date of the Offering Period, subject to a limit of $25,000 in fair
market value of stock purchased in any year. The Compensation Committee may, in
its discretion, choose an Offering Period of 12 months or less for each of the
offerings under the Purchase Plan and choose a different Offering Period for
each offering under the Purchase Plan.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan, or when such employee ceases employment for any reason, except that upon
termination of employment because of death, the employee's beneficiary has
certain rights to elect to exercise the option to purchase the shares which the
accumulated payroll deductions in the participant's account would purchase at
the date of death.
401(k) Plan
The Company has a Section 401(k) Retirement Savings Plan (the "401(k)
Plan"). The 401(k) Plan is a tax-qualified plan covering all full-time employees
of the Company. Under the 401(k) Plan, participants may elect to defer a portion
of their eligible compensation, subject to certain limitations. In addition, at
the discretion of the Board of Directors, the Company may make matching
contributions to the 401(k) Plan for all eligible employees. The Company
currently matches 50% of each employee's pre-tax contribution to the plan, with
such matching subject to a limit of 3% of such employee's eligible compensation.
Matching contributions currently vest in increments over a two-year period,
beginning on an employee's date of employment. The Company did not contribute to
the 401(k) Plan during 1995, 1996 or 1997. The Company contributed $32,000 to
the 401(k) Plan during the three months ended March 31, 1998.
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<PAGE> 48
CERTAIN TRANSACTIONS
In 1995, the Company recognized net revenues of $366,000 for services
provided to a company of which Sundar Subramaniam was a director and significant
shareholder. Mr. Subramaniam is a founder of the Company, and immediately
following this offering will, together with certain trusts and partnerships for
his benefit and the benefit of his family, own approximately 45% of the
outstanding shares of the Common Stock of the Company.
In 1994 and 1995, the Company provided administrative and support services
and subleased a portion of its Cambridge, Massachusetts headquarters to a
company of which Mr. Subramaniam is a director and significant shareholder. The
Company received approximately $31,000 and $102,000 in 1994 and 1995,
respectively, for these services.
In 1996, the Company loaned $60,000 to Timothy D. Eager, the Company's
Chief Technology Officer. Such loan bears interest at 7% per annum, and is
payable on demand. The loan is secured by Mr. Eager's shares of common stock. At
March 31, 1998, the outstanding amount of this loan, including accrued interest,
was $65,249.
In 1996, the Company was paid $317,000 for IT services provided to a
company of which Mr. Subramaniam was a significant shareholder.
In October, 1997, the Company loaned Sundar Subramaniam $533,333, which Mr.
Subramaniam used to exercise options to purchase 400,000 shares of the Common
Stock of the Company. This loan bears interest at 8.5% per annum, and is payable
in full on October 13, 2000. The loan is secured by the shares of Common Stock
acquired upon such exercise. At March 31, 1998, the outstanding amount of this
loan, including accrued interest, was approximately $554,416.
The Company and Sundar Subramaniam, a principal stockholder of the Company,
are parties to a Voting Trust Agreement dated October 13, 1997. The Voting Trust
Agreement will terminate upon the closing of this offering. See "Risk
Factors -- Control by Principal Stockholders" and "Principal Stockholders."
The Company believes the transactions set forth above were made on terms no
less favorable to the Company than would have been obtained from unaffiliated
third parties. The Company has adopted a policy whereby all future transactions
between the Company and its officers, directors and affiliates will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties and will be approved by a majority of the disinterested members of the
Company's Board of Directors.
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<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998 and as adjusted to
reflect the sale of the shares offered hereby by (i) each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director and Named Executive Officer of the Company, and (iii)
all directors and executive officers of the Company as a group. Unless otherwise
indicated below, to the knowledge of the Company, all persons listed below have
sole voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law. The
address of each person below owning beneficially more than 5% of the outstanding
shares of Common Stock is c/o International Integration Incorporated, 101 Main
Street, Cambridge, MA 02142.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)(2)
-------------------------- --------------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Sundar Subramaniam(3)............................. 7,155,025 53.1% 7,155,025 44.8%
Madhav Anand(4)................................... 1,848,750 13.6 1,848,750 11.5
Edouard Aslanian(5)............................... 1,755,000 13.0 1,755,000 11.0
Yannis Doganis.................................... 1,755,000 13.0 1,755,000 11.0
Gary C. Mekikian(6)............................... 750,000 5.4 750,000 4.6
Michael Pehl(7)................................... 658,705.5 4.7 658,705.5 4.0
Lawrence P. Begley(8)............................. 187,500.5 1.4 187,500.5 1.2
Jane Callanan(9).................................. 37,496 * 37,496 *
James K. McCann................................... -- -- -- --
Thomas J. Meredith(10)............................ 30,000 * 30,000 *
Gregory S. Young(11).............................. 104,691.5 * 104,691.5 *
John A. Young..................................... -- -- -- --
Joseph M. Tucci (12).............................. 65,626 * 65,626 *
Patrick J. Zilvitis(13)........................... 30,000 * 30,000 *
All executive officers and directors as a group
(12 persons)(14)................................ 3,142,814.5 21.4% 3,142,814.5 18.3%
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes: (i) 13,467,233 shares of Common Stock outstanding as of
March 31, 1998; and (ii) shares issuable pursuant to options held by the
respective person or group which may be exercised within 60 days after
March 31, 1998, as set forth below. The number of shares of Common Stock
deemed outstanding after this offering includes an additional 2,500,000
shares that are being offered for sale by the Company in this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment
power with respect to the shares.
(2) The above table assumes no exercise of the over-allotment option to
purchase up to an aggregate of 375,000 shares of Common Stock from the
Company and the Selling Stockholders. If the Underwriters exercise their
over-allotment option in full, the number of shares sold, the number of
shares beneficially owned and the percentage of ownership after this
offering for the Selling Stockholders and for all executive officers and
directors as a group would be as follows: Madhav Anand, 75,000 shares sold,
1,773,750 shares beneficially owned (11.0%) after this offering; Edouard
Aslanian, 55,000 shares sold, 1,700,000 shares beneficially owned (10.6%)
after this offering; Yannis Doganis, 75,000 shares sold, 1,680,000 shares
beneficially owned (10.5%) after this offering; Gary C. Mekikian, 65,000
shares sold, 685,000 shares beneficially owned (4.2%) after this offering;
and all executive officers and directors as a group, 75,000 shares sold,
3,067,814.5 shares beneficially owned (17.8%) after this offering.
Mr. Aslanian has been an employee of the Company since January 1993.
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<PAGE> 50
(3) Consists of 5,355,025 shares owned by Mr. Subramaniam and 1,800,000 shares
owned by the Geneva Trust, of which Mr. Subramaniam and his family are the
sole beneficiaries, all of which are held in trust by State Street Bank and
Trust Company, 225 Franklin Street, 3rd Floor, Boston, MA 02110, as
trustee, under a certain Voting Trust Agreement dated as of October 13,
1997 among Mr. Subramaniam, State Street Bank and Trust Company, the
Company, Subramaniam Limited Partnership, a Massachusetts limited
partnership and Harrington Trust Limited, as trustee of the Geneva Trust.
The Voting Trust Agreement terminates upon the closing of this offering.
(4) Includes 93,750 shares issuable pursuant to options held by Mr. Anand that
may be exercised within 60 days after March 31, 1998.
(5) Includes certain shares held by a family limited partnership controlled by
Mr. Aslanian.
(6) Includes 325,000 shares issuable pursuant to options held by Mr. Mekikian
that may be exercised within 60 days after March 31, 1998.
(7) Consists of 658,705.5 shares issuable pursuant to options held by Mr. Pehl
that may be exercised within 60 days after March 31, 1998.
(8) Consists of 187,500.5 shares issuable pursuant to options held by Mr.
Begley that may be exercised within 60 days after March 31, 1998.
(9) Includes 22,496 shares issuable pursuant to options held by Ms. Callanan
that may be exercised within 60 days after March 31, 1998.
(10) Consists of 30,000 shares acquired after March 31, 1998 on exercise of
options and held subject to the Company's right to repurchase in the event
Mr. Meredith's service as a director terminates before vesting dates
applicable to such options.
(11) Includes 42,191 shares issuable pursuant to options held by Mr. Young that
may be exercised within 60 days after March 31, 1998.
(12) Includes 28,126 shares issuable pursuant to options held by Mr. Tucci that
may be exercised within 60 days after March 31, 1998.
(13) Consists of 30,000 shares issuable pursuant to options held by Mr. Zilvitis
that may be exercised within 60 days after March 31, 1998, subject to the
Company's right to repurchase in the event Mr. Zilvitis' service as a
director terminates before vesting dates applicable to such options.
(14) Includes 1,182,814 shares issuable pursuant to options that may be
exercised within 60 days after March 31, 1998.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, $.01 par value per
share, and 1,000,000 shares of Preferred Stock, $.01 par value per share.
The following summary description of the Company's capital stock is not
intended to be complete and is qualified by reference to the provisions of
applicable law and to the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") and Amended and
Restated By-laws (the "Restated By-laws"), filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
As of March 31, 1998, there were 13,467,233 shares of Common Stock
outstanding held by 30 stockholders of record. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the 2,500,000
shares of Common Stock offered by the Company hereby, there will be 15,967,233
shares of Common Stock outstanding upon the closing of this offering. In
addition, as of March 31, 1998, there were outstanding stock options for the
purchase of a total of 5,539,782 shares of Common Stock.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in such election.
Holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights of outstanding Preferred
Stock. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after the payment of all debts and other liabilities of the
Company, subject to the prior rights of any outstanding Preferred Stock. Holders
of the Common Stock have no preemptive, subscription, redemption or conversion
rights, nor are they entitled to the benefit of any sinking fund. The
outstanding shares of Common Stock are, and the shares offered by the Company in
this offering will be, when issued and paid for, validly issued, fully paid and
nonassessable. The rights, powers, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of Preferred Stock, in one or more
series. Each such series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights. There are no shares of Preferred Stock currently outstanding.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject to
the rights of holders of any Preferred Stock issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting power or other rights of the holders of Common Stock, and could make it
more difficult for a third party to acquire, or discourage a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. The Company has not, to date, issued any shares of such Preferred Stock
and has no present plans to issue any shares of Preferred Stock.
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<PAGE> 52
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management -- Election of Directors." In
addition, the Restated Certificate of Incorporation provides that directors may
be removed only for cause by the affirmative vote of the holders of 75% of the
shares of capital stock of the Company entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company.
The Restated Certificate of Incorporation also provides that after the
closing of this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors. Under
the Restated By-laws, in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with certain requirements
regarding advance notice to the Company. The foregoing provisions could have the
effect of delaying until the next stockholders meeting stockholder actions which
are favored by the holders of a majority of the outstanding voting securities of
the Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation
requires the affirmative vote of the holders of at least 75% of the shares of
capital stock of the Company issued and outstanding and entitled to vote to
amend or repeal any of the foregoing provisions of the Restated Certificate of
Incorporation. The Restated By-laws also may be amended or repealed by a
majority vote of the Board of Directors subject to any limitations set forth in
the Restated By-laws and amendment by stockholders of provisions described above
requires the affirmative vote of the holders of at least 75% of the shares of
capital stock of the Company issued and outstanding and entitled to vote. The
75% stockholder vote would be in addition to any separate class vote that might
in the future be required pursuant to the terms of any series Preferred Stock
that might be outstanding at the time any such amendments are submitted to
stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Restated Certificate of Incorporation provides that the directors and
officers of the Company shall be indemnified by the Company to the fullest
extent authorized by Delaware law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with their service for or on behalf of the Company. In addition, the Restated
Certificate of Incorporation provides that the directors of the Company will not
be personally liable for monetary damages to the Company for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to the
Company or its stockholders, acted
48
<PAGE> 53
in bad faith, knowingly or intentionally violated the law, authorized illegal
dividends or redemptions or derived an improper personal benefit from their
action as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.
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<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 15,967,233 shares
of Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 2,500,000 shares (2,875,000 shares if the over-allotment
option is exercised in full) to be sold in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except that any shares purchased by affiliates
of the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 13,467,233 shares of Common Stock outstanding upon completion
of this offering are deemed "Restricted Shares" under Rule 144 or Rule 701 under
the Securities Act. Approximately 2,374.5 of such Restricted Shares will be
eligible for sale in the public market pursuant to Rule 144(k) on the date of
this Prospectus. Upon expiration of the Lock-up Agreements, 180 days after the
date of this Prospectus, an additional 12,932,841.5 shares of Common Stock will
be eligible for sale in the public market pursuant to Rule 144 under the
Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an Affiliate, who has beneficially owned Restricted
Shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (i) one percent of
the then outstanding shares of Common Stock (approximately 159,672 shares
immediately after this offering) or (ii) the average weekly trading volume in
the Common Stock in the over-the-counter market during the four calendar weeks
preceding the date on which notice of such sale is filed, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, Affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of Common Stock which are not
restricted securities. Under Rule 144(k), a person who is not an Affiliate and
has not been an Affiliate for at least three months prior to the sale and who
has beneficially owned Restricted Shares for at least two years may resell such
shares without compliance with the foregoing requirements. In meeting the one-
and two-year holding periods described above, a holder of Restricted Shares can
include the holding periods of a prior owner who was not an Affiliate. The one-
and two-year holding periods described above do not begin to run until the full
purchase price or other consideration is paid by the person acquiring the
Restricted Shares from the issuer or an Affiliate. Rule 701 provides that
currently outstanding shares of Common Stock acquired under the Company's
employee compensation plans may be resold by persons, other than Affiliates,
beginning 90 days after the date of this Prospectus, subject only to the manner
of sale provisions of Rule 144, and by Affiliates after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
Affiliates under Rule 144 without compliance with its one-year minimum holder
period, subject to certain limitations.
OPTIONS
Rule 701 also provides that the shares of Common Stock acquired upon the
exercise of currently outstanding options or pursuant to other rights granted
under the Company's stock plans may be resold by persons, other than Affiliates,
beginning 90 days after the date of this Prospectus, subject only to the manner
of sale provisions of Rule 144, and by Affiliates under Rule 144, without
compliance with its one-year minimum holding period, subject to certain
limitations. At March 31, 1998, approximately 3,107,837.5 shares of Common Stock
were issued or issuable pursuant to vested options or pursuant to other rights
granted under the Company's stock program, of which approximately 59,617.5
shares are not subject to Lock-up Agreements with the Underwriters and will be
eligible for sale in the public market in accordance with Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act following the date of this Prospectus, to register up
to 5,539,782 shares of Common Stock subject to outstanding stock options or
other rights granted pursuant to the Company's stock option program as of
50
<PAGE> 55
March 31, 1998, including the 1,657,628 shares of Common Stock subject to
options vested as of March 31, 1998, and 4,064,578 shares of Common Stock
issuable pursuant to the Company's stock plans. Such registration statements are
expected to become effective upon filing.
LOCK-UP AGREEMENTS
Except for sales of Common Stock to the Underwriters pursuant to the
Underwriting Agreement and transactions relating to Common Stock or other
securities acquired in open market transactions after the completion of this
offering, the Company, the executive officers and directors, the Selling
Stockholders and certain other securityholders have agreed not to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock (or any
security convertible into or exchangeable or exercisable for Common Stock)
without the prior written consent of Morgan Stanley & Co. Incorporated ("Morgan
Stanley") for a period of 180 days from the date of this Prospectus. In
addition, for a period of 180 days from the date of this Prospectus, except as
required by law, the Company has agreed that its Board of Directors will not
consent to any offer for sale, sale or other disposition, or any transaction
which is designed or could be expected to result in the disposition by any
person, directly or indirectly, of any shares of Common Stock without the prior
written consent of Morgan Stanley. See "Underwriters." Morgan Stanley in its
sole discretion at any time or from time to time and without notice may release
for sale in the public market all or any portion of the shares subject to the
lock-up agreements.
REGISTRATION RIGHTS
No securityholders of the Company are entitled to require the Company to
register any securities of the Company under the Securities Act.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made as to the effect, if any,
that market sales of shares of Common Stock prevailing from time to time, or the
availability of shares for future sale, may have on the market price for the
Common Stock. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely effect prevailing market prices for
the Common Stock and could impair the Company's future ability to obtain capital
through an offering of equity securities.
51
<PAGE> 56
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus, the Underwriters named below, for
whom Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated and UBS
Securities LLC are acting as Representatives (the "Underwriters"), have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BT Alex. Brown Incorporated.................................
UBS Securities LLC..........................................
---------
Total............................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are committed to take
and pay for all the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, this offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company and certain stockholders of the Company, consisting of Messrs.
Anand, Aslanian, Doganis and Mekikian (collectively, the "Selling
Stockholders"), have granted the Underwriters an option, exercisable for 30 days
from the date of the Prospectus, to purchase up to an additional 375,000 shares
of Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with this offering. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares set forth next to such Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered by the
Underwriters hereby.
At the request of the Company, the Underwriters have reserved up to 125,000
shares of the Common Stock offered hereby for sale at the initial public
offering price to the Company's customers and other persons with whom the
Company has business relationships, including potential marketing partners and
other persons who have been supportive of the Company's efforts. The number of
shares of Common Stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
Except for sales of Common Stock to the Underwriters pursuant to the
Underwriting Agreement and transactions relating to Common Stock or other
securities acquired in open market transactions after the completion of this
offering, the Company and the executive officers and directors of the Company,
the Selling
52
<PAGE> 57
Stockholders and certain other securityholders have agreed that, without the
prior written consent of Morgan Stanley, they will not, during the period ending
180 days after the date of this Prospectus, (a) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
(regardless of whether such shares or any such securities are then owned by such
person or are thereafter acquired), or (b) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, regardless of whether any such
transactions described in clauses (a) or (b) of this paragraph are to be settled
by delivery of such Common Stock or such other securities, in cash or otherwise.
Morgan Stanley in its sole discretion at any time or from time to time and
without notice may release for sale in the public market all or any portion of
the shares subject to the lock-up agreements.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Representatives of the Underwriters.
Among the factors to be considered in determining the initial public offering
price are the future prospects of the Company and its industry in general, net
revenues, earnings and certain other financial and operating information of the
Company in recent periods, and the price-earnings ratios, certain other ratios,
and market prices of securities and certain financial operating information of
companies engaged in activities similar to those of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Peter B.
Tarr, a partner of Hale and Dorr LLP, is Secretary of the Company.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1996 and December 31, 1997 and for the three years in the period ended December
31, 1997 included in this Prospectus have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
53
<PAGE> 58
CHANGE IN ACCOUNTANTS
In January 1997, the Company's Board of Directors decided to retain Coopers
& Lybrand L.L.P. as its independent public accountants and dismissed the
Company's former auditors. The former auditors' report on the Company's
financial statements for the years ended December 31, 1995 and 1994 does not
cover the consolidated financial statements of the Company included in this
Prospectus. Such report did not contain an adverse opinion or disclaimer of
opinion and was not modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with the former auditors on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure at the time of the change or with respect to the
Company's financial statements for fiscal years 1995 and 1994, which, if not
resolved to the former auditors' satisfaction, would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. Prior to retaining Coopers & Lybrand L.L.P., the Company had not
consulted with Coopers & Lybrand L.L.P. regarding accounting principles.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement, each such statement being qualified by such reference.
The Registration Statement may be inspected without charge at the principal
office of the Commission in Washington, D.C. and copies of all or any part of
which may be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can also be obtained at prescribed rates by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
54
<PAGE> 59
INTERNATIONAL INTEGRATION INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997, and March 31, 1998 (unaudited)...................... F-3
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1997 and 1998 (unaudited)................. F-4
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997, and for the three
months ended March 31, 1998 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997, and for the three months
ended March 31, 1997 and 1998 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
International Integration Incorporated:
We have audited the accompanying consolidated balance sheets of International
Integration Incorporated as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Integration Incorporated as of December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 16, 1998
F-2
<PAGE> 61
INTERNATIONAL INTEGRATION INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------ -----------
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,889 $10,822 $ 9,833
Accounts receivable, net of reserve of $114, $196 and
$112, respectively..................................... 4,698 5,906 5,349
Unbilled revenues......................................... 222 708 476
Prepaid expenses and other current assets................. 192 429 490
Deferred income taxes..................................... 795 812 878
------- ------- -------
Total current assets.............................. 9,796 18,677 17,026
------- ------- -------
Property and equipment, at cost:
Computers and equipment................................... 679 2,527 2,460
Furniture and fixtures.................................... 244 602 881
------- ------- -------
923 3,129 3,341
Less-accumulated depreciation............................. 384 838 1,039
------- ------- -------
539 2,291 2,302
Other assets................................................ 167 144 190
------- ------- -------
Total assets...................................... $10,502 $21,112 $19,518
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 382 $ 483 $ 727
Accrued expenses.......................................... 1,049 2,956 2,362
Current portion of long-term obligations.................. -- 268 258
Accrued income taxes...................................... 66 1 938
Deferred revenues......................................... 4,444 7,116 3,567
------- ------- -------
Total current liabilities......................... 5,941 10,824 7,852
------- ------- -------
Long-term obligations....................................... -- 672 623
Commitments (Note 8)
Stockholders' equity:
Preferred stock $0.01 par value; 1,000,000 shares
authorized, no shares issued or outstanding............ -- -- --
Common stock $0.01 par value; 100,000,000 shares
authorized; 12,493,212, 12,966,889 and 13,470,234
shares issued at December 31, 1996 and 1997 and March
31, 1998, respectively; 12,493,212, 12,963,888 and
13,467,233 shares outstanding at December 31, 1996 and
1997 and March 31, 1998, respectively.................. 124 129 134
Additional paid-in capital................................ 250 1,516 1,566
Treasury stock, 3,001 shares at cost...................... -- (8) (8)
Note receivable from stockholder.......................... -- (533) (533)
Retained earnings......................................... 4,187 8,512 9,884
------- ------- -------
Total stockholders' equity........................ 4,561 9,616 11,043
------- ------- -------
Total liabilities and stockholders' equity........ $10,502 $21,112 $19,518
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE> 62
INTERNATIONAL INTEGRATION INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1995 1996 1997 1997 1998
------ ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $9,197 $14,479 $26,859 $5,598 $8,828
Project personnel and software costs........ 2,521 5,308 10,385 2,000 3,612
------ ------- ------- ------ ------
Gross profit...................... 6,676 9,171 16,474 3,598 5,216
Operating expenses:
Selling and marketing..................... 897 1,580 3,046 630 850
General and administrative................ 2,371 5,011 6,734 1,497 2,247
------ ------- ------- ------ ------
Total operating expenses.......... 3,268 6,591 9,780 2,127 3,097
------ ------- ------- ------ ------
Operating income............................ 3,408 2,580 6,694 1,471 2,119
Other income (expense):
Interest income........................... 92 85 460 52 156
Interest expense.......................... -- -- (69) -- (26)
------ ------- ------- ------ ------
Income before income taxes........ 3,500 2,665 7,085 1,523 2,249
Provision for income taxes.................. 1,424 1,050 2,760 594 877
------ ------- ------- ------ ------
Net income........................ $2,076 $ 1,615 $ 4,325 $ 929 $1,372
====== ======= ======= ====== ======
Earnings per share:
Basic..................................... $ 0.17 $ 0.13 $ 0.34 $ 0.07 $ 0.10
====== ======= ======= ====== ======
Diluted................................... $ 0.15 $ 0.12 $ 0.29 $ 0.07 $ 0.09
====== ======= ======= ====== ======
Weighted average shares outstanding:
Basic..................................... 12,323 12,425 12,627 12,519 13,244
Diluted................................... 13,465 13,682 15,163 14,256 16,031
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE> 63
INTERNATIONAL INTEGRATION INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON STOCK COMMON STOCK COMMON STOCK TREASURY STOCK
------------------- ---------------- ------------------ --------------
NUMBER NUMBER NUMBER ADDITIONAL NUMBER
OF PAR OF PAR OF PAR PAID-IN OF
SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL SHARES COST
----------- ----- -------- ----- ---------- ----- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... 12,020,025 $8 300,499 $ 2 -- -- -- -- --
Exercise of stock options........... -- -- 27,000 -- -- -- -- -- --
Net income.......................... -- -- -- -- -- -- -- -- --
----------- -- -------- --- ---------- ---- ------ ------ ---
Balance at December 31, 1995.......... 12,020,025 8 327,499 2 -- -- -- -- --
Conversion.......................... (12,020,025) (8) (327,499) (2) 12,347,524 $123 -- -- --
Exercise of stock options........... -- -- -- -- 145,688 1 $ 250 -- --
Net income.......................... -- -- -- -- -- -- -- -- --
----------- -- -------- --- ---------- ---- ------ ------ ---
Balance at December 31, 1996.......... -- -- -- -- 12,493,212 124 250 -- --
Exercise of stock options........... -- -- -- -- 473,677 5 676 -- --
Acquisition of treasury stock....... -- -- -- -- -- -- -- (3,001) $(8)
Tax benefit due to stock option
exercise.......................... -- -- -- -- -- -- 590 -- --
Net income.......................... -- -- -- -- -- -- -- -- --
----------- -- -------- --- ---------- ---- ------ ------ ---
Balance at December 31, 1997.......... -- -- -- -- 12,966,889 129 1,516 (3,001) (8)
Exercise of stock options........... -- -- -- -- 503,345 5 50 -- --
Net income.......................... -- -- -- -- -- -- -- -- --
----------- -- -------- --- ---------- ---- ------ ------ ---
Balance at March 31, 1998
(unaudited)......................... -- -- -- -- 13,470,234 $134 $1,566 (3,001) $(8)
=========== == ======== === ========== ==== ====== ====== ===
<CAPTION>
NOTE TOTAL
RECEIVABLE STOCK-
FROM RETAINED HOLDERS'
STOCKHOLDER EARNINGS EQUITY
----------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1994.......... -- $ 609 $ 619
Exercise of stock options........... -- -- --
Net income.......................... -- 2,076 2,076
----- ------ -------
Balance at December 31, 1995.......... -- 2,685 2,695
Conversion.......................... -- (113) --
Exercise of stock options........... -- -- 251
Net income.......................... -- 1,615 1,615
----- ------ -------
Balance at December 31, 1996.......... -- 4,187 4,561
Exercise of stock options........... $(533) -- 148
Acquisition of treasury stock....... -- -- (8)
Tax benefit due to stock option
exercise.......................... -- -- 590
Net income.......................... -- 4,325 4,325
----- ------ -------
Balance at December 31, 1997.......... (533) 8,512 9,616
Exercise of stock options........... -- -- 55
Net income.......................... -- 1,372 1,372
----- ------ -------
Balance at March 31, 1998
(unaudited)......................... $(533) $9,884 $11,043
===== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 64
INTERNATIONAL INTEGRATION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 2,076 $ 1,615 $ 4,325 $ 929 $ 1,372
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 150 267 531 103 200
Provision for doubtful accounts...... -- 73 82 20 --
Loss on disposal of fixed assets..... -- -- 97 -- --
Deferred income taxes................ (910) 163 (17) 3 (66)
Tax benefit due to stock option
exercise........................... -- -- 590 -- --
Changes in operating assets and
liabilities:
Accounts receivable................ (1,814) (2,669) (1,290) 1,848 557
Unbilled revenues.................. (413) 191 (486) (338) 232
Prepaid expenses and other current
assets.......................... (66) (97) (237) (109) (61)
Accounts payable................... 73 290 101 338 244
Accrued expenses................... 1,847 (328) 1,907 154 (594)
Accrued income taxes............... 572 (937) (65) 546 937
Deferred revenues.................. 1,551 1,955 2,672 3,021 (3,549)
------- ------- ------- ------ -------
Net cash provided by (used in)
operating activities.......... 3,066 523 8,210 6,515 (728)
------- ------- ------- ------ -------
Cash flows from investing activities:
Purchases of property and equipment..... (497) (388) (1,788) (564) (212)
Proceeds from sale of fixed assets...... -- -- 25 -- --
Other..................................... (175) 13 23 (2) (46)
------- ------- ------- ------ -------
Net cash used in investing
activities.................... (672) (375) (1,740) (566) (258)
------- ------- ------- ------ -------
Cash flows from financing activities:
Repayment of long-term obligations...... -- -- (177) -- (58)
Proceeds from equipment line of
credit............................... -- -- 500 -- --
Proceeds from exercise of stock
options.............................. -- 251 148 75 55
Purchase of treasury stock.............. -- -- (8) -- --
(Increase) decrease in due from related
parties.............................. (362) 396 -- -- --
(Increase) decrease in due from
officer/stockholder.................. (30) 30 -- -- --
------- ------- ------- ------ -------
Net cash provided by (used in)
financing activities.......... (392) 677 463 75 (3)
------- ------- ------- ------ -------
Net increase (decrease) in cash and cash
equivalents............................. 2,002 825 6,933 6,024 (989)
Cash and cash equivalents, beginning of
period.................................. 1,062 3,064 3,889 3,889 10,822
------- ------- ------- ------ -------
Cash and cash equivalents, end of
period.................................. $ 3,064 $ 3,889 $10,822 $9,913 $ 9,833
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE> 65
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
International Integration Incorporated ("i-Cube" or the "Company") provides
application migration and custom software development services on a fixed-price,
fixed-time basis to Fortune 1000 companies and other large enterprises.
A summary of the Company's significant accounting policies follows:
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Principles of Consolidation
The consolidated financial statements reflect the operations of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
(c) Foreign Currency Translation
Assets and liabilities of the Company's foreign operations denominated in
foreign currencies are translated into United States dollars at exchange rates
prevailing at the balance sheet date. Revenues and expenses for the period are
translated at the average exchange rates in effect during the period. Foreign
currency effects were not material during the periods presented.
(d) Revenue Recognition
The Company derives substantially all of its revenues from technology
consulting services. Revenues from contracts are recognized on the
percentage-of-completion basis. The cumulative impact of any revision in
estimates of the cost to complete and losses on projects in process are
reflected in the period in which they become known. Net revenues exclude
reimbursable expenses charged to customers. Revenues from maintenance contracts
is deferred and recognized ratably over the contractual periods during which
services are performed. Revenues related to time and materials engagements are
recognized when the services are performed.
Deferred revenues include amounts billed in advance for technology
consulting contracts that will be recognized upon performance and amounts
received from customers in excess of revenues recognized to date. Unbilled
revenues represent revenues recognized on contracts in excess of contractual
billings to date.
(e) Significant Customers and Concentration of Credit Risk
For the years ended December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1997 and 1998, three, three, five, three and five customers each
accounted for 10% or more of net revenues for the respective period and an
aggregate of 75%, 62%, 83%, 72% and 77% of net revenues, respectively.
Financial instruments that subject the Company to credit risks consist
primarily of trade accounts receivable. As of December 31, 1996 and 1997 and
March 31, 1998, approximately 85%, 86% and 75% of the Company's accounts
receivable were due from three, four and three customers, respectively.
F-7
<PAGE> 66
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
(f) Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
less than three months when purchased. At December 31, 1997 and March 31, 1998,
cash and cash equivalents include overnight repurchase agreements with a bank of
$10,800 and $9,600, respectively. Due to the short-term nature of these
agreements, the Company does not take possession of the underlying collateral,
U.S. Government Agency notes, which are held by the bank.
(g) Depreciation
The Company provides for depreciation of the assets over their estimated
useful lives, using the straight-line method, as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Computers and equipment........................... 3-5 years
Furniture and fixtures............................ 5 years
</TABLE>
As of December 31, 1997 and March 31, 1998, the cost of furniture and
fixtures recorded under capital leases was $473, and the related accumulated
amortization was $47 and $71, respectively. Upon retirement or disposal, the
cost of the asset disposed of and the related accumulated depreciation are
removed from the accounts and any gain or loss is reflected in income.
(h) Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations and has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," through disclosure only (Note 7).
(i) Earnings Per Share
The Company has adopted SFAS No. 128, "Earnings per Share," in the year
ended December 31, 1997. All historical earnings per share ("EPS") data have
been presented to conform to the provisions of this statement (Note 6). SFAS No.
128 requires the presentation of basic and diluted EPS. Basic EPS is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed using the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents
(using the treasury stock method).
(j) Income Taxes
Deferred income taxes are determined based on the difference between the
financial statements and the tax bases of assets and liabilities, as measured by
the enacted tax rates assumed to be in effect when these differences reverse.
(k) Impairment of Long-Lived Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and equipment and other assets, to determine whether any
impairments are other than temporary. Management believes that the long-lived
assets in the accompanying balance sheets are appropriately valued.
F-8
<PAGE> 67
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
(l) Unaudited First Quarter Information
The unaudited financial statements as of and for the three-month periods
ended March 31, 1997 and 1998 reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly present the financial position, results of operations and changes in cash
flows as of and for the periods presented. These unaudited financial statements
should be read in conjunction with the audited financial statements and related
notes thereto. The results for the interim periods presented are not necessarily
indicative of results to be expected for the full year.
(2) LONG-TERM OBLIGATIONS AND CREDIT ARRANGEMENTS
The Company has a working capital line of credit ("working capital line")
with a financial institution under which the Company may borrow the lesser of
$2,000 or 75% of eligible accounts receivable, as defined in the agreement. The
interest rate on all borrowings under the working capital line is prime plus
1/2% (9.0% at December 31, 1997) and will be reduced to prime upon the
Company's completion of an Initial Public Offering ("IPO"). The working capital
line expires in August 1998 and is collateralized by substantially all assets of
the Company. The Company is required to comply with certain operational and
financial covenants under the agreement if there are borrowings under the
working capital line. At December 31, 1997, the Company was in compliance with
all such covenants. The agreement also provides a $1,000 sublimit for foreign
exchange transactions and the issuance of letters of credit. There were no
borrowings under the working capital line for all periods presented.
In July 1997, the Company obtained an equipment line of credit ("equipment
line") with the same financial institution from which the Company may borrow up
to $500 for qualified capital expenditures, as defined in the agreement. The
interest rate on all borrowings under the equipment line is prime plus 3/4%
(9.25% at December 31, 1997) and will be reduced to prime upon the Company's
completion of an IPO. The Company was able to borrow against this equipment line
until January 31, 1998 (the "draw period"). During the draw period, the Company
was required to make payments of interest only on all outstanding borrowings. At
the conclusion of the draw period, the Company is required to make 36 equal
monthly principal payments plus interest. The Company is required to comply with
certain operational and financial covenants under the agreement if there are
borrowings outstanding under the equipment line. At December 31, 1997, the
Company was in compliance with all such covenants.
Long-term obligations consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Capital lease obligations................................... $440
Equipment line.............................................. 500
----
940
Less-current maturities..................................... 268
----
$672
====
</TABLE>
F-9
<PAGE> 68
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
Maturities of long-term obligations are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 348
1999........................................................ 313
2000........................................................ 313
2001........................................................ 122
2002........................................................ 16
------
1,112
Less-amount representing interest........................... 172
------
$ 940
======
</TABLE>
(3) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996, 1997 and
March 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- ---------
1996 1997 1998
------ ------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and other payroll expenses............ $ 474 $1,638 $ 921
Accrued other......................................... 575 1,318 1,441
------ ------ ------
$1,049 $2,956 $2,362
====== ====== ======
</TABLE>
(4) INCOME TAXES
The provision for income taxes consists of the following for the years
ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current
Federal................................................ $1,768 $ 692 $2,118
State.................................................. 566 196 659
------ ------ ------
2,334 888 2,777
Deferred
Federal................................................ (695) 124 (13)
State.................................................. (215) 38 (4)
------ ------ ------
(910) 162 (17)
------ ------ ------
$1,424 $1,050 $2,760
====== ====== ======
</TABLE>
F-10
<PAGE> 69
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
A reconciliation of the Company's income tax provision to the U.S.
statutory income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate............................. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.................. 6.3 6.3 6.3
Research and development credits............................ (0.7) (1.0) (1.0)
Other, net.................................................. 1.1 .1 (0.3)
---- ---- ----
Effective tax rate................................ 40.7% 39.4% 39.0%
==== ==== ====
</TABLE>
Significant components of the net deferred tax asset as of December 31,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accruals and reserves....................................... $784 $835
Depreciation................................................ 11 (23)
---- ----
Total net deferred tax asset...................... $795 $812
==== ====
</TABLE>
(5) STOCKHOLDERS' EQUITY
Until February 1996, the Company had authorized 12,020,025 and 2,979,975 of
Series A and Series B common shares, respectively, at no par value.
In February 1996, each share of Series A common stock and Series B common
stock, without par value, was converted into one share of common stock, $0.01
par value, with the same voting rights. The Company has authorized 22,000,000
shares consisting of 21,000,000 shares of common stock, $0.01 par value, and
1,000,000 shares of preferred stock, $0.01 par value.
In February 1997, i-Cube's Board of Directors voted a three-for-two stock
split of the Company's common stock, payable as a stock dividend, which became
effective the same day. All share and per share data, except common stock par
value, have been retroactively adjusted to reflect these changes.
In April 1998, i-Cube's Board of Directors voted, and recommended to
i-Cube's stockholders for approval, an increase in the authorized shares of
Common Stock, $0.01 par value, to 100,000,000.
(6) EARNINGS PER SHARE
The following table reconciles the denominator of the basic and diluted
earnings per share computation as shown on the Consolidated Statements of
Income:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic common shares
outstanding................ 12,322,743 12,424,678 12,627,222 12,519,461 13,243,701
Stock options................ 1,141,930 1,257,658 2,536,198 1,736,146 2,787,440
---------- ---------- ---------- ---------- ----------
Diluted common and common
equivalent shares.......... 13,464,673 13,682,336 15,163,420 14,255,607 16,031,141
========== ========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 70
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
Options to purchase shares of the Company's common stock of 440,574,
150,000, 139,847, 204,100 and 22,856 for the years ended December 31, 1995,
1996, 1997 and three months ended March 31, 1997 and 1998, respectively, were
outstanding during the respective periods but were not included in the
computation of diluted EPS because the exercise price of the options, which
ranges from $1.33 to $2.20 in 1995, $2.20 in 1996, $5.00 in 1997, $3.00 in the
three months ended March 31, 1997 and $7.00 in the three months ended March 31,
1998, were greater than the average market price of the common stock for the
periods reported. The outstanding options not included in the calculation for
the year ended December 31, 1995 will expire between May 2005 and December 2005.
The outstanding options not included in the calculation for the year ended
December 31, 1996 will expire in September 2005. The outstanding options not
included in the calculation for the year ended December 31, 1997 will expire in
November 2007. The outstanding options not included in the calculation for the
three months ended March 31, 1997 will expire between February 2007 and March
2007. The outstanding options not included in the calculation for the three
months ended March 31, 1998 will expire in March 2008.
(7) STOCK PLANS
(a) 1993 Stock Plan
The Company has a 1993 Stock Plan (the "1993 Plan"), pursuant to which the
Company was authorized to grant to employees, directors and consultants of the
Company statutory and nonstatutory stock options to purchase shares of Series B
common stock (now common stock). Under the 1993 Plan, incentive stock options
may be granted at an exercise price not less than the fair market value of the
Company's common stock on the date of the grant, as determined by the Board of
Directors. Nonqualified options may be granted on terms determined by the Board
of Directors, but at a price of no less than the book value per share or 50% of
the fair market value on the date of grant, whichever is lower. The maximum term
of the options is ten years from date of grant. Upon the adoption of the 1996
Plan, shares remaining ungranted under the 1993 Plan were authorized to be
granted under the 1996 Plan, and the 1993 Plan was then terminated.
(b) 1996 Stock Plan
On January 15, 1996, the Company's Board of Directors adopted the 1996
Stock Plan (the "1996 Plan"), pursuant to which the Company may grant to
employees, directors and consultants of the Company stock options, rights or
awards to purchase shares of common stock. The total number of shares available
for grant under the 1996 Plan was 989,984 at March 31, 1998. Under the 1996
Plan, incentive stock options ("ISOs") may be granted at an exercise price not
less than the fair market value of the Company's common stock on the date of the
grant (110% of fair market value for ISOs granted to holders of more than 10% of
the voting stock of the Company), as determined by the Board of Directors. Stock
options under the 1996 Plan are non-transferable and generally vest over a
four-year period. The maximum term of any option is ten years.
F-12
<PAGE> 71
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
Information related to all stock options granted by the Company is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE EXERCISE PRICE
NUMBER OF EXERCISE OPTIONS OF OPTIONS
SHARES PRICE EXERCISABLE EXERCISABLE
--------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1994....... 1,099,988 $0.01 354,487 $0.01
Granted............................ 1,259,175 1.59
Exercised.......................... (27,000) 0.01
--------- ----- --------- -----
Outstanding, December 31, 1995....... 2,332,163 0.85 1,166,952 $0.54
Granted............................ 2,952,000 2.00
Exercised.......................... (145,688) 1.72
Forfeited/canceled................. (479,550) 1.99
--------- ----- --------- -----
Outstanding, December 31, 1996....... 4,658,925 1.43 1,728,001 $0.72
Granted............................ 1,931,700 3.43
Exercised.......................... (473,677) 1.44
Forfeited/canceled................. (429,323) 2.17
--------- ----- --------- -----
Outstanding, December 31, 1997....... 5,687,625 2.06 1,997,804 $0.92
Granted............................ 451,500 5.74
Exercised.......................... (503,345) 0.11
Forfeited/canceled................. (95,998) 3.59
--------- ----- --------- -----
Outstanding March 31,
1998(unaudited).................... 5,539,782 $2.51 1,657,628 $1.32
========= =====
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AT MARCH 31, REMAINING EXERCISE AT MARCH 31, EXERCISE
PRICES 1998 CONTRACTUAL LIFE PRICE 1998 PRICE
---------- ------------ ---------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
$0.01-0.67 728,500 6.53 $0.13 668,880 $0.10
1.33-1.33 21,675 7.08 1.33 13,551 1.33
2.00-2.20 2,721,594 8.23 2.01 840,167 2.02
3.00-3.00 1,180,563 9.08 3.00 133,905 3.00
5.00-5.00 720,450 9.61 5.00 1,125 5.00
7.00-7.00 167,000 9.97 7.00 -- --
---------- --------- ---- ----- --------- -----
$0.01-7.00 5,539,782 8.41 $2.51 1,657,628 $1.32
========== ========= ==== ===== ========= =====
</TABLE>
The exercise price for each of the above grants was determined by the Board
of Directors of the Company to be equal to the fair market value of the common
stock on the day of grant (110% of the fair market value for grants to holders
of more than 10% of the voting stock of the Company). In reaching this
determination at the time of each such grant, the Board considered a broad range
of factors including the illiquid nature of an investment in the Company's
common stock, the Company's historical financial performance, and the Company's
future prospects. Pursuant to the required pro forma disclosure under the fair
value method of
F-13
<PAGE> 72
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
estimating compensation cost, the Company has estimated the fair value of its
stock option grants by using the Black-Scholes option pricing method with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Expected option term (years)................................ 5.0 7.0 7.0
Risk-free interest rate (%)................................. 6.3 6.6 6.4
Dividend yield (%).......................................... 0.0 0.0 0.0
Weighted-average fair value of options granted.............. $0.40 $0.72 $1.20
</TABLE>
The Company applies APB Opinion No. 25 and the related Interpretations.
Accordingly, no compensation cost has been recognized for option grants. Had
compensation cost for these awards been determined based on the fair value at
the grant dates using the minimum value method, consistent with SFAS No. 123,
the Company's net income would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net income
As reported............................................ $2,076 $1,615 $4,325
Compensation expense for stock options................. 56 272 573
------ ------ ------
Pro forma net income................................... $2,020 $1,343 $3,752
====== ====== ======
Basic earnings per share as reported..................... $ 0.17 $ 0.13 $ 0.34
Pro forma basic earnings per share....................... $ 0.16 $ 0.11 $ 0.30
Diluted earnings per share as reported................... $ 0.15 $ 0.12 $ 0.29
Pro forma diluted earnings per share..................... $ 0.15 $ 0.10 $ 0.25
</TABLE>
(8) COMMITMENTS
The Company leases its facilities under operating lease agreements that
expire through October 2002. The following are the future minimum lease payments
under operating leases as of December 31, 1997:
<TABLE>
<S> <C>
1998................................................ $1,108
1999................................................ 1,144
2000................................................ 1,228
2001................................................ 1,140
2002................................................ 45
------
Total minimum lease payments.............. $4,665
======
</TABLE>
Rent expense was $237, $544 and $1,158 for the years ended December 31,
1995, 1996 and 1997, respectively.
(9) RELATED PARTY TRANSACTIONS
In 1995, the Company had net revenues of $36 from an entity whose principal
stockholder is a principal stockholder and a former director of the Company.
In 1995, the Company had net revenues of $366 from an entity of which a
principal stockholder and former director of the Company was a stockholder and
director.
F-14
<PAGE> 73
INTERNATIONAL INTEGRATION INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED)
(DOLLARS IN THOUSANDS)
During 1995, the Company provided certain management, administrative and
support services and subleased a portion of its facilities to another related
entity. The Company charged the entity $102 during 1995, which was offset
against operating expenses of the Company. The amount charged was included in
due from related party in the Company's balance sheets. During 1996, all amounts
were paid in full.
In 1996, the Company was paid $317 for IT services provided to a company of
which a principal stockholder and a former director of the Company was a
significant shareholder.
During 1997, the Company received a note for $533 from a stockholder for
the exercise of 400,000 stock options. The note is due in October 2000 and
accrues interest at 8.5%, payable at maturity.
(10) 401(k) PLAN
During April 1995, the Company adopted a defined contribution plan (the
"401(k) Plan") under Section 401(k) of the Internal Revenue Code. The 401(k)
Plan allows eligible employees to make contributions up to a specified annual
maximum contribution, as defined. Under the 401(k) Plan, the Company may, but is
not obligated to, match a portion of the employees contributions up to a defined
maximum. The Company did not contribute to the 401(k) Plan during 1995, 1996, or
1997. The Company's contribution to the plan was $32 during the three months
ended March 31, 1998.
(11) SUPPLEMENTARY INFORMATION
During 1997 and the three months ended March 31, 1998, the Company paid
interest of $69 and $22 respectively. No interest was paid in 1995, 1996, or the
three months ended March 31, 1998.
During 1995, 1996, 1997 and the three months ended March 31, 1997 and 1998,
the Company paid $1,762, $1,808, $2,217, $127, and $7, respectively for income
taxes.
The Company entered into obligations under capital leases of $617 during
the period ended December 31, 1997.
During 1997, the Company disposed of various fixed assets with an original
cost of $199.
During 1996 and 1997 the Company paid $1,150 and $249 for executive signing
bonuses, respectively. These amounts are included in general and administrative
expenses.
F-15
<PAGE> 74
[Callout:]
The i-Cube Mission
To help clients create business advantage by rapidly revitalizing and
implementing strategic information solutions
i-Culture Values
These values are deeply held principles that govern and guide i-Cube in its
relationships with clients, team members, partners, communities and other
stakeholders.
- - Trust and respect
- - Integrity
- - Commitment
- - Teamwork
- - A belief that the journey is as important as the destination
i-Culture Vision
Where technical barriers end and business solutions begin. Together, as a team,
we consistently strive to:
- - Deploy brilliant technology
- - Thrill our clients
- - Do the right things right
We are passionate people having fun!
The i-Culture.
Helping the company foster teamwork, entrepreneurial values, leadership and a
commitment to client success.
[GRAPHIC: A stylized depiction of the i-Culture as a cube with sides
representing the people, the technology and the methods i-Cube employs to
deliver value to clients.]
[CAPTION: The i-Culture: i-Cube understands the important role its people play
in delivering solutions to clients.]
[photograph of company employees participating in a team building exercise]
[Section 3:]
The People:
i-Cube believes that the quality of its people will determine the quality of
services it delivers to its clients.
Placing as great a focus on its people as on its technology, i-Cube is committed
to attracting and retaining a team of high-caliber professionals with deep
business and technology experience.
So people, technology and methods work together to deliver results to clients.
It's a culture built on teamwork. The company's investment in its people
includes extensive team-building experiences for all employees. Initial and
ongoing training.
Mentoring. Pay-for-performance. Opportunities for accelerated career
advancement. A flexible work environment. Stock ownership opportunities for all
employees.
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 12,197
NASD filing fee............................................. 4,525
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 120,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 300,000
Blue Sky fees and expenses (including legal fees)........... 10,000
Transfer agent and registrar fees and expenses.............. 50,000
Miscellaneous............................................... 58,278
--------
Total............................................. $950,000
========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Registrant's Certificate of
Incorporation, as amended, provides for indemnification of the Registrant's
directors and officers for liabilities and expenses that they may incur in such
capacities. In general, directors and officers are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Registrant, and with respect to any
criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. Reference is made to the Registrant's Form of
Amended and Restated Certificate of Incorporation filed as Exhibit 3.2 hereto.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
The Company intends to obtain directors and officers liability insurance
for the benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
On February 28, 1996, the Company issued an aggregate of 8,231,683
(pre-split) shares of its Common Stock to seven stockholders upon the
conversion of an aggregate of 8,231,683 shares of the common stock of
International Integration Incorporated, a Massachusetts corporation, in
connection with the Company's reincorporation in Delaware. Of these, 18,000
shares were issued to one stockholder upon the conversion of shares issued
(pursuant to an exercise of options under the Company's 1993 Stock Plan) in
the three years preceding the filing of this registration statement; the
balance of these shares were issued to six stockholders upon the conversion
of shares issued more than three years prior to the filing of this
registration statement.
II-1
<PAGE> 76
Between February 28, 1996 and February 4, 1997, the Company issued an
aggregate of 122,625 (pre-split) shares of its Common Stock to eight
stockholders for an aggregate purchase price of $327,975. All of such
issuances were pursuant to option exercises or restricted stock purchases
under the Company's stock plans.
The Company declared a three-for-two stock split, by means of a stock
dividend, effective February 5, 1997. As a result, the holders of 8,354,308
shares received an additional 4,177,154 shares of Common Stock.
Since its reincorporation in Delaware, the Company has repurchased
from stockholders an aggregate of 3,001 (post-split) shares of Common
Stock, which are currently held in treasury by the Company.
Subsequent to the stock split described above, the Company issued an
aggregate of 938,772 (post-split) shares of its Common Stock to 16
stockholders for an aggregate purchase price of $659,547.51. All of such
issuances were pursuant to option exercises or restricted stock purchases
under the Company's stock plans.
(b) Certain Grants and Exercises of Stock Options and Restricted
Stock.
Prior to January 1, 1996, the Company (i) issued options under its
1993 Stock Plan to purchase an aggregate of 1,866,363.5 (post-split) shares
of Common Stock, exercisable at a weighted average exercise price of $.57
per share and (ii) issued an aggregate of 951,188.5 (post-split) shares of
Common Stock at a weighted average purchase price of $.60 per share upon
exercise of certain of such options. Also, during this period, the Company
issued 300,500 (post-split) shares of restricted stock under its 1993 Stock
Plan for a weighted average purchase price of $.01 per share.
From February 29, 1996 through March 31, 1998, the Company (i) issued
options under its 1996 Stock Plan to purchase an aggregate of 4,710,628
(post-split) shares of Common Stock, exercisable at a weighted average
purchase price of $2.84 per share and (ii) issued an aggregate of 86,021
(post-split) shares of Common Stock at a weighted average purchase price of
$2.18 per share upon exercise of certain of such options. Also, during this
period, the Company issued 112,500 (post-split) shares of restricted stock
under its 1996 Stock Plan for a weighted average purchase price of $2.00
per share.
The foregoing exercises of stock options and grants of restricted
stock are also included in the totals in paragraph (a) above.
No underwriters were involved in the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative
to sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase Common
Stock, Rule 701 of the Securities Act. All of the foregoing securities are
deemed restricted securities for the purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1+ -- Form of Underwriting Agreement
3.1* -- Certificate of Incorporation of the Registrant, as amended
3.2 -- Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this
offering
3.3* -- By-laws of the Registrant, as amended
3.4 -- Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering
4.1 -- Specimen Certificate for Common Stock
5.1 -- Opinion of Hale and Dorr LLP
10.1* -- 1993 Stock Plan
</TABLE>
II-2
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
10.2* -- 1996 Stock Plan
10.3 -- 1998 Stock Incentive Plan
10.4 -- 1998 Non-Employee Director Stock Option Plan
10.5* -- Founding Stockholders' Agreement dated as of May 6, 1997
between the Registrant, Madhav Anand, Yannis Doganis, Sundar
Subramaniam and Edouard Aslanian
10.6* -- Amendment to Founding Stockholders' Agreement dated as May
6, 1997, between the Registrant, Madhav Anand, Yannis
Doganis, Sundar Subramaniam, Edouard Aslanian, Harrington
Trust Limited, as Trustee of The Geneva Trust, and
Subramaniam Limited Partnership
10.7* -- Voting Trust Agreement dated as of October 13, 1997 between
the Registrant, State Street Bank and Trust Company, Sundar
Subramaniam, Subramaniam Limited Partnership and Harrington
Trust Limited, as Trustee of the Geneva Trust
10.8* -- Letter Agreement dated August 8, 1995 between the Registrant
and Silicon Valley Bank
10.9* -- Promissory Note dated August 8, 1995 between the Registrant
and Silicon Valley Bank
10.10* -- Commercial Security Agreement dated August 8, 1995 between
the Registrant and Silicon Valley Bank
10.11* -- Negative Pledge Agreement dated August 8, 1995 between the
Registrant and Silicon Valley Bank
10.12* -- Letter Agreement dated October 7, 1996 between the
Registrant and Silicon Valley Bank
10.13* -- Promissory Note dated July 31, 1997 between the Registrant
and Silicon Valley Bank
10.14* -- Loan Modification Agreements between Registrant and Silicon
Valley Bank dated August 6, August 7, 1996 and August 28,
1997, respectively
10.15* -- Lease Agreement dated November 20, 1996 between the
Registrant, RR&C Development Company and Patrician
Associates, Inc.
10.16* -- Lease Agreement dated as of July 14, 1995 between the
Registrant and Riverfront Office Park Joint Venture
10.17* -- Amendment No. 1 to Lease Agreement dated as of July 14, 1995
between the Registrant and Riverfront Office Park Joint
Venture
10.18* -- Sublease dated as of June 19, 1995 between the Registrant
and MathSoft, Inc.
10.19* -- Letter Agreement dated June 3, 1996 between the Registrant
and Michael Pehl
10.20* -- Letter Agreement dated August 30, 1996 between the
Registrant and Lawrence P. Begley
10.21* -- Letter Agreement dated December 19, 1997 between the
Registrant and Karl-Heinz Dette
10.22 -- Application Transformation Program Agreement dated as of
July 23, 1997 between Hewlett-Packard Company and the
Registrant
10.23 -- Cooperation Agreement dated as of July 9, 1997 between the
Registrant and debis Systemhaus MEB Mercedes EDV Beratung
GmbH
16.1* -- Letter from Arthur Andersen LLP re: change in certifying
accountants
21.1* -- Subsidiaries of the Registrant
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1* -- Power of Attorney (see page II-5)
27 -- Financial Data Schedule
</TABLE>
- ---------------
+ To be filed by amendment.
* Previously filed.
(b) Financial Statements Schedules:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
II-3
<PAGE> 78
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser; (2) that for purposes
of determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(2) or (3) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective; and (3) that for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cambridge, Massachusetts, on this
31st day of May, 1998.
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ LAWRENCE P. BEGLEY
------------------------------------
Lawrence P. Begley
Executive Vice President, Chief
Financial Officer, Treasurer and
Director (Principal Accounting and
Financial Officer)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
MICHAEL PEHL* Chief Executive Officer and May 31, 1998
- --------------------------------------------------- Chairman (Principal Executive
Michael Pehl Officer)
MADHAV ANAND* President and Director May 31, 1998
- ---------------------------------------------------
Madhav Anand
/s/ LAWRENCE P. BEGLEY Executive Vice President, Chief May 31, 1998
- --------------------------------------------------- Financial Officer, Treasurer
Lawrence P. Begley and Director (Principal
Accounting and Financial
Officer)
THOMAS J. MEREDITH* Director May 31, 1998
- ---------------------------------------------------
Thomas J. Meredith
JOSEPH M. TUCCI* Director May 31, 1998
- ---------------------------------------------------
Joseph M. Tucci
GREGORY S. YOUNG* Director May 31, 1998
- ---------------------------------------------------
Gregory S. Young
</TABLE>
II-5
<PAGE> 80
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
JOHN A. YOUNG* Director May 31, 1998
- ---------------------------------------------------
John A. Young
PATRICK J. ZILVITIS* Director May 31, 1998
- ---------------------------------------------------
Patrick J. Zilvitis
* /s/ LAWRENCE P. BEGLEY
- ---------------------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
1.1+ -- Form of Underwriting Agreement
3.1* -- Certificate of Incorporation of the Registrant, as amended
3.2 -- Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this
offering
3.3* -- By-laws of the Registrant, as amended
3.4 -- Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering
4.1 -- Specimen Certificate for Common Stock
5.1 -- Opinion of Hale and Dorr LLP
10.1* -- 1993 Stock Plan
10.2* -- 1996 Stock Plan
10.3 -- 1998 Stock Incentive Plan
10.4 -- 1998 Non-Employee Director Stock Option Plan
10.5* -- Founding Stockholders' Agreement dated as of May 6, 1997
between the Registrant, Madhav Anand, Yannis Doganis, Sundar
Subramaniam and Edouard Aslanian
10.6* -- Amendment to Founding Stockholders' Agreement dated as May
6, 1997, between the Registrant, Madhav Anand, Yannis
Doganis, Sundar Subramaniam, Edouard Aslanian, Harrington
Trust Limited, as Trustee of The Geneva Trust, and
Subramaniam Limited Partnership
10.7* -- Voting Trust Agreement dated as of October 13, 1997 between
the Registrant, State Street Bank and Trust Company, Sundar
Subramaniam, Subramaniam Limited Partnership and Harrington
Trust Limited, as Trustee of the Geneva Trust
10.8* -- Letter Agreement dated August 8, 1995 between the Registrant
and Silicon Valley Bank
10.9* -- Promissory Note dated August 8, 1995 between the Registrant
and Silicon Valley Bank
10.10* -- Commercial Security Agreement dated August 8, 1995 between
the Registrant and Silicon Valley Bank
10.11* -- Negative Pledge Agreement dated August 8, 1995 between the
Registrant and Silicon Valley Bank
10.12* -- Letter Agreement dated October 7, 1996 between the
Registrant and Silicon Valley Bank
10.13* -- Promissory Note dated July 31, 1997 between the Registrant
and Silicon Valley Bank
10.14* -- Loan Modification Agreements between Registrant and Silicon
Valley Bank dated August 6, August 7, 1996 and August 28,
1997, respectively
10.15* -- Lease Agreement dated November 20, 1996 between the
Registrant, RR&C Development Company and Patrician
Associates, Inc.
10.16* -- Lease Agreement dated as of July 14, 1995 between the
Registrant and Riverfront Office Park Joint Venture
10.17* -- Amendment No. 1 to Lease Agreement dated as of July 14, 1995
between the Registrant and Riverfront Office Park Joint
Venture
10.18* -- Sublease dated as of June 19, 1995 between the Registrant
and MathSoft, Inc.
10.19* -- Letter Agreement dated June 3, 1996 between the Registrant
and Michael Pehl
10.20* -- Letter Agreement dated August 30, 1996 between the
Registrant and Lawrence P. Begley
10.21* -- Letter Agreement dated December 19, 1997 between the
Registrant and Karl-Heinz Dette
10.22 -- Application Transformation Program Agreement dated as of
July 23, 1997 between Hewlett-Packard Company and the
Registrant
10.23 -- Cooperation Agreement dated as of July 9, 1997 between the
Registrant and debis Systemhaus MEB Mercedes EDV Beratung
GmbH
16.1* -- Letter from Arthur Andersen LLP re: change in certifying
accountants
21.1* -- Subsidiaries of the Registrant
23.1 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
23.2 -- Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1* -- Power of Attorney (see page II-5)
27 -- Financial Data Schedule
</TABLE>
- ---------------
+ To be filed by amendment.
* Previously filed.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL INTEGRATION INCORPORATED
International Integration Incorporated, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The name of the corporation is International Integration
Incorporated. The corporation was originally incorporated on February 5, 1996.
2. This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the Amended Certificate of Incorporation of
the Corporation, was duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of Delaware, and was approved by
written consent of the stockholders of the Corporation given in accordance with
the provisions of Section 228 of the General Corporation Law of Delaware (prompt
notice of such action having been given to those stockholders who did not
consent in writing). The resolution setting forth the Amended and Restated
Certificate of Incorporation is as follows:
RESOLVED: That the Amended Certificate of Incorporation of the Corporation be
and hereby is amended and restated in its entirety so that the same shall read
as follows:
FIRST. The name of the Corporation is:
International Integration Incorporated
<PAGE> 2
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Hundred-One Million
(101,000,000) shares, consisting of (i) One Hundred Million (100,000,000) shares
of Common Stock, $.01 par value per share ("Common Stock"), and (ii) One Million
(1,000,000) shares of Preferred Stock, $.01 par value per share ("Preferred
Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders. There shall be no
cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware or any corresponding provision hereinafter
enacted.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
-2-
<PAGE> 3
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise specifically provided in this Amended and Restated Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the Amended
and Restated Certificate of Incorporation, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
-3-
<PAGE> 4
SIXTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
SEVENTH. 7.1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was, or has agreed to become, a director
or officer of the Corporation, or is or was serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her or on his or her behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he or she acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful. Notwithstanding anything to the contrary in this
Article, except as set forth in Section 7.6 below, the Corporation shall not
indemnify an Indemnitee seeking indemnification in connection with a proceeding
(or part thereof) initiated by the Indemnitee unless the initiation thereof was
approved by the Board of Directors of the Corporation.
7.2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was, or has agreed to become, a director
or officer of the Corporation, or is or was serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint
-4-
<PAGE> 5
venture, trust or other enterprise (including any employee benefit plan), or by
reason of any action alleged to have been taken or omitted in such capacity,
against all expenses (including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses (including attorneys' fees) which the Court of
Chancery of Delaware or such other court shall deem proper.
7.3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 7.1 and 7.2 hereof, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he or she shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or her or on his or her
behalf in connection therewith. Without limiting the foregoing, if any action,
suit or proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv)
an adjudication that the Indemnitee did not act in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his or her conduct was
unlawful, the Indemnitee shall be considered for the purposes hereof to have
been wholly successful with respect thereto.
7.4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
or her right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him or her for which indemnity will or could be sought. With respect
to any action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 7.4. The Indemnitee shall
-5-
<PAGE> 6
have the right to employ his or her own counsel in connection with such claim,
but the fees and expenses of such counsel incurred after notice from the
Corporation of its assumption of the defense thereof shall be at the expense of
the Indemnitee unless (i) the employment of counsel by the Indemnitee has been
authorized by the Corporation, (ii) counsel to the Indemnitee shall have
reasonably concluded that there may be a conflict of interest or position on any
significant issue between the Corporation and the Indemnitee in the conduct of
the defense of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel for the Indemnitee shall be at the expense of
the Corporation, except as otherwise expressly provided by this Article. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
7.5. ADVANCE OF EXPENSES. Subject to the provisions of Section 7.6
below, in the event that the Corporation does not assume the defense pursuant to
Section 7.4 hereof of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter, PROVIDED,
HOWEVER, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
7.6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification
or advancement of expenses pursuant to Section 7.1, 7.2, 7.3 or 7.5 hereof, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 7.1, 7.2 or 7.5
the Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 7.1 or 7.2, as the case may be. Such determination shall be
made in each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority
-6-
<PAGE> 7
vote of a committee of two or more disinterested directors, (c) a majority vote
of a quorum of the outstanding shares of stock of all classes entitled to vote
for directors, voting as a single class, which quorum shall consist of
stockholders who are not at that time parties to the action, suit or proceeding
in question, (d) independent legal counsel (who may be regular legal counsel to
the Corporation), or (e) a court of competent jurisdiction.
7.7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 7.6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advanced of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 7.6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
7.8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
7.9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in any other capacity while holding office
for the Corporation, and shall continue as to an Indemnitee who has ceased to be
a director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from
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time to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
7.10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or her or on his or
her behalf in connection with any action, suit, proceeding or investigation and
any appeal, therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of such
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement to which the Indemnitee is entitled.
7.11. INSURANCE. The Corporation may purchase and maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law of Delaware.
7.12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
7.13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
7.14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and
Section 145(i).
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7.15. SUBSEQUENT LEGISLATION. If the General Corporation Law of
Delaware is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall indemnify
such persons to the fullest extent permitted by the General Corporation Law of
Delaware, as so amended.
EIGHTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
NINTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation, and it is expressly provided
that it is intended to be in furtherance and not in limitation or exclusion of
the powers conferred by the statutes of the State of Delaware.
9.1. NUMBER OF DIRECTORS. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-Laws.
9.2. CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class II and one of the extra directors
shall be a member of Class III, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
9.3. TERMS OF OFFICE. Each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1999; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2000; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2001; and PROVIDED FURTHER, that the term of each director shall
be subject to the election and qualification of his or her successor and to his
or her earlier death, resignation or removal.
9.4. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and
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(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
9.5. QUORUM; ACTION AT MEETING. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third (1/3) of the
number of directors fixed pursuant to Section 9.1 above constitute a quorum. If
at any meeting of the Board of Directors there shall be less than such a quorum,
a majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the By-Laws of the
Corporation or by this Amended and Restated Certificate of Incorporation.
9.6. REMOVAL. Directors of the Corporation may be removed only for
cause by the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of the capital stock of the Corporation issued and
outstanding and entitled to vote.
9.7. VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, shall
be filled only by a vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected to hold office until the next election of the class
for which such director shall have been chosen, subject to the election and
qualification of his or her successor and to his or her earlier death,
resignation or removal.
9.8. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
TENTH. In addition to any other considerations which the Board of
Directors may lawfully take into account in determining whether to take or to
refrain from taking corporate action on any matter, including proposing any
matter to the stockholders of the Corporation, the Board of Directors may take
into account the
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interests of creditors, customers, employees and other constituencies of the
Corporation and its subsidiaries and the effect thereof upon communities in
which the Corporation and its subsidiaries do business.
ELEVENTH. Subject to the terms of any series of Preferred Stock or any
other securities of the Corporation with respect to the voting of shares of such
series or of such other securities, as the case may be, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders. Special
meetings of stockholders may be called at any time only by the Chairman of the
Board of Directors. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting. Subject to any such terms of any series of Preferred Stock or
any such other securities of the Corporation, special meetings of stockholders
of the Corporation may be called only as provided in the By-Laws of the
Corporation.
TWELFTH. The books of the Corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
Board of Directors or in the By-Laws of the Corporation.
THIRTEENTH. In furtherance and not in limitation of the powers
conferred by law or in this Amended and Restated Certificate of Incorporation,
the Board of Directors (and any committee of the Board of Directors) is
expressly authorized to take such action or actions as the Board or such
committee may determine to be reasonably necessary or desirable to (a) encourage
any person to enter into negotiations with the Board of Directors and management
of the Corporation with respect to any transaction which may result in a change
in control of the Corporation which is proposed or initiated by such person, or
(b) contest or oppose any such transaction which the Board of Directors or such
committee determines to be unfair, abusive or otherwise undesirable with respect
to the Corporation and its business, assets or properties or the stockholders of
the Corporation, including, without limitation, the adoption of such plans or
the issuance of such rights, options, capital stock, notes, debentures or other
evidence of indebtedness or other securities of the Corporation, which rights,
options, capital stock, notes, debentures or other evidences of indebtedness and
other securities (i) may be exchangeable for or convertible into cash or other
securities on such terms and conditions as may be determined by the Board of
Directors (or any such committee) and (ii) may provide for the treatment of any
holder or class of holders thereof designated by the Board of Directors (or any
such committee) in respect of the terms, conditions, provisions and rights of
such securities which is different from, and unequal to, the terms, conditions,
provisions and rights applicable to all other holders thereof.
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FOURTEENTH. 14.1. In addition to any requirements of law and any other
provisions of this Amended and Restated Certificate of Incorporation or the
terms of any series of Preferred Stock or any other securities of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Amended and Restated Certificate of Incorporation or the
terms of any series of Preferred Stock or any other securities of the
Corporation), the affirmative vote of the holders of shares representing at
least seventy-five percent (75%) of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote shall be required (x) to
authorize any amendment, alteration or repeal of any provision of Articles
NINTH, TENTH, ELEVENTH, THIRTEENTH or this Article FOURTEENTH, or (y) to adopt
any provision in this Amended and Restated Certificate of Incorporation which is
inconsistent with any provision of Articles NINTH, TENTH, ELEVENTH, THIRTEENTH
or this Article FOURTEENTH.
14.2. In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend and repeal from time to time By-Laws of the Corporation,
subject to the right of the stockholders entitled to vote with respect thereto
to amend, alter and repeal, in accordance with Section 15.3 hereof and the
provisions of such By-Laws, By-Laws made by the Board of Directors.
14.3. Subject to the following paragraph, the By-Laws of the
Corporation may be altered, amended or repealed or new by-laws may be adopted by
the affirmative vote of the holders of a majority of the shares of the capital
stock of the Corporation issued and outstanding and entitled to vote at any
regular meeting of stockholders, or at any special meeting of stockholders,
provided notice of such alteration, amendment, repeal or adoption of new by-laws
shall have been stated in the notice of such special meeting.
Notwithstanding any other provision of law, this Amended and Restated
Certificate of Incorporation (including the preceding paragraph) or the By-Laws,
and notwithstanding the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of the capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any
provisions inconsistent with Sections 2, 3, 10, 11, 12 or 13 of Article I,
Article II or Article VI of the By-Laws of the Corporation. In addition, the
affirmative votes of said holders shall be required to permit the stockholders
to adopt any provision of the Certificate of Incorporation which is inconsistent
with any such provision of the By-Laws.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its Chairman of the Board of Directors this ____ day of _________,
1998.
INTERNATIONAL INTEGRATION
INCORPORATED
By: _____________________________
Michael Pehl
Chairman of the Board of
Directors and Chief Executive
Officer
[Corporate Seal]
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EXHIBIT 3.4
AMENDED AND RESTATED BY-LAWS
OF
INTERNATIONAL INTEGRATION INCORPORATED
ARTICLE I. - STOCKHOLDERS
1. PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the Chairman of the Board or, if not
so designated, at the registered office of the corporation.
2. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the Chairman of the Board (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors or the Chairman of the Board and
stated in the notice of the meeting. If no annual meeting is held in accordance
with the foregoing provisions, the Board of Directors shall cause the meeting to
be held as soon thereafter as is convenient. If no annual meeting is held in
accordance with the foregoing provisions, a special meeting may be held in lieu
of the annual meeting, and any action taken at that special meeting shall have
the same effect as if it had been taken at the annual meeting, and in such case
all references in these By-Laws to the annual meeting of the stockholders shall
be deemed to refer to such special meeting.
3. SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time only by the Chairman of the Board of Directors. Business transacted
at any special meeting of stockholders shall be limited to matters relating to
the purpose or purposes stated in the notice of meeting.
4. NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the corporation.
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5. VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
6. QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
7. ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
8. VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders may vote in person or may authorize another person
or persons to vote or act for him or her by written proxy executed by the
stockholder or his or her authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
9. ACTION AT MEETING. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express
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provision of law, the Certificate of Incorporation or these By-Laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
10. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he or she should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
11. NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before an annual meeting
by a stockholder. For business to be
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properly brought before an annual meeting by a stockholder, if such business
relates to the election of directors of the corporation, the procedures in
Section 10 of Article I must be complied with. If such business relates to any
other matter, the stockholder must have given timely notice thereof in writing
to the Secretary. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 11 and except that any
stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any
successor provision) promulgated under the Securities Exchange Act of 1934, as
amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he or she should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
12. ACTION WITHOUT MEETING. Stockholders may not take any action by
written consent in lieu of a meeting.
13. ORGANIZATION. The Chairman of the Board shall call meetings of
the stockholders to order, and shall act as chairman of such meeting, PROVIDED,
however, that the Board of Directors may appoint any stockholder to act as
chairman of any meeting in the absence of the Chairman of the Board. The
Secretary of the corporation shall act as secretary at all meetings of the
stockholders; but in the absence of the Secretary at any meeting of the
stockholders, the presiding officer may appoint any person to act as secretary
of the meeting.
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ARTICLE II. - DIRECTORS
1. GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2. NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
3. CLASSES OF DIRECTORS. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class II and one of the extra directors
shall be a member of Class III, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
4. TERMS OF OFFICE. Each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1999; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2000, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2001; and PROVIDED FURTHER, that the term of each director shall
be subject to the election and qualification of his or her successor and to his
or her earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of
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directors so as to ensure that no one class has more than one director more than
any other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of offices are to expire at the earliest dates following such allocation,
unless otherwise provided from time to time by resolution adopted by the Board
of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any
time in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third (1/3) of the
number of directors fixed pursuant to Section 2 above constitute a quorum. If at
any meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by these By-Laws or by
the Amended and Restated Certificate of Incorporation of the corporation.
7. REMOVAL. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, shall
be filled only by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected to hold office until the next election of the class
for which such director shall have been chosen, subject to the election and
qualification of his or her successor and to his or her earlier death,
resignation or removal.
9. RESIGNATION. Any director may resign by delivering his or her
written resignation to the corporation at its principal office or to the
Chairman of the Board or Secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
10. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination is
made shall be given notice of the determination. A regular meeting of the Board
of Directors may
-6-
<PAGE> 7
be held without notice immediately after and at the same place as the annual
meeting of stockholders.
11. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, two or more directors, or by
one director in the event that there is only a single director in office.
12. NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his or her last known business or home
address at least 48 hours in advance of the meeting, or (iii) by mailing written
notice to his or her last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
13. MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. ACTION BY CONSENT. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
15. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation
-7-
<PAGE> 8
to be affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
16. COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE III. - OFFICERS
1. ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
4. TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
or her successor is elected and qualified, unless a different term is specified
in the vote choosing or appointing him or her, or until his or her earlier
death, resignation or removal.
5. RESIGNATION AND REMOVAL. Any officer may resign by delivering his
or her written resignation to the corporation at its principal office or to the
Chief Executive Officer or Secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
-8-
<PAGE> 9
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his or her resignation or removal, or any right to
damages on account of such removal, whether his or her compensation be by the
month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the corporation.
6. VACANCIES. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his or her predecessor and until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal.
7. CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he or she shall perform such duties and possess such
powers as are assigned to him or her by the Board of Directors. Unless otherwise
provided by the Board of Directors, he or she shall preside at all meetings of
the stockholders, and if he or she is a director, at all meetings of the Board
of Directors. If the Board of Directors appoints a Vice-Chairman of the Board,
he or she shall, in the absence or disability of the Chairman of the Board,
perform the duties and exercise the powers of the Chairman of the Board and
shall perform such other duties and possess such other powers as may from time
to time be vested in him or her by the Board of Directors. The person designated
as the Chief Executive Officer of the Company shall, subject to the direction of
the Board of Directors, have general charge and supervision of the business of
the corporation.
8. PRESIDENT. Unless the Board of Directors has designated the
Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall have such other duties and shall have such other powers as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
9. VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the
-9-
<PAGE> 10
Chief Executive Officer and when so performing shall have all the powers of and
be subject to all the restrictions upon the Chief Executive Officer. The Board
of Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors.
10. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Secretary
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Secretary, the Assistant Secretary (or if there shall be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him or her by the Board of Directors or the Chief Executive Officer. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or the Treasurer
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
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<PAGE> 11
12. SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV. - CAPITAL STOCK
1. ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such certificate shall be signed
by, or in the name of the corporation by, the Chairman or Vice-Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or any Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
3. TRANSFERS. Except as otherwise established by rules and regulation
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender of the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirement of these By-Laws.
-11-
<PAGE> 12
4. LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue
a new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
5. RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V. - GENERAL PROVISIONS
1. FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January of each year and end on the last day of December in each
year.
2. CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
3. WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
-12-
<PAGE> 13
4. VOTING OF SECURITIES. Except as the directors may otherwise
designate, the Chairman of the Board or Treasurer may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5. EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6. CERTIFICATE OF INCORPORATION. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, associations, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
a. The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
b. The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
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<PAGE> 14
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
8. SEVERABILITY. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or insufficient shall not affect
or invalidate any other provision of these By-Laws.
9. PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE VI. - AMENDMENTS
1. BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
2. BY THE STOCKHOLDERS. Subject to the following paragraph, these
By-Laws may be altered, amended or repealed or new by-laws may be adopted by the
affirmative vote of the holders of a majority of the shares of the capital stock
of the corporation issued and outstanding and entitled to vote at any regular
meeting of stockholders, or at any special meeting of stockholders, provided
notice of such alteration, amendment, repeal or adoption of new by-laws shall
have been stated in the notice of such special meeting.
3. CERTAIN PROVISIONS. Notwithstanding any other provision of law,
the Certificate of Incorporation or these By-Laws (including the preceding
paragraph), and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provisions inconsistent with Sections 2, 3, 10, 11, 12 or 13 of
Article I, Article II or Article VI of these By-Laws.
-14-
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
[LOGO] i-Cube(sm)
NUMBER ----------------- SHARES
------------- TRANSFORMING THE BUSINESS WORLD -------------------
III INTERNATIONAL INTEGRATION INCORPORATED
------------- -------------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 459698 10 6
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
--------------------------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
--------------------------------------------------------------------------------------------------
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
============INTERNATIONAL INTEGRATION INCORPORATED============
transferable upon the books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed or assigned. This Certificate and
the shares represented hereby are issued under and subject to the laws of The State of Delaware
and the Amended and Restated Certificate of Incorporation and Amended and Restated By-laws of the
Corporation, all as in effect from time to time.
This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
[INTERNATIONAL INTEGRATION INCORPORATED
/s/ Lawrence P. Begley CORPORATE SEAL 1996 /s/ Michael Pehl
DELAWARE] CHAIRMAN OF THE BOARD
CHIEF FINANCIAL OFFICER AND TREASURER AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ Mary A. Penezic
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
INTERNATIONAL INTEGRATION INCORPORATED
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. UPON WRITTEN REQUEST MADE BY THE HOLDER OF THE
CERTIFICATE, THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER A COPY OF THE FULL TEXT OF THE DESIGNATIONS, VOTING
POWERS, PREFERENCES, QUALIFICATIONS AND SPECIAL AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED, AS SET
FORTH IN THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND THE VOTES OF THE BOARD OF DIRECTORS.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _______________ Custodian ________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ______________________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, _________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------------
---------------------------------------------
_________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_________________________________________________________________________________________
_________________________________________________________________________________________
__________________________________________________________________________________ shares
of the common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
____________________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with full power
of substitution in the premises.
Dated _____________________________
(Signature) _________________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAMES(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: _________________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AN CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 1
EXHIBIT 5.1
HALE AND DORR LLP
COUNSELLORS AT LAW
60 State Street, Boston, Massachusetts 02109
617-526-6000 - fax 617-526-5000
June 1, 1998
International Integration Incorporated
101 Main Street
Cambridge, MA 02142
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-50889) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 2,875,000 shares of Common Stock, $0.01 par value per share (the "Shares") of
International Integration Incorporated, a Delaware corporation (the "Company"),
including 375,000 shares subject to an over-allotment option granted by the
Company and by certain selling stockholders (the "Selling Stockholders").
The Shares are to be sold by the Company and the Selling Stockholders
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company and the Selling Stockholders and Morgan
Stanley & Co. Incorporated, BT Alex. Brown Incorporated and UBS Securities LLC,
as representatives of the several underwriters named in the Underwriting
Agreement, the form of which has been filed as Exhibit 1.1 to the Registration
Statement.
We are acting as counsel for the Company in connection with the offer
and sale by the Company and the Selling Stockholders of the Shares. We have
examined signed copies of the Registration Statement as filed with the
Commission. We have also examined and relied upon the Underwriting Agreement,
minutes of meetings of the stockholders and the Board of Directors of the
Company as provided to us by the Company, stock record books of the Company as
provided to us by the Company, the Certificate of Incorporation and By-laws of
the Company, each as restated and/or amended to date, and such other documents
as we have deemed necessary for purposes of rendering the opinions hereinafter
set forth.
Washington, DC Boston, MA London, UK*
- --------------------------------------------------------------------------------
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE> 2
International Integration Incorporated
June 1, 1998
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
Delaware General Corporation Law statute and the federal laws of the United
States of America.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and sold by the Company or sold by the Selling Stockholders in accordance with
the terms and conditions of the Underwriting Agreement, the Shares will be
validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions, and we disclaim any obligation to advise you
of any change in any of these sources of law or subsequent legal or factual
developments that might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the use of our name therein and
in the related Prospectus under the caption "Legal Matters."
Peter B. Tarr, a partner in this firm, is Secretary of the Company.
Very truly yours,
/s/ HALE AND DORR LLP
HALE AND DORR LLP
<PAGE> 1
EXHIBIT 10.3
DRAFT 5/10/98
INTERNATIONAL INTEGRATION INCORPORATED
1998 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1998 Stock Incentive Plan (the "Plan") of
International Integration Incorporated, a Delaware corporation (the "Company"),
is to advance the interests of the Company's stockholders by enhancing the
Company's ability to attract, retain and motivate persons who make (or are
expected to make) important contributions to the Company by providing such
persons with equity ownership opportunities and performance-based incentives and
thereby better aligning the interests of such persons with those of the
Company's stockholders. Except where the context otherwise requires, the term
"Company" shall include any present or future subsidiary corporations of
International Integration Incorporated as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Award. No director
or person acting pursuant to the authority delegated by the Board shall be
liable for any action or determination relating to or under the Plan made in
good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board
<PAGE> 2
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
(a) NUMBER OF SHARES. Subject to adjustment under Section 4(c),
Awards may be made under the Plan for up to (i) 3,432,078 shares of Common
Stock, plus (ii) the number of shares of Common Stock subject to Awards granted
under the Company's 1993 Stock Plan or 1996 Stock Plan which are not actually
issued because options granted under such plans expire or otherwise result in
shares not being issued or, in the case of restricted stock, are repurchased by
the Company pursuant to the terms of the applicable stock restriction agreement.
If any Award expires or is terminated, surrendered or canceled without having
been fully exercised or is forfeited in whole or in part or results in any
Common Stock not being issued, the unused Common Stock covered by such Award
shall again be available for the grant of Awards under the Plan, subject,
however, in the case of Incentive Stock Options (as hereinafter defined), to any
limitation required under the Code. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.
(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 4(c),
for Awards granted after the Common Stock is registered under the Exchange Act,
the maximum number of shares with respect to which an Award may be granted to
any Participant under the Plan shall be 1,000,000 shares per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) ADJUSTMENT TO COMMON STOCK. In the event of any stock split,
stock dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar change
in capitalization or
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<PAGE> 3
event, or any distribution to holders of Common Stock other than a normal cash
dividend, (i) the number and class of securities available under this Plan, (ii)
the number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.
5. STOCK OPTIONS
(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be
an "incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at
the time each Option is granted and specify it in the applicable option
agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) EXERCISE OF OPTION. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise
of an Option granted under the Plan shall be paid for as follows:
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<PAGE> 4
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option
Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
(3) to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
(4) any combination of the above permitted forms of payment.
6. RESTRICTED STOCK
(a) GRANTS. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
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<PAGE> 5
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) ACQUISITION EVENTS
(1) CONSEQUENCES OF ACQUISITION EVENTS. Upon the occurrence of
an Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a specified
time (the "Acceleration Time") prior to the
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<PAGE> 6
Acquisition Event and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Time and the consummation of such Acquisition Event;
(iii) in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted Stock
Awards then outstanding shall become free of all restrictions prior to the
consummation of the Acquisition Event; and (v) provide that any other
stock-based Awards outstanding (A) shall become exercisable, realizable or
vested in full, or shall be free of all conditions or restrictions, as
applicable to each such Award, prior to the consummation of the Acquisition
Event, or (B), if applicable, shall be assumed, or equivalent Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 60% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
(2) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
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<PAGE> 7
(g) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) ACCELERATION. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
on the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been
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<PAGE> 8
approved by the Company's stockholders. No Awards shall be granted under the
Plan after the completion of ten years from the earlier of (i) the date on which
the Plan was adopted by the Board or (ii) the date the Plan was approved by the
Company's stockholders, but Awards previously granted may extend beyond that
date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
(f) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<PAGE> 1
EXHIBIT 10.4
DRAFT 4/23/98
INTERNATIONAL INTEGRATION INCORPORATED
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Adopted: ______________ ___, 1998
TABLE OF CONTENTS
Page
1. Purpose..............................................................1
2. Administration.......................................................1
3. Participation in the Plan............................................1
4. Stock Subject to the Plan............................................1
5. Terms, Conditions and Form of Options................................2
6. Limitation of Rights.................................................4
7. Adjustment Provisions for Mergers, Recapitalizations
and Related Transactions.............................................4
8. Change in Control....................................................5
9. Termination and Amendment of the Plan................................5
10. Notice...............................................................5
11. Governing Law........................................................6
12. Effective Date.......................................................6
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<PAGE> 2
INTERNATIONAL INTEGRATION INCORPORATED
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of this 1998 Non-Employee Director Stock Option Plan (the
"Plan") of International Integration Incorporated (the "Company") is to
encourage ownership in the Company by non-employee directors of the Company
whose continued services are considered essential to the Company's future
progress and to provide them with a further incentive to remain as directors of
the Company.
2. ADMINISTRATION.
The Board of Directors shall supervise and administer the Plan. All
questions concerning interpretation of the Plan or any options granted under it
shall be resolved by the Board of Directors and such resolution shall be final
and binding upon all persons having an interest in the Plan. The Board of
Directors may, to the full extent permitted by or consistent with applicable
laws or regulations, delegate any or all of its powers under the Plan to a
committee appointed by the Board of Directors, and if a committee is so
appointed, all references to the Board of Directors in the Plan shall mean and
relate to such committee.
3. PARTICIPATION IN THE PLAN.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("non-employee directors") shall be eligible to
receive options under the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) The maximum number of shares of the Company's Common Stock, par
value $.01 per share ("Common Stock"), which may be issued under the Plan shall
be 250,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares covered by
the unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
<PAGE> 3
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. TERMS, CONDITIONS AND FORM OF OPTIONS.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a)(i) AUTOMATIC OPTION GRANT DATES. Options shall automatically be
granted to all non-employee directors as follows:
(x) each person who first becomes a non-employee director
after the closing date (the "Closing Date") of the Company's initial public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, shall be granted an option to purchase
30,000 shares of Common Stock on the date of his or her initial election to the
Board of Directors; and
(y) each non-employee director shall be granted an option to
purchase 7,500 shares of Common Stock on the date of each Annual Meeting of
Stockholders of the Company following the Closing Date commencing with the 1999
Annual Meeting of Stockholders (other than a director who was initially elected
to the Board of Directors at any such Annual Meeting or, if previously, at any
time after the prior year's Annual Meeting of Stockholders), provided that he or
she is serving as a director immediately following the date of such Annual
Meeting.
(ii) PERIODIC GRANTS OF OPTIONS. Subject to execution by the
non-employee director of an appropriate option agreement, the Board may grant
additional options to purchase a number of shares to be determined by the Board
in recognition of services provided by a non-employee director in his or her
capacity as a director, provided that such grants are in compliance with the
requirements of Rule 16b-3, as promulgated under the Securities Exchange Act of
1934, as amended from time to time ("Rule 16b-3").
Each date of grant of an option pursuant to this Section 5(a) is hereinafter
referred to as an "Option Grant Date."
(b) OPTION EXERCISE PRICE. The option exercise price per share for
each option granted under the Plan shall equal (i) the closing price on any
national securities exchange on which the Common Stock is listed, (ii) the
closing price of the Common Stock on the Nasdaq National Market or (iii) the
average of the closing bid and asked prices in the over-the-counter market,
whichever is applicable, as published in THE WALL STREET JOURNAL, on the Option
Grant Date. If no sales of Common Stock were made on the Option Grant Date, the
price of the Common Stock for purposes of clauses (i) and
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<PAGE> 4
(ii) above shall be the reported price for the next preceding day on which sales
were made.
(c) TRANSFERABILITY OF OPTIONS. Except as the Board may otherwise
determine or provide in an option granted under the Plan, any option granted
under the Plan to an optionee shall not be transferable by the optionee other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and shall be
exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative. References to an optionee, to the
extent relevant in the context, shall include references to authorized
transferees.
(d) VESTING PERIOD.
(i) GENERAL. Each option granted under the Plan pursuant to
Section 5(a)(i) above shall become exercisable in eight equal semi-annual
installments beginning on the date six months after the Option Grant Date, with
the first, third, fifth and seventh such vesting dates occurring 180 days after
the immediately preceding Annual Meeting of Stockholders and the second, fourth,
sixth and eighth such vesting dates occurring on the date of the respective
Annual Meeting of Stockholders; provided, however, that the optionee is serving
as a director of the Company on such vesting date (it being understood that a
director whose term expires at an Annual Meeting of Stockholders and who does
not stand for re-election is deemed to be a director on (but not following) the
date of such Annual Meeting for the purposes of this Section 5 if he continues
to serve through the date of such Annual Meeting). Each option granted under the
Plan pursuant to Section 5(a)(ii) above shall become exercisable on such terms
as shall be determined by the Board and set forth in the option agreement with
the respective optionee.
(ii) ACCELERATION UPON ACQUISITION EVENT. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full upon the occurrence of an Acquisition Event (as
defined in Section 8) with respect to the Company.
(iii) RIGHT TO RECEIVE RESTRICTED STOCK. Notwithstanding the
provisions of Section 5(d)(i) above, the Board shall have the authority to grant
options (including options granted pursuant to Section 5(a)(i) above) which are
immediately exercisable subject to the Company's right to repurchase any
unvested shares of stock acquired by the optionee on exercise of an option in
the event such optionee's service as a director terminates for any reason.
(e) TERMINATION. Each option shall terminate, and may no longer be
exercised, on the earlier of (i) the date ten years after the Option Grant Date
of such option or (ii)
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<PAGE> 5
the first anniversary of the date on which the optionee ceases to serve as a
director of the Company.
(f) EXERCISE PROCEDURE. An option may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in cash
or by certified or bank check of the full consideration for the shares as to
which they are exercised, (ii) delivery of outstanding shares of Common Stock
(which have been outstanding for at least six months) having a fair market value
on the last business day preceding the date of exercise equal to the option
exercise price, or (iii) an irrevocable undertaking by a broker (who is a member
of the New York Stock Exchange) to deliver promptly to the Company sufficient
funds to pay the exercise price or delivery of irrevocable instructions to a
broker (who is a member of the New York Stock Exchange) to deliver promptly to
the Company cash or a check sufficient to pay the exercise price.
(g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. An
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain the optionee as a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his or her option
until the date of the issuance to him or her of a stock certificate therefor,
and no adjustment will be made for dividends or other rights (except as provided
in Section 7) for which the record date is prior to the date such certificate is
issued.
(c) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions
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<PAGE> 6
acceptable to the Board of Directors. Nothing herein shall be deemed to require
the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
7. ADJUSTMENT PROVISIONS FOR MERGERS, RECAPITALIZATIONS AND RELATED
TRANSACTIONS.
If, through or as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar transaction, (i) the outstanding shares of
Common Stock are exchanged for a different number or kind of securities of the
Company or of another entity, or (ii) additional shares or new or different
shares or other securities of the Company or of another entity are distributed
with respect to such shares of Common Stock, the Board of Directors shall make
an appropriate and proportionate adjustment in (x) the maximum number and kind
of shares reserved for issuance under the Plan, (y) the number and kind of
shares or other securities subject to then outstanding options under the Plan,
and (z) the price for each share subject to any then outstanding options under
the Plan (without changing the aggregate purchase price for such options), to
the end that each option shall be exercisable, for the same aggregate exercise
price, for such securities as such optionholder would have held immediately
following such event if he had exercised such option immediately prior to such
event. No fractional shares will be issued under the Plan on account of any such
adjustments.
8. ACQUISITION EVENT.
For purposes of the Plan, an "Acquisition Event" shall be deemed to
have occurred only if any of the following events occurs: (i) any merger or
consolidation which results in the voting securities of the Company outstanding
immediately prior thereto representing immediately thereafter (either by
remaining outstanding or by being converted into voting securities of the
surviving or acquiring entity) less than 60% of the combined voting power of the
voting securities of the Company or such surviving or acquiring entity
outstanding immediately after such merger or consolidation; (ii) any sale of all
or substantially all of the assets of the Company; or (iii) the complete
liquidation of the Company.
9. TERMINATION AND AMENDMENT OF THE PLAN.
The Board of Directors may suspend or terminate the Plan or amend it in
any respect whatsoever.
10. NOTICE.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
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<PAGE> 7
11. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the internal laws of the State of Delaware (without regard
to any applicable conflicts of laws or principles).
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<PAGE> 8
12. EFFECTIVE DATE.
The Plan shall become effective on the date hereof.
Adopted by the Board of Directors on
April ___, 1998
Approved by the stockholders as of
_____________ ___, 1998
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<PAGE> 1
EXHIBIT 10.22
HP CONFIDENTIAL
APPLICATION TRANSFORMATION
PROGRAM AGREEMENT
BETWEEN
HEWLETT-PACKARD COMPANY
AND
INTERNATIONAL INTEGRATION
INCORPORATED
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APPLICATION TRANSFORMATION PROGRAM AGREEMENT
This Application Transformation Program Agreement ("Agreement") is made as of
this ........ day of .......................... 19... ("the Effective Date") by
and between HEWLETT-PACKARD COMPANY, a California corporation, and its
consolidated subsidiaries ("HP") and International Integration, Incorporated, a
Massachusetts corporation ("i-Cube").
The purpose of this Agreement is to set forth the mutually agreeable terms and
conditions under which the parties will cooperate to combine their complementary
skills and expertise to help customers migrate complex custom legacy software
applications to an HP open client/server platform ("Transformation Projects").
1 DEFINITIONS
1.1 "APPLICATION TRANSFORMATION CENTER ('ATC')" means the physical
location, staffed by i-Cube, where customer applications are
rearchitected.
1.2 "CUSTOMER" means a potential or actual Application Transformation
Program customer jointly targeted by HP and i-Cube for a particular
Transformation Project.
1.3 "i-STRUCTURE" means those i-Cube tools and methodologies used to
rearchitect a customer's legacy application to run on a client/server
platform.
1.4 "PROPOSAL" means the parties' response to a Request.
1.5 "REQUEST" means a request for proposal or invitation to bid issued by a
Customer with respect to a Transformation Project.
1.6 "WORK" means the products and/or services detailed in EXHIBIT A to be
offered to a Customer in a Proposal.
2 SCOPE OF AGREEMENT
2.1 HP and i-Cube shall cooperate in the preparation of Proposals to be
submitted by HP in response to Requests.
2.2 Each party agrees to undertake the activities set forth in this
Agreement and in Exhibit A. Unless otherwise agreed in writing, the
parties intend for HP to be the prime contractor, and i-Cube to be the
subcontractor to HP in accord with Section 4.3, with respect to
Transformation Projects. If the parties are selected based on a
Proposal, HP will enter into an agreement with the Customer ("Prime
Contract") to provide the Work as set forth in the Proposal.
3 ROLES AND RESPONSIBILITIES
3.1 HP
3.1.1 HP will provide a sales and delivery organization focused on
identifying, selling and delivering Transformation Projects as part of
the Application Transformation Program during the term of this
Agreement.
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3.1.2 HP's general delivery responsibilities are outlined in EXHIBIT A to
this Agreement or any respective EXHIBIT B-I, etc.
3.1.3 HP shall establish a process by which relevant technical information
and support is provided to i-Cube to facilitate integration of specific
HP products and technologies with i-Cube's i-Structure as determined
from time to time and mutually agreed to by the parties.
3.1.4 HP shall provide the equipment detailed in EXHIBIT D for use at the ATC
solely for the purposes of supporting the ATP.
3.2 i-CUBE
3.2.1 i-Cube will provide an organization focused on delivering
Transformation Projects sold by HP as part of the Application
Transformation Program during the term of this Agreement.
3.2.2 i-Cube will assist HP in selling Transformation Projects for twelve
months from the effective date of this Agreement.
3.2.3 i-Cube's general delivery responsibilities are outlined in EXHIBIT A to
this Agreement or any respective EXHIBIT B-1, etc.
3.2.4 i-Cube agrees to staff the ATC with up to 25 people within six months
after the Effective Date of this Agreement, commensurate with the
number needed to support Transformation Projects sold by HP and i-Cube.
4 OBLIGATIONS OF THE PARTIES
4.1 GENERAL
4.1.1 Either party, in its sole discretion, shall choose whether or
not to respond to any Customer Request; in the latter case it
shall have no responsibility to assist the other in the
preparation of a Proposal.
4.1.2 The Work to be provided by each of the parties is described in
EXHIBIT A.
4.1.3 HP and i-Cube agree to develop a sales and delivery process
that will establish the basis for interaction between the
parties.
4.1.4 Within sixty (60) days of the Effective Date of this Agreement,
HP and i-Cube agree to develop a joint business plan and
marketing plan. The business plan shall contain appropriate
targets and metrics for the ATP. The marketing plan shall
contain the resources and events to be used to promote the ATP.
These plans shall be updated as deemed necessary by both
parties.
4.1.5 Each party shall appoint a representative to supervise and
coordinate its performance of its obligations under this
Agreement. The representative shall provide professional and
prompt liaison with the other party and have the necessary
expertise and authority to commit the appointing party.
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4.1.6 All contacts with Customers pertaining to Requests, Proposals
and Prime Contracts shall be coordinated through HP. i-Cube
agrees to promptly notify HP if it is directly contacted by a
Customer concerning a Request, Proposal, Prime Contract or any
related matter.
4.1.7 Unless otherwise agreed by the parties in writing, each party
shall bear its own costs and expenditures incurred in
connection with the preparation, submission and negotiation of
the Proposals. Neither party shall be liable for the costs
incurred or other obligations undertaken by the other party in
connection with a Proposal or any such negotiation.
4.1.8 i-Cube will be available for consultation with HP during any
negotiations with a Customer. i-Cube shall, upon HP's request,
and upon reasonable notice, attend (either in person or by
phone) any negotiations or discussions between HP and a
Customer which pertain to a Proposal or Prime Contract.
4.2 PREPARATION AND SUBMISSION OF THE PROPOSAL
4.2.1 HP will furnish i-Cube with a copy of each Request, including
any terms and conditions required by the Customer to be
incorporated into the Prime Contract. Upon receipt of the
Request, HP and i-Cube shall agree on the format of i-Cube's
proposal and the time frame for its submission to HP.
4.2.2 HP shall be responsible for the preparation, content,
evaluation and submission to Customer of the Proposal and Prime
Contract. During the preparation of the Proposal, i-Cube will
be provided with an opportunity to review the areas of the
Proposal relating to the portions of the Work to be supplied by
i-Cube, and i-Cube's comments will be reviewed and incorporated
as reasonable by HP. i-Cube acknowledges that HP retains
ultimate control over the form and content of Proposals.
4.2.3 Each party shall draw up at its own cost a proposal with
respect to its responsibilities detailed in Exhibit A and as
required by a specific Request. Each party shall be solely
responsible for its proposal, including the accuracy and
adequacy of designs, interface and technical data, appropriate
performance parameters, Work, support and all other matters
proposed by it and for the completion and delivery times for
the Work proposed by it in its proposal. In addition, i-Cube
will provide HP with any exceptions it may have to the terms
and conditions required by the Request to be incorporated into
the Prime Contract. During preparation of their respective
proposals, the parties shall meet regularly to review and
discuss progress and resolve any issues.
4.2.4 i-Cube shall submit to HP its proposal, including prices, at
the agreed time and in the agreed format, in the form of an
irrevocable offer valid until the latest date for acceptance of
the Proposal by the Customer, or any extension thereto agreed
by HP, i-Cube and Customer.
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4.2.5 i-Cube shall identify in its proposal any pre-existing
proprietary rights, and any reservations or restrictions
pertaining thereto, involved in its Work. The Proposal shall
clearly indicate any areas which the parties consider to
contain pre-existing proprietary rights, and HP shall be
responsible for notifying Customer of any reservations or
restrictions pertaining thereto.
4.2.6 Each party shall use reasonable commercial efforts in the
preparation of a competitive Proposal and further shall engage
in any other reasonable activity which shall result in the
acceptance of the Proposal by Customer and the award of the
contract to HP.
4.2.7 HP shall supply a copy of the Proposal, excluding costing data
and any material covered by third party confidentiality
obligations, to i-Cube promptly after its submission to
Customer.
4.2.8 If, after submission of the Proposal, Customer requires
changes to the Proposal, HP shall coordinate with i-Cube and
submit any response. i-Cube shall make available at HP's
request employees empowered to make commitments in respect of
the matters to be discussed.
4.2.9 In the event Customer requires demonstrations prior to i-Cube's
execution of a subcontract, the parties will provide, upon
mutual agreement, the resources necessary to meet Customer's
request.
4.2.10 HP will promptly notify i-Cube of the receipt by HP of the
written or verbal acceptance or refusal by Customer of the
Proposal.
4.3 SUBCONTRACT
4.3.1 If HP is awarded the Prime Contract, the parties intend to
enter into a subcontract agreement whereby i-Cube will provide
products and services consistent with commitments agreed upon
in the Proposal and under the terms and conditions of the
Master Subcontract attached as EXHIBIT B. The terms of the
Master Subcontract may need to be modified for a specific
Transformation Project as a result of subsequent negotiations
between HP and a Customer. Such modifications will be set out
in a Statement of Work under Section 4.3.2. The parties will
work in good faith to include such modifications in the Master
Subcontract. In the event mutually acceptable modifications
cannot be negotiated and executed by the parties within a
reasonable period of time, and in any event within 30 days
after notice of the award of the Prime Contract, either party
shall have the right upon 10 days prior notice to the other to
terminate the relationship with respect to that Transformation
Project and to make other arrangements for the performance of
the Work to have been covered by the subcontract.
4.3.2 Where HP is awarded the Prime Contract, i-Cube will provide
products and services consistent with the commitments agreed
upon in the Proposal and as specified in one or more
Statement(s) of Work attached to EXHIBIT B as Exhibit B-l, B-2,
B-3, etc. Each such Statement of Work will reference
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this Agreement and the Master Subcontract and will be valid
upon execution by authorized representatives of both HP and
i-Cube. Each Statement of Work will constitute as separate
agreement on the terms set forth in such Statement of Work,
this Agreement, and the Master Subcontract and will specify (i)
the nature of the services to be performed and/or products to
be provided; (ii) the delivery schedule, (iii) the name of the
individual who will coordinate performance on behalf of i-Cube;
(iv) preliminary and final acceptance standards (if any); (v)
the warranty period (if any); (vi) the total price of the
services and products (including any labor and material costs);
(vii) the payment schedule (viii) the name of the HP customer
requesting the services and/or products; and (ix) any
additional information necessary to clarify the Statement of
Work. In the event of conflict between the terms and conditions
of a Statement of Work and the terms and conditions of this
Agreement, the terms of the Statement of Work will control.
4.3.3 HP and i-Cube agree that each individual Statement of Work
shall include those provisions of the applicable Prime Contract
which by its terms are required to be flowed down to a
subcontractor. HP will provide i-Cube with reasonable
opportunity to review such terms. In the event that i-Cube
disputes the flow down of certain terms and conditions, i-Cube
shall provide HP with its reasons, in writing. If HP and i-Cube
are unable to agree on the flow down of any terms and
conditions, either party shall have the right to terminate the
applicable Statement of Work.
5 PRICING AND PAYMENT
5.1 HP and i-Cube shall follow the pricing, revenue sharing and payment
terms outlined in EXHIBIT C of this Agreement. The revenue sharing
formula will be reviewed no later than one year after the Effective
Date of this Agreement.
6 INTELLECTUAL PROPERTY
6.1 All copyrights and other intellectual property rights existing prior to
the Effective Date, including but not limited to software tools, design
concepts, questionnaires, process guidelines and methodologies,
education materials, software (whether in object code or source code)
and related documentation, shall belong to the party that owned such
rights immediately prior to the Effective Date. Neither party shall
gain by virtue of this Agreement any rights of ownership of copyrights,
patents, trade secrets, trademarks or any other intellectual property
rights owned by the other. If the parties decide to undertake any joint
development pursuant to this Agreement, any such joint development
shall be governed by a separate joint development agreement to be
negotiated in good faith by the parties and executed prior to the
commencement of any joint development efforts.
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6.2 i-Cube will grant HP a license to use existing i-Cube software and
i-Structure as is necessary for HP to perform its tasks under this
Agreement, any Prime Contract and any Statement of Work. Such license
shall be used by HP only to fulfill the specific Agreement, Prime
Contract or Statement of Work as may be designated by i-Cube in
writing; shall relate only to the specific components of i-Cube
software and i-Structure as i-Cube may designate in writing; and shall
terminate on the termination of the applicable Agreement, Prime
Contract or Statement of Work with respect to which such software is
licensed.
6.3 HP will grant i-Cube a license to use those tools and methodologies as
is necessary for i-Cube to perform its tasks under the Agreement and a
Statement of Work. Such license shall be used by i-Cube only to fulfill
the specific Agreement or Statement of Work as may be designated by HP
in writing; shall relate only to the specific components as HP may
designate in writing; and shall terminate on the termination of the
applicable Agreement or Statement of Work with respect to which such
tools or methodologies are licensed.
7 CONFIDENTIALITY
7.l During the term of this Agreement, either party may receive or have
access to technical information, as well as information about product
plans and strategies, promotions, customers and related non-technical
business information which the disclosing party considers to be
confidential ("Confidential Information"). In the event Confidential
Information is to be disclosed, the parties shall first agree to
disclose and receive such information in confidence. If then disclosed,
the Confidential Information shall be marked as confidential at the
time of disclosure, or if disclosed orally but stated to be
confidential, shall be designated as confidential in a writing by the
disclosing party summarizing the Confidential Information disclosed and
sent to the receiving party within 30 days after such oral disclosure.
Notwithstanding any provision to the contrary, Proposals and all
business information with respect to any unpublished or future i-Cube
or HP products are deemed Confidential Information for purposes of this
Section 7.
7.2 Confidential Information may be used by the receiving party only with
respect to the performance of its obligations under this Agreement, and
only by those employees of the receiving party and its subcontractors
who have a need to know such information for purposes related to this
Agreement, provided that such subcontractors have signed separate
agreements containing substantially similar confidentiality provisions.
The receiving party shall protect the Confidential Information of the
disclosing party by using the same degree of care (but not less than a
reasonable degree of care) to prevent the unauthorized use,
dissemination or publication of such Confidential Information, as the
receiving party uses to protect its own confidential information of
like nature. The receiving party's obligation under this Section 7
shall be for a period of three years after the date of disclosure.
7.3 The obligations stated in this Section 7 shall not apply to any
information which is:
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7.3.l Already known by the receiving party prior to disclosure.
7.3.2 Publicly available through no fault of the receiving party.
7.3.3 Rightfully received from a third party without a duty of
confidentiality.
7.3.4 Disclosed by the disclosing party to a third party without a
duty of confidentiality on such third party.
7.3.5 Independently developed by the receiving party prior to or
independent of the disclosure.
7.3.6 Disclosed under operation of law.
7.3.7 Disclosed by the receiving party with the disclosing party's
prior written approval.
8 LIMITATION OF LIABILITY
Both parties' liability under this Agreement, Exhibit B (Master
Subcontract), and any Statement of Work thereunder, shall be limited
as set forth in Exhibit B.
9 DISPUTE RESOLUTION
9.1 In the event that the parties are unable to agree upon any matter
pursuant to this Agreement, the disputed matter shall be referred in
the first instance to the appointed representatives of the parties. If
the representatives are unable to resolve the disputed matter within a
reasonable time not to exceed 30 days, they shall refer the matter to
the General Manager of the Professional Services Organization for HP
and the Chief Executive Officer for i-Cube. In the event they cannot
reach a mutually acceptable resolution within a reasonable time not to
exceed 30 days, either party shall be entitled to seek all available
remedies, including legal remedies. Notwithstanding the foregoing,
either party may seek injunctive relief with respect to any disputed
matter without following the dispute resolution procedure set forth
above.
10 TERM AND TERMINATION
10.1 This Agreement shall come into force on the Effective Date and shall
continue in effect for a period of two (2) years, unless terminated
earlier by either party in accordance with the provisions hereof. This
Agreement will renew for additional one (1) year terms unless one party
provides written notification sixty (60) days prior to the end of the
term.
10.2 This Agreement shall automatically terminate upon the happening of one
of the following events, whichever shall occur first:
10.2.1 The insolvency, bankruptcy, reorganization under the bankruptcy
laws, or assignment for the benefit of creditors of either
party.
10.2.2 Mutual agreement of the parties to terminate the Agreement.
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10.3 In the event that a Customer terminates the agreement between HP and
that Customer, HP shall have the right to immediately terminate any
Statement of Work and subcontract affected by such Customer's
termination. Upon such termination by HP, HP will make any payments
then owed i-Cube by HP with respect to such Statement of Work and
subcontract, unless Customer's termination is due to acts or omissions
of i-Cube such as would constitute a breach of this Agreement or any
applicable subcontract or Statement of Work, in which case HP shall
have the right to offset against the amounts so owed to i-Cube the
amount of any damages resulting from such material breach.
10.4 Either party may terminate this Agreement for convenience upon 90 days
written notice to the other party. Any such termination does not
relieve either party of their respective obligations under any
subcontract and Statement of Work in effect at the date of termination
of this Agreement.
10.5 Either party may terminate this Agreement if the other party is in
material breach of any of its obligations under this Agreement and
fails to remedy the breach for a period of 30 days after a written
notice by the other party which specifies the material breach.
10.6 Sections 4.1.7 (Responsibility for Costs), 6 (Intellectual Property), 7
(Confidentiality), 8 (Limitation of Liability) and 11 (Miscellaneous)
shall survive the termination of this Agreement.
11 MISCELLANEOUS
11.1 NON-RESTRICTIVE RELATIONSHIP. Subject to Section 7, nothing in this
Agreement shall be construed to preclude HP from developing, acquiring,
or marketing projects which may perform the same or similar functions
as the products or services provided by i-Cube.
11.2 NO PUBLICITY. Neither party shall publicize or disclose to any third
party the terms of this Agreement or activities pursuant to this
Agreement, without the consent of the other party (such consent shall
not be unreasonably withheld), except as required by law and except for
disclosure in confidence to each party's legal and financial advisors.
11.3 NO JOINT VENTURE. Nothing contained in this Agreement shall be
construed as creating a joint venture, partnership or employment
relationship between the parties hereto, nor shall either party have
the right, power or authority to create any obligation or duty, express
or implied, on behalf of the other.
11.4 NO ASSIGNMENT. Neither party may assign any rights or obligations under
this Agreement without the prior written consent of the other party
other than by a party in connection with a sale of the business of
such party, whether by merger, sale of assets or stock, or otherwise.
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11.5 FORCE MAJEURE. Neither party will be liable for performance delays or
for non-performance due to causes beyond its reasonable control and not
due to its negligence.
11.6 NOTICES. All notices required under or regarding this Agreement shall
be in writing and shall be considered given upon personal delivery of a
written notice to the HP representative or i-Cube representative
designated pursuant to Section 4.1.2, or within five days of mailing,
postage prepaid and appropriately addressed.
11.7 WAIVER. Either party's failure to exercise any of its rights under this
agreement shall not constitute or be deemed to constitute a waiver or
forfeiture of such rights.
11.8 SEVERABILITY. If any term or provision of this Agreement is held to be
illegal or unenforceable, the validity or enforceability of the
remainder of this Agreement shall not be affected.
11.9 EXHIBITS. The following document is attached hereto as an exhibit, the
terms of which are incorporated by reference in their entirety: EXHIBIT
A, Service Delivery Framework; EXHIBIT B, Master Subcontract, EXHIBIT
C, Pricing and Payment, EXHIBIT D, Equipment to be Provided, EXHIBIT E,
i-Cube Software License Agreement, EXHIBIT F, HP Software License
Terms, EXHIBIT G, Escrow Agreement.
11.10 PRECEDENCE. In the event of conflict between the provisions of this
Agreement and any attached Exhibit, the Exhibit shall to the extent of
such conflict take precedence.
11.11 ENTIRE AGREEMENT. This Agreement and its Exhibits constitute the entire
agreement between HP and i-Cube, and supersede any previous or
contemporaneous communications, representations or agreements between
the parties, whether oral or written, regarding the subject matter of
this Agreement. The terms and conditions of this Agreement may not be
changed except by an amendment signed by an authorized representative
of each party.
11.12 APPLICABLE LAW. This Agreement is made under and shall be construed in
accordance with the law of the State of California without giving
effect to that state's choice of law rules.
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SIGNED FOR AND ON BEHALF OF SIGNED FOR AND ON BEHALF OF
HEWLETT-PACKARD i-CUBE
By: /s/ Jim Sherriff By: /s/ Michael Pehl
----------------------- -----------------------
Name: Jim Sherriff Name: Michael Pehl
Title: PSO GM Title: Chairman & C.F.O.
Date: 7/23/97 Date: 7/21/97
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EXHIBIT 10.23
[The following agreement is an English translation of a German language
document. The original German document controls in the event that there are
differences between the original and this translation.]
Cooperation Agreement
between
[logo:] i-Cube
I-CUBE(R)
International Integration, Inc.
101 Main Street
Cambridge, MA 02142
(hereinafter called "i-Cube")
and
[logo:] debis Systemhaus
debis Systemhaus MEB
Mercedes EDV Beratung GmbH
Fasanenweg 9
D-70771 Leinfelden-Echterdingen
Germany
(hereinafter called "MEB")
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I-Cube/MEB Agreement 07/09/97
1 Object of the Agreement 3
2 Introduction 4
2.1 Positioning within debis Systemhaus 4
2.2 Service Portfolio 4
3 Marketing / Sales 5
4 Organizational Requirements 5
4.1 Employee Training 5
4.2 Bid Handling 5
4.3 Order Handling 6
4.4 Project Handling 6
4.5 Escalation Authorities 6
4.6 Procedural Model 7
4.7 Regular Communication 7
5 Services of MEB 7
6 Services of i-Cube 7
7 Reciprocal Obligations 8
7.1 Joint Obligations 8
7.2 Obligations of i-Cube 8
7.3 Obligations of MEB 9
8 Compensation 10
8.1 Compensation for Projects 10
8.2 Brokering of Orders 10
8.3 Goal Agreement for MEB Sales 10
9 Reciprocal Liability of Parties 11
10 Separability Clause 11
11 Term 11
12 Confidentiality 12
12.1 Confidential Information 12
12.2 Exceptions 12
12.3 Disclosure based on Law 12
12.4 General Protection of Confidential Information 12
12.5 Protection of Software of the Parties and of Ownership Rights 13
12.6 Effectiveness of No. 12.1 13
13 Other Provisions 14
debis Systemhaus MEB Mercedes-EDV-Beratung GmbH / I-CUBE(R) International Inc.
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I-Cube/MEB Agreement 07/09/97
Preamble
In the Memorandum of Understanding dated 01/29/97, i-Cube and debis Systemhaus
MEB Mercedes-EDV-Beratung GmbH declared their intention to work together in
future on the issues of rearchitecting, migrations, and customized
applications. The following contract contains the individual terms and
conditions under which a future cooperation between the two parties shall take
place. i-Cube and MEB have agreed as follows.
1 Object of the Agmement
The object of this Agreement is a partnering cooperation in sales and
implementation of projects.
The cooperation relates essentially to joint preparation and processing of the
German market in the first stage, and of the European market in the second
stage, joint targeted handling of interested parties from initial acquisition
until contract signing,and handling of projects until the delivery of the
finished solution to the end user.
The concrete obligations of MEB and i-Cube toward the end users shall be
determined according to the specific contract with the particular end user,
which is to be concluded under this cooperation agreement.
debis Systemhaus MEB Mercedes-EDV-Beratung GmbH / I-CUBE(R) International Inc.
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I-Cube/MEB Agreement 07/09/97
2 Introduction
2.1 Positioning within debis Systemhaus
MEB shall market the services both in the debis Systemhaus and at Daimler-Benz
AG. For this purpose, MEB shall establish a Center of Competence,hereinafter
called CoC, for migrations, rearchitecting, and customized applications. This
CoC shall not be a legally independent entity and shall be a new unit within
debis Systemhaus MEB GmbH. All sales and project handling related activities
shall be managed through this center. This center shall include sales agents as
well as consultants and technicians.
The marketing of i-Cube services throughout debis Systemhaus shall be promoted
via this CoC. Thus MEB shall coordinate all activities within debis Systemhaus.
This Agreement ensures for i-Cube that via the Center of Competence there will
be only one coordinating office in debis Systemhaus.
In reciprocation, i-Cube guarantees to MEB that
- i-Cube shall not initiate or conclude agreements for general
cooperation with debis Systemhaus entities or entitles of the
Daimler-Benz Group without prior consent.
- i-Cube shall inform MEB if debis Systemhaus entities or entities of
the Daimler-Benz Group approach i-Cube with such intentions,
If MEB is not in a position to exercise the coordination within the DB Group,
then both parties shall mutually decide how to proceed further.
2.2 Service Portfolio
This cooperation is to be developed for the purpose of gaining joint customers
and realizing joint projects with them. The activities of MEB shall not be
limited only to purely acquisitional or sales-related tasks, but shall also
encompass project activities, It is the goal of the partnership that by a
certain time MEB shall be in a position to realize projects based on the
i-structure independently, without the collaboration of i-Cube.
The so-called i-structure of i-Cube is a set of tools and methods used for
migrations of legacy systems and for the development of customized applications.
debis Systemhaus MEB Mercedes-EDV-Beratung GmbH / I-CUBE(R) International Inc.
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I-Cube/MEB Agreement 07/09/97
The cooperation between MEB and i-Cube is based on this i-structure. The
i-structure and the tools appear in Annex 1.
debis Systemhaus MEB Mercedes-EDV-Beratung GmbH / I-CUBE(R) International Inc.
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I-Cube/MEB Agreement 07/09/97
3 Marketing / Sales
The description of the sales process is defined in the procedural model. The
acquisition occurs either with the customer directly (case of MBAG) or through
the sales channels of debis Systemhaus. An important starting point here is
constituted primarily by the so-called MDUs (market development units). These
units are set up according to industries and have the important
customers/interested parties defined as named accounts.
i-Cube and MEB shall review on an ongoing basis whether acquisition activities
have not already been initiated by third parties with respect to an interested
party who calls. This refers in particular to partnerships which i-Cube has
entered into with others,
i-Cube and MEB hereby agree that information shall be exchanged in regularly
held status meetings.
4 Organizational Requirements
4.1 Employee Training
MEB shall prepare jointly with i-Cube a training or education plan for employees
from the Center of Competence.
In this, MEB shall guarantee that
- qualified employees are provided
- these employees are released for training measures.
i-Cube shall guarantee that
- MEB is supported in the selection of qualified employees
- these employees receive a qualified education with respect to the
i-structure (this education shall be at no charge for MEB as part of
the jointly developed and agreed-on education plan).
4.2 Bid Handling
In general, MEB shall prepare a bid to the particular interested party for
issues relating to the i-structure or the CoC, and shall offer the services of
i-Cube in conjunction with i-Cube. However, it must be decided according to the
desire of the customer how the individual bids will be prepared, and who shall
assume which responsibility or even the management of the bid.
debis Systemhaus MEB Mercedes-EDV-Beratung GmbH / I-CUBE(R) International Inc.
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I-Cube/MEB Agreement 07/09/97
In general it shall be true that all bids from i-Cube to MEB shall be prepared
in DM (German marks) or Euros.
debis Systemhaus MEB Mercedes-EDV-Beratung GmbH / I-CUBE(R) International Inc.
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I-Cube/MEB Agreement 07/09/97
During the acquisition or bid phase, MEB may call on employees of i-Cube at no
charge (in the scope adequate for the particular case of acquisition) to clarify
technical issues regarding the i-structure, including visits to customers and
interested parties.
Both parties shall agree in the procedural model on a guideline regarding the
regulation of bid signing.
4.3 Order Handling
If a plan leads to an order, then it must be defined on a case-by-case basis who
the contract partners shall be or what contract relationships shall be
established. MEB will assume a coordinating role in this.
All payments from or to i-Cube shall be made in DM (German marks) or Euros. Any
currency risks must be taken into account in the bids from i-Cube.
4.4 Project Handling
The handling of individual projects shall be done jointly with MEB and/or the
particular debis Systemhaus companies. According to the requirements of the
project, of the particular company, or of the customer, employees from the
Center of Competence may be deployed in the implementation/coordination of
projects. This shall occur in consultation with i-Cube.
Both parties shall stipulate in the procedural model a project management
process for handling joint projects.
4.5 Escalation Authorities
i-Cube and MEB am stipulating a partnering cooperation in this Agreement. The
persons in charge of this cooperation are, on the MEB side, the director of the
Center of Competence and, on the i-Cube side, the director of Europe.
If situations or problems arise from the cooperation which cannot be solved
mutually by the two persons in charge (CoC director and director of Europe),
then the parties shall call upon an escalation committee.
This committee shall be composed as follows:
MEB i-Cube
MEB management i-Cube management
SOP/skills management director Director of Europe
Center of Competence director R&D director
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4.6 Procedural Model
This Agreement establishes a framework for a cooperation by both parties. The
CoC director together with the director of Europe shall prepare a detailed
procedural model on how the cooperation shall be carried out in practice. This
procedural model shall be prepared and approved mutually by both parties within
20 days after the signing of the Agreement and shall then form an integral
component of this Agreement.
4.7 Regular Communication
Both parties hereby stipulate that the CoC directorship shall hold regular
meetings with the director of i-Cube Europe at least once a month, in order to
discusses [sic] the then current status of projects and plans.
The results shall be made known to the management teams of both parties.
5 Services of MEB
The following services shall essentially be provided by MEB:
- marketing measures, acquisition and sales of projects based on the
i-structure
- installation of the Center of Competence
- training of employees
- participation in or implementation of projects
- provision of tools of debis Systemhaus
- coordination of activities within debis Systemhaus
The individual services shall be defined jointly by i-Cube and MEB in the
procedural model.
6 Services of i-Cube
The following activities shall essentially be provided by i-Cube:
- provision of informational materials
- training of CoC employees
- support of the sales process
- implementation of projects
- provision of i-structure
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The individual services shall be defined jointly by i-Cube and MEB in the
procedural model.
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7 Reciprocal Obligations
7.1 Joint Obligations
Both parties undertake in conjunction with the other party to implement together
appropriate measures to gain new interested parties.
Both parties undertake to inform the other party immediately of new
acquisition projects and to make a decision about joint processing.
The cases of joint processing shall be documented in a prospect list which is
updated monthly and which is expressly a part of this Agreement. The authorities
responsible for this are defined in Point 4.7.
Both parties are concerned to process the cases in this list jointly according
to the rules of this Agreement. If this should be impossible, then both parties
shall mutually define a corresponding procedure.
For plans that were not generated from the CoC, both parties shall make an
agreement as to how decisions shall be made in this case.
The agreement regarding the case-specific procedure shall be done on the
operational level between the sales employees responsible for the particular
interested party/customer.
Both partners undertake to inform the other partner regularly in written form on
a monthly basis about the status of the particular cases being processed and
immediately about case-related activities and the results thereof.
7.2 Obligations of i-Cube
i-Cube hereby undertakes within the framework of the cooperation:
a) to provide the required sales services
in the scope adequate for the particular case of acquisition.
This shall be applicable in particular for the part of the preparation and
formulation of bids, the implementation of acquisition measures, etc. which is
specific to i-Cube.
b) to provide without charge the required system-technical and corresponding
i-Cube product-related technical support, to the extent that this is required
for the joint success and invoicing to the interested party/customer not
possible.
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7.3 Obligations of
MEB MEB undertakes within the framework of the cooperation:
a) in the scope adequate for the particular case of acquisition
to provide the required sales support. This applies in particular to the
development of new interested parties, the industry-specific technical part of
the preparation and working out of bids, the implementation of acquisition
measures, etc.
to provide without charge the required i-structure-related support, to the
extent that this is required for the joint success and invoicing to the
interested party/customer not possible.
b) to assume the general contractorship for joint projects related to the
i-structure, if this is requested by the end user.
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8 Compensation
In general, the following applies:
The earnings achieved within the framework of cooperation shall belong to each
partner for the deliveries, services, and license grants provided by it.
The costs incurred by the partners within the framework of cooperation, for
example sales, travel, and presale costs, shall be home by each partner by
itself.
A written agreement regarding the distribution of costs for measures to be
implemented jointly, for example presentations and trade fairs, shall be made in
each individual case prior to implementation of the measures.
8.1 Compensation for Projects
i-Cube and MEB shall jointly prepare a case-specific calculation of the
joint projects.
8.2 Brokering of Orders
The goal of this agreement is to process orders jointly through the CoC. If for
any reason processing is not possible, and the plan was acquired by MEB, then
MEB shall receive from i-Cube a commission in the amount of 1.5% of the order
value.
8.3 Goal Agreement for MEB Sales
The compensation of the sales department or the sales employees of MEB shall
occur directly and exclusively through MEB.
MEB will establish a corresponding goal agreement with the sales employees
responsible for the marketing of migration and rearchitecting and customized
application projects.
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9 Reciprocal Liability of Parties
The partners shall be liable to one another for personal, property and
asset damages only up to the level of the bid value or the prospective order
value, but no more than an amount of DM 500,000. This shall also apply for the
personal liability of their employees and vicarious agents - for any legal mason
whatsoever.
Liability is limited to malicious intent and gross negligence. Damage
compensation claims extending beyond that, for any legal-mason whatsoever, shall
be excluded as far as possible by law.
10 Separability Clause
The complete or partial ineffectiveness or unenforceability of individual
provisions of this Agreement shall not result in its ineffectiveness as a whole.
The ineffective or unenforceable provision shall be replaced by one that comes
as close as possible to the economic effect of the ineffective or unenforceable
provision. The same applies for the case of a gap in the stipulations.
11 Term
The cooperation agreement is concluded for a period of 5 years and is extended
by up to 3 additional years.
The Agreement may be terminated by each partner in written form with a notice
period of 12 months as of the end of the year without stating masons.
Termination without notice for good cause shall remain unaffected hereby.
In case of termination, an agreement shall be made on a case-specific basis
about the further treatment of the acquisition and installation cases being
handled jointly.
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12 Confidentiality
12.1 Confidential Information
Confidential information encompasses all confidential information which one
party has given over to the other, verbally or in written form, including but
not limited to the software of one party (regardless of whether in object code
or source code), documentation, business secrets, or other confidential
information, including information disclosed prior to the date of this
Agreement, which relates to the business or business activity of one party
(including the business activity of dependent companies ("confidential
information")).
12.2 Exceptions
Confidential information does not encompass information (i) which is generally
known to companies working in the business sector of the disclosing party; (ii)
which were acquired by one party honestly without restrictions regarding the
disclosure; (iii) which were conveyed to the party receiving the information
prior to the receipt from the disclosing party without restrictions of
confidentiality; or (iv) which were developed independently by the party
receiving the information without information from the disclosing party.
12.3 Disclosure Based on Law
If a party or one of its vicarious agents is required by law to disclose
confidential information, then this party shall immediately inform the other
party of such necessity prior to the disclosure. The parties shall join forces
and sincerely attempt to agree on an agreement [sic] about the form and
conditions of a disclosure which is acceptable to both parties within the
framework of the circumstances under which the disclosure is to be made. If
after such a notification and consultation the parties are unable to agree on a
mutually acceptable form and conditions for the disclosure, then the party
required by law to disclose the information shall not be subject to liability
with respect to the other party, as long as the disclosing party undertakes
reasonable efforts to obtain a protective declaration or other reliable
declaration which guarantees that the confidential information will be treated
confidentially by the agency demanding the disclosure.
12.4 General Protection of Confidential Information
The parties are in agreement (i) that they will not make the confidential
information of the other party available to any third party except as set forth
in this Section 1.4 and (ii) that they will use the confidential information of
the other only for the purpose of concluding a project or in such a way as is
set forth elsewhere in the provisions of this Agreement, including any license
agreement
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referred to in this Agreement. Each party may [word missing] confidential
information to its organizational bodies, directors, and employees participating
in or supervising the project, to its auditors, tax consultants, and other
vicarious agents having a bona fide interest in the information (together "the
agents"),provided that, prior to disclosing the confidential information to an
agent, the party informs this agent of the requirements of this Agreement and
receives an agreement from this agent according to which the agent undertakes to
observe the confidentiality provision of this Agreement. Each party shall inform
the other party immediately after it hears of an unauthorized disclosure or use
of the confidential Information of the other party, and shall take all measures
demanded by the other party to remedy such disclosure or use. Each party shall
reproduce on all copies of confidential information all indications of
confidentiality and ownership which are affixed to the originals. Each party
undertakes not to pass on any confidential information of the other party
outside of Germany without written permission from the other party.
12.5 Protection of Software of the Parties and of Ownership Rights
Debis software is the sole and exclusive property of debis, and i-Cube software
is the sole and exclusive property of i-Cube. The i-structures developed by
i-Cube are proprietary. They are the property of i-Cube, and neither the signing
of an agreement nor the completion of a joint project shall transfer the
ownership rights or license rights. If the tools are used in order to carry out
a migration, the rights to the resulting application shall remain with the
customer and i-Cube. i-Cube or debis, depending, shall retain all copyrights and
other rights to their software documentation. The parties hereby agree (i) to
protect and uphold the confidentiality of the software and documentation of the
other party, (ii) not to alter or rework or to attempt to alter or rework the
software of the other party, unless expressly allowed under the terms and
conditions of this Agreement, and (iii) not to copy the software of
documentation of the other participants, except as expressly allowed under the
terms and conditions of this Agreement.
12.6 Effectiveness of No. 12.1
The rights and obligations of the parties under this No, 1 shall remain in
effect beginning on the date of signing of this Agreement and ending 5 years
after the dissolution or termination of this Agreement. The limitations on
disclosure regulated in No. 1.5 shall continue indefinitely.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the registration
statement on Form S-1 of our report dated March 16, 1998, on our audits of the
consolidated financial statements of International Integration Incorporated. We
also consent to the references to our firm under the captions "Experts" and
"Selected Financial Data."
Boston, Massachusetts Coopers & Lybrand L.L.P
June 1, 1998
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