<PAGE> 1
As filed with the Securities and Exchange Commission on April 24, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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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- -------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value.................... $40,250,000 $12,197
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
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 April 24, 1998
Shares
[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 $ AND $ 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 additional Shares 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
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............................... 5
The Company................................ 13
Use of Proceeds............................ 13
Dividend Policy............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Consolidated Financial Data....... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 17
Business................................... 23
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PAGE
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Management................................. 35
Certain Transactions....................... 45
Principal Stockholders..................... 46
Description of Capital Stock............... 48
Shares Eligible for Future Sale............ 51
Underwriters............................... 53
Legal Matters.............................. 54
Experts.................................... 54
Change in Accountants...................... 54
Additional Information..................... 55
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 closing of this offering 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> 4
[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> 5
[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> 6
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;
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's Suite of 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 two to three days to 15 minutes.
[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.
<PAGE> 7
Mentoring. Pay-for-performance. Opportunities for accelerated career
advancement. A flexible work environment. Stock ownership opportunities for all
employees.
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.]
[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!]
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety 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............................... shares
Common Stock to be outstanding after this
offering......................................... 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>
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(1) Based on shares of Common Stock outstanding as of March 31, 1998. Excludes
(i) 5,461,782 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) 4,317,984 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.
3
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED 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>
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AS OF MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED(2)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,833 $
Working capital............................................. 9,174
Total assets................................................ 19,518
Long-term obligations, net of current maturities............ 623 623
Total stockholders' equity.................................. 11,043
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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 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$ per share, 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."
4
<PAGE> 10
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
5
<PAGE> 11
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
6
<PAGE> 12
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."
7
<PAGE> 13
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
8
<PAGE> 14
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
9
<PAGE> 15
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
% 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."
10
<PAGE> 16
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
shares offered hereby ( shares if the over-allotment option
is exercised in full), approximately 379,374 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 12,555,842 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 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 5,461,782
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
4,317,984 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
11
<PAGE> 17
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 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."
12
<PAGE> 18
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 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ ($ if the Underwriters' over-allotment option is exercised
in full), assuming an initial public offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company. 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.
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."
13
<PAGE> 19
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 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $ per share, 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;
shares issued and outstanding, as
adjusted(2)............................................ 134
Additional paid-in capital................................ 1,566
Treasury stock............................................ (8) (8)
Note receivable from stockholder.......................... (533) (533)
Retained earnings......................................... 9,884 9,884
------- ------
Total stockholders' equity............................. 11,043
------- ------
Total capitalization.............................. $11,666 $
======= ======
</TABLE>
- ---------------
(1) Gives effect to the filing of the Restated Certificate of Incorporation of
the Company prior to the closing of this offering.
(2) Excludes (i) 5,461,782 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) 4,317,984 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.
14
<PAGE> 20
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 shares of Common
Stock offered by the Company hereby (at an assumed initial public offering price
of $ per share 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 $ , or
$ per share of Common Stock. This represents an immediate increase in
such net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share before this offering.... $
Increase in net tangible book value per share attributable
to new investors.......................................
Net tangible book value per share after this offering.......
--------
Dilution per share to new investors......................... $
========
</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 $ per share 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 % $ 997,632 % $ .07
New investors.................
---------- ----- ---------- -----
Total.................... 100.0% $ 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 shares, or %
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 shares, or % 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
5,461,782 shares of Common Stock at a weighted average exercise price of $2.45
per share and 4,317,984 shares reserved for future issuance under the Company's
stock plans. To the extent any of these options are exercised, there will be
further dilution to new investors. See "Management -- Benefit Plans" and Note 7
of Notes to Consolidated Financial Statements.
15
<PAGE> 21
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.
16
<PAGE> 22
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. In addition, the Company attempts to mitigate the risks associated
with determining accurate project completion estimates by deferring a portion of
the revenues from certain contracts until the estimate of the time and resources
required for completion can be more accurately determined. 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 Notes to
Consolidated Financial Statements. In 1996, 1997 and the first three months of
1998, net revenues
17
<PAGE> 23
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 research and development 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.
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
18
<PAGE> 24
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 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
19
<PAGE> 25
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
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.
20
<PAGE> 26
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 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
21
<PAGE> 27
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.
22
<PAGE> 28
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
23
<PAGE> 29
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 research and development
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 two to three 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
Rockwell Automation/Reliance
Daimler-Benz AG 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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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, 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 a subsidiary of debis Systemhaus provides for
joint marketing of the Company's services or products, both within the debis
Systemhaus entities and among entities of the Daimler-Benz AG group of
companies. Marketing efforts are initially focused in Germany but are
subsequently expected to be directed more broadly throughout Europe.
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."
RESEARCH AND DEVELOPMENT
The Company has made substantial investments in research and development to
maintain and enhance the methodologies and technologies of i-Structure and other
development resources necessary to enable the Company to continue to provide
scalable, technology-independent multi-tier client/server applications meeting
the needs of its customers. The Company's development efforts include market
requirements analysis, tool definition, design specification, coding and testing
and documentation of methodologies. Where appropriate, the Company focuses on
identifying and integrating leading third-party technologies into its
development processes and into applications developed for customers to better
meet customer needs. The Company has a dedicated research and development team,
which is supplemented from time to time by members of the Company's operations
staff. In addition, the Company supports its research and development efforts
with a central knowledge database containing relevant information learned by the
Company's IT professionals in the course of customer engagements. The Company's
research and development expenditures totaled approximately $1.6 million, $3.3
million and $1.1 million in 1996, 1997 and the first three months of 1998,
respectively. These amounts are included as part of project personnel and
software costs in the Company's Statements of Income. See "-- Technology."
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
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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 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
33
<PAGE> 39
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."
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 plans to lease approximately 4,000 square feet in Mannheim, Germany, in
which it will house 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.
34
<PAGE> 40
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.
35
<PAGE> 41
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.,
Affymetrix, Inc. and Shaman Pharmaceuticals, 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,
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<PAGE> 42
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 "Directors' Plan"). 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 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,
37
<PAGE> 43
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 31,690 225,000 49,000
Vice President, Human Resources(5)
James K. McCann.......................... 116,667 28,175 225,000 100,000
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.
(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
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<PAGE> 44
December 31, 1997. Ms. Callanan received a sign-on bonus of $49,000 when she
joined the Company in March 1997.
(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 $100,000 when he joined the
Company in June 1997.
In the table above, columns required by the Regulations of the Securities
and Exchange Commission (the "Commission") have been omitted where no
information was required to be disclosed under those columns.
STOCK OPTIONS
The following table contains information concerning the grant of options to
purchase shares of the Company's Common Stock to each of the Named Executive
Officers of the Company during the fiscal year ended December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK APPRECIATION
SECURITIES OPTIONS GRANTED FOR OPTION TERM(3)
UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
OPTIONS GRANTED IN FISCAL YEAR(1) ($/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) 11.7 3.00 03/05/07 424,504 1,075,776
James K. McCann....... 225,000(6) 11.7 3.00 06/02/07 424,504 1,075,776
</TABLE>
- ---------------
(1) Based on an aggregate of 1,928,700 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.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on the
Company's Common Stock over the term of the options. The potential
realizable values set forth above do not take into account applicable tax
and expense payments that may be associated with such option exercises.
Actual realizable value, if any, will be dependent on the future price of
the Common Stock on the actual date of exercise, which may be earlier than
the stated expiration date. The 5% and 10% assumed annualized rates of stock
price appreciation over the exercise period of the options used in the table
above are mandated by the rules of the Commission and do not represent the
Company's estimate or projection of the future price of the Common Stock on
any date. There is no representation either express or implied that the
stock price appreciation rates for the Common Stock assumed for purposes of
this table will actually be achieved.
(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.
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<PAGE> 45
(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> <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.
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."
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
40
<PAGE> 46
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.
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. 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
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<PAGE> 47
(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 4,546,607 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 3,785,484 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 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.
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<PAGE> 48
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 (or sell at a purchase
price not less than 85% of the fair market value on the date of such sale) 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 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
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 200,000 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
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<PAGE> 49
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 six-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> 50
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 % 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."
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<PAGE> 51
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 %
Madhav Anand(4)................................... 1,848,750 13.6 1,848,750
Edouard Aslanian(5)............................... 1,755,000 13.0 1,755,000
Yannis Doganis.................................... 1,755,000 13.0 1,755,000
Gary C. Mekikian(6)............................... 750,000 5.4 750,000
Michael Pehl(7)................................... 658,705.5 4.7 658,705.5
Lawrence P. Begley(8)............................. 187,500.5 1.4 187,500.5
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 %
</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
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 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, shares sold,
shares beneficially owned ( %) after this offering; Edouard Aslanian,
shares sold, shares beneficially owned ( %) after this offering; Yannis
Doganis, shares sold, shares beneficially owned ( %) after this
offering; Gary C. Mekikian, shares sold, shares beneficially owned
( %) after this offering; and all executive officers and directors as a
group, shares sold, shares beneficially owned ( %) after this
offering. Mr. Aslanian has been an employee of the Company since January
1993.
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<PAGE> 52
(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> 53
DESCRIPTION OF CAPITAL STOCK
Effective 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 in its entirety 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
shares of Common Stock offered by the Company hereby, there will be
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 5,461,782 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> 54
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
49
<PAGE> 55
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> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of these
shares, the shares ( 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 379,374 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 12,555,842 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 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
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 5,461,782 shares of Common Stock subject to outstanding stock options or
other rights granted pursuant to the Company's stock option program as of
51
<PAGE> 57
March 31, 1998, including the 1,657,628 shares of Common Stock subject to
options vested as of March 31, 1998, and 4,317,984 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
Subject to certain limited exceptions, 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."
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.
52
<PAGE> 58
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.............................................
=========
</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 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
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 relationships. 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.
Subject to certain limited exceptions, the Company and the executive
officers and directors of the Company, the Selling 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
53
<PAGE> 59
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.
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.
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
54
<PAGE> 60
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 in all respects 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.
55
<PAGE> 61
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> 62
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> 63
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; 21,000,000 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> 64
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> 65
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> 66
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> 67
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> 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)
(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) 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
F-8
<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)
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>
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>
F-9
<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)
(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>
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>
F-10
<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)
(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.
(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>
Options to purchase shares of the Company's common stock of 440,574,
150,000, 138,622, 204,100 and 9,522 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
F-11
<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)
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 1,067,984 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.
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............................ 1,928,700 3.43
Exercised.......................... (473,677) 1.44
Forfeited/canceled................. (429,323) 2.17
--------- ----- --------- -----
Outstanding, December 31, 1997....... 5,684,625 2.06 1,997,804 $0.92
Granted............................ 376,500 5.49
Exercised.......................... (503,345) 0.11
Forfeited/canceled................. (95,998) 3.59
--------- ----- --------- -----
Outstanding March 31,
1998(unaudited).................... 5,461,782 $2.45 1,657,628 $1.32
========= =====
</TABLE>
F-12
<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)
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
5.00-5.00 717,450 9.61 5.00 1,125 5.00
7.00-7.00 92,000 9.98 7.00 -- --
---------- --------- ---- ----- --------- -----
$0.01-7.00 5,461,782 8.39 $2.45 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 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
Expected volatility (%)..................................... 0.0 0.0 0.0
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 consistent with the method prescribed by 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>
F-13
<PAGE> 74
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)
(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.
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.
F-14
<PAGE> 75
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)
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> 76
[photograph of Company employees participating in a team building exercise]
<PAGE> 77
I-Cube Logo
<PAGE> 78
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> 79
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 4,632,628
(post-split) shares of Common Stock, exercisable at a weighted average
purchase price of $2.82 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> 80
<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
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.
(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.
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
II-3
<PAGE> 81
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> 82
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
24th day of April, 1998.
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ MICHAEL PEHL
------------------------------------
Michael Pehl
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers, directors and authorized representative of
International Integration Incorporated, hereby severally constitute and appoint
Michael Pehl and Lawrence P. Begley and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement on
Form S-1 filed herewith and any and all pre-effective and post-effective
amendments to said Registration Statement, and any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b), and
generally to do all such things in our names and on our behalf in our capacities
as officers and directors to enable International Integration Incorporated to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto or to
any subsequent Registration Statement for the same offering which may be filed
under Rule 462(b).
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>
/s/ MICHAEL PEHL Chief Executive Officer and April 24, 1998
- --------------------------------------------------- Chairman (Principal Executive
Michael Pehl Officer)
/s/ MADHAV ANAND President and Director April 24, 1998
- ---------------------------------------------------
Madhav Anand
/s/ LAWRENCE P. BEGLEY Executive Vice President, Chief April 24, 1998
- --------------------------------------------------- Financial Officer, Treasurer
Lawrence P. Begley and Director (Principal
Accounting and Financial
Officer)
/s/ THOMAS J. MEREDITH Director April 24, 1998
- ---------------------------------------------------
Thomas J. Meredith
</TABLE>
II-5
<PAGE> 83
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH M. TUCCI Director April 24, 1998
- ---------------------------------------------------
Joseph M. Tucci
/s/ GREGORY S. YOUNG Director April 24, 1998
- ---------------------------------------------------
Gregory S. Young
/s/ JOHN A. YOUNG Director April 24, 1998
- ---------------------------------------------------
John A. Young
/s/ PATRICK J. ZILVITIS Director April 24, 1998
- ---------------------------------------------------
Patrick J. Zilvitis
</TABLE>
II-6
<PAGE> 84
EXHIBIT INDEX
<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
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
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.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL INTEGRATION INCORPORATED
FIRST. The name of the Corporation is: International Integration
Incorporated.
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 twenty million (20,000,000) shares,
consisting of (i) nineteen million (19,000,000) 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 (and written actions in lieu
of meetings). There shall be no cumulative voting.
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.
<PAGE> 2
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. 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 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. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
John D. Patterson, Jr. Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
SIXTH. 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-
<PAGE> 3
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. 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. All references to a director in this
Article EIGHTH shall also be deemed to refer to any other person or persons who
exercise or perform any of the powers or duties otherwise conferred or imposed
upon the Board of Directors by the General Corporation Law of the State of
Delaware.
NINTH. 1. ACTIONS, 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 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
-3-
<PAGE> 4
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he 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 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 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 conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 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.
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 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, 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 on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he 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.
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 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his 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
-4-
<PAGE> 5
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
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 conduct was unlawful,
the Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
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 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 such 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 4. The Indemnitee shall have the
right to employ his 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 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.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article 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 expenses 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 such
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article.
6. PROCEDURE FOR INDEMNIFICATION. Any indemnification or advancement
of expenses pursuant to Section 1, 2, 3 or 5 of this Article shall be made
promptly, and in any
-5-
<PAGE> 6
event within 60 days after receipt by the Corporation of the written request of
the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that such Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 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
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) appointed for such purpose by vote of the directors in the
manner specified in clause (a) or (b) above, or (e) a court of competent
jurisdiction. 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.
Unless otherwise required by law, the burden of proving that the Indemnitee is
not entitled to indemnification or advancement of expenses under this Article
NINTH 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 this Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to or create a presumption
that the Indemnitee has not met the applicable standard of conduct. Such
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. Unless
otherwise provided by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advancement of expenses under this Article shall
be on the Corporation.
7. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the Delaware General Corporation Law 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.
8. 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 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 such Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the
-6-
<PAGE> 7
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 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.
9. 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 on his 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 such Indemnitee is entitled.
10. 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
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
11. 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.
12. 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.
13. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the Delaware General Corporation Law shall have the respective
meanings assigned to such terms in such Section 145(h) and Section 145(i).
14. SUBSEQUENT LEGISLATION. If the Delaware General Corporation Law is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees,
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<PAGE> 8
then the Corporation shall indemnify such persons to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and the Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Boston, Massachusetts, on February 5, 1996.
_____________________________
John D. Patterson, Jr.
Sole Incorporator
-8-
<PAGE> 9
CERTIFICATE OF MERGER
OF
INTERNATIONAL INTEGRATION INCORPORATED, A MASSACHUSETTS CORPORATION,
WITH AND INTO
INTERNATIONAL INTEGRATION INCORPORATED, A DELAWARE CORPORATION
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
FIRST: The name and state of incorporation of each of the
constituent corporations of the merger are as follows:
Name State of Incorporation
---- ----------------------
International Integration Incorporated Delaware
International Integration Incorporated Massachusetts
SECOND: A plan and agreement of merger (the "Plan of Merger") has
been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252 of
the General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation is "International
Integration Incorporated".
FOURTH: The certificate of incorporation of International
Integration Incorporated, a Delaware corporation, as in effect immediately prior
to the merger, shall be the certificate of incorporation of the surviving
corporation.
FIFTH: An executed copy of the Plan of Merger is on file at the
principal place of business of the surviving corporation, which is located at
101 Main Street, Cambridge, Massachusetts 02140.
SIXTH: A copy of the Plan of Merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of either
constituent corporation.
SEVENTH: The authorized capital stock of International Integration
Incorporated, a Massachusetts corporation, consists of (i) 8,013,350 shares of
Series A common stock, without par value, of which 8,013,350 shares have been
issued and are outstanding and (ii) 1,986,650 shares of Series B common stock,
without par value, of which 218,333 shares have been issued and are outstanding.
The authorized capital stock of International Integration Incorporated, a
Delaware corporation, consists of 20,000,000 shares, consisting of (x)
19,000,000 shares of common stock, $.01 par value per share, of which 100 shares
have been issued and are outstanding and owned by International Integration
Incorporated, a Massachusetts corporation, and (y) 1,000,000 shares of preferred
stock, $.01 par value per share, of which no shares are issued and outstanding.
Dated: February 26, 1996
International Integration Incorporated
[SEAL]
By: __________________________________
President
Attest:
By: _______________________________
Assistant Secretary
<PAGE> 10
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL INTEGRATION INCORPORATED
INTERNATIONAL INTEGRATION INCORPORATED (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation by unanimous
written consent duly adopted resolutions proposing and
declaring advisable that the Certificate of Incorporation of
the Corporation be amended, and that such amendments be
submitted to the stockholders of the Corporation for their
consideration, as follows:
RESOLVED: That the Board of Directors of this Corporation
recommends and deems it advisable that the
Certificate of Incorporation of the Corporation,
be, and it hereby is, amended by insertion of the
following new Article FOURTH:
FOURTH. The total number of shares of all classes
of stock which the Corporation shall have
authority to issue is twenty-two million
(22,000,000) shares, consisting of (i)
twenty-one million (21,000,000) 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").
RESOLVED: That following the approval of the foregoing
proposal by the stockholders of the Corporation
as required by law, the officers of this
Corporation be, and they hereby are, and each of
them acting singly hereby is, authorized and
directed (i) to prepare, execute and file with
the Secretary of State of the State of Delaware a
Certificate of Amendment reflecting such increase
in the authorized capital stock of the
Corporation; and (ii) to take any and all other
actions necessary, desirable or convenient to
give effect to the aforesaid amendment or
otherwise to carry out the purposes of the
foregoing resolution.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in
accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware, and written notice
of the adoption of the amendment has been or will be given as
provided in Section 228 of the General Corporation Law of the
State of Delaware to every stockholder entitled to
<PAGE> 11
such notice.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, INTERNATIONAL INTEGRATION INCORPORATED has caused
this certificate to be signed by Madhav Anand, its President, and attested by
John D. Patterson, Jr., its Secretary, this 7th day of March, 1997.
INTERNATIONAL INTEGRATION
INCORPORATED
By: ___________________________
President
ATTEST:
___________________________
Secretary
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
INTERNATIONAL INTEGRATION INCORPORATED
<PAGE> 2
BY-LAWS
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
ARTICLE 1 - Stockholders.................................................... 1
Section 1.1 Place of Meetings............................................ 1
Section 1.2 Annual Meeting............................................... 1
Section 1.3 Special Meetings............................................. 1
Section 1.4 Notice of Meetings........................................... 1
Section 1.5 Voting List.................................................. 1
Section 1.6 Quorum....................................................... 2
Section 1.7 Adjournments................................................. 2
Section 1.8 Voting and Proxies........................................... 2
Section 1.9 Action at Meeting............................................ 2
Section 1.10 Action without Meeting....................................... 3
ARTICLE 2 - Directors....................................................... 3
Section 2.1 General Powers............................................... 3
Section 2.2 Number; Election and Qualification........................... 3
Section 2.3 Enlargement of the Board..................................... 3
Section 2.4 Tenure....................................................... 3
Section 2.5 Vacancies.................................................... 3
Section 2.6 Resignation.................................................. 4
Section 2.7 Regular Meetings............................................. 4
Section 2.8 Special Meetings............................................. 4
Section 2.9 Notice of Special Meetings................................... 4
Section 2.10 Meetings by Telephone Conference Calls....................... 4
Section 2.11 Quorum....................................................... 4
Section 2.12 Action at Meeting............................................ 5
Section 2.13 Action by Consent............................................ 5
Section 2.14 Removal...................................................... 5
Section 2.15 Committees................................................... 5
Section 2.16 Compensation of Directors.................................... 6
ARTICLE 3 - Officers........................................................ 6
Section 3.1 Enumeration.................................................. 6
Section 3.2 Election..................................................... 6
Section 3.3 Qualification................................................ 6
Section 3.4 Tenure....................................................... 6
Section 3.5 Resignation and Removal...................................... 6
</TABLE>
<PAGE> 3
Section 3.6 Vacancies..................................................... 7
Section 3.7 Chairman of the Board and Vice Chairman of the Board.......... 7
Section 3.8 President..................................................... 7
Section 3.9 Vice Presidents............................................... 7
Section 3.10 Secretary and Assistant Secretaries........................... 7
Section 3.11 Treasurer and Assistant Treasurers............................ 8
Section 3.12 Salaries...................................................... 8
ARTICLE 4 - Capital Stock.................................................... 8
Section 4.1 Issuance of Stock............................................. 8
Section 4.2 Certificates of Stock......................................... 9
Section 4.3 Transfers..................................................... 9
Section 4.4 Lost, Stolen or Destroyed Certificates........................ 9
Section 4.5 Record Date................................................... 9
ARTICLE 5 - General Provisions............................................... 10
Section 5.1 Fiscal Year................................................... 10
Section 5.2 Corporate Seal................................................ 10
Section 5.3 Waiver of Notice.............................................. 10
Section 5.4 Voting of Securities.......................................... 10
Section 5.5 Evidence of Authority......................................... 11
Section 5.6 Certificate of Incorporation.................................. 11
Section 5.7 Transactions with Interested Parties.......................... 11
Section 5.8 Severability.................................................. 12
Section 5.9 Pronouns...................................................... 12
ARTICLE 6 - Indemnification.................................................. 12
Section 6.1 Actions, Suits and Proceedings Other than by or in the
Right of the Corporation...................................... 12
Section 6.2 Actions or Suits by or in the Right of the Corporation........ 12
Section 6.3 Indemnification for Expenses of Successful Party.............. 13
Section 6.4 Notification and Defense of Claim............................. 13
Section 6.5 Advance of Expenses........................................... 14
Section 6.6 Procedure for Indemnification................................. 14
Section 6.7 Subsequent Amendment.......................................... 15
Section 6.8 Other Rights.................................................. 15
Section 6.9 Partial Indemnification....................................... 15
Section 6.10 Insurance..................................................... 16
Section 6.11 Merger or Consolidation....................................... 16
Section 6.12 Savings Clause................................................ 16
Section 6.13 Definitions................................................... 16
Section 6.14 Subsequent Legislation........................................ 16
<PAGE> 4
ARTICLE 7 - Amendments....................................................... 17
Section 7.1 By the Board of Directors..................................... 17
Section 7.2 By the Stockholders........................................... 17
<PAGE> 5
BY-LAWS
OF
INTERNATIONAL INTEGRATION INCORPORATED
ARTICLE 1 - STOCKHOLDERS
1.1 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 President or, if not so
designated, at the registered office of the corporation.
1.2 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 the third Tuesday of
April of each year, at a time fixed by the Board of Directors or the President.
If this date shall fall upon a legal holiday at the place of the meeting, then
such meeting shall be held on the next succeeding business day at the same hour.
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
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.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the President or by 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.
1.4 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 address as it appears on the
records of the corporation.
1.5 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
<PAGE> 6
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.
1.6 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.
1.7 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, 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
adioutnment 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.
1.8 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, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his 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.
1.9 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 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.
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<PAGE> 7
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and to the corporation.
ARTICLE 2 - DIRECTORS
2.1 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.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or 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.
2.3 ENLARGEMENT OF THE BOARD. The number of directors may be
increased at any time and from time to time by the stockholders or by a majority
of the directors then in office.
2.4 TENURE. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled 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 for
the unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the
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<PAGE> 8
number of directors shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President 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.
2.7 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 be held without notice immediately after and at the same place
as the annual meeting of stockholders.
2.8 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, President, two or more
directors, or by one director in the event that there is only a single director
in office.
2.9 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 last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his 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.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in meetings 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.
2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
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 such director
so disqualified: provided, however, that in no case shall less than one-third
(1/3) of the number so
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<PAGE> 9
fixed constitute a quorum. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 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.
2.14 REMOVAL. Any one or more or all of the directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.15 COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board, 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 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 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.
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<PAGE> 10
2.16 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 3 - OFFICERS
3.1 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.
3.2 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.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President 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.
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 resignation or removal, or any right to damages on
account of such removal, whether his 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.
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<PAGE> 11
3.6 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 predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 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 shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he 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 by the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. 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 perform such other duties and shall have such other powers as the Board
of Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. 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.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President 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
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<PAGE> 12
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 President 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.
3.11 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 by the Board of Directors or the president. 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 Arrectors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurer shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurcr 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.
3.12 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 4 - CAPITAL STOCK
4.1 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
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of the Board of Directors in such manner, for such consideration and on such
terms as the Board of Directors may determine.
4.2 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 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
an 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.
4.3 TRANSFERS. Except as otherwise established by rules and
regulations 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 to 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 requirements of these By-Laws.
4.4 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, any
transfer agent or registrar.
4.5 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 to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other
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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 entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. 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 relating 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 5 - GENERAL PROVISIONS
5.1 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 in each year and end on the last day of December in each
year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 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 telegraph, cable 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.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or
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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.
5.5 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.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 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, association, 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 or their votes are counted for such purpose, if:
(1) The material facts as to his 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; or
(2) The material facts as to his 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
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Arrectors, a committee of the Board of Directors, or the stockholders.
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.
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5.8 SEVERABILITY. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these By-Laws.
5.9 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 6 - INDEMNIFICATION
6.1 ACTIONS, 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 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 on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he 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 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
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 conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 6.6
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.
6.2 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 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
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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 on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he acted in good faith
and in a manner he 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.
6.3 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 6.1 and 6.2 of this Article, or in defense of
any claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his 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 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 conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
6.4 NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to
his 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 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 such 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 6.4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses
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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 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.
6.5 ADVANCE OF EXPENSES. Subject to the provisions of Section 6.6
below, in the event that the corporation does not assume the defense pursuant to
Section 6.4 of this Article 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 expenses 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 such
Indemnitee is not entitled to be indemnified by the corporation as authorized in
this Article.
6.6 PROCEDURE FOR INDEMNIFICATION. Any indemnification or advancement
of expenses pursuant to Section 6.1, 6.2, 6.3 or 6.5 of this Article 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 6.1, 6.2 or 6.5 the corporation determines within such 60-day period
that such Indemnitee did not meet the applicable standard of conduct set forth
in Section 6.1 or 6.2, 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 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) appointed
for such purpose by vote of the directors in the manner specified in clause (a)
or (b) above, or (e) a court of competent jurisdiction. The right to
indemnification or advances as granted by this Article shall be enforceable by
the Indemnitee in any court of competent jurisdiction
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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. Unless
otherwise required by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advancement of expenses under this Article 6
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
this Section 6.6 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. Such 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. Unless otherwise
provided by law, the burden of proving that the Indemnitee is not entitled to
indemnification or advancement of expenses under this Article shall be on the
corporation.
6.7 SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the Delaware General Corporation Law 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.
6.8 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 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 such 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 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.
6.9 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 on his behalf in
connection
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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 such Indemnitee
is entitled.
6.10 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 in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
such person against such expense, liability or loss under the Delaware General
Corporation Law. The corporation's obligation to provide indemnification under
this Article shall be offset to the extent of any other source of
indemnification or any otherwise applicable insurance coverage under a policy
maintained by the corporation or any other person.
6.11 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.
6.12 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.
6.13 DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the Delaware General Corporation Law shall have the respective
meanings assigned to such terms in such Section 145(h) and Section 145(i).
6.14 SUBSEQUENT LEGISLATION. If the Delaware General Corporation Law
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 Delaware General Corporation Law, as so
amended.
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ARTICLE 7 - AMENDMENTS
7.1 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.
7.2 BY THE STOCKHOLDERS. 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.
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EXHIBIT 10.1
INTERNATIONAL INTEGRATION INCORPORATED
1993 STOCK PLAN
1. PURPOSE. This 1993 Stock Plan (the "Plan") is intended to provide
incentives: (a) to employees of International Integration Incorporated (the
"Company"), any present or future parent or subsidiaries of the Company and any
corporations now or hereafter under common control with the Company
(collectively, "Related Corporations") by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which
qualify as "incentive stock options" under Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 425 of the Code.
2. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may appoint a Stock Plan Committee (the
"Committee") of three or more of its members to administer this Plan. Subject to
ratification of the grant or authorization of each Stock Right by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee, if so appointed, shall have the authority to (i) determine the
employees of the Company and Related Corporation (from among the class of
employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) to whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options or
Awards may be granted or Purchases made; (iii) determine the option price of
shares subject to each Option, which price shall not be less than the minimum
price specified in paragraph 6, and the purchase price of shares subject to each
Purchase; (iv) determine whether each Option granted shall be an ISO
<PAGE> 2
or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or
times when each Option shall become exercisable and the duration of the exercise
period; (vi) determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the nature of
such restrictions, if any, and (vii) interpret the Plan and prescribe and
rescind rules and regulations relating to it. If the Committee determines to
issue a Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422A of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Stock
Rights granted under it shall be final unless otherwise determined by the Board.
The Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.
B. The Committee may select one of its members as its chairman, and
shall hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
C. Stock Rights may be granted to members of the Board, but no Stock
Right shall be granted to any person who is, at the time of the proposed grant,
a member of the Board, unless such grant has been approved by a majority vote of
the other members of the Board. All grants of Stock Rights to members of the
Board shall in all other respects be made in accordance with the provisions of
this Plan applicable to other eligible persons. Members of the Board who are
either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been
granted Stock Rights may vote on any matters affecting the administration of the
Plan or the grant of any Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself of Stock Rights, but any such
member may be counted in determining the existence of a quorum at any meeting of
the Board during which action is taken with respect to the granting to him of
Stock Rights.
D. Notwithstanding any other provision of this paragraph 2, in the
event the Company registers any class of any equity security pursuant to Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any
grants to directors of Stock Rights made at any time from the effective date of
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such registration until six months after the termination of such registration
shall be made only by the Board; provided, however, that if a majority of the
Board is eligible to participate in the Plan or in any other stock option or
other stock plan of the Company or any of its affiliates, or has been so
eligible at any time within the preceding year, any grant to directors of Stock
Rights must be made by, or only in accordance with the recommendation of, a
committee consisting of three or more persons, who may but need not be directors
or employees of the Company, appointed by the Board but having full authority to
act in the matter, none of whom is eligible to participate in this Plan or any
other stock option or other stock plan of the Company or any of its affiliates,
or has been eligible at any time within the preceding year. The requirements
imposed by the preceding sentence shall also apply with respect to grants to
officers who are also directors. Once appointed, such Committee shall continue
to serve until otherwise directed by the Board.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any director (whether or not an employee), officer, employee or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option or an authorization to make a Purchase.
Granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify him from, participation in any
other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Series B Common Stock, par value $0.01 per
share, of the Company (the "Series B Common Stock"), or shares of Series B
Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 198,665, subject to
adjustment as provided in paragraph 13. Any shares issued hereunder may be
issued as ISOs, Non-Qualified Options or Awards, or to persons or entities
making Purchases, so long as the number of shares so issued does not exceed the
aggregate number of shares subject to the Plan. If any Option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part, or if
the Company shall reacquire any unvested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.
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5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
any time on or after March 22, 1993 and prior to December 31, 2002. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. The price per share specified in the agreement relating to each
Non-Qualified Option granted under the Plan shall in no event be less than the
lesser of (i) the book value per share of Series B Common Stock as of the end of
the fiscal year of the Company immediately preceding the date of such grant, or
(ii) 50 percent of the fair market value per share of Series B Common Stock on
the date of such grant.
B. The price per share specified in the agreement relation to each
ISO granted under the Plan shall not be less than the fair market value per
share of Series B Common Stock on the date of such grant. In the case of an ISO
to be granted to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement relating to
such ISO shall not be less than 110 percent of the fair market value per share
of Series B Common Stock on the date of grant.
C. In no event shall the aggregate fair market value (determined at
the time an ISO is granted) of Series B Common Stock for which ISOs granted to
any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any Related
Corporation) exceed $100,000; provided that this paragraph 6(C) shall have no
force or effect if its inclusion in the Plan is not necessary for Options issued
as ISOs to qualify as ISOs pursuant to Section 422A(b)(7) of the Code.
D. If, at the time an Option is granted under the Plan, the
Company's Series B Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Series B Common Stock on the principal national securities exchange on which the
Series B Common Stock is traded, if the Series B Common Stock is then traded on
a national securities exchange; or (ii) the last reported sale price (on that
date) of the Series B Common Stock on the NASDAQ National Market List, if the
Series B Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid
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<PAGE> 5
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Series B Common Stock is not reported on the
NASDAQ National Market List. However, if the Series B Common Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Series B Common Stock as
determined by the Committee after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Series B Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. The Option shall either be fully exercisable on the date of grant
or shall become exercisable thereafter in such installments as the Committee may
specify.
B. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
C. Each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable.
D. The Committee shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the Committee shall not
accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422A(b)(7) of the Code, as described in
paragraph 6(C).
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9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of 60 days
from the date of termination of his employment, but in no event later than on
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of his death, any ISO of his may be exercised, to
the extent of the number of shares with respect to which he could have exercised
it on the date of his death, by his estate, personal representative or
beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the earlier of the ISO's specified expiration
date or 360 days from the date of the optionee's death.
B. If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of his disability, he shall have the right to
exercise any ISO held by him on the date of termination of employment, to the
extent of the number of shares with respect to which he could have exercised it
on that date, at any time prior to the earlier of the ISO's specified expiration
date or 360 days from the date of the termination of the optionee's employment.
For the purposes of the Plan, the term "disability" shall mean "permanent and
total disability" as defined in Section 22(e)(3) of the Code or successor
statute.
11. Assignability. No Stock Right shall be assignable or transferable by
the grantee except by will or by the laws of descent and distribution, and
during the lifetime of the grantee each Stock Right shall be exercisable only by
him. Shares of
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Series B Common Stock issued upon exercise of Stock Rights shall be subject to
such rights of first refusal, repurchase rights and other restrictions on
transfer in favor of the Company and the Board or the Committee may determine at
the time such Stock Rights are granted.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 and 11 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan, including restrictions applicable to shares of Series B Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. If the shares of Series B Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if the Company shall
issue any shares of Series B Common Stock as a stock dividend on its outstanding
Series B Common Stock, the number of shares of Series B Common Stock deliverable
upon the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor
Board"), shall, as to outstanding Options, either (i) make appropriate provision
for the continuation of such Options by substituting on an equitable basis for
the shares then subject to such Options the consideration payable with respect
to the outstanding shares of Series B Common Stock in connection with the
Acquisition; or (ii) upon written notice to the optionees, provided that all
Options must be exercised, to the extent then exercisable, within a specified
number of days of the date of such
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<PAGE> 8
notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
C. In the event of a recapitalization or reorganization of the
Company (other than a transaction described in subparagraph B above) pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Series B Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price paid
upon such exercise the securities he would have received if he had exercised his
Option prior to such recapitalization or reorganization.
D. Notwithstanding the foregoing, any adjustments made pursuant to
subparagraphs A, B or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company, determines whether
such adjustments would constitute a "modification" of such ISOs (as that term is
defined in Section 425 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such adjustments
made with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments.
E. In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
F. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
securities of the Company.
G. No fractional shares shall be issued under the Plan and the
optionee shall receive from the Company cash in lieu of such fractional shares.
H. Upon the happening of any of the foregoing events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
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<PAGE> 9
If any person or entity owning restricted Series B Common Stock obtained
by exercise of a Stock Right made hereunder receives shares or securities or
cash in connection with a corporate transaction described in subparagraphs A, B
or C above as a result of owning such restricted Series B Common Stock, such
shares or securities or cash shall be subject to all of the conditions and
restrictions applicable to the restricted Series B Common Stock with respect to
which such shares or securities or cash were issued, unless otherwise determined
by the Committee or the Successor Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares or Series B Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable federal rate,
as defined in Section 1274(d) of the Code, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c) or (d) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
March 22, 1993, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by unanimous written consent. If
the approval of the stockholders is not obtained by March 21, 1994, any grants
of ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire on December 31, 2002 (except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Stock Rights may be granted
under the Plan prior to the date of stockholder approval of the Plan. The Board
may terminate or amend the Plan in any respect at any time, except that, without
the approval of the stockholders obtained within 12 months before or after the
Board adopts a resolution authorizing
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<PAGE> 10
any of the following actions: (a) the total number of shares that may be issued
under the Plan may not be increased (except by adjustment pursuant to paragraph
13); (b) the provisions of paragraph 3 regarding eligibility for grants of ISOs
may not be modified; (c) the provisions of paragraph 6(B) regarding the exercise
price at which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to paragraph 13); and (d) the expiration date of
the Plan may not be extended. Except as provided in the fourth sentence of this
paragraph 15, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Series B Common Stock under this Plan is subject to the approval
of any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Series
B Common Stock for less than its fair market value, the making of a
Disqualifying Disposition (as defined in paragraph 20) or the vesting of
restricted Series B Common Stock acquired on the exercise of a Stock Right
hereunder, the Company, in accordance with Section 3402(a) of the Code, may
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<PAGE> 11
require the optionee, Award recipient or purchaser to pay additional withholding
taxes in respect of the amount that is considered compensation includable in
such person's gross income. The Committee in its discretion may condition (i)
the exercise of an Option, (ii) the grant of an Award, (iii) the making of a
Purchase of Series B Common Stock for less than its fair market value, or (iv)
the vesting of restricted Series B Common Stock acquired by exercising a Stock
Right on the grantee's payment of such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Series B Common Stock
acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Series B Common Stock before the later
of (a) two years after the date the employee was granted the ISO, or (b) one
year after the date the employee acquired Series B Common Stock by exercising
the ISO. If the employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing Stock Rights shall be governed by the laws of the
Commonwealth of Massachusetts. In construing this Plan, the singular shall
include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
4523/1
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<PAGE> 1
EXHIBIT 10.2
INTERNATIONAL INTEGRATION INCORPORATED
1996 STOCK PLAN
1. PURPOSE
The purpose of this plan (the "Plan") is to secure for International
Integration Incorporated (the "Company") and its shareholders the benefits
arising from capital stock ownership by 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. Except where the context otherwise requires, the term "Company" shall
include the parent and all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"). Those provisions of the Plan
which make express reference to Section 422 shall apply only to Incentive Stock
Options (as that term is defined in the Plan).
2. TYPES OF OPTIONS AND GRANTS; ADMINISTRATION
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) PURCHASE RIGHTS. Pursuant to the Plan, eligible persons may be
provided with opportunities to make direct purchases of the Company's common
stock ("Purchase Rights"). Purchase Rights shall be authorized by action of the
Board of Directors of the Company (or a Committee designated by the Board of
Directors).
(c) AWARDS. Pursuant to the Plan, eligible persons may be provided with
awards of the Company's common stock ("Awards"). Awards shall be authorized by
action of the Board of Directors of the Company (or a Committee designated by
the Board of Directors).
(d) ADMINISTRATION. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion (i) grant options to purchase shares of the Company's
common stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan, (ii) grant Purchase Rights and issue shares upon the
exercise of such Purchase Rights, and (iii) make Awards and issue shares
pursuant to such Awards. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations in the
judgement of the Board of directors necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect
<PAGE> 2
or supply any omission or reconcile any inconsistency in the Plan or in any
option agreement, purchase agreement or other agreement 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. No director or person acting pursuant
to authority delegated by the Board of Directors shall be liable for any action
or determination under the Plan made in good faith. The Board of Directors may,
to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3")), delegate any or all of its powers under the
Plan to a committee (the "Committee") appointed by the Board of Directors, and
if the Committee is so appointed all references to the Board of Directors in the
Plan shall mean and relate to such Committee.
(e) APPLICABILITY OF RULE 16B-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. ELIGIBILITY
(a) GENERAL. Options or Purchase Rights may be granted, and Awards may be
made, to persons who are, at the time of grant or award, employees, officers or
directors of, or consultants or advisors to, the Company; provided, that the
class of employees to whom Incentive Stock Options may be granted shall be
limited to employees of the Company eligible to receive Incentive Stock Options
under the Code. A person who has been granted an option, Purchase Right or Award
may, if he or she is otherwise eligible, be granted additional options, Purchase
Rights or Awards if the Board of Directors shall so determine.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, Purchase Right
or Award, the timing of the grant, the exercise or purchase price of the option,
Purchase Right or Award and the number of shares subject to the option, Purchase
Right or Award shall be determined either (i) by the Board of Directors, of
which all members shall be "disinterested persons" (as hereinafter defined), or
(ii) by two or more directors having full authority to act in the matter, each
of whom shall be a "disinterested person." For the purposes of the Plan, a
director shall be deemed to be a "disinterested person" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
4. STOCK SUBJECT TO PLAN
Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under the
Plan is 2,000,000 shares. If an option, Purchase Right or Award granted under
the Plan shall expire or terminate for any reason without having been exercised
in full, the unpurchased shares subject to such option, Purchase Right or Award
shall again be available for subsequent grants under the Plan. If shares issued
upon exercise of an option, Purchase Right or Award
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<PAGE> 3
under the Plan are tendered to the Company in payment of the exercise price of
an option, Purchase Right or Award granted under the Plan, such tendered shares
shall again be available for subsequent grants under the Plan; provided, that in
no event shall (i) the total number of shares issued pursuant to the exercise of
Incentive Stock Options under the Plan, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence or (ii) the total
number of shares issued pursuant to the exercise of options, Purchase Rights or
Awards by Reporting Persons, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under the Plan exclusive of shares made available
for issuance pursuant to this sentence.
5. FORMS OF AGREEMENTS
As a condition to the grant of an option, Purchase Right or Award under
the Plan, each recipient of an option, Purchase Right or Award shall execute an
option agreement, purchase agreement, stock restriction agreement or other
agreement in such form not inconsistent with the Plan as may be approved by the
Board of Directors. Such agreements may differ among recipients.
6. PURCHASE PRICE
(a) GENERAL. The purchase price per share of stock deliverable upon the
exercise of an option, Purchase Right or Award shall be determined by the Board
of Directors; provided, that in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the fair market value of such
stock, as determined by the Board of Directors, at the time of grant of such
option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
(b) PAYMENT OF PURCHASE PRICE. Options, Purchase Rights or Awards granted
under the Plan may provide for the payment of the exercise price by delivery of
cash or a check to the order of the Company in an amount equal to the exercise
price of such options, Purchase Rights or Awards, or, to the extent provided in
the applicable option agreement, (i) by delivery to the Company of shares of
Common Stock of the Company already owned by the recipient having a fair market
value equal in amount to the exercise price of the options, Purchase Rights or
Awards being exercised, (ii) by any other means (including, without limitation,
by delivery of a promissory note of the recipient payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board) or (iii) by any combination of such
methods of payment. The fair market value of any shares of the Company's Common
Stock or other non-cash consideration which may be delivered upon exercise of an
option, Purchase Right or Award shall be determined by the Board of Directors.
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<PAGE> 4
7. EXERCISE PERIOD
Each option, Purchase Right or Award and all rights thereunder shall
expire as shall be set forth in the applicable agreement, except that, in the
case of an Incentive Stock Option, such date shall not be later than ten years
after the date on which the option is granted (or five years in the case of
options described in Section 11(b) hereof) and, in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. EXERCISE OF OPTIONS, PURCHASE RIGHTS OR AWARDS
Each option, Purchase Right or Award granted under the Plan shall be
exercisable either in full or in installments at such time or times and during
such period as shall be set forth in the agreement evidencing such option,
Purchase Right or Award, subject to the provisions of the Plan.
9. NONTRANSFERABILITY OF OPTIONS
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable 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 optionee, shall be exercisable
only by the optionee; provided, that non-statutory options may be transferred
pursuant to a qualified domestic relations order (as defined in Rule 16b-3).
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which a recipient may exercise an option,
Purchase Right or Award following (i) the termination of the recipient's
employment or other relationship with the Company or (ii) the death or
disability of the recipient. Such periods shall be set forth in the agreement
evidencing such option, Purchase Right or Award.
11. INCENTIVE STOCK OPTIONS
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d)
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<PAGE> 5
of the Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the
applicable option agreement); provided that the agreement with respect to
such option may designate a longer exercise period and that the exercise
after such three-month period shall be treated as the exercise of a
non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period
as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while in
the employ of the Company, the Incentive Stock Option may be exercised
within the period of one year after the date the optionee ceases to be
such an employee because of such disability (or within such lesser period
as may be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
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12. ADDITIONAL PROVISIONS
(a) ADDITIONAL PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in agreements covering options,
Purchase Rights or Awards granted under the Plan, including without limitation
restrictions on transfer, repurchase rights, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to recipients
upon exercise of options, Purchase Rights or Awards, or such other provisions as
shall be determined by the Board of Directors; provided that such additional
provisions shall not be inconsistent with any other term or condition of the
Plan and such additional provisions shall not cause any Incentive Stock Option
granted under the Plan to fail to qualify as an Incentive Stock Option within
the meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option, Purchase Right or Award granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option, Purchase Right or
Award granted under the Plan may be exercised; provided that no such extension
shall be permitted if it would cause the Plan to fail to comply with Section 422
of the Code or with Rule 16b-3.
13. GENERAL RESTRICTIONS
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option, Purchase Right or Award is granted, as a condition of exercising such
option, Purchase Right or Award, to give written assurances in substance and
form satisfactory to the Company to the effect that such person is acquiring the
Common Stock subject to the option, Purchase Right or Award for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option, Purchase Right or Award
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, Purchase Right or Award upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that 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,
Purchase Right or Award 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 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.
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14. RIGHTS AS A SHAREHOLDER
The holder of an option, Purchase Right or Award shall have no rights as a
shareholder with respect to any shares covered by the option, Purchase Right or
Award (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such shares) until the date of issue of a
stock certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS
(a) GENERAL. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made 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 any then outstanding options, Purchase
Rights or Awards under the Plan, and (z) the price for each share subject to any
then outstanding options, Purchase Rights or Awards under the Plan, without
changing the aggregate purchase price as to which such options, Purchase Rights
or Awards remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment would cause the Plan to
fail to comply with Section 422 of the Code or with Rule 16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
The existence of outstanding options shall not affect in any way the right
or power of the Company or its stockholders to make or authorize, without
limitation, any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of Common Stock, or any issue of
bonds, debentures, preferred or prior preference stock or other capital stock
ahead of or affecting the Common Stock or the rights thereof, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise.
(a) RECAPITALIZATION, STOCK SPLITS, AND DIVIDENDS. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock
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<PAGE> 8
outstanding, in each such case without receiving compensation thereof in money,
services or property, then (i) the number, class, and price per share of shares
of stock subject to outstanding options, Purchase Rights or Awards hereunder
shall be appropriately adjusted in such a manner as to entitle a holder to
receive upon exercise of an option, Purchase Right or Award, for the same
aggregate cash consideration, the same total number and class of shares as such
holder would have received as a result of the event requiring the adjustment had
such holder exercised such option, Purchase Right or Award in full immediately
prior to such event; and (ii) the number and class of shares with respect to
which options, Purchase Rights or Awards may be granted under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved that number and class of shares of stock that would have been received
by the owner of an equal number of outstanding shares of Common Stock as the
result of the event requiring the adjustment.
(b) MERGER OF THE COMPANY WITH NO CHANGE IN CONTROL. After a merger of
consolidation of one or more corporations and the Company in which the
stockholders of the Company immediately prior to such merger or consolidation
own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, each holder of an outstanding option, Purchase
Right or Award shall, at no additional cost, be entitled upon exercise of such
option, Purchase Right or Award to receive, in lieu of shares of Common Stock,
shares of stock or other securities, cash or property to which such holder would
have been entitled pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation, such holder
had been the holder of record of a number of shares of Common Stock equal to the
number of shares for which such holder wishes to exercise the option, Purchase
Right or Award.
(c) SALE OR MERGER OF COMPANY WITH CHANGE IN CONTROL. If the Company is
merged into or consolidated with another corporation under circumstances in
which the stockholders of the Company immediately prior to such merger or
consolidation do not own after such merger or consolidation shares representing
at least fifty percent (50%) of the voting power of the Company or the surviving
or resulting corporation, as the case may be, or if the Company is liquidated,
or sells or otherwise disposes of substantially all of its assets, in any such
case while unexercised options, Purchase Rights or Awards remain outstanding
under the Plan, (i) subject to the provisions of clauses (ii) and (iii) below,
after the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding option, Purchase
Right or Award shall be entitled, upon exercise of such option, Purchase Right
or Award, to receive, in lieu of shares of Common Stock, shares of stock or
other securities, cash or property (including, without limitation, shares of
stock or other securities of another corporation) to which such holder would
have been entitled pursuant to the terms of the merger, consolidation,
liquidation, sale or disposition, if, immediately prior to such event, such
holder had been the holder of record of a number of shares of Common Stock equal
to the number for which such holder wishes to exercise the option, Purchase
Right or Award; (ii) the Board may accelerate the time for exercise of all
unexercised and unexpired options, Purchase Rights or Awards to a date prior to
the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, specified by the Board; or (iii) all
outstanding options, Purchase Rights or Awards may be cancelled by the Board as
of the effective date of such merger,
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<PAGE> 9
consolidation, liquidation, sale or disposition, as the case may be, provided
that (x) notice of such cancellation shall be given to each holder of an option,
Purchase Right or Award and (y) each holder of an option, Purchase Right or
Award shall have the right to exercise such option, Purchase Right or Award to
the extent that the same is then exercisable or, if the Board shall have
accelerated the time for exercise of all unexercised and unexpired options,
Purchase Rights or Awards, in full during the 30-day period preceding the
effective date of such merger, consolidation, liquidation, sale or disposition.
(d) CHANGES TO COMMON STOCK SUBJECT TO OPTIONS. Except as hereinbefore
expressly provided, the issuance by the Company of shares of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to outstanding options,
Purchase Rights or Awards.
17. NO SPECIAL EMPLOYMENT RIGHTS
Nothing contained in the Plan or in any options, Purchase Rights or Award
shall confer upon any recipient any right with respect to the continuation of
his or her employment by the Company or interfere in any way with the right of
the Company at any time to terminate such employment or to increase or decrease
the compensation of the recipient.
18. OTHER EMPLOYEE BENEFITS
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option, Purchase Right or Award or
the sale of shares received upon such exercise will not constitute compensation
with respect to which any other employee benefits of such employee are
determined, including, without limitation, benefits under any bonus, pension,
profit-sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Board of Directors.
19. AMENDMENT OF THE PLAN
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of a recipient, affect his or her rights under an
option, Purchase Right or Award previously granted to him or her. With the
consent of the recipient affected, the Board of Directors may amend the
outstanding agreement governing an option, Purchase Right or Award in a manner
not inconsistent with the Plan. The Board of Directors shall
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<PAGE> 10
have the right to amend or modify (i) the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
options, Purchase Rights or Awards under Section 422 of the Code and (ii) the
terms and provisions of the Plan and of any outstanding option, Purchase Right
or Award to the extent necessary to ensure the qualification of the Plan under
Rule 16b-3.
20. WITHHOLDING
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the recipient any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options, Purchase Rights or Awards under the Plan. Subject to the prior
approval of the Company, which may be withheld by the Company in its sole
discretion, the recipient may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company to withhold shares of Common Stock otherwise
issuable pursuant to the exercise of an option, Purchase Right or Award or (ii)
by delivering to the Company shares of Common Stock already owned by the
recipient. The shares so delivered or withheld shall have a fair market value
equal to such withholding obligation. The fair market value of the shares used
to satisfy such withholding obligation shall be determined by the Company as of
the date that the amount of tax to be withheld is to be determined. A recipient
who has made an election pursuant to this Section 20(a) may only satisfy his or
her withholding obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
21. CANCELLATION AND NEW GRANT OF OPTIONS, PURCHASE RIGHTS OR AWARDS, ETC.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected recipients, (i) the
cancellation of any or all outstanding options, Purchase Rights or Awards under
the Plan and the grant in substitution therefor of new options, Purchase Rights
or Awards under the Plan covering the same or different numbers of shares of
Common Stock and having an exercise price per share which may be lower or higher
than the exercise price per share of the cancelled options, Purchase Rights or
Awards or (ii) the amendment of the terms of any and all outstanding options,
Purchase Rights or Awards under the Plan to provide an exercise price per share
which is higher or lower than the then-current exercise price per share of such
outstanding options, Purchase Rights or Awards.
22. EFFECTIVE DATE OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such
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<PAGE> 11
shareholder approval is not obtained within twelve months after the date of the
Board's adoption of the Plan, no options previously granted under the Plan shall
be deemed to be Incentive Stock Options and no Incentive Stock Options shall be
granted thereafter. Amendments to the Plan not requiring shareholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no Incentive Stock Option
granted after the date of such amendment shall become exercisable (to the extent
that such amendment to the Plan was required to enable the Company to grant such
Incentive Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's shareholders. If such shareholder
approval is not obtained within twelve months of the Board's adoption of such
amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
Subject to this limitation, options, Purchase Rights or Awards may be granted
under the Plan at any time after the effective date and before the date fixed
for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options, Purchase Rights or
Awards granted under the Plan. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate, with respect to options, Purchase Rights
or Awards which are not Incentive Stock Options, on the date specified in (ii)
above. If the date of termination is determined under (i) above, then options,
Purchase Rights or Awards outstanding on such date shall continue to have force
and effect in accordance with the provisions of the instruments evidencing such
options, Purchase Rights or Awards.
23. PROVISION FOR FOREIGN PARTICIPANTS
The Board of Directors may, without amending the Plan, modify options,
Purchase Rights or Awards granted to participants who are foreign nationals or
employed outside the United States to recognize differences in laws, rules,
regulations or customs of such foreign jurisdictions with respect to tax,
securities, currency, employee benefits or other matters.
24. UNDERWRITERS' HOLDBACK
The holder agrees for a period of up to 180 days from the effective date
of any registration of securities of the Company (upon request of the Company or
the underwriters managing any underwritten offering of the Company's
securities), not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any shares issued pursuant to the exercise
of an option, Purchase Right or Award without the prior written consent of the
Company or such underwriters, as the case may be.
Adopted by the Board of Directors on
January 15, 1996
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EXHIBIT 10.5
INTERNATIONAL INTEGRATION INCORPORATED
FOUNDING STOCKHOLDERS' AGREEMENT
This Agreement is made as of this 6th day of May, 1997 between
International Integration Incorporated, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), and the undersigned
holders of its Common Stock, par value $.01 per share, each of whom individually
is called a "Shareholder" and all of whom are together referred to as the
"Shareholders."
Each Shareholder desires to confirm in writing his agreement with the
Corporation that he will not sell, assign, transfer, or in any manner dispose of
the beneficial or legal interest in any shares of Common Stock of the
Corporation now or hereafter owned by him (the "Shares"), or create or suffer
the creation of a security interest in the Shares, except in accordance with
this Agreement.
In consideration of the mutual and dependant promises contained in this
Agreement, each Shareholder and the Corporation agree as follows:
SECTION 1. RIGHT OF CORPORATION TO PURCHASE. Subject to the terms and
conditions of this Agreement:
(a) OPTION AND RIGHT OF FIRST REFUSAL. The Corporation is hereby granted
the option and right to purchase any or all of the Shares at the purchase price
set forth in Section 2(a) that any Shareholder (including, in the event of
death, incompetency, insolvency or bankruptcy of any Shareholder, any legal
representatives of such Shareholder) proposes to sell, assign, transfer or
dispose in any other manner. The Shareholder proposing to sell, assign, transfer
or dispose of any or all of his Shares to a third party shall obtain a written
offer from
<PAGE> 2
such third party setting forth the proposed price for the Shares, the manner of
payment and all other terms of the offer (the "Written Offer"). The Shareholder
shall deliver to the Corporation, not less than sixty (60) days prior to the
anticipated date of consummation of the proposed sale, transfer or other
disposition, a written notice setting forth the anticipated date of such
transaction, the number of Shares that are to be the subject of such
transaction, the names and addresses of the prospective parties thereto, the
proposed consideration, the terms of payment and any other material facts
related thereto (the "Notice of Transaction"), which Notice shall be accompanied
by a copy of the Written Offer. The Corporation shall have the right to exercise
the option created by this Section 1(a) by delivering to the Shareholder
proposing such transaction, within thirty (30) days of delivery of such
Shareholder's Notice of Transaction, a written notice of exercising this option
setting forth the number of Shares to be acquired, the purchase price for the
Shares and the date of payment therefor (the "Notice of Exercise"), which date
shall not be more than thirty (30) days after the date of delivery by the
Corporation of its Notice of Exercise. This Section 1(a) shall not apply to (A)
a proposed sale as part of a public offering of the Shares pursuant to a
registration statement under the Securities Act of 1933 or Regulation A
thereunder; (B) a sale, transfer or disposition that takes place as part of a
corporate reorganization or pursuant to a plan of merger or consolidation duly
adopted by the stockholders of the Corporation; or (C) a proposed transfer by
the Shareholder to his spouse or issue or a trust for the benefit of such
persons, or any transfer by operation of law to any such transferee, provided
that any such transferee shall become a party to this Agreement and agree in
writing to join herein and be bound hereby. (The sale, transfer or disposition
specified in subclause (C) is hereinafter referred to as a "Permitted
Transaction"
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and the transferee is hereafter referred to as a "Permitted Transferee.")
(b) OPTION TO PURCHASE PLEDGED SHARES. A Shareholder may not cause any
Shares to become subject to any security interest or security agreement,
transfer the record or beneficial ownership of any Shares pursuant to the terms
of any security agreement or by operation of law, or otherwise pledge any Shares
to a transferee (a "Creditor Transferee") in connection with the creation,
satisfaction, assumption or guarantee of any indebtedness by the Shareholder,
unless (i) the Shareholder has provided the Corporation with a written notice (a
"Pledge Notice") disclosing his intent to pledge any or all of his Shares and
outlining the principal terms of such pledge and (ii) the Corporation has
received from the Creditor Transferee a written instrument (a "Creditor
Acknowledgment") (A) acknowledging that the Shareholder proposing to pledge any
or all of his Shares is bound by the terms of this Agreement, (B) acknowledging
the Corporation's option and right under Section 1(a) of this Agreement to
purchase any or all of the pledged Shares in the event of a default by the
pledging Shareholder under the terms of the pledge and (C) agreeing to provide
the pledging Shareholder with a Written Offer and otherwise to comply, and to
permit the pledging Shareholder to comply, with the terms of this Agreement
prior to any exercise by such Creditor Transferee of its rights under any
pledge. In the event of a proposed exercise by a Creditor Transferee of its
rights to any pledged Shares, either the Shareholder or Creditor Transferee
shall deliver a Notice of Transaction and Written Offer to the Corporation in
accordance with the provisions of Section 1(a), whereupon the Corporation shall
exercise its rights pursuant to and in accordance with Section 1(a).
In the event the Corporation does not receive a Pledge Notice and Creditor
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<PAGE> 4
Acknowledgment prior to a Shareholder causing Shares to become subject to a
pledge, the Corporation shall have an option to purchase any or all of the
pledged Shares at the purchase price set forth in Section 2(b) hereof.
(c) FAILURE TO DELIVER NOTICE OF TRANSACTION. In the event any Shareholder
fails to deliver a Notice of Transaction in a timely manner as provided herein,
the Corporation's rights hereunder shall not be impaired and its option shall
continue, and may be exercised within sixty (60) days of receipt by the
Corporation of such Notice, no matter when received. No transferee of any Shares
by operation of law, and no secured party, creditor, trustee, receiver or
assignee of any Shareholder shall have rights as a stockholder of the
Corporation unless the Shares so transferred shall have first been offered to
the Corporation as provided in this Agreement.
(d) WITHDRAWAL OF NOTICE OF TRANSACTION. Any Stockholder who has delivered
a Notice of Transaction pursuant to paragraphs (a) or (b) of this Section 1 may
withdraw such Notice of Transaction at any time prior to the delivery by the
Corporation of payment for the Shares. Upon withdrawal of a Notice of
Transaction, the Corporation shall have no rights to exercise its option under
Section 1(a), with respect to such proposed transaction.
SECTION 2. PURCHASE PRICE. (a) In the event of a purchase pursuant to
Section 1(a) hereof, the purchase price shall be the purchase price to be paid
by a proposed transferee (or its equivalent in cash) as set forth in the Notice
of Transaction given by a Shareholder to the Corporation as required by
paragraphs (a) or (b) of Section 1 hereof.
(b) Except as set forth in paragraph (a) above, the purchase price to be
paid for any Share to be purchased pursuant to this Agreement shall be the book
value for such Share as of
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the last day of the fiscal quarter preceding the fiscal quarter during which the
event giving rise to such option or obligation occurred, as such book value
shall be determined from the books of the Corporation in accordance with
generally accepted accounting principles, consistently applied, and adjusted
upward or downward, as the case may be, to the extent necessary to:
(i) reflect corrections or errors;
(ii) provide appropriate accruals and reserves for all taxes
(including but not limited to all taxes based on income), bonuses and
other employee compensation (including but not limited to compensation
payable after the end of the then current fiscal year), reserves for
contingent liabilities and such other reserves as the Board of Directors
may deem proper, and such other items of income and expense attributable
to the period prior to the date as of which the determination is made as
the Board of Directors may deem proper;
(iii) exclude any value for customers' lists, records, files, leases
and any other good will relating to the business of the Corporation or any
of its subsidiaries or affiliates;
(iv) reflect the book value (as adjusted in the manner set forth in
this subparagraph) of any subsidiary of the Corporation;
(v) provide for the effect on book value of exercise of outstanding
options, warrants or other rights to acquire any capital stock of the
Corporation; and
(vi) reflect the liquidation preference of each share of capital
stock having a preference with respect to distribution of assets on
liquidation or dissolution.
SECTION 3. PAYMENT OF PURCHASE PRICE. On any payment date provided
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pursuant to Section 1 of this Agreement, the entire purchase price payable for
the Shares that the Corporation is obligated to purchase or with respect to
which it has exercised an option shall be tendered and paid at 11:00 a.m., local
time, at the principal office of the Corporation against delivery of the
certificate or certificates for the Shares to be purchased, duly endorsed for
transfer or accompanied by one or more duly executed stock powers, with
signatures guaranteed by a bank or trust company, as follows:
(a) The entire purchase price shall be paid in cash, or by good certified
or bank check, unless the terms of payment specified in the Notice of
Transaction or Written Offer delivered by such Shareholder to the Corporation
pursuant to paragraphs (a) and (b) of Section 1 specified payment on the
installment or other deferred method, in which event the purchase price shall,
at the option of the Corporation or the Shareholder, be paid according to such
method.
(b) Nothing contained in this Section 3 shall prevent the Corporation from
paying any of the purchase price in a manner not provided for herein if mutually
agreed to by the Corporation and the Shareholder from whom such Shares are to be
purchased.
SECTION 4. RIGHTS OF SHAREHOLDER ON FAILURE OF CORPORATION TO EXERCISE
OPTION. Whenever, pursuant to the provisions of paragraphs (a) and (b) of
Section 1 hereof, the Corporation has the option to exercise its rights under
Section 1(a) and does not exercise this right, then, upon the expiration of the
period during which the Corporation shall have had such option, the Shareholder
by whom such Shares are held, shall be free for a period of ninety days to sell,
assign, transfer or otherwise dispose of such Shares for the consideration and
upon the terms and conditions stated in such Shareholder's Notice of
Transaction, including the
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<PAGE> 7
Written Offer, provided, however, that any such purchaser or other permitted
transferee shall become party to this Agreement and agree in writing to join
herein and be bound by all of the terms and conditions hereof. If not so sold,
assigned, transferred or otherwise disposed of within such ninety-day period
such Shares shall again become subject to the provisions of this Agreement.
SECTION 5. NO WAIVER OF SUBSEQUENT OPTIONS. The failure of the Corporation
in any instance to exercise in full any option arising under Section 1 hereof
shall not be a waiver of any option that may subsequently arise under this
Agreement.
SECTION 6. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form as provided in this
Agreement, the entire purchase price of all Shares to be purchased in accordance
with Section 1 hereof, then from and after such time all rights of the person
from whom Shares are to be purchased as a stockholder of the Corporation and as
a holder of Shares of the Corporation shall cease with respect to the Shares to
be purchased by the Corporation, other than the right to receive payment of such
purchase price in accordance with this Agreement, and such Shares shall be
deemed to be no longer outstanding, regardless of whether the certificate or
certificates therefor have been delivered to the Corporation as required by this
Agreement; provided, however, that if the person from whom Shares are to be
purchased is selling, assigning, transferring or otherwise disposing of less
than all the Shares owned by him, such person shall retain his rights as a
stockholder of the Corporation with respect to any Shares not purchased by the
Corporation.
SECTION 7. STOCK CERTIFICATES. Shares of stock of the Corporation of any
class
-7-
<PAGE> 8
shall be issued only in the names of the beneficial owners thereof. No transfer
of shares of stock of the Corporation shall be effected except on the stock
books of the Corporation upon surrender of the certificate or certificates
therefor, duly endorsed for transfer or accompanied by one or more duly executed
stock powers, and with all stock transfer taxes paid or provided for.
SECTION 8. COMPLIANCE. No Shareholder shall sell, assign, transfer or in
any manner dispose of any Shares now or hereafter owned by him, or pledge or
create or suffer the creation of a security interest therein, nor shall any
Shares or any interest therein be transferable by the Corporation on its books
except upon compliance with this Agreement, and any sale, assignment, transfer,
disposition, pledge or the creation of any security interest contrary to the
provisions of this Agreement shall be null, void and of no effect. A Shareholder
shall indemnify and hold harmless the Corporation from any costs or expenses
(including reasonable attorneys' fees) in the event of any breach of this
Agreement or in the event of the sale of any of his Shares to the Corporation
pursuant to this Agreement from and against the claims of any other person with
respect to such Shares.
SECTION 9. CERTIFICATE LEGEND. All certificates representing outstanding
Shares owned of record or beneficially by a Shareholder shall have written,
stamped or printed on the face or back of the certificates a legend
substantially as follows:
"THIS CERTIFICATE AND THE SHARES REPRESENTED
HEREBY ARE SUBJECT TO THE TERMS OF A WRITTEN
STOCKHOLDERS' AGREEMENT, DATED AS OF MAY 6, 1997,
BETWEEN THE CORPORATION AND CERTAIN OF ITS
SHAREHOLDERS. THE CORPORATION UPON WRITTEN REQUEST
WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER HEREOF WITHOUT CHARGE."
-8-
<PAGE> 9
SECTION 10. SHAREHOLDER REPRESENTATION. Each Shareholder represents and
warrants that he is the sole record, legal and beneficial owner of the Shares
set forth next to such Shareholder's name below, in each case free and clear of
any and all liens, charges and other encumbrances.
SECTION 11. TERMINATION. This Agreement shall terminate on the earlier of
(i) the second anniversary of the date hereof and (ii) the closing of an initial
public offering of the Corporation's securities (the "Termination Date").
SECTION 12. AMENDMENT. This Agreement may not be modified, amended, or
terminated prior to the Termination Date except by an instrument in writing
signed by a duly authorized officer on behalf of the Corporation and each of the
undersigned.
SECTION 13. FURTHER ASSURANCES. Each party hereto agrees to execute and
deliver such further instruments, certificates and documents as shall be
necessary to carry out the provisions of this Agreement.
SECTION 14. BINDING EFFECT. This Agreement shall inure to the benefit of'
and be binding upon the Corporation and its successors and assigns and each
Shareholder and his legal representatives, heirs, testate and intestate
distributees and assigns, and transferees by operation of law, whether or not
any such person shall have become a party to this Agreement and agreed in
writing to join herein and be bound by the terms and conditions hereof.
SECTION 15. MASSACHUSETTS LAW. This Agreement is and shall be deemed to be
made and performed in The Commonwealth of Massachusetts. This Agreement and any
controversies arising between the parties to this Agreement shall be governed
and construed by and in accordance with the laws of The Commonwealth of
Massachusetts.
-9-
<PAGE> 10
SECTION 16. NO WAIVER. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
SECTION 17. ILLEGALITY. In the event that any provision of this Agreement
shall be invalid or contrary to law, the remaining provisions shall remain in
full force and effect and in all respects binding upon all of the parties to
this Agreement.
SECTION 18. NOTICES. Any notice required or permitted by this Agreement
shall be deemed delivered when given by registered or certified mail, return
receipt requested, addressed to the Corporation at its principal office, to any
Shareholder at his address as shown on the books of the Corporation and to any
other party hereto at such other address as shall from time to time be specified
in a notice similarly given.
IN WITNESS WHEREOF, the Corporation has caused this agreement to be signed
by its duly authorized officer, and each Shareholder has set his hand, all as of
the day and year first above written.
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ Michael Pehl
------------------------------
Michael Pehl
Chief Executive Officer
SHARES SHAREHOLDERS:
1,755,000 /s/ Madhav Anand
------------------------------
Madhav Anand
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<PAGE> 11
1,755,000 /s/ Yannis Doganis
------------------------------
Yannis Doganis
6,755,025 /s/ Sundar Subramaniam
------------------------------
Sundar Subramaniam
1,755,000 /s/ Edouard Aslanian
------------------------------
Edouard Aslanian
-11-
<PAGE> 1
EXHIBIT 10.6
INTERNATIONAL INTEGRATION INCORPORATED
AMENDMENT TO
FOUNDING STOCKHOLDERS' AGREEMENT
Reference is made to the Founding Stockholders' Agreement made as of May
6, 1997 (as amended, the "Agreement") between International Integration
Incorporated, a Delaware corporation (the "Corporation"), Madhav Anand, Yannis
Doganis, Sundar Subramaniam and Edouard Aslanian, a copy of which is attached
hereto. Capitalized terms used in this Amendment and not otherwise defined shall
have the respective meaning ascribed to them in the Agreement.
The Agreement is hereby amended in the following respects:
1. Upon execution of this Amendment, the Geneva Trust formed under an
Instrument of Trust dated November 21, 1996 and amended by a Deed of Exclusion
dated September 5, 1997 (as amended, the "Trust") and Subramaniam Limited
Partnership, a Massachusetts limited partnership formed under an agreement of
limited partnership dated July 19, 1995 (as amended, the "Partnership"), shall
each become a party to the Agreement and a "Shareholder" and one of the
"Shareholders" for all purposes of the Agreement.
2. The Shareholders hereby waive the provisions of the first sentence of
Section 7 of the Agreement for the sole purpose of facilitating the certificates
evidencing the shares of which the Trust is the beneficial owner to be issued in
the name of Harrington Trust Limited as Trustee of the Geneva Trust.
<PAGE> 2
By execution of this Amendment, each of the Trust and the Partnership
hereby confirms that its legal representatives have reviewed the Agreement, that
the Trust is bound by the terms of the Agreement, and that the Shares set forth
beside the respective name on the signature page hereof represent the Trust's
and the Partnership's only equity interest in the Corporation.
All Shareholders hereby confirm that the Agreement remains in full force
and effect.
Executed as an instrument under seal as of the 13th day of October, 1997.
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ Michael Pehl
-------------------------------
Michael Pehl
Chief Executive Officer
SHARES SHAREHOLDERS:
1,755,000 /s/ Madhav Anand
-------------------------------
Madhav Anand
1,755,000 /s/ Yannis Doganis
-------------------------------
Yannis Doganis
5,355,023 /s/ Sundar Subramaniam
-------------------------------
Sundar Subramaniam
1,755,000
-------------------------------
Edouard Aslanian
-2-
<PAGE> 3
By execution of this Amendment, each of the Trust and the Partnership
hereby confirms that its legal representatives have reviewed the Agreement, that
the Trust is bound by the terms of the Agreement, and that the Shares set forth
beside the respective name on the signature page hereof represent the Trust's
and the Partnership's only equity interest in the Corporation.
All Shareholders hereby confirm that the Agreement remains in full force
and effect.
Executed as an instrument under seal as of the 13th day of October, 1997.
INTERNATIONAL INTEGRATION INCORPORATED
By:
-------------------------------
Michael Pehl
Chief Executive Officer
SHARES SHAREHOLDERS:
1,755,000 /s/ Madhav Anand
-------------------------------
Madhav Anand
1,755,000
-------------------------------
Yannis Doganis
- --------- -------------------------------
Sundar Subramaniam
1,755,000 /s/ Edouard Aslanian
-------------------------------
Edouard Aslanian
-2-
<PAGE> 4
The Geneva Trust
1,800,000 By: Harrington Trust Limited, as Trustee
- ---------
By: /s/ [Illegible]
--------------------------------
Title: [Illegible]
-----------------------------
Subramaniam Limited Partnership
1,800,000 By: /s/ Sundar Subramaniam
- --------- --------------------------------
Sundar Subramaniam
General Partner
Hereunto duly authorized
-3-
<PAGE> 5
INTERNATIONAL INTEGRATION INCORPORATED
FOUNDING STOCKHOLDERS' AGREEMENT
This Agreement is made as of this 6th day of May, 1997 between
International Integration Incorporated, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), and the undersigned
holders of its Common Stock, par value $.01 per share, each of whom individually
is called a "Shareholder" and all of whom are together referred to as the
"Shareholders."
Each Shareholder desires to confirm in writing his agreement with the
Corporation that he will not sell, assign, transfer, or in any manner dispose of
the beneficial or legal interest in any shares of Common Stock of the
Corporation now or hereafter owned by him (the "Shares"), or create or suffer
the creation of a security interest in the Shares, except in accordance with
this Agreement.
In consideration of the mutual and dependant promises contained in this
Agreement, each Shareholder and the Corporation agree as follows:
SECTION 1. RIGHT OF CORPORATION TO PURCHASE. Subject to the terms and
conditions of this Agreement:
(a) OPTION AND RIGHT OF FIRST REFUSAL. The Corporation is hereby granted
the option and right to purchase any or all of the Shares at the purchase price
set forth in Section 2(a) that any Shareholder (including, in the event of
death, incompetency, insolvency or bankruptcy of any Shareholder, any legal
representatives of such Shareholder) proposes to sell, assign, transfer or
dispose in any other manner. The Shareholder proposing to sell, assign, transfer
or dispose of any or all of his Shares to a third party shall obtain a written
offer from
<PAGE> 6
such third party setting forth the proposed price for the Shares, the manner of
payment and all other terms of the offer (the "Written Offer"). The Shareholder
shall deliver to the Corporation, not less than sixty (60) days prior to the
anticipated date of consummation of the proposed sale, transfer or other
disposition, a written notice setting forth the anticipated date of such
transaction, the number of Shares that are to be the subject of such
transaction, the names and addresses of the prospective parties thereto, the
proposed consideration, the terms of payment and any other material facts
related thereto (the "Notice of Transaction"), which Notice shall be accompanied
by a copy of the Written Offer. The Corporation shall have the right to exercise
the option created by this Section 1(a) by delivering to the Shareholder
proposing such transaction, within thirty (30) days of delivery of such
Shareholder's Notice of Transaction, a written notice of exercising this option
setting forth the number of Shares to be acquired, the purchase price for the
Shares and the date of payment therefor (the "Notice of Exercise"), which date
shall not be more than thirty (30) days after the date of delivery by the
Corporation of its Notice of Exercise. This Section 1(a) shall not apply to (A)
a proposed sale as part of a public offering of the Shares pursuant to a
registration statement under the Securities Act of 1933 or Regulation A
thereunder; (B) a sale, transfer or disposition that takes place as part of a
corporate reorganization or pursuant to a plan of merger or consolidation duly
adopted by the stockholders of the Corporation; or (C) a proposed transfer by
the Shareholder to his spouse or issue or a trust for the benefit of such
persons, or any transfer by operation of law to any such transferee, provided
that any such transferee shall become a party to this Agreement and agree in
writing to join herein and be bound hereby. (The sale, transfer or disposition
specified in subclause (C) is hereinafter referred to as a "Permitted
Transaction"
-2-
<PAGE> 7
and the transferee is hereafter referred to as a "Permitted Transferee.")
(b) OPTION TO PURCHASE PLEDGED SHARES. A Shareholder may not cause any
Shares to become subject to any security interest or security agreement,
transfer the record or beneficial ownership of any Shares pursuant to the terms
of any security agreement or by operation of law, or otherwise pledge any Shares
to a transferee (a "Creditor Transferee") in connection with the creation,
satisfaction, assumption or guarantee of any indebtedness by the Shareholder,
unless (i) the Shareholder has provided the Corporation with a written notice (a
"Pledge Notice") disclosing his intent to pledge any or all of his Shares and
outlining the principal terms of such pledge and (ii) the Corporation has
received from the Creditor Transferee a written instrument (a "Creditor
Acknowledgment") (A) acknowledging that the Shareholder proposing to pledge any
or all of his Shares is bound by the terms of this Agreement, (B) acknowledging
the Corporation's option and right under Section 1(a) of this Agreement to
purchase any or all of the pledged Shares in the event of a default by the
pledging Shareholder under the terms of the pledge and (C) agreeing to provide
the pledging Shareholder with a Written Offer and otherwise to comply, and to
permit the pledging Shareholder to comply, with the terms of this Agreement
prior to any exercise by such Creditor Transferee of its rights under any
pledge. In the event of a proposed exercise by a Creditor Transferee of its
rights to any pledged Shares, either the Shareholder or Creditor Transferee
shall deliver a Notice of Transaction and Written Offer to the Corporation in
accordance with the provisions of Section 1(a), whereupon the Corporation shall
exercise its rights pursuant to and in accordance with Section 1(a).
In the event the Corporation does not receive a Pledge Notice and Creditor
-3-
<PAGE> 8
Acknowledgment prior to a Shareholder causing Shares to become subject to a
pledge, the Corporation shall have an option to purchase any or all of the
pledged Shares at the purchase price set forth in Section 2(b) hereof.
(c) FAILURE TO DELIVER NOTICE OF TRANSACTION. In the event any Shareholder
fails to deliver a Notice of Transaction in a timely manner as provided herein,
the Corporation's rights hereunder shall not be impaired and its option shall
continue, and may be exercised within sixty (60) days of receipt by the
Corporation of such Notice, no matter when received. No transferee of any Shares
by operation of law, and no secured party, creditor, trustee, receiver or
assignee of any Shareholder shall have rights as a stockholder of the
Corporation unless the Shares so transferred shall have first been offered to
the Corporation as provided in this Agreement.
(d) WITHDRAWAL OF NOTICE OF TRANSACTION. Any Stockholder who has delivered
a Notice of Transaction pursuant to paragraphs (a) or (b) of this Section 1 may
withdraw such Notice of Transaction at any time prior to the delivery by the
Corporation of payment for the Shares. Upon withdrawal of a Notice of
Transaction, the Corporation shall have no rights to exercise its option under
Section 1(a), with respect to such proposed transaction.
SECTION 2. PURCHASE PRICE. (a) In the event of a purchase pursuant to
Section 1(a) hereof, the purchase price shall be the purchase price to be paid
by a proposed transferee (or its equivalent in cash) as set forth in the Notice
of Transaction given by a Shareholder to the Corporation as required by
paragraphs (a) or (b) of Section 1 hereof.
(b) Except as set forth in paragraph (a) above, the purchase price to be
paid for any Share to be purchased pursuant to this Agreement shall be the book
value for such Share as of
-4-
<PAGE> 9
the last day of the fiscal quarter preceding the fiscal quarter during which the
event giving rise to such option or obligation occurred, as such book value
shall be determined from the books of the Corporation in accordance with
generally accepted accounting principles, consistently applied, and adjusted
upward or downward, as the case may be, to the extent necessary to:
(i) reflect corrections or errors;
(ii) provide appropriate accruals and reserves for all taxes
(including but not limited to all taxes based on income), bonuses and
other employee compensation (including but not limited to compensation
payable after the end of the then current fiscal year), reserves for
contingent liabilities and such other reserves as the Board of Directors
may deem proper, and such other items of income and expense attributable
to the period prior to the date as of which the determination is made as
the Board of Directors may deem proper;
(iii) exclude any value for customers' lists, records, files, leases
and any other good will relating to the business of the Corporation or any
of its subsidiaries or affiliates;
(iv) reflect the book value (as adjusted in the manner set forth in
this subparagraph) of any subsidiary of the Corporation;
(v) provide for the effect on book value of exercise of outstanding
options, warrants or other rights to acquire any capital stock of the
Corporation; and
(vi) reflect the liquidation preference of each share of capital
stock having a preference with respect to distribution of assets on
liquidation or dissolution.
SECTION 3. PAYMENT OF PURCHASE PRICE. On any payment date provided
-5-
<PAGE> 10
pursuant to Section 1 of this Agreement, the entire purchase price payable for
the Shares that the Corporation is obligated to purchase or with respect to
which it has exercised an option shall be tendered and paid at 11:00 a.m., local
time, at the principal office of the Corporation against delivery of the
certificate or certificates for the Shares to be purchased, duly endorsed for
transfer or accompanied by one or more duly executed stock powers, with
signatures guaranteed by a bank or trust company, as follows:
(a) The entire purchase price shall be paid in cash, or by good certified
or bank check, unless the terms of payment specified in the Notice of
Transaction or Written Offer delivered by such Shareholder to the Corporation
pursuant to paragraphs (a) and (b) of Section 1 specified payment on the
installment or other deferred method, in which event the purchase price shall,
at the option of the Corporation or the Shareholder, be paid according to such
method.
(b) Nothing contained in this Section 3 shall prevent the Corporation from
paying any of the purchase price in a manner not provided for herein if mutually
agreed to by the Corporation and the Shareholder from whom such Shares are to be
purchased.
SECTION 4. RIGHTS OF SHAREHOLDER ON FAILURE OF CORPORATION TO EXERCISE
OPTION. Whenever, pursuant to the provisions of paragraphs (a) and (b) of
Section 1 hereof, the Corporation has the option to exercise its rights under
Section 1(a) and does not exercise this right, then, upon the expiration of the
period during which the Corporation shall have had such option, the Shareholder
by whom such Shares are held, shall be free for a period of ninety days to sell,
assign, transfer or otherwise dispose of such Shares for the consideration and
upon the terms and conditions stated in such Shareholder's Notice of
Transaction, including the
-6-
<PAGE> 11
Written Offer, provided, however, that any such purchaser or other permitted
transferee shall become party to this Agreement and agree in writing to join
herein and be bound by all of the terms and conditions hereof. If not so sold,
assigned, transferred or otherwise disposed of within such ninety-day period
such Shares shall again become subject to the provisions of this Agreement.
SECTION 5. NO WAIVER OF SUBSEQUENT OPTIONS. The failure of the Corporation
in any instance to exercise in full any option arising under Section 1 hereof
shall not be a waiver of any option that may subsequently arise under this
Agreement.
SECTION 6. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form as provided in this
Agreement, the entire purchase price of all Shares to be purchased in accordance
with Section 1 hereof, then from and after such time all rights of the person
from whom Shares are to be purchased as a stockholder of the Corporation and as
a holder of Shares of the Corporation shall cease with respect to the Shares to
be purchased by the Corporation, other than the right to receive payment of such
purchase price in accordance with this Agreement, and such Shares shall be
deemed to be no longer outstanding, regardless of whether the certificate or
certificates therefor have been delivered to the Corporation as required by this
Agreement; provided, however, that if the person from whom Shares are to be
purchased is selling, assigning, transferring or otherwise disposing of less
than all the Shares owned by him, such person shall retain his rights as a
stockholder of the Corporation with respect to any Shares not purchased by the
Corporation.
SECTION 7. STOCK CERTIFICATES. Shares of stock of the Corporation of any
class
-7-
<PAGE> 12
shall be issued only in the names of the beneficial owners thereof. No transfer
of shares of stock of the Corporation shall be effected except on the stock
books of the Corporation upon surrender of the certificate or certificates
therefor, duly endorsed for transfer or accompanied by one or more duly executed
stock powers, and with all stock transfer taxes paid or provided for.
SECTION 8. COMPLIANCE. No Shareholder shall sell, assign, transfer or in
any manner dispose of any Shares now or hereafter owned by him, or pledge or
create or suffer the creation of a security interest therein, nor shall any
Shares or any interest therein be transferable by the Corporation on its books
except upon compliance with this Agreement, and any sale, assignment, transfer,
disposition, pledge or the creation of any security interest contrary to the
provisions of this Agreement shall be null, void and of no effect. A Shareholder
shall indemnify and hold harmless the Corporation from any costs or expenses
(including reasonable attorneys' fees) in the event of any breach of this
Agreement or in the event of the sale of any of his Shares to the Corporation
pursuant to this Agreement from and against the claims of any other person with
respect to such Shares.
SECTION 9. CERTIFICATE LEGEND. All certificates representing outstanding
Shares owned of record or beneficially by a Shareholder shall have written,
stamped or printed on the face or back of the certificates a legend
substantially as follows:
"THIS CERTIFICATE AND THE SHARES REPRESENTED
HEREBY ARE SUBJECT TO THE TERMS OF A WRITTEN
STOCKHOLDERS' AGREEMENT, DATED AS OF MAY 6, 1997,
BETWEEN THE CORPORATION AND CERTAIN OF ITS
SHAREHOLDERS. THE CORPORATION UPON WRITTEN REQUEST
WILL FURNISH A COPY OF SUCH AGREEMENT TO THE
HOLDER HEREOF WITHOUT CHARGE."
-8-
<PAGE> 13
SECTION 10. SHAREHOLDER REPRESENTATION. Each Shareholder represents and
warrants that he is the sole record, legal and beneficial owner of the Shares
set forth next to such Shareholder's name below, in each case free and clear of
any and all liens, charges and other encumbrances.
SECTION 11. TERMINATION. This Agreement shall terminate on the earlier of
(i) the second anniversary of the date hereof and (ii) the closing of an initial
public offering of the Corporation's securities (the "Termination Date").
SECTION 12. AMENDMENT. This Agreement may not be modified, amended, or
terminated prior to the Termination Date except by an instrument in writing
signed by a duly authorized officer on behalf of the Corporation and each of the
undersigned.
SECTION 13. FURTHER ASSURANCES. Each party hereto agrees to execute and
deliver such further instruments, certificates and documents as shall be
necessary to carry out the provisions of this Agreement.
SECTION 14. BINDING EFFECT. This Agreement shall inure to the benefit of
and be binding upon the Corporation and its successors and assigns and each
Shareholder and his legal representatives, heirs, testate and intestate
distributees and assigns, and transferees by operation of law, whether or not
any such person shall have become a party to this Agreement and agreed in
writing to join herein and be bound by the terms and conditions hereof.
SECTION 15. MASSACHUSETTS LAW. This Agreement is and shall be deemed to be
made and performed in The Commonwealth of Massachusetts. This Agreement and any
controversies arising between the parties to this Agreement shall be governed
and construed by and in accordance with the laws of The Commonwealth of
Massachusetts.
-9-
<PAGE> 14
SECTION 16. NO WAIVER. No waiver of any breach or condition of this
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
SECTION 17. ILLEGALITY. In the event that any provision of this Agreement
shall be invalid or contrary to law, the remaining provisions shall remain in
full force and effect and in all respects binding upon all of the parties to
this Agreement.
SECTION 18. NOTICES. Any notice required or permitted by this Agreement
shall be deemed delivered when given by registered or certified mail, return
receipt requested, addressed to the Corporation at its principal office, to any
Shareholder at his address as shown on the books of the Corporation and to any
other party hereto at such other address as shall from time to time be specified
in a notice similarly given.
IN WITNESS WHEREOF, the Corporation has caused this agreement to be signed
by its duly authorized officer, and each Shareholder has set his hand, all as of
the day and year first above written.
INTERNATIONAL INTEGRATION INCORPORATED
By: Michael Pehl
----------------------------------
Michael Pehl
Chief Executive Officer
SHARES SHAREHOLDERS:
1,755,000 /s/ Madhav Anand
--------------------------------------
Madhav Anand
-10-
<PAGE> 15
1,755,000 /s/ Yannis Doganis
-------------------------------
Yannis Doganis
6,755,025 /s/ Sundar Subramaniam
-------------------------------
Sundar Subramaniam
1,755,000 /s/ Edouard Aslanian
-------------------------------
Edouard Aslanian
-11-
<PAGE> 1
EXHIBIT 10.7
VOTING TRUST AGREEMENT
AGREEMENT made as of the 13th day of October, 1997, by and among State
Street Bank and Trust Company (hereinafter sometimes referred to, along with its
successor in trust, as the "Trustee"); International Integration Incorporated, a
Delaware corporation (the "Company"), Sundar Subramaniam ("Subramaniam"),
Subramaniam Limited Partnership, a Massachusetts limited partnership formed
under an agreement of limited partnership dated July 19, 1995 (the
"Partnership") and Harrington Trust Limited, as Trustee of the Geneva Trust,
formed under an instrument of trust dated November 21, 1996 and amended by a
Deed of Exclusion dated September 5, 1997 (the "Geneva Trust") (Subramaniam, the
Partnership and the Geneva Trust are hereinafter sometimes referred to
individually, as a "Stockholder," and collectively, as the "Stockholders").
WHEREAS, the Company desires to establish an arrangement whereby the
Stockholders grant the voting power with respect to all shares of Common Stock,
$.01 par value per share, of the Company currently or hereafter owned by the
Stockholders (the "Shares") to the Trustee in all matters on the terms and
conditions set forth herein, and the parties hereto believe that the best
interests of the Company will be protected and promoted thereby;
WHEREAS, the Partnership has on or before the date hereof transferred to
the Geneva Trust 1,800,000 Shares; and
<PAGE> 2
WHEREAS, the Trustee has consented to act under this Agreement for the
purposes hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good, valuable and sufficient consideration, the receipt and
adequacy of which is hereby acknowledged by all parties hereto, the parties
hereto promise, covenant, undertake and agree as follows:
1. TRANSFER OF STOCK TO TRUSTEE. Each of the Stockholders has deposited
with the Trustee certificates representing all Shares currently held by such
Stockholder. Each of the Stockholders hereby agrees to deposit with the Trustee
certificates representing Shares hereafter held by such Stockholder, or shall
direct the Company to issue such Shares directly to the Trustee. Each
Stockholder hereby represents that the Shares deposited by him or it hereunder
represent all shares of capital stock of the Company of which such Stockholder
is the record or beneficial owner and that such Stockholder is the sole record,
legal and beneficial owner of all Shares deposited by him or it hereunder. Each
Stockholder hereby agrees and covenants that during the term of this Agreement,
he or it shall remain the sole beneficial owner within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of all Shares deposited or to be deposited by him or it hereunder and all
voting trust certificates issued hereunder. Subramaniam hereby represents that
(i) Sundar Subramaniam and Subitha Subramaniam, sister of Sundar Subramaniam,
and their respective children and remote issue are the sole beneficiaries of the
Geneva Trust and that no other party
-2-
<PAGE> 3
has or will have during the term of this Agreement any right, title or interest
in any assets of the Geneva Trust including, without limitation, the Shares
deposited or to be deposited by the Geneva Trust hereunder and (ii) after giving
effect to the transfer to the Geneva Trust referred to above, the Partnership
has no record or beneficial interest in any securities of the Company. All such
stock certificates, unless issued by the Company directly to the Trustee as set
forth above, shall be so endorsed, or accompanied by such instruments of
transfer as to enable the Trustee to cause such certificates to be transferred
into the name of the Trustee and to enable the Trustee to become the record
owner of the Shares represented thereby in accordance with the terms and
provisions hereof, which the Trustee shall forthwith cause to be done as
hereinafter provided. Upon receipt by the Trustee of the certificates for any
such shares of the stock of the Company and, if necessary, the transfer of the
same into the name of the Trustee, the Trustee shall hold the same subject to
the terms of this Agreement and shall thereupon issue and deliver to each
Stockholder depositing stock hereunder, or for whose benefit such stock was
deposited, voting trust certificates representing such Stockholders' respective
interests in the Company's capital stock deposited pursuant to this Agreement.
In the event that a Stockholder becomes the holder of additional Shares of
capital stock of the Company after the date hereof, he or it shall, within five
business days of becoming the holder of such additional Shares, deposit with the
Trustee certificates representing such additional Shares or shall direct the
Company to issue such Shares directly to the Trustee which Shares shall
thereupon be subject to the terms of this Agreement.
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<PAGE> 4
2. AGREEMENT. Copies of this Agreement and of every agreement supplemental
hereto or amendatory hereof shall be provided to each person depositing stock
with the Trustee under this Agreement and to the Company, and shall be filed in
the registered office of the Company in the State of Delaware, and shall be open
to inspection by any beneficiary of the trust under this voting trust, daily
during business hours. All voting trust certificates shall be issued, received
and held subject to all of the terms of this Agreement. All persons, firms,
corporations, trusts, or organizations for whose benefit stock is deposited
hereunder who accept a voting trust certificate issued hereunder, shall be bound
by the provisions of this Agreement with the same effect as if they had executed
this Agreement.
All certificates for the Company's capital stock transferred and delivered
to the Trustee pursuant hereto (unless issued directly to the Trustee as set
forth in Section 1 above) shall be surrendered by the Trustee to the Company and
cancelled and new certificates therefor shall be issued to and held by the
Trustee in their own names "As Voting Trustee".
3. VOTING TRUST CERTIFICATES. Each voting trust certificate to be issued
and delivered by the Trustee in respect of the capital stock of the Company, as
hereinbefore provided, shall state the number of shares which it represents,
shall be signed by the Trustee and shall be in substantially the same form as
EXHIBIT I hereto.
4. TRANSFER OF CERTIFICATES. Transfer of any voting trust certificate
shall be subject to any restrictions, provisions and conditions applicable to
the stock which it represents, whether imposed by law, specified on such stock
certificates or specified
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<PAGE> 5
in this Agreement or in any other agreement including, without limitation, the
Founding Stockholders' Agreement dated as of May 6, 1997 (as amended, the
"Founding Stockholders' Agreement") between the Company and each Shareholder, as
defined therein, which Agreement each party hereto represents is a valid and
binding obligation of such party, enforceable against such party in accordance
with its terms. The Company hereby confirms its consent pursuant to the terms of
the Founding Stockholders' Agreement to the transfer on or before the date of
execution of this Agreement of up to 1,800,000 Shares by Subramaniam to the
Partnership and the subsequent transfer by the Partnership to the Geneva Trust
of all Shares transferred by Subramaniam to the Partnership, which Shares are
subject to the Founding Stockholders' Agreement and this Agreement. Subject to
the foregoing, the voting trust certificates shall be freely transferable on the
books of the Trustee, at such office as the Trustee may designate, by the
registered owner thereof, either in person or by attorney duly authorized, upon
surrender thereof, according to the rules established for that purpose by the
Trustee, and the Trustee may treat the registered holder as owner thereof for
all purposes whatsoever, but the Trustee shall not be required to deliver new
voting trust certificates hereunder without the surrender of such existing
voting trust certificates.
If a voting trust certificate is lost, stolen, mutilated or destroyed, the
Trustee, in its discretion, may issue a duplicate of such certificate upon
receipt of: (a) evidence of such fact satisfactory to it; (b) indemnity
satisfactory to it; (c) the existing certificate, if mutilated; and (d) the
Trustee's reasonable fees and expenses in
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<PAGE> 6
connection with the issuance of a new trust certificate. The Trustee shall not
be required to recognize any transfer of a voting trust certificate not made in
accordance with the provisions hereof, unless the person claiming such ownership
shall have produced indicia of title satisfactory to the Trustee and shall, in
addition, deposit with the Trustee indemnity satisfactory to them.
After termination of the Founding Stockholders' Agreement and this
Agreement in accordance with their respective terms, upon written request from a
Stockholder to transfer Shares, if the Company's securities are then publicly
traded and Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), is then available to the Company, the Company will
accept the legal opinion of counsel to such Stockholder if such counsel is
experienced in securities law matters, that such transfer complies with the
applicable provisions of Rule 144.
5. TERMINATION PROCEDURE. Upon the termination of the voting trust at any
time, as hereinafter provided, the Trustee shall mail within five business days
of such termination written notice of such termination to the registered owners
of the voting trust certificates, at the addresses appearing on the transfer
books of the Trustee. From the date specified in any such notice (which date
shall be fixed by the Trustee in accordance with the provisions of this
Agreement) the voting trust certificates shall cease to have any effect, and the
holders of such voting trust certificates shall have no further rights under
this voting trust other than to receive certificates for shares of stock of the
Company or other property distributable under the terms hereof upon the
surrender of such voting trust certificates.
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<PAGE> 7
Within ten business days after surrender for cancellation of voting trust
certificates by a registered holder, properly endorsed or accompanied by
properly endorsed instruments of transfer, if appropriate, at the place
designated by the Trustee, the Trustee shall deliver to such registered holder
of such voting trust certificates, stock certificates for the number of shares
of such class or classes of the Company's capital stock represented thereby as
to which such registered holder shall be entitled.
6. DIVIDENDS. If any dividend or distribution in respect of the stock
deposited with the Trustee is paid, in whole or in part, in securities of the
Company having voting powers of any nature, the Trustee shall likewise hold,
subject to the terms of this Agreement, the securities which are received by it
on account of such dividend or distribution, and the holder of each voting trust
certificate representing stock on which such dividend or distribution has been
paid shall be entitled to receive a voting trust certificate issued under this
Agreement representing such securities. Holders entitled to receive the
dividends or distributions referred to above shall be those registered as such
on the transfer books of the Trustee at the close of business on the day fixed
by the Company or by law for the taking of a record to determine those holders
of the Company's stock entitled to receive such dividends or distributions.
If any dividend or distribution in respect of the stock deposited with the
Trustee is paid other than in securities of the Company having voting powers of
any nature, then the Trustee shall promptly distribute the same among the
holders of
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<PAGE> 8
voting trust certificates registered as such at the close of business on the day
fixed by the Company or by law for the taking of a record to determine the
holders of stock entitled to receive such dividend or distribution. Such
distribution shall be made to such holders of voting trust certificates ratably,
in accordance with the number of shares represented by their respective voting
trust certificates.
In lieu of receiving cash dividends or distributions upon the capital
stock of the Company and paying the same to the holders of voting trust
certificates pursuant to the provisions of this Agreement, the Trustee may
instruct the Company in writing to pay such dividends or distributions directly
to the holders of the voting trust certificates specified by the Trustee. Upon
receipt of such written instructions, the Company shall pay such dividends or
distributions directly to the holders of the voting trust certificates. The
Trustee may at any time before such payment revoke such instructions and by
written notice to the Company direct it to make dividend or distribution
payments to the Trustee. The Company shall not be liable to any holder of a
voting trust certificate or any person claiming to be entitled to any such
dividends or distributions by reason of adhering to any written instructions by
the Trustee.
7. SUBSCRIPTION RIGHTS. If any stock or other securities of the Company
are offered for subscription to all the holders of the Company's capital stock
deposited hereunder, the Trustee promptly, upon receipt of notice of such offer,
shall mail a copy thereof to each of the registered holders of the voting trust
certificates. Upon receipt by the Trustee, at least three days prior to the last
day fixed by the Company
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<PAGE> 9
for subscription and payment (but in no event affording the registered holder of
the voting trust certificate less than 10 days to consider such subscription
offer), of a request from any such registered holder of voting trust
certificates to subscribe in his behalf (accompanied when due in accordance with
the terms of the subscription offer by the sum of money required to pay for such
stock or securities), the Trustee shall make such subscription and payment, and
upon receipt from the Company of the certificates for shares or securities so
subscribed for, shall issue to such holder a voting trust certificate in respect
thereof if the same be stock having voting powers of any nature, but if the same
be securities other than stock having voting powers of any nature, the Trustee
shall mail or deliver such securities to the certificate holder in whose behalf
the subscription was made, or may instruct the Company to make delivery directly
to the certificate holder entitled thereto.
8. DISSOLUTION OF THE COMPANY. In the event of the dissolution or total or
partial liquidation of the Company, whether voluntary or involuntary, the
Trustee shall receive the moneys, securities, rights, or property to which the
holders of the Company's capital stock deposited hereunder are entitled, and
shall distribute the same among the registered holders of voting trust
certificates in proportion to their interests, as shown by the transfer books of
the Trustee, or the Trustee may in its discretion deposit such moneys,
securities, rights, or property with any bank or trust company, licensed and
doing business in the Commonwealth of Massachusetts, with authority and
instructions to distribute the same as above provided, and upon such
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<PAGE> 10
deposit, all further obligations or liabilities of the Trustee in respect of
such moneys, securities, rights, or property so deposited shall cease.
9. RIGHTS, POWERS AND DUTIES OF TRUSTEE.
(a) Until the actual delivery to the holders of voting trust
certificates issued hereunder of stock certificates in exchange therefor, and
until the surrender of the voting trust certificates for cancellation, title to
all the Company's stock deposited hereunder shall be vested in the Trustee, and
the Trustee shall have the right, acting as hereinafter provided, to exercise,
in person or by their nominees or proxies, all stockholders' rights and powers
in respect of all stock deposited hereunder, including the right to vote thereon
and to take part in or consent to any corporate or stockholders' action of any
kind whatsoever, whether ordinary or extraordinary. The right to vote shall
include the right to vote for the election of directors and, subject to the
provisions of Section 9(b) hereof, the right to vote in favor of or against any
resolution or proposed action of any character whatsoever, which may be
presented at any meeting or require the consent of stockholders of the Company.
Before voting on any matter, the Trustee shall discuss such matter with Joseph
M. Tucci and John A. Young, if they are then serving on the Company's Board of
Directors, provided, however, that the Trustee shall not be obligated to follow
their recommendations. It is expressly understood and agreed that, except as
provided in the immediately following paragraph, the holders of voting trust
certificates shall not have any right, either under said voting trust
certificates or under this Agreement, or under any agreement express or implied,
or otherwise, with respect to any shares of capital
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<PAGE> 11
stock of the Company held by the Trustee hereunder to vote such shares or to
take part in or consent to any corporate action, or to do or perform any other
act or thing which the holders of capital stock of the Company are now or may
hereafter become entitled to do or perform.
(b) If the approval of the stockholders of the Company is sought or
required by law in connection with any of the following actions, the Trustee
will comply with the provisions of this Section 9(b) before voting any Shares
subject to this Agreement:
(i) the sale of substantially all the assets or capital stock
of the Company to an acquiring party, or the merger or consolidation
of the Company into or with another corporation, and the acquiring
party of the Company's assets or capital stock or the other party to
the merger or consolidation of the Company referred to above is not
an "affiliate," within the meaning of Rule 405 promulgated under the
Securities Act, of any Stockholder;
(ii) the issuance of any right to acquire any capital stock of
the Company or the issuance of any capital stock of the Company
other than (x) the granting of stock options pursuant to the
Company's stock option plan in effect on the date hereof, (y) the
acquisition of shares of the Company's Common Stock upon the
exercise of such options or (z) the sale of capital stock by the
Company pursuant to a registration
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<PAGE> 12
statement declared effective by the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act
("IPO");
(iii) the voluntary or involuntary liquidation, dissolution or
winding up of the Company;
(iv) the declaration or payment of any dividends on any
capital stock of the Company other than dividends payable pro rata
to all holders of capital stock of the Company;
(v) the incurrence of indebtedness for borrowed money (other
than trade payables incurred in the ordinary course of business) in
excess of $5 million;
(vi) the acquisition of any equity security, or any right to
acquire any equity security, of any other corporation other than the
Company's formation of one or more wholly-owned subsidiaries (or
subsidiaries in which a de minimis number of shares are held by a
third party in order to comply with local law), in connection with
the conduct of the Company's business in the ordinary course;
(vii) any transaction or proposed transaction, other than an
IPO, pursuant to which any "person", as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, (other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as
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<PAGE> 13
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities;
(viii) any amendment to or restatement of the Company's
Certificate of Incorporation other than an amendment or restatement
proposed in connection with an IPO which amendment contain
provisions relating to one or more of the following matters:
(A) increases the number of shares of Common Stock,
which the Company is authorized to issue,
(B) authorizes the Company to issue preferred stock,
(C) indemnifies the Company's officers and directors to
the maximum extent permitted by law,
(D) limits or eliminates the liability of the Company's
officers and directors for breaches of fiduciary duty,
(E) prohibits stockholders of the Company from acting
without a meeting,
(F) requires a super majority vote of stockholders to
amend certain provisions of the Company's Certificate of
Incorporation, or
(G) staggers the terms of the Company's Directors.
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<PAGE> 14
The Trustee will deliver written notice to each holder of voting trust
certificates of such action and vote the Shares subject to this Agreement for
the benefit of each such holder of voting trust certificates in accordance with
the written instructions delivered by such holder of voting trust certificates
provided such holder of voting trust certificates delivers such written
instructions to the Trustee within ten business days of delivery of the notice
to the holder of voting trust certificates by the Trustee. The notice shall
include as part thereof all information relating to such action available to the
non-employee Directors of the Company, and the notice thereof and all such
information shall be confidential information of the Company and shall not be
disclosed by any holder of voting trust certificates to any other party except
his or its financial or legal advisors who shall be advised by the holder of
voting trust certificates of the confidential nature of such notice and
information.
The Trustee shall not be responsible with respect to any action taken
pursuant to, or act committed or omitted to be done under this Agreement,
including without limitation, voting or giving written consents with respect to
the shares of stock held by it hereunder, provided such action or commission or
omission does not amount to wilful misconduct on their part. No Trustee shall be
responsible for any vote or act committed or omitted to be done by any
predecessor or successor Trustee or otherwise except for his own individual
wilful misconduct. No Trustee shall be responsible for (i) management of the
Company or (ii) any actions taken by any person elected as a director of the
Company or by the Company pursuant to any vote cast or consent given by the
Trustee.
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<PAGE> 15
The Trustee may, in its discretion, consult with legal counsel, who may
also be legal counsel to the Company, and any action taken in good faith by the
Trustee in reliance upon the advice of legal counsel shall be conclusive in
favor of the Trustee against all holders of voting trust certificates and all
other interested parties.
The Trustee shall at all times keep, or cause to be kept, complete and
accurate records of all stock deposited with him hereunder, the identity,
addresses and ownership of the depositing Stockholders, and all certificates of
beneficial interest issued by the Trustee. Such records shall be open to
inspection by any depositing stockholder at all reasonable times.
A certificate signed by the Trustee shall be conclusive evidence to all
persons as to who are then serving as Trustee and as to any action taken by the
Trustee.
10. SUCCESSOR TRUSTEE. The Trustee may resign effective 30 days after
delivery of written notice to all holders of voting trust certificates and the
Company. In the event of the Trustee's resignation or inability to act, the
Board of Directors of the Company may, but shall not be obligated, to select a
successor Trustee after discussion with Subramaniam, In the event that a
successor trustee is not selected within the 30-day period referred to in the
first sentence of this Section 10, this Agreement shall terminate.
The Trustee shall affix its signature to this Agreement and each successor
Trustee shall accept appointment or election hereunder by affixing his or her
signature to this Agreement, or a counterpart hereof, within the 30-day period
referred to in the first sentence of this Section 10. By affixing its signatures
to this
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<PAGE> 16
Agreement, the Trustee and each successor Trustee agree to be bound by the terms
hereof.
11. INDEMNIFICATION OF TRUSTEE. The Trustee shall be entitled to be fully
indemnified by the Company to the fullest extent permitted by law, against all
costs, charges, expenses, loss, liability and damage (other than those for which
it is responsible under Section 9(b) hereof) incurred by it in the
administration of the Trust or in the exercise of any power conferred upon the
Trustee by this Agreement. The Stockholders, and each of them, hereby covenant
with the Trustee that in the event that the assets of the Company or the
proceeds of insurance policies then in effect, if any, are insufficient to
indemnify the Trustee in accordance with the preceding sentence, the
Stockholders, and each of them, will in proportion to the amount of their
respective shares of capital stock subject to this Agreement, hold harmless and
keep indemnified the Trustee of and from all loss or damage which the Trustee
may sustain or be put to by reason of anything it may lawfully do in the
execution of this Trust other than as a result of its wilful misconduct.
Notwithstanding the foregoing, the liability of Harrington Trust Limited, as
Trustee of the Geneva Trust, shall not exceed the value of the assets then held
of record or beneficially by the Geneva Trust, including, without limitation,
the value of the Shares of which the Geneva Trust is then the beneficial owner.
The Trustee hereby agrees not to charge any fees for its services hereunder
except for the reimbursement of expenses necessarily incurred in connection with
the discharge of its duties hereunder, including without limitation attorney's
fees, and the Stockholders, and
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<PAGE> 17
each of them, hereby agree to reimburse the Trustee for all such expenses in
proportion to the amount of their respective shares of capital stock subject to
this Agreement.
12. MEETING OF VOTING TRUST CERTIFICATE HOLDERS. A meeting of the voting
trust certificate holders may be called at any time by the Trustee. Written or
printed notice of any such meeting shall be given to all registered holders of
voting trust certificates, and such notice shall contain the date, time and
place of such meeting. At any such meeting, a quorum shall consist of a majority
in interest of the registered holders of voting trust certificates.
13. "STAND-OFF AGREEMENT". Each Stockholder, if requested by the Company
and the managing underwriter of an IPO, shall execute an agreement not to sell
publicly or otherwise transfer or dispose of any securities of the Company held
by such Stockholder for a specified period of time (not to exceed 180 days)
following the effective date of the registration statement filed with the
Commission in connection with the IPO provided that all members of the Company's
Board of Directors, the Company's Chief Executive Officer, President and Chief
Financial Officer execute such agreement.
14. AMENDMENTS AND TERMINATION. This Agreement may be amended or
terminated by a written amendment or declaration of termination signed by the
Company, the Trustee and by the holders of 80% in interest of the voting trust
certificates. If not previously terminated, this Agreement shall terminate upon
the first to occur of:
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(a) the merger or consolidation of the Company with or into another
corporation if such other corporation shall be the surviving and continuing
corporation, or the sale of all or substantially all of the assets or stock of
the Company to another corporation;
(b) the closing date of an underwritten public offering of common stock by
the Company pursuant to which the Company shall receive net proceeds of at least
$10,000,000; or
(c) December 31, 1998.
15. SALE AND TRANSFER OF COMPANY'S STOCK. Except as otherwise provided in
this Agreement, the Trustee shall not sell, hypothecate, pledge, assign or
otherwise transfer the stock of the Company, or any interest whatsoever therein,
held pursuant to this Agreement.
16. NOTICES; DISTRIBUTIONS. Unless otherwise specifically provided in this
Agreement, any notice to or communication with the holders of the voting trust
certificates hereunder shall be deemed to be sufficiently given or made if (i)
personally delivered or mailed, postage prepaid, to such holders at their
respective addresses appearing on the signature page hereof, which shall in all
cases be deemed to be the addresses of voting trust certificate holders for all
purposes under this Agreement, without regard to what other or different
addresses the Trustee may have for any voting trust certificate holder on any
other books or records of the Trustee or (ii) telecopied to the respective
telecopy number set forth on the signature page hereof and confirmed by letter
sent to the appropriate address set forth in clause (i)
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above. Copies of notices to the Stockholders shall be sent by telecopy
(confirmed by letter) to Susan E. Pravda, Esq., Epstein, Becker & Green PC, 75
State Street, Boston, Massachusetts 02109, telecopier number 617-342-4001.
Any notice to the Trustee or Company hereunder shall be sufficient if
personally delivered or mailed, postage prepaid, by certified or registered
mail, at the following addresses:
The Trustee: State Street Bank and Trust Company
225 Franklin Street, 3rd Floor
Boston, Massachusetts 02110
Attention: Edward Voccola
Telecopier number: 617-664-3286
With a copy to: Eric P. Hayes, Esq.
State Street Bank and Trust Company
225 Franklin St., 3rd Floor
Boston, Massachusetts 02110
Telecopier number: 617-664-3286
The Company: International Integration Incorporated
101 Main Street
Cambridge, Massachusetts 02142
Attention: Chief Executive Officer
With a copy to: Peter B. Tarr, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telecopier number: 617-526-5000
or telecopied to telecopier number 617-374-5901 and confirmed by letter sent to
the Company at the address set forth above.
Any party to this Agreement may change his or its address or telecopier
number for the giving of notices by giving notice of such changed address or
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<PAGE> 20
telecopier number in the manner set forth above. All notices given hereunder
shall be deemed given as of the date of personal delivery or two days after the
date of mailing, as the case may be, except that any notice of change of address
or any notice delivered by telecopier shall be deemed given when received.
All distributions of cash, securities, or other property hereunder by the
Trustee to the holders of voting trust certificates may be made, in the
discretion of the Trustee, by mail (regular, registered or certified mail, as
the Trustee may deem advisable), in the same manner as hereinabove provided for
the giving of notices to the holders of voting trust certificates.
17. CONSTRUCTION. This Agreement was executed in the Commonwealth of
Massachusetts, is to take effect as a sealed instrument, and is binding upon and
inures to the benefit of the parties hereto and their successors and assigns.
The administration and interpretation of this Agreement shall be governed by the
laws of the Commonwealth of Massachusetts. The invalidity or nonenforceability
of any term or provision of this Agreement or of any voting trust certificate
shall in no way impair or affect the balance hereof or thereof, which shall
remain in full force and effect.
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereof have executed this Agreement under
seal, all as of the day and year first above written.
INTERNATIONAL INTEGRATION
INCORPORATED
By: /s/ Michael Pehl
-------------------------------------
Michael Pehl
Chief Executive Officer
TRUSTEE:
STATE STREET BANK AND TRUST
COMPANY
By:
-------------------------------------
Title:
----------------------------------
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereof have executed this Agreement under
seal, all as of the day and year first above written.
INTERNATIONAL INTEGRATION
INCORPORATED
By:
-------------------------------------
Michael Pehl
Chief Executive Officer
TRUSTEE:
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Edward R. Voccola
-------------------------------------
Title: Vice President
----------------------------------
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<PAGE> 23
Number of Shares STOCKHOLDERS:
Deposited with
Trustee:
5,355,025 Shares /s/ Sundar Subramaniam
- ------------------------ -----------------------------------------
Sundar Subramaniam
75 Cambridge Parkway, #W1107
Cambridge, Massachusetts 02142
Telecopier Number:
SUBRAMANIAM LIMITED PARTNERSHIP
Zero Shares By: /s/ Sundar Subramaniam
-------------------------------------
Sundar Subramaniam
General Partner
Hereunto duly authorized
Address: 75 Cambridge Pkwy., #W1107
Cambridge, MA 02142
Telecopier Number:
GENEVA TRUST
Harrington Trust Limited, as Trustee
1,800,000 Shares By: /s/ [Illegible]
- ------------------------ -------------------------------------
Title: President/ Director
----------------------------------
Address: Harrington Trust Limited
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Telecopier Number:
(441)2928666
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<PAGE> 24
EXHIBIT I
VOTING TRUST CERTIFICATE
No. _________ _____________Shares
This certifies that the undersigned Trustee have received a certificate or
certificates in the name of ____________________ evidencing ownership of
________ shares of the Common Stock, $.01 par value, of INTERNATIONAL
INTEGRATION INCORPORATED (the "Company"), a Delaware corporation, and that said
shares are held subject to all of the terms and conditions of a certain Voting
Trust Agreement dated as of the __ day of September, 1997, by and among the
Company, State Street Bank and Trust Company as Trustee, and certain
stockholders of the Company (the "Agreement") and are entitled to all of the
benefits set forth in the Agreement. Copies of the Agreement and of every
amendment and supplement thereto are on file at the office of the Company and
shall be available for the inspection of every beneficiary thereof during normal
business hours. The holder of this certificate, which is issued, received and
held under the Agreement, by acceptance hereof, assents to and is bound by the
Agreement.
This Voting Trust Certificate has not been registered under the Securities
Act of 1933, as amended, and may not be sold or otherwise transferred unless (a)
covered by an effective registration statement under the Securities Act of 1933,
as amended, or (b) the trustee and the Company have been furnished with an
opinion of counsel satisfactory to them to the effect that no registration is
legally required for such transfer.
Subject to the provisions of the foregoing, this certificate is
transferrable only on the books of the trustee, by the registered holder in
person or his duly authorized attorney, and the holder hereof, by accepting this
certificate, manifests his consent that the trustee may treat the registered
holder hereof as the true owner for all purposes, except the delivery of stock
certificates, which delivery shall not be made without the surrender of this
certificate or otherwise pursuant to the aforesaid Voting Trust Agreement.
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<PAGE> 25
IN WITNESS WHEREOF, Trustee has hereunto executed this certificate as of
the ______________ day of October, 1997.
TRUSTEE:
STATE STREET BANK AND
TRUST COMPANY
By:
--------------------------------------
Tit1e:
-----------------------------------
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<PAGE> 1
EXHIBIT 10.8
[LOGO]
SILICON VALLEY EAST 45 William Street, Suite 170 Wellesley, MA 02181
A DIVISION OF SILICON VALLEY BANK 617.431.9901
August 8, 1995
Mr. Richard O. Wester
Director of Finance and Administration
International Integration Incorporated
101 Main Street
Cambridge, MA 02142
Dear Richard:
We are pleased to inform you that Silicon Valley Bank, a California-chartered
bank ("Lender") with its principal place of business at 3000 Lakeside Drive,
Santa Clara, CA 95054 and with a loan production office located at Wellesley
Office Park, 45 William Street, Suite 170, Wellesley, Massachusetts 02181
doing business under the name "Silicon Valley East", has approved a working
capital line of credit in the amount of Two Million and 00/100 Dollars
($2,000,000.00) (the "Working Capital Line") for use by International
Integration Incorporated (the "Borrower") subject to the following terms and
to the Lender's periodic review:
The commitment shall not become effective unless and until an executed copy of
this letter together with all necessary accompanying documentation as well as
the facility fee described below has been returned to the Lender, which must
take place within 30 days from the date of this letter.
Borrowings under the Working Capital Line will be permitted through August 7,
1996. Borrower shall pay regular monthly payments of all accrued interest due
as of each payment date, beginning September 7, 1995 and all subsequent
interest payments will be due on the same day of each month thereafter.
Funds shall be advanced under the Working Capital Line according to a
Borrowing Base formula, as determined by Lender on a monthly basis, defined as
follows: The lesser of (a) $2,000,000.00 or (b) Seventy percent (70%) of
eligible accounts receivable minus (i) the face amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) and
minus (ii) the Foreign Exchange Reserve. Eligible accounts receivable shall
include, but not be limited to, those accounts outstanding less than 90 days
from the date of invoice, including foreign accounts receivable from the Royal
Netherlands Navy, all other foreign accounts are subject to Lender approval,
but shall exclude all other government, contra, and intercompany accounts;
and exclude accounts wherein 50% or more of the account is outstanding more
than 90 days from the date of invoice. Other than accounts from the Royal
Netherlands Navy which shall have an increased concentration limit of 35%, any
account which alone exceeds 30% of total accounts will be ineligible to the
extent said account exceeds 30% of total accounts. Also exclude any credit
balances which are aged past 90 days. Also ineligible are any accounts which
Lender in its sole judgment excludes for valid credit reasons.
(Member FDIC)
1
<PAGE> 2
Borrowings under the Working Capital Line shall bear interest at a rate of
three-quarters of one percentage point (.7500%) over Lender's Prime Rate.
Prime Rate means the rate from time to time announced and made effective by
Lender as its Prime Rate. Borrower's interest rate shall change each time the
Prime Rate changes. Interest will be charged monthly in arrears and shall be
calculated on a 360-day year. Lender shall be authorized to debit Borrower's
principal account or any other account maintained by Borrower with Lender for
any principal, interest or fees associated with Borrower's Commitment with or
without notice to Borrower. A facility fee in the amount of Twenty Thousand
and 00/100 Dollars ($20,000.00) (the "Loan Fee") as well as any out-of-pocket
expenses incurred by Lender in connection with the establishment of the
Commitment must be paid at the time the documents are returned to Lender.
Borrower shall comply with all respects of the following paragraphs:
LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement, Lender
agrees to issue or cause to be issued letters of credit for the account of
Borrower in an aggregate face amount not to exceed (i) the lesser of
$1,000,000.00 or the Borrowing Base minus (ii) the then outstanding principal
balance under the Note provided that the face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) shall not in any
case exceed One Million Dollars ($1,000,000.00). Each such letter of credit
shall have an expiry date no later than the Maturity Date of the Note. All
such letters of credit shall be, in form and substance, acceptable to Lender
in its sole discretion and shall be subject to the terms and conditions of
Lender's form of application and letter of credit agreement.
(b) The obligation of Borrower to immediately reimburse Lender for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
the Loan Agreement and such Letters of Credit, under all circumstances
whatsoever. Borrower shall indemnify, defend and hold Lender harmless from any
loss, cost, expense or liability, including, without limitation, reasonable
attorneys' fees, arising out of or in connection with any letters of credit.
LETTER OF CREDIT REIMBURSEMENT; RESERVE.
(a) Borrower may request that Lender issue a letter of credit
payable in a currency other than United States Dollars. If a demand for
payment is made under any such letter of credit, Lender shall treat such
demand as an advance to Borrower of the equivalent of the amount thereof (plus
cable charges) in United States currency at the then prevailing rate of
exchange in San Francisco, California, for sales of that other currency for
cable transfer to the country of which it is the currency.
(b) Upon the issuance of any letter of credit payable in a currency
other than United States Dollars, Lender shall create a reserve under the Note
for letters of credit against fluctuations in currency exchange rates, in an
amount equal to twenty percent (20%) of the face amount of such letter of
credit. The amount of such reserve may be amended by Lender from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Note shall be reduced by the amount of such reserve for so long as
such letter of credit remains outstanding.
FOREIGN EXCHANGE CONTRACT; FOREIGN EXCHANGE SETTLEMENTS.
(a) Subject to the terms of this Agreement, Borrower may utilize up
to $1,000,000.00 for foreign exchange contracts (the "Exchange Contracts"),
pursuant to which Lender shall sell to or purchase from Borrower foreign
currency on a spot or future basis. All
2
<PAGE> 3
Exchange Contracts must provide for delivery of settlement on or before the
Maturity Date of the Note. The limit available at any time shall be reduced by
the following amounts (the "Foreign Exchange Reserve") on each day (the
"Determination Date"): (on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two business days
from the Determination Date, 10% of the gross amount of the Exchange
Contracts; plus (ii) on all outstanding Exchange Contracts on which delivery
is to be effected or settlement allowed within two business days after the
Determination Date, 100% of the gross amount of the Exchange Contracts. In
lieu of the Foreign Exchange Reserve for 100% of the gross amount of any
Exchange Contract, Borrower may request that Lender treat such amount as an
advance under the Note.
(b) Lender may, in its discretion, terminate the Exchange Contracts
at any time (a) that an Event of Default occurs or (b) that there is no
sufficient availability under the Note and Borrower does not have available
funds in its bank account to satisfy the Foreign Exchange Reserve. If Lender
terminates the Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Lender for any and all fees, costs
and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all Exchange
Contracts on which delivery is to be effected and settlement allowed in any
two business day period to be more than $1,000,000.00 nor shall Borrower
permit the total gross amount of all Exchange Contracts to which Borrower is a
party, outstanding at any one time, to exceed $1,000,000.00.
(d) Borrower shall execute all standard form applications and
agreements of Lender in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will
pay all standard fees and charges of Lender in connection with the Exchange
Contracts.
Any advances hereunder or renewal hereof will be made only if in the opinion
of the Lender there exists no default under any loan documentation executed by
you with the Lender. A default is as defined in the accompanying Promissory
Note dated August 8, 1995.
A. ADDITIONAL REQUIREMENTS.
1. AFFIRMATIVE COVENANTS. So long as this commitment remains outstanding, the
Company agrees to comply with the following covenants:
a. To provide the Lender with duplicate unaudited monthly
financial statements, together with a Compliance Certificate,
prepared in accordance with generally accepted accounting
principals and duplicate audited annual (consolidated and
consolidating) financial statements certified by public
accountants with an unqualified opinion, to be received 30 and
120 days respectively after the close of the period. In the
event Borrower becomes a public company, monthly reporting
requirements shall be eliminated and Borrower shall provide
any forms submitted to the Securities and Exchange Commission,
including forms 10Q and 10K, within five (5) days after filing
such forms.
b. To provide the Lender with a Borrowing Base Certificate,
together with accounts receivable agings, to be received
within thirty (30) days after the end of each month. In the
event there are no outstanding under the Note, Borrower shall
provide such borrowing base and agings not later than thirty
(30) days after the end of each quarter.
3
<PAGE> 4
c. Lender's agent, shall perform accounts receivable examinations
initially and thereafter, once per year. Borrower's deposit
account will be debited for the audit expense and a
notification will be mailed to Borrower. Notwithstanding the
foregoing, in the event any material findings are discovered
with an audit, at any time, Lender reserves the right to
perform such audits on a semi-annual basis.
d. PROFITABILITY - (Tested Quarterly) Maintain profitability on a
quarterly basis, with minimum profits of $250,000.00 for the
quarter ended June 30, 1995, $370,000.00 for the quarter
ending September 30, 1995, and $400,000.00 for the quarter
ending December 31, 1995. Furthermore, Borrower shall be
profitable for the quarter ended March 31, 1996 and
thereafter.
e. TANGIBLE CAPITAL BASE - (Tested Monthly) Maintain a minimum
Tangible Capital Base (TCB) of $675,000.00, increasing by 80%
of quarterly profits and 70% of equity proceeds. TCB is
defined as Stockholders' Equity plus Subordinated Debt (debt
which is formally subordinated to the Lender) less intangibles
(including but not limited to Goodwill, Capitalized Software
and Excess Purchase Costs) less deferred revenues.
f. LEVERAGE - (Tested Monthly) Maintain a ratio of Total
Liabilities less Subordinated Debt divided by TCB not to
exceed 1.50 to 1.00. Deferred revenue is to be excluded from
this calculation.
g. QUICK RATIO - (Tested Monthly) Maintain a minimum Quick Ratio
of 1.50 to 1.00. Quick Ratio is defined as cash and
receivables divided by current liabilities including any
borrowings under this facility, excluding deferred revenue.
h. File all tax returns and to pay all taxes due.
i. Maintain adequate fire and liability insurance satisfactory to
the Lender, a copy of which shall be forwarded to the Lender.
j. Reimburse the Lender for any reasonable expenses incurred by
the Lender to enforce the terms of this obligation.
k. On a going forward basis, provide a management letter with its
fiscal year end financial statements, beginning with the
fiscal year ending 1995.
2. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
a. Participate in any merger or consolidation or to pay any
dividends without the Lender's consent.
b. Dispose of any material assets other than in the ordinary
course of business without the Lender's consent.
c. Be in default of any other loan agreement with any other
Lender.
d. File for protection under the Bankruptcy Code.
4
<PAGE> 5
e. Incur indebtedness for borrowed money, except for either a)
indebtedness to Silicon Valley Bank or b) indebtedness
incurred for the purchase or lease of equipment in an
aggregate amount not to exceed $1,000,000.00 in indebtedness
on any such capital equipment outstanding at any given point
in time.
If the Lender waives any rights under this Agreement, it will not affect any
future action the Lender may wish to take. This Agreement shall be binding
upon any of the Borrower's successors in interest. The laws of the State of
Delaware shall apply to this Agreement. THE BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF DELAWARE IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND, AGAINST IT
WHICH ARISES OUT OF OR BY REASON OF THIS LETTER AGREEMENT; PROVIDED, HOWEVER,
THAT IF FOR ANY REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS OF THE STATE
OF DELAWARE, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA. (INITIAL
HERE /s/RON) LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER
AGAINST THE OTHER.
It is our understanding that the Borrower will consider the Silicon Valley Bank
to be one of its banks. Among other things, the Borrower agrees to maintain a
reasonable proportion of its excess funds in Silicon Valley Bank.
This Agreement shall become effective only when it shall have been executed by
the Borrower and the Lender (provided, however, in no event shall this Agreement
become effective until signed by an officer of the Lender in California).
We are delighted to expand our relationship with International Integration
Incorporated and look forward to many successful years of working together.
Sincerely,
SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By:__________________________________________
Name:________________________________________
Title:_______________________________________
SILICON VALLEY BANK
By:__________________________________________
Name:________________________________________
Title:_______________________________________
5
<PAGE> 6
Agreed and Accepted this 10th day of August, 1995.
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ Richard O. Wester
---------------------------------
Name: Richard O. Wester
-------------------------------
Title: Treasurer
------------------------------
enclosure:
1. Promissory Notes
2. Certificate of Compliance
3. Other ancillary forms and documents
6
<PAGE> 1
EXHIBIT 10.9
PROMISSORY NOTE
================================================================================
Borrower: INTERNATIONAL INTEGRATION INCORPORATED
101 Main Street
Cambridge, MA 02142
Lender: SILICON VALLEY BANK, a California-chartered bank
doing business as Silicon Valley East
Wellesley Office Park
45 William Street, Suite 170
Wellesley, MA 02181
================================================================================
Principal Amount: $2,000,000.00
Initial Rate: 9.500%
Date of Note: August 8, 1995
PROMISE TO PAY. INTERNATIONAL INTEGRATION INCORPORATED ("Borrower") promises
to pay to SILICON VALLEY BANK, a California-chartered bank, A California bank
with a loan production office in Wellesley, Massachusetts ("Lender"), or
order, in lawful money of the United States of America, the principal amount
of Two Million & 00/100 Dollars ($2,000,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on August 7, 1996. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning September 7, 1995, and all subsequent interest payments are due on
the same day of each month after that. Interest on this Note is computed on a
365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at 3000 Lakeside Drive, Santa Clara,
California 95054. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each time the prime rate
is adjusted by Silicon Valley Bank. The Index currently is 8.750% per annum.
The Interest rate to be applied to the unpaid principal balance of this Note
will be at a rate of 0.750 percentage points over the Index, resulting in an
initial rate of 9.500% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment
for the benefit of creditors, or any proceeding is commenced either by
Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any of the events described in this default section
occurs with respect to any guarantor of this Note. (h) A material adverse
change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, do one or both of the following: (a) increase
the variable interest rate on this Note to 5.750 percentage points over the
Index, and (b) add any unpaid accrued interest to principal and such sum will
bear interest therefrom until paid at the rate provided in this Note
(including any increased rate). The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; or (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit all funds received
from its business activities in accounts maintained by Borrower at Silicon
Valley Bank. Borrower hereby requests and authorizes Lender to debit any of
Borrower's accounts with Lender, specifically, without limitation, Account
Number _____________________, for payments of interest and principal due on
the loan and any other obligations owing by Borrower to Lender. Lender will
notify Borrower of all debits which Lender makes against Borrower's accounts.
Any such debits against Borrower's accounts in no way shall be deemed a
set-off.
LETTER AGREEMENT. This Note is subject to and shall be governed by all the
terms and conditions of the Letter Agreement of eved date herewith between
Borrower and Lender, which Letter Agreement is incorporated herein by
reference.
LOAN FEE. This Note is subject to a loan fee in the amount of TWENTY THOUSAND
AND NO/100 DOLLARS ($20,000.00) plus all out-of-pocket expenses.
<PAGE> 2
08-08-1995 PROMISSORY NOTE Page 2
(Continued)
================================================================================
WAIVERS AND GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. To the
extent permitted by applicable law, all such parties agree that Lender may
renew or extend (repeatedly and for any length of time) this loan, or release
any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. THIS NOTE IS
EXECUTED UNDER SEAL. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ Richard O. Wester
---------------------------------------------
Name: Richard O. Wester, Title: Treasurer
----------------- -----------------
================================================================================
Variable Rate. Line of Credit.
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20 (c) 1995 CFI ProServices, Inc.
All rights reserved. [MA-D20 INTERNAT.LN G1.0VL]
<PAGE> 1
EXHIBIT 10.10
COMMERCIAL SECURITY AGREEMENT
================================================================================
Borrower: INTERNATIONAL INTEGRATION INCORPORATED
101 Main Street
Cambridge, MA 02142
Lender: SILICON VALLEY BANK, a California-chartered bank
doing business as Silicon Valley East
Wellesley Office Park
45 William Street, Suite 170
Wellesley, MA 02181
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between INTERNATIONAL
INTEGRATION INCORPORATED (referred to below as "Grantor"); and SILICON VALLEY
BANK, a California-chartered bank (referred to below as "Lender"). For
valuable consideration, Grantor grants to Lender a security Interest in the
Collateral to secure the Indebtedness and agrees that Lender shall have the
rights stated in this Agreement with respect to the Collateral, in addition to
all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security Agreement
together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time, if any, as amended from time to time.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
Inventory, Chattel Paper, Accounts, Contract Rights, Deposit Accounts,
Documents, Instruments, Equipment, General Intangibles and Fixtures
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described
in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means INTERNATIONAL INTEGRATION INCORPORATED,
its successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. (Initial Here /s/ROW)
Lender. The word "Lender" means SILICON VALLEY BANK, a California-chartered
bank, its successors and assigns.
Note. The word "Note" means the notes, letters of credits or credit
agreements in any principal amount from Borrower to Lender, together with
all renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the notes, letters or credit or
credit agreements.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
<PAGE> 2
08-08-1995 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
================================================================================
Location of the Collateral. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such
other locations as are acceptable to Lender. Except in the ordinary course
of its business, including the sales of inventory, Grantor shall not remove
the Collateral from its existing locations without the prior written consent
of Lender. To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles outside the
Commonwealth of Massachusetts, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit or
permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or to
any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount of
the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in Lender's
sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash,
a sufficient corporate surety bond or other security satisfactory to Lender
in an amount adequate to provide for the discharge of the lien plus any
interest, costs, attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or
other applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the satisfaction of this
Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's liability for
failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
In connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as Lender
deems appropriate, including if it so chooses "single interest insurance,"
which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of [illegible]
<PAGE> 3
08-08-1995 COMMERCIAL SECURITY AGREEMENT Page 3
(Continued)
================================================================================
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The reserve funds
shall be held by Lender as a general deposit and shall constitute a
non-interest-bearing account which Lender may satisfy by payment of the
insurance premiums required to be paid by Grantor as they become due. Lender
does not hold the reserve funds in trust for Grantor, and Lender is not the
agent of Grantor for payment of the insurance premiums required to be paid
by Grantor. The responsibility for the payment of premiums shall remain
Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which insurance
has been obtained and the manner of determining that value; and (f) the
expiration date of the policy. In addition, Grantor shall upon request by
Lender (however not more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash value or
replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Insolvency. The dissolution or termination of Grantor's existence as a going
business, the insolvency of Grantor, the appointment of a receiver for any
part of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Massachusetts Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay.
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other goods, provided that
Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name or
that of Grantor. Lender may sell the Collateral at public auction or private
sale. Unless the Collateral threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any other
intended disposition of the Collateral is to be made. The requirements of
reasonable notice shall be met if such notice is given at least ten (10)
days before the time of the sale or disposition. All expenses relating to
the disposition of the Collateral, including without limitation the expenses
of retaking, holding, insuring, preparing for sale and selling the
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right, (b)
the receiver may be an employee of Lender and may serve without bond, and
(c) all fees of the receiver and his or her attorney shall become part of
the Indebtedness secured by this Agreement and shall be payable on demand,
with interest at the Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any Collateral
into its own name or that of its nominee and receive the payments, rents,
income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments,
<PAGE> 4
08-08-1995 COMMERCIAL SECURITY AGREEMENT Page 4
(Continued)
================================================================================
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on
the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall be
liable for a deficiency even if the transaction described in this subsection
is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may
pay someone else to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Grantor also
shall pay all court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under this
Agreement shall be joint and several, and all references to Grantor shall
mean each and every Grantor. This means that each of the Borrowers signing
below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. To the
extent permitted by applicable law, if there is more than one Grantor,
notice to any Grantor will constitute notice to all Grantors. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor's
current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or otherwise,
which in the discretion of Lender may seem to be necessary or advisable.
This power is given as security for the Indebtedness, and the authority
hereby conferred is and shall be irrevocable and shall remain in full force
and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
ADDITIONAL PROVISION. If any law is passed that requires additional action on
the part of Lender, Grantor shall fully cooperate with Lender in complying with
the law and accordingly, shall reimburse Lender for all costs and expenses which
Lender incurs to comply with the law.
<PAGE> 5
08-08-1995 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
================================================================================
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
AUGUST 8, 1995. THIS COMMERCIAL SECURITY AGREEMENT IS EXECUTED UNDER SEAL.
GRANTOR:
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ RICHARD O. WESTER
----------------------------------------------
Name: RICHARD O. WESTER , Title: TREASURER
------------------- ---------------
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.20(c) 1995 CFI ProServices, Inc.
All rights reserved. [MA-E40 INTERNAT.LN G1.0VL]
<PAGE> 1
EXHIBIT 10.11
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of August 8, 1995, by and
between International Integration Incorporated ("Borrower") and Silicon Valley
Bank, a California-chartered bank with a loan production office in Wellesley
Massachusetts doing business as Silicon Valley East ("Lender").
In connection with the Loan Documents between Borrower and Lender, Borrower
agrees as follows:
1. Borrower shall not sell, without prior written consent of Lender
which will not be unreasonably withheld, transfer, assign, mortgage,
pledge, lease, grant a security interest in, or encumber any of
Borrower's intellectual property, including, without limitation, the
following:
a. Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
b. Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
c. All patents, patent applications and like protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without
limitation the patents and patent applications;
d. Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same
and like protections, and the entire goodwill of the business
of Borrower connected with and symbolized by such trademarks,
including without limitation;
e. Any and all claims for damages by way of past, present and
future infringements of any of the rights included above, with
the right, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual
property rights identified above;
f. All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties
arising from such use to the extent permitted by such license
or rights; and
g. All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks or Patents; and
h. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;
<PAGE> 2
2. It shall be an event of default under the loan documents between
Borrower and Lender if there is a breach of any term of this
Negative Pledge Agreement.
BORROWER:
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ Richard O. Wester
--------------------------------
Name: Richard O. Wester
------------------------------
Title: Treasurer
-----------------------------
LENDER:
SILICON VALLEY BANK SILICON VALLEY BANK, a California-chartered
bank doing business as SILICON VALLEY
EAST
By:_____________________________ By:________________________________________
Name:___________________________ Name:______________________________________
Title:__________________________ Title:_____________________________________
<PAGE> 1
Exhibit 10.12
[LOGO]
SILICON VALLEY EAST 40 William Street, Suite 350 Wellesley, MA 02181
A DIVISION OF SILICON VALLEY BANK 617.431.9901
VIA FACSIMILE TRANSMISSION
October 7, 1996
Mr. James Pluntze
Director of Finance and Administration
International Integration, Inc.
101 Main Street
Cambridge, MA. 02142
Dear Jim:
Silicon Valley Bank (the "Bank") hereby proposes to extend a $2,000,000
secured working capital line of credit (the "Line") to International
Integration, Inc. ("Borrower" or "I-Cube") under the terms and conditions as
set forth in this letter. Please understand this letter is not meant to be,
nor shall it be construed as, an attempt to define all the terms and
conditions of the Line. Rather, it is intended only to outline certain of the
basic points of our understanding around which the final terms and
documentation are to be structured.
The following is a summary of the basic business points of the Line:
CREDIT FACILITY: $2,000,000 secured line of credit; $1,000,000
sublimit for foreign exchange transactions and
the issuance of letters of credit.
PURPOSE: Working Capital.
INTEREST RATE: Prime + 1/2%, floating.
MATURITY DATE: One year from closing.
(Member FDIC)
<PAGE> 2
International Integration, Inc.
October 7, 1996
Page 2 of 4
ADVANCE RATE: 75% of eligible domestic billed A/R under 90 days from
invoice. There shall be a 30% concentration limit on domestic
receivables. Foreign receivables which the Borrower would like
to include in the Borrowing Base are subject to Bank approval.
Other standard exclusions apply.
COLLATERAL: Perfected first security interest in all assets; negative
pledge on intellectual property.
COMMITMENT FEE: $17,500, payable by Borrower upon Borrower's acceptance of
this letter. This fee is refundable if the Line does not
close, subject to reduction by the aggregate of all expenses
and charges expended by the Bank in connection with the
proposed Line (including in-house administrative expenses and
fees and costs of Bank's inside and/or outside counsel).
WARRANTIES AND
COVENANTS: Borrower shall make customary representations, warranties, and
covenants, together with such other representations,
warranties, and covenants as the Bank or its counsel may deem
reasonably necessary or desirable, including the following:
FINANCIAL
COVENANTS: All covenants are tested monthly unless otherwise noted.
Liquidity: Minimum Quick Ratio of 1.5:1
The Quick Ratio is defined as the sum of cash and accounts
receivables (net of those unbilled) divided by current
liabilities exclusive of deferred revenues.
Capital: Minimum Tangible Net Worth of $2,800,000; To increase by 80%
of quarterly net profits and 70% of new equity proceeds.
Tangible Net Worth is Net Worth plus Subordinated Debt (if
applicable) less intangible assets.
Leverage: Maximum Total Liabilities (exclusive of deferred revenues) to
Tangible Net Worth of 1.5:1;
Profitability: Remain profitable ($1.00) on a quarterly basis. For
calculation purposes, net profit is exclusive of capitalized
software costs.
<PAGE> 3
International Integration, Inc.
October 7, 1996
Page 3 of 4
FINANCIAL REPORTING:
1.) Monthly financial statements and Compliance
Certificate within 30 days of month-end;
2.) Borrowing Base Certificate and accounts receivable
aging within 30 days of month-end; if not
borrowing*, then the reporting frequency shall be
quarterly, within 30 days of quarter-end;
3.) Audited financial statements within 120 days of
fiscal year-end;
* Borrowings include issued letters of credit and/or
foreign exchange contracts.
OTHER COVENANTS:
1.) Borrower shall maintain its primary operating
account(s) at the Bank.
2.) Examination of Company's A/R by an agent of the Bank
at Company's expense to be completed within 90 days
of closing.
EXPENSES: Borrower shall pay all of the Bank's fees and charges in
connection with the Line, including fees of Bank's
inside and/or outside counsel. Such costs payable by
Borrower are in addition to the Commitment Fee described
above. In the event the Line does not close, the
Commitment Fee refundable to Borrower shall be reduced
by the aggregate of all such expenses and charges.
CONDITIONS OF The following shall be satisfied by Borrower prior to
CLOSING: closing and shall be conditions precedent to Bank's
obligation to fund the Line:
1) After due diligence inquiry conducted by the Bank,
there shall be no discovery of any facts or
circumstances which would negatively affect or tend
to negatively affect, in the Bank's sole discretion,
collectability of the Loan against Borrower.
2) No representation, warranty, or disclosure made to
the Bank by Borrower shall prove to be false or
misleading as of the date made.
<PAGE> 4
International Integration, Inc.
October 7, 1996
Page 4 of 4
This commitment letter is provided to you solely for the purpose described
herein and may not be disclosed to or relied upon by any other party without the
Bank's prior written consent.
If these basic terms and conditions are acceptable, please so indicate by
signing the enclosed copy of this letter and returning the same with the
Commitment Fee to the attention of the undersigned by October 21, 1996 or by
such later date agreed upon by the Bank in writing. This commitment letter shall
expire on October 21, 1996 if not executed on or prior to this date.
The proposal will constitute your instruction to the Bank to commence (at
your expense) documentation which shall supersede this letter. This letter is
intended to set forth the proposed terms of the Line currently under discussion
between us. Except for your obligation to pay the Bank's expenses and charges
described above, this letter and our other communications and negotiations
regarding the proposed Line do not constitute an agreement or an offer and do
not create any legal rights benefiting, or obligations binding on, either of us.
It is intended that all legal rights and obligations of the Bank and Borrower
will be set forth in signed definitive loan documents acceptable to the Bank and
its counsel.
We truly appreciate your continued business!
Very truly yours,
SILICON VALLEY BANK
By: /s/ JANE A. BRAUN
------------------------------------
Jane A. Braun, Vice President
AGREED TO AND ACCEPTED THIS 7th DAY OF Nov, 1996.
INTERNATIONAL INTEGRATION, INC.
By: /s/ [Illegible]
------------------------------------
Title: [Illegible]
----------------------------------
CHIEF FINANCIAL OFFICER
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
Borrower: INTERNATIONAL INTEGRATION INCORPORATED
101 Main Street
Cambridge, MA 02142
Lender: SILICON VALLEY BANK a California-chartered bank
doing business in Massachusetts as Silicon Valley East
Wellesley Office Park
40 William Street, Suite 350
Wellesley, MA 02181
================================================================================
Principal Amount: $500,000.00
Initial Rate: 9.250%
Date of Note: July 31, 1997
PROMISE TO PAY. INTERNATIONAL INTEGRATION INCORPORATED ("Borrower") promises to
pay to SILICON VALLEY BANK, a California-chartered bank, A California bank with
a loan production office in Wellesley, Massachusetts ("Lender"), or order, in
lawful money of the United States of America, the principal amount of Five
Hundred Thousand & 00/100 Dollars ($500,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance
of each advance. Interest shall be calculated from the date of each advance
until repayment of each advance.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
The draw period shall begin as of this date and will end on January 30,
1998 (the "Draw Period"). During the Draw Period, Borrower will pay
regular monthly payments of all accrued unpaid interest beginning on
August 30, 1997, and all subsequent interest payments will be due on the
last day of each month thereafter. The outstanding principal balance on
January 30, 1998 will be payable in thirty-six (36) even payments of
principal plus interest, beginning February 28, 1998, and all subsequent
payments of principal plus interest will be due on the last day of each
month thereafter. The final payment, due on January 31, 2001, will be for
all outstanding principal plus all accrued interest not yet paid.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at 3003
Tasman Drive, Santa Clara, California 95054. Unless otherwise agreed or required
by applicable law, payments will be applied first to accrued unpaid interest,
then to principal, and any remaining amount to any unpaid collection costs and
late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an Index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current Index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each time the prime rate is adjusted by
Silicon Valley Bank. The Index currently is 8.500% per annum. The Interest rate
to be applied to the unpaid principal balance of this Note will be at a rate of
0.750 percentage points over the Index, resulting in an initial rate of 9.250%
per annum. Upon Borrower's completion of a successful Initial Public Offering
("IPO"), the interest rate to be applied to the unpaid principal balance of the
Note shall decrease to Lender's current Index then in effect. Such interest
rate change shall be effective as of the first day of the month following
Lender's receipt of evidence indicating Borrower has met the above described
criteria. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.000
percentage points over
<PAGE> 2
7/31/97 PROMISSORY NOTE Page 2
(Continued)
the otherwise effective interest rate. The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay someone else to
help collect this Note if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the Commonwealth of Massachusetts. If there is
a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of Suffolk or Norfolk County, the Commonwealth of Massachusetts.
Lender and Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower against the
other. This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
ADVANCE RATE. At any time from the date hereof through the end of the Draw
Period, Borrower may request advances (each an "Advance" and collectively the
"Advances") from Lender in an aggregate amount not to exceed the maximum
principal amount of this Note. To eveidence the Advances, Borrower shall deliver
to Lender, at the time of each Advance request, an invoice for eligible fixed
assets purchased or to be purchased, since January 1, 1997. The Advances shall
only be used for fixed assets purchased and shall not exceed ninety percent
(90%) of the invoice amount approved by Lender from time to time, excluding
taxes, freight, and installation expense. Software may, however, comprise up to
twenty five percent (25%) of the total amount financed.
PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of One
Thousand and 00/100 Dollars ($1,000.00) plus all out of pocket expenses.
LETTER AGREEMENT. Unless otherwise provided herein to the contrary, this Note is
subject to and shall be governed by all the terms and conditions of that certain
Letter Agreement between Borrower and Lender dated August 8, 1995, as may be
amended from time to time, which Letter Agreement is incorporated herein by this
reference.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit funds received from
its business activities in accounts maintained with Silicon Valley Bank.
Borrower hereby requests and authorizes Lender to debit any accounts with
Lender, including, without limitation, Account Number _________________ for
payments of principal and interest owing on the loan and any other obligations
owing by Borrower to Lender. Lender will notify Borrower of all debits which
Lender makes against Borrower's accounts. Any such debits against Borrower's
accounts shall in no way be deemed a set-off.
JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the jurisdiction of the courts of Norfolk or
Suffolk County in the Commonwealth of Massachusetts in any action, suit, or
proceeding of any kind, against it which arises out of or by reason of this
Note; provided, however, that if for any reason Lender is prohibited from
availing itself of the courts of the Commonwealth of Massachusetts, then the
venue shall lie in Santa Clara County, California.
WAIVERS AND GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. To the extent
permitted by applicable law, all such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
<PAGE> 3
7/31/97 PROMISSORY NOTE Page 3
(Continued)
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. THIS NOTE IS
EXECUTED UNDER SEAL. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ LAWRENCE P. BEGLEY
-----------------------------------------
Name: LAWRENCE P. BEGLEY
---------------------------------------
Title: CFO
--------------------------------------
<PAGE> 1
EXHIBIT 10.14
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 6, 1997, by
and between International Integration Incorporated ("Borrower") whose address is
101 Main Street Cambridge, MA 02142 and Silicon Valley Bank, a
California-chartered bank ("Lender"), with its principal place of business at
3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office
located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA
02181, doing business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Promissory Note, dated August 8, 1995 in the original
principal amount of Two Million and 00/100 Dollars ($2,000,000.00) (the "Working
Capital Line") and being executed concurrently herewith, a Promissory Note in
the original principal amount of Five Hundred Thousand and 00/100 Dollars
($500,000.00) (the "Equipment Line"). The Working Capital Line and the Equipment
Line shall collectively be referred to as the "Notes". The Notes, together with
other promissory notes from Borrower to Lender, are governed by the terms of a
Letter Agreement, dated August 8, 1995, between Borrower and Lender, as such
agreement may be amended from time to time (the "Loan Agreement"). Capitalized
terms used but not otherwise defined herein shall have the same meaning as in
the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured by a
Commercial Security Agreement, dated August 8, 1995. In addition, Borrower has
agreed not to further encumber or pledge any of its Intellectual Property,
pursuant to that certain Negative Pledge Agreement dated August 8, 1995.
Hereinafter, the above-described security documents, together with all other
documents securing repayment of the Indebtedness shall be referred to as the
"Security Documents". Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO NOTE.
1. Payable in one payment of all outstanding principal plus all
accrued unpaid interest on August 5, 1998. In addition,
Borrower will pay regular monthly payments of all accrued
unpaid interest due as of each payment date beginning
September 5, 1997, and all subsequent interest payments shall
be due on the same day of each month thereafter.
2. Notwithstanding anything to the contrary contained in the
paragraph entitled "Variable Interest Rate" upon Borrower's
completion of a successful Initial Public Offering ("IPO"),
the interest rate to be applied to the unpaid principal
balance of the Note shall decrease to Lender's current Index
then in effect. Such interest rate change shall be effective
as of the first day of the month following Lender's receipt of
evidence indicating Borrower has met the above described
criteria.
<PAGE> 2
B. MODIFICATION(S) TO LOAN AGREEMENT.
1. The paragraph beginning with the words "Funds shall be
advanced under the Working Capital Line" is hereby amended to
read as follows:
Funds shall be advanced under the Working Capital Line
according to a Borrowing Base formula, as determined by
Lender, as defined as follows: The lesser of (a) $2,000,000.00
minus (i) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) minus
(ii) the Foreign Exchange Reserve and (iii) minus the Merchant
Services Sublimit, or (b) the sum of (i) Seventy-five percent
(75%) of eligible accounts receivable minus (ii) the face
amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit) and minus (iii) the
Foreign Exchange Reserve). Eligible accounts receivable shall
include, but not be limited to, those billed accounts
outstanding less than 90 days from the date of invoice,
including foreign accounts receivable (approved by Lender on a
case-by-case basis), but shall exclude all government, contra,
and intercompany accounts; and exclude accounts wherein 50% or
more of the account is outstanding more than 90 days from the
date of invoice. Any account which alone exceeds 30% of total
accounts will be ineligible to the extend said account exceeds
30% of total accounts (higher concentrations may be approved
by Lender, on a case-by-case basis). Also exclude any credit
balances which are aged past 90 days. Also ineligible are any
accounts which Lender in its sole judgment excludes for valid
credit reasons.
2. Notwithstanding anything to the contrary contained in the
paragraph beginning with the words "Borrowings under the
Working Capital Line" upon Borrower's completion of a
successful Initial Public Offering ("IPO"), the interest rate
to be applied to the unpaid principal balance of the Note
shall decrease to Lender's current Index then in effect. Such
interest rate change shall be effective as of the first day of
the month following Lender's receipt of evidence indicating
Borrower has met the above described criteria.
3. The following paragraph entitled "Cash Management Services
Sublimit" is hereby incorporated into the Loan Agreement:
Borrower may utilize up to an aggregate amount not to exceed
$1,000,000.00 for Cash Management Services provided by Lender,
which services may include merchant services, PC-ACH, direct
deposit of payroll, corporate credit card, and other related
check cashing services as defined in that certain Cash
Management Services Agreement provided to Borrower in
connection herewith (a "Cash Management Service", or the "Cash
Management Services"). All amounts actually paid by Lender in
respect of a Cash Management Service or Cash Management
Services shall, when paid, constitute an advance under the
Working Capital Line.
4. The following paragraph entitled "Cash Flow Coverage" is
hereby incorporated into the Section entitled "Affirmative
Covenants" in the Loan Agreement:
Cash Flow Coverage - (Tested Quarterly) Maintain a minimum
Cash Flow Coverage of 1.75 to 1.00.
2
<PAGE> 3
Cash Flow Coverage is defined as earnings before interest
taxes depreciation and amortization divided by current
maturities long term debt plus interest expense.
5. PAYMENT OF LOAN FEES. Borrower shall pay Lender a fee in the amount of Ten
Thousand and 00/100 Dollars ($10,000.00) for the Working Capital Line, plus all
out-of-pocket expenses (the "Loan Fee").
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Lender (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Lender in California).
11. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee and Lender's receipt of the Equipment
Line promissory note fully executed by Borrower.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER:
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ LAWRENCE P. BEGLEY
-----------------------------------------
Name: LAWRENCE P. BEGLEY
---------------------------------------
Title: CFO
--------------------------------------
3
<PAGE> 4
LENDER:
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ J. S. PARSONS
-----------------------------------------
Name: J. S. PARSONS
---------------------------------------
Title: SENIOR V.P.
--------------------------------------
SILICON VALLEY BANK
By: /s/ AMY B. YOUNG
-----------------------------------------
Name: AMY B. YOUNG
---------------------------------------
Title: ASST. VICE PRESIDENT
--------------------------------------
(Signed at Santa Clara County, CA)
4
<PAGE> 5
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 7, 1996, by and
between International Integration Incorporated ("Borrower") whose address is 101
Main Street Cambridge, MA 02142 and Silicon Valley Bank, a California-chartered
bank ("Lender"), with its principal place of business at 3003 Tasman Drive,
Santa Clara, CA 95054 and with a loan production office located at Wellesley
Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business
under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Promissory Note, dated August 8, 1995 in the original
principal amount of Two Million and 00/100 Dollars ($2,000,000.00) (the
"Note"). The Note, together with other promissory notes from Borrower to Lender,
is governed by the terms of a Letter Agreement, dated August 8, 1995, between
Borrower and Lender, as such agreement may be amended from time to time (the
"Loan Agreement"). Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured by a
Commercial Security Agreement, dated August 8, 1995 (the "Security Agreement").
In addition, Borrower has agreed not to further encumber or pledge any of its
Intellectual Property, pursuant to that certain Negative Pledge Agreement dated
August 8, 1995.
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Note (and other notes executed by Borrower in
favor of Lender) shall be referred to as the "Security Documents". Hereinafter,
the Security Documents, together with all other documents evidencing or securing
the Indebtedness shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO NOTE.
1. Payable in one payment of all outstanding principal plus all
accrued unpaid interest on August 6, 1997. In addition,
Borrower will pay regular monthly payments of all accrued
unpaid interest due as of each payment date beginning
September 6, 1996, and all subsequent interest payments shall
be due on the same day of each month thereafter.
2. The interest rate to be applied to the unpaid principal
balance of the Note is hereby decreased, effective as of the
date hereof, to one-half (.5000%) percentage point over
Lender's current Index.
B. MODIFICATION(S) TO LOAN AGREEMENT.
1. The paragraph beginning with the words "Funds shall be
advanced under the Working Capital Line" is hereby amended to
read as follows:
Funds shall be advanced under the Working Capital Line
according to a Borrowing Base formula, as determined by Lender
on a monthly basis, as defined as follows: The lesser of (a)
$2,000,000.00 minus (i) the face amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of
Credit) and minus (ii) the Foreign Exchange Reserve or (b)
Seventy-five percent (75%) of eligible accounts
1
<PAGE> 6
receivable minus (i) the face amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of
Credit) and minus (ii) the Foreign Exchange Reserve). Eligible
accounts receivable shall include, but not be limited to,
those billed accounts outstanding less than 90 days from the
date of invoice, including foreign accounts receivable,
(approved by Lender on a case-by-case basis), but shall
exclude all government, contra, and intercompany accounts; and
exclude accounts wherein 50% or more of the account is
outstanding more than 90 days from the date of invoice. Any
account which alone exceeds 30% (higher concentrations may be
approved by Lender, on a case-by-case basis) of total accounts
will be ineligible to the extend said account exceeds 30% of
total accounts. Also exclude any credit balances which are
aged past 90 days. Also ineligible are any accounts which
Lender in its sole judgment excludes for valid credit reasons.
2. The paragraph entitled "Tangible Capital Base" is hereby
amended to read as follows:
TANGIBLE CAPITAL BASE - (Tested Monthly) Maintain a minimum
Tangible Capital Base (TCB) of $2,800,000,.00 increasing by
80% of quarterly profits and 70% of equity proceeds as of the
quarter ending September 30, 1996, and quarterly thereafter.
TCB is defined as Stockholders' Equity plus Subordinated Debt
(debt which is formally subordinated to the Lender) less
intangibles (including but not limited to Goodwill,
Capitalized Software and Excess Purchase Costs).
3. The paragraph entitled "Liquidity" is hereby amended in part,
to read as follows:
"Quick Ratio" is defined as the sum of cash and account
receivables (net of those unbilled) divided by current
liabilities exclusive of deferred revenues.
4. For calculation purposes of the Profitability covenant, net
profit is exclusive of capitalized software costs.
4. PAYMENT OF LOAN FEE. Borrower shall pay Lender a fee in the amount of
Seventeen Thousand Five Hundred and 00/100 Dollars ($17,500.00) plus all
out-of-pocket expenses (the "Loan Fee").
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
2
<PAGE> 7
8 JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Lender (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Lender in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER:
INTERNATIONAL INTEGRATION, INCORPORATED
By: /s/ LAWRENCE P. BEGLEY
-----------------------------------------
Name: LAWRENCE P. BEGLEY
---------------------------------------
Title: CHIEF FINANCIAL OFFICER
--------------------------------------
LENDER:
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ JANE A. BRAUN
-----------------------------------------
Name: JANE A. BRAUN
---------------------------------------
Title: VICE PRESIDENT
--------------------------------------
SILICON VALLEY BANK
By: /s/ CHRISTINE WARE
-----------------------------------------
Name: CHRISTINE WARE
---------------------------------------
Title: VICE PRESIDENT
--------------------------------------
(Signed at Santa Clara County, CA)
3
<PAGE> 8
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 28, 1997, by
and between International Integration Incorporated ("Borrower") whose address is
101 Main Street Cambridge, MA 02142 and Silicon Valley Bank, a
California-chartered bank ("Lender"), with its principal place of business at
3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office
located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA
02181, doing business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Promissory Note, dated August 8, 1995 in the original
principal amount of Two Million and 00/100 Dollars ($2,000,000.00) (the "Working
Capital Line") and a Promissory Note dated August 6, 1997, in the original
principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the
"Equipment Line"). The Working Capital Line and the Equipment Line shall
collectively be referred to as the "Notes". The Notes, together with other
promissory notes from Borrower to Lender, are governed by the terms of a Letter
Agreement, dated August 8, 1995, between Borrower and Lender, as such agreement
may be amended from time to time (the "Loan Agreement"). Capitalized terms used
but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured by a
Commercial Security Agreement, dated August 8, 1995. In addition, Borrower has
agreed not to further encumber or pledge any of its Intellectual Property,
pursuant to that certain Negative Pledge Agreement dated August 8, 1995.
Hereinafter, the above-described security documents, together with all other
documents securing repayment of the Indebtedness shall be referred to as the
"Security Documents". Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
Notwithstanding anything to the contrary contained in the paragraph
entitled "Affirmative Covenants" Lender shall allow Borrower to
provide its 1996 audited fiscal year end financial statements no
later than October 31, 1997.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is
<PAGE> 9
expressly released by Lender in writing. No maker, endorser, or guarantor will
be released by virtue of this Loan Modification Agreement. The terms of this
Paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
7. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
8. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Lender (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Lender in California).
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER:
INTERNATIONAL INTEGRATION INCORPORATED
By: /s/ LAWRENCE P. BEGLEY
-----------------------------------------
Name: LAWRENCE P. BEGLEY
---------------------------------------
Title: 7/4/97
--------------------------------------
LENDER:
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ JANE A. BRAUN
-----------------------------------------
Name: JANE A. BRAUN
---------------------------------------
Title: VICE PRESIDENT
--------------------------------------
SILICON VALLEY BANK
By: /s/ MICHAEL E. JORDAN
-----------------------------------------
Name: MICHAEL E. JORDAN
---------------------------------------
Title: LOAN DOCS OFFICER
--------------------------------------
(Signed at Santa Clara County, CA)
2
<PAGE> 1
EXHIBIT 10.15
OFFICE LEASE
THIS LEASE is made this 20th day of November, 1996, between RR&C
Development Company, a California General Partnership & Patrician Associates,
Inc., a California corporation hereinafter called "Landlord" and International
Integration Incorporated, a Massachusetts corporation, hereinafter called
"Tenant".
LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hires from Landlord, subject
to all of the terms and conditions hereinafter set forth, those certain premises
(hereinafter called the "Premises") as set forth in Item 1 of the Basic Lease
Provisions and as shown in the space plan or floor plan attached hereto as
Exhibit "A" located in that certain office building ("Building") now existing or
under construction and located at 13181-13191 Crossroads Parkway North and
situated on approximately 11.39 acres situated in the City of Industry, County
of Los Angeles, State of California, as part of an office and commercial project
commonly known as Crossroads Business Park, which land is improved with
landscaping, parking facilities and other improvements and appurtenances, all of
which land, improvements and appurtenances together with the Building and other
office and commercial structures are referred to collectively herein as "the
Project".
BASIC LEASE PROVISIONS
1. Building Name: Crossroads Atrium Building
Suite: 200 Floor(s): Second
Address: 13181 Crossroads Parkway North
City of Industry, CA 91746
2. Rentable Area of the Premises: 5,771 square feet (as referred to in
Paragraph 3.5)
3. Rentable Area of the Building: 219,668 square feet
4. Tenant's Proportionate Share: 2.63% (as referred to in Paragraph 3.4)
5. Basic Rent (as referred to in Article 2):
See Rider
CHECK EITHER ITEM 6 OR ITEM 7 AS APPLICABLE AND COMPLETE ALL BLANKS WITH RESPECT
TO THE ITEM SELECTED.
6. Expense stop option. ___
(a) Expense Stop Rate: $ _________ per Rental Square Foot per year.
(b) Landlord's Operating Expense Stop: $_______________.
7. Base Year. X
(a) Base Year: The calendar year of 1997.
8. Term (as referred to in Article 1): 5 years 3 months, commencing on February
1, 1997 and ending on April 30, 2002.
Tenant acknowledges that Landlord has the right, pursuant to Paragraph 15.3,
to terminate this Lease if Tenant notifies Landlord that Tenant desires to
assign this Lease or sublet the Premises or any portion of the Premises.
9. Security Deposit (as referred to in Article 4): $10,676.35
10. Landlord's Broker (as referred to in Article 40): Majestic Realty Co.
11. Tenant's Broker (as referred to in Article 40): AIM Resources
12. Vehicle Parking Spaces Allocated to Tenant (as referred to in Article 53):
23
13. Additional Basic Lease Provisions:
Rider pages 1 through 5
14. Address and Signatures of Landlord and Tenant:
Landlord and Tenant hereby execute this Lease, consisting of the foregoing
provisions and the Additional Lease Provisions and exhibits which follow, as
of the date first above written.
"LANDLORD"
RR&C DEVELOPMENT COMPANY, a California
General Partnership
By: /s/ [Illegible]
By: /s/ [Illegible]
By: /s/ [Illegible]
PATRICIAN ASSOCIATES, INC., a California
corporation
By: /s/ Kris T. Jensen KRIS T. JENSEN VICE PRESIDENT
By: /s/ Timothy E. Minton TIMOTHY E. MINTON VICE PRESIDENT & SECRETARY
Address: 13191 Crossroads Parkway North
Sixth Floor
City of Industry, CA 91746
"TENANT"
INTERNATIONAL INTEGRATION INCORPORATED, a
Massachusetts corporation
By: /s/ Lawrence P. Begley
Larry Begley
Its: CFO
Address: 101 Main Street
Cambridge MA 02142
(617) 374-5900
1
<PAGE> 2
ADDITIONAL LEASE PROVISIONS
ARTICLE 1. TERM
1.1 The term of this Lease shall be as shown in Item 8 of the Basic Lease
Provisions and shall commence on the commencement date as shown in Item 8 of the
Basic Lease Provisions or such later date as the Premises shall be tendered to
Tenant ready for occupancy as set forth in Section 1.2 below, or upon such
earlier date as Tenant takes possession or commences use of the Premises for any
purpose other than construction. The date of commencement as defined above,
hereinafter called the "Commencement Date", shall be confirmed in writing by the
parties promptly upon such commencement.
1.2 Landlord may, prior to the commencement date set forth in Item 8 of
the Basic Lease Provisions, tender the Premises to Tenant upon not less than
fifteen (15) days' prior written notice stating that the Premises will be ready
for occupancy on the date specified in such notice. The Premises shall be deemed
ready for occupancy upon the expiration of fifteen (15) days from the date said
notice is sent, and when Landlord has: (i) put in operation all building
services essential for the use of the Premises by Tenant; (ii) provided
reasonable access to the Premises for Tenant, its agents, employees, licensees
and invitees so that the same may be used without unnecessary interference; and
(iii) substantially completed all the work required to be done by it, or its
obligation to complete such work has been suspended as provided in the Work
Letter executed by the parties contemporaneously herewith.
ARTICLE 2. RENT
Tenant shall pay a Basic Rent for the Premises in the amount shown in Item
5 of the Basic Lease Provisions for the specified lease year, in monthly
installments payable on the first day of each month in advance, except that if
the Commencement Date occurs on a day other than the first day of a month, then
the Basic Rent for the fraction of the month starting with the Commencement
Date shall be paid on said Commencement Date, prorated on the basis of the
actual number of days in said month. If the term hereof ends on a day other than
the last day of a month, then the Basic Rent for the month during which said
expiration occurs shall be prorated on the basis of the actual number of days in
said month. As used in reference to Item 5 of the Basic Lease Provisions, "lease
year" shall mean each succeeding period of twelve full calendar months during
the term, commencing with the first day of the first full calendar month of the
term hereof, except that the first such period shall include in addition any
partial month at the commencement of the lease term. In addition to said Basic
Rent, Tenant agrees to pay additional rent (including, if applicable, any
Consumer Price Index adjustments referred to below) as and when hereinafter
provided in this Lease. Said Basic Rent and additional rent, together with all
other sums payable by Tenant under this Lease, are hereinafter sometimes
referred to collectively as the "rent." The rent shall be payable to Landlord,
without deduction or offset, in lawful money of the United States of America at
the address for Landlord as shown in Item 14 of the Basic Lease Provisions, or
to such other person or at such other place as Landlord may from time to time
designate in writing.
ARTICLE 3. RENT ADJUSTMENTS
3.1 In addition to Base Rent, for each calendar year during the term of
this Lease, Tenant shall pay as additional rent, either of the following:
(a) If Item 6 of Basic Lease Provisions is applicable, the amount
computed by multiplying Tenant's Proportionate Share (as hereafter
defined) by the Operating Expense Overage (as defined in Paragraph 3.6).
(b) If Item 7 of Basic Lease Provisions is applicable, the amount
computed by multiplying Tenant's Proportionate Share by the amount by
which Total Operating Expenses (as defined in Paragraph 3.9) for any
calendar year after the Base Year exceed Total Operating Expenses for the
Base Year; provided, however, that if the Building is not fully occupied
(as defined below) during the entire Base Year, the Total Operating
Expenses for such year shall be adjusted to reflect the Total Operating
Expenses that would have been incurred if the Building were fully occupied
during the entire Base Year. As used herein, fully occupied shall mean
occupancy of not less than 80% of the rentable area of the Building.
Whether Paragraph 3.1(a) or 3.1(b) is applicable, Landlord shall have the
right to estimate in advance the amount due from Tenant for any calendar year
and to charge Tenant therefor on a monthly basis. In such case, Tenant shall pay
one-twelfth (1/12th) of such amount on the first day of each month during such
year. Any overpayments or underpayments will be adjusted as set forth in
Paragraph 3.3.
3.2 Landlord shall endeavor to provide Tenant with a written notice of the
estimated Total Operating Expenses, as hereinafter defined. No delay by Landlord
in delivering to Tenant any such notices shall affect Tenant's obligations
hereunder, which shall be effective as of the date specified in any such notice.
3.3 Within one hundred twenty (120) days after the end of each calendar
year during the lease term, Landlord shall provide Tenant with a written
statement of the actual Total Operating Expenses for that year. If actual Total
Operating Expenses should exceed the estimated Total Operating Expenses for such
year, then Tenant shall pay to Landlord the additional amount due to Landlord
within thirty (30) days.
<See Rider Section 3.13>
3.4 "Tenant's Proportionate Share" is defined as that percentage computed
by dividing the Rentable Area of the Premises, as hereinafter defined, by the
Rentable Area of the Building, as hereinafter defined. Tenant acknowledges that
Tenant's Proportionate Share is subject to adjustment, as set forth in Paragraph
3.8.
3.5 "Rentable Area of the Premises" and "Rentable Area of the Building"
are defined as those areas obtained by measuring the Premises and the Building
in accordance with the method of measuring rentable office space specified in
the American National Standards Institute Publication ANSIZ65.1-1980.
3.6 "Operating Expense Overage" is defined as the amount computed by
subtracting the Landlord's Operating Expense Stop, as hereinafter defined, from
the Total Operating Expenses for a calendar year.
3.7 "Landlord's Operating Expense Stop" is defined as that amount
computed by multiplying the Rentable Area of the Building by the Expense Stop
Rate stated in Item 6 of the Basic Lease Provisions.
3.8 The initial Rentable Area of the Premises, the Rentable Area of the
Building, Tenant's Proportionate Share and Landlord's Operating Expense Stop are
conclusively deemed to be as stated in Items 2, 3, 4 and 6 of the Basic Lease
Provisions, respectively. From time to time, as Landlord deems necessary,
Landlord's architect shall determine and certify in writing the actual Rentable
Area of the Premises and the actual Rentable Area of the Building. Landlord
shall provide Tenant with two copies of the architect's certificate. Tenant
shall sign one of the copies, acknowledging the changes noted therein and shall
return the signed certificate to Landlord. The determination of the architect as
to such matters shall be conclusive, and Items 2, 3, 4 and 6 of the Basic Lease
Provisions shall be adjusted accordingly.
3.9 "Total Operating Expenses" are defined as those costs and expenses
necessary to operate, manage and maintain the Building in a manner deemed
reasonable and appropriate and for the best interest of the tenants in the
Building, including, but not limited to, the following:
(a) Wages, salaries and fringe benefits of all employees engaged in
the operation and maintenance of the Building; employer's Social Security
taxes, unemployment taxes or insurance, and any other taxes which may be
levied on such wages and salaries; the cost of disability and
hospitalization insurance and pension or retirement benefits for such
employees;
(b) All supplies and materials used in the operation and maintenance
of the Building;
(c) Cost of water, sewer, electricity, gas, telephone and other
utilities used in operation of the Building;
(d) Cost of janitorial service, trash removal, parking lot sweeping,
window washing and landscape maintenance;
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
2
<PAGE> 3
(e) Cost of replacement of Building equipment and all maintenance
service agreements on Building equipment, including alarm, security,
energy management, mechanical, electrical, window cleaning and elevator
equipment;
(f) Cost of repairs and general maintenance;
(g) Any capital improvements made or installed for purposes of
saving labor or otherwise reducing applicable operating costs, not to
exceed the aggregate estimated cost savings annualized on a straight line
basis over the useful life of the capital improvements as determined by
Landlord in accordance with generally accepted accounting principles and
practices in effect at the time of acquisition of capital item;
(h) Any "Real Property Tax," which for purposes hereof means: (i)
any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing
authority against the Premises (or any portion thereof); (ii) any tax on
the Landlord's right to receive, or the receipt of, rent or income from
the Premises (or any portion thereof) or against Landlord's business of
leasing the Premises (or any portion thereof); (iii) any tax or charge for
fire protection, streets, sidewalks, road maintenance, refuse or other
services provided to the Premises (or any portion thereof) by any
governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Premises or the Project or any portion thereof
due to a change in ownership or transfer of all or part of Landlord's
interest in the Premises or the Project (or any portion thereof); and (v)
any charge or fee replacing any tax previously included within the
definition of real property tax. "Real Property Tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or
estate taxes. If the Building is not separately assessed, the share of
real property taxes payable with respect to the Building and land shall be
reasonably determined by Landlord based upon the assessor's worksheets or
other reasonably available information.
(i) Cost of casualty and liability insurance applicable to the
Building and Landlord's personal property used in connection therewith
covering loss or damage of such property in the amount of its full
replacement value; such insurance shall also provide protection against
all perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (i.e., all risk),
sprinkler leakage, earthquakes, plate glass damage, and other perils which
Landlord deems necessary.
(j) Cost of all accounting and other professional fees incurred in
connection with the operation of the Building;
(k) Reasonable depreciation on any equipment, machinery or other
items used in the operation, maintenance and management of the Building;
(l) Any management fee, not in excess of current market rates for
similar buildings in the area, payable to Landlord or to any other person
or entity performing management services; and
(m) Common area costs allocable to the Building, as set forth in
Article 42.
Notwithstanding the foregoing, Total Operating Expenses shall not include
expenses for which Landlord is reimbursed or indemnified (either by an insurer,
condemnor, tenant or otherwise); expenses incurred in leasing or procuring
tenants; interest or amortization payments on any mortgage or mortgages, or rent
under any ground or underlying lease or leases; wages, salaries or other
compensation paid to any executive employees above the grade of building
manager; wages, salaries or other compensation paid for clerks or attendants in
concessions or newsstands operated by Landlord; any cost or expense representing
an amount paid to a corporation affiliated with Landlord which is in excess of
the amounts which would be paid in the absence of such relationship; or cost of
capital improvements and depreciation or amortization, except as provided in
Section 3.9(g) or otherwise above. Payment of additional rent pursuant to
Section 3.1 above shall not be deemed a reimbursement to Landlord for purposes
of this Section 3.9.
3.10 Any operating expense increase for any calendar year during the term
of this Lease shall be apportioned so that Tenant shall be charged under this
Article 3 for only that portion of the increase for such year as falls within
the term. This provision shall survive the expiration or earlier termination of
the term of this Lease.
3.11 Landlord and Tenant, each from time to time upon request of the
other, within five (5) days of such request, shall sign a written memorandum
confirming the amount of the additional rent due hereunder, as adjusted from
time to time hereunder.
3.12 If Paragraph 5 of the Basic Lease Provisions indicates that the Basic
Rent is subject to adjustment based upon changes in the Consumer Price Index,
then the following provisions of this Paragraph 3.12 shall apply. If Paragraph 5
of the Basic Lease Provisions does not indicate that the Basic Rent is subject
to adjustment based upon changes in the Consumer Price Index, then the
provisions of this Paragraph 3.12 shall be disregarded. In addition to any other
adjustments to rent herein, the Basic Rent due hereunder shall be increased on
each annual anniversary of the Commencement Date in accordance with the increase
in the United States Department of Labor, Bureau of Labor Statistics, Consumer
Price Index for Urban Wage Earners and Clerical Workers, all items for the Los
Angeles/Riverside/Anaheim Statistical Area on the basis of 1982/84 = 100 (the
"Index"), as follows. The Basic Rent shall be increased annually as set forth
above in proportion to the increase in the Index which has occurred between the
first month of the Lease term and the month in which the rent is to be
increased. Landlord shall notify Tenant of each increase by delivering a written
statement setting forth the Index for the first month of the Lease term, the
Index for the month in which the Basic Rent is to be increased, the percentage
increase between those two Indices, and the new amount of the Basic Rent. The
Basic Rent shall not be reduced from the last previous adjusted Basic Rent by
reason of any decrease in the Index. Tenant shall pay the new Basic Rent from
its effective date until the next periodic increase. Landlord's notice may be
given after the effective date of the increase since the Index for the
appropriate month may be unavailable on the effective date. In such event,
Tenant shall pay Landlord the necessary rental adjustment for the months elapsed
between the effective date of the increase and Landlord's notice of such
increase within ten (10) days after Landlord's notice. If the format or
components of the Index are materially changed after the date of the Lease,
Landlord shall substitute an index which is published by the Bureau of Labor
Statistics or similar agency and which is most nearly equivalent to the Index in
effect on the date of the Lease. Landlord shall notify Tenant of the substituted
index, which shall be used to calculate the increase in the Basic Rent unless
Tenant objects in writing within fifteen (15) days after receipt of Landlord's
notice. If Tenant objects, the substitute Index shall be determined in
accordance with the rules and regulations of the American Arbitration
Association. The cost of such arbitration shall be borne equally by Landlord and
Tenant.
ARTICLE 4. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum set forth in Item 9 of the
Basic Lease Provisions as security for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant defaults with
respect to any provision of this Lease, including, but not limited to, the
provisions relating to the payment of rent, the repair of damage to the Premises
caused by Tenant or cleaning the Premises upon termination of this Lease,
Landlord may use, apply or retain all or any part of this security deposit for:
(i) the payment of any rent or any other sum in default; (ii) the repair of such
damage to the Premises; (iii) the cost of such cleaning; (iv) the payment of any
other amount which Landlord may spend or become obligated to spend by reason of
Tenant's default; or (v) to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default, to the full extent
permitted by law. If any portion of said deposit is so used or applied, Tenant
shall within ten (10) days after written demand therefor deposit cash with
Landlord in an amount sufficient to restore the security deposit to its original
amount, and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep this security deposit separate from its
general funds, and Tenant shall not be entitled to interest on such deposit. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be returned
to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) at the expiration of the Lease term, less the operating expense
increase described in Paragraph 3.10, if applicable.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
3
<PAGE> 4
ARTICLE 5. UTILITIES AND SERVICES
5.1 Landlord shall furnish to the Premises between the hours of 8:00 a.m.
and 6:00 p.m. Monday through Friday, and between the hours of 9:00 a.m. and 1:00
p.m. Saturday, except legal holidays, such amounts of air conditioning, heating
and ventilation as may be required for the use and occupation of the Premises,
taking into consideration at any given time the availability of energy resources
and prudent energy conservation practices. During other hours Landlord will
provide such air conditioning, heating and ventilation upon not less than
twenty-four (24) hours advance notice from Tenant to Landlord, and Tenant, upon
presentation of a bill therefore, shall pay Landlord for such service on an
hourly basis at the then prevailing rates therefor, as established by Landlord.
If such service is not a continuation of that furnished during regular business
hours, Tenant shall pay for a minimum of three (3) hours of such service.
Subject to provisions set forth below, Landlord shall at all times furnish the
Premises with elevator service, reasonable amounts of electric current for
normal lighting by building standard overhead fluorescent and incandescent
fixtures and for fractional horsepower office machines and water for lavatory
and drinking purposes. Landlord may impose a reasonable charge for any utilities
or services, including, but not limited to, electric current, required to be
provided by Landlord by reason of any substantial recurrent use of the Premises
at any time other than the hours of 8:00 a.m. to 6:00 p.m. Monday through Friday
and 9:00 a.m. to 1:00 p.m. Saturday excluding legal holidays. Landlord shall
provide janitor service; provided, however that Tenant shall pay for any unusual
janitorial services required by reason of any non-building standard improvements
in the Premises, including, but not limited to, glass wall coverings and floor
coverings, installed by or for Tenant under the Work Letter or otherwise.
Landlord shall replace building standard overhead fixture lamps and bulbs as
required. Tenant shall pay for replacement of all other bulbs as required.
Landlord shall not be liable for any failure to furnish any of such services or
utilities when such failure is caused by accidents, strikes, lockouts, other
labor troubles, governmental action, shortages or other conditions beyond
Landlord's reasonable control, and Tenant shall not be entitled to any damages
nor shall any such failure relieve Tenant of the obligation to pay full rent
reserved herein or constitute or be construed as a constructive or other
eviction of Tenant. If at any time during the term, Tenant's consumption of
utilities exceeds the average consumed by other tenants of the Building, Tenant
will reimburse Landlord on demand for the cost of such excess use. In such
event, Landlord reserves the right to install at Tenant's cost separate meters
for utilities for the Premises.
5.2 Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises, including, but not limited to, electronic
data processing machines, punch card machines and machines using current in
excess of 110 volts, which will in any way increase the amount of electricity or
water usually furnished or supplied for use of the Premises as general office
space; nor connect any apparatus, machine or device with water pipes or electric
current (except through existing electrical outlets in the Premises), for the
purpose of using electric current or water. If Tenant shall require electric
current in excess of that which Landlord is obligated to furnish under Paragraph
5.1 above, Tenant shall first obtain the consent of Landlord, which Landlord may
refuse, to the use thereof and Landlord may cause an electric current meter to
be installed in the Premises to measure the amount of electric current consumed
for any such other use. The cost of any such meter and of installation,
maintenance and repair thereof shall be paid for by Tenant and Tenant agrees to
pay Landlord promptly upon demand by Landlord for all such electric current
consumed for any such other use as shown by said meter, at the rates charged for
such services by the local public utility furnishing the same, plus any increase
in the Building electricity expense due to an increase in rates caused by
Tenant's increase of the Building's consumption or demand, plus any additional
expense incurred in keeping account of the electric current so consumed. If any
lights, machines or equipment (including, but not limited to, computers) are
used by Tenant in the Premises which materially affect the temperature otherwise
maintained by the air conditioning system, or generates substantially more heat
in the Premises than would be generated by the building standard lights and
usual fractional horsepower office equipment, Landlord shall have the right to
install any machinery and equipment which Landlord reasonably deems necessary to
restore temperature balance, including, but not limited to, modifications to the
standard air conditioning equipment, and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance occasioned
thereby, shall be paid by Tenant to Landlord upon demand of Landlord.
ARTICLE 6. USE OF PREMISES
Tenant shall use and occupy the Premises only for general office purposes
and shall not use or occupy the Premises for any other purpose without the prior
written consent of Landlord, which consent may be withheld at the sole
discretion of Landlord. Tenant shall not use or occupy the Premises in violation
of any ordinance, statute, law or other legal requirement. Tenant, at its sole
cost and expense, shall comply with any direction of any governmental authority
having jurisdiction which shall impose any duty upon Tenant or Landlord with
respect to the Premises or the use or occupation thereof, by reason of the
nature of Tenant's use or occupancy of the Premises. Tenant shall not do or
permit to be done anything which will invalidate or increase the cost of any
fire and extended coverage insurance policy covering the Building or property
located therein. Tenant shall reimburse Landlord promptly upon demand for any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this Article 6.
ARTICLE 7. ACCEPTANCE OF PREMISES
Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the Premises or the Building
or with respect to the suitability or fitness of either for the conduct of
Tenant's business or for any other purpose. The taking of possession or use of
the Premises by Tenant for any purpose other than construction shall
conclusively establish that the Premises and the Building were at such time in
satisfactory condition and in conformity with the provisions of this Lease in
all respects, except as to any items for which Landlord is expressly declared
herein to be responsible and as to which Tenant shall give Landlord written
notice in reasonable detail within twenty-five (25) days after Tenant takes such
possession or commences such use of the Premises or the term of this Lease
otherwise commences as provided in Article 1 above. Nothing contained in this
Article 7 shall affect the commencement of the term of this Lease or the
obligation of Tenant to pay rent hereunder as provided in Article 2 above.
Landlord shall promptly correct any actual defects of which it is notified as
provided above.
ARTICLE 8. ALTERATIONS AND EQUIPMENT
8.1 Tenant shall make no alterations, additions or improvements to the
Premises without the prior written consent of Landlord, and Landlord may impose
as a condition to such consent such requirements as Landlord in its sole
discretion may deem necessary or desirable, including, but not limited to,
requirements as to the manner in which, and the time or times at which, such
work shall be done, the right to approve the contractor selected by Tenant to
perform such work, and the right to require Tenant to furnish Landlord (prior to
commencing or performing any such work) with demolition and/or lien and
completion bonds in form and amount satisfactory to Landlord. All such
alterations, additions or improvements shall become the property of Landlord and
shall be surrendered with the Premises, as a part thereof, at the end of the
term hereof, except that Landlord may, by written notice to Tenant given at
least thirty (30) days prior to the end of term, require Tenant to remove all or
any portion of any partitions, counters, railings and other improvements
installed by Tenant, and to repair any damage to the Premises from such removal,
all at Tenant's sole expense.
8.2 All articles of personal property and all business and trade fixtures,
machinery and equipment, cabinet work, furniture and movable partitions owned by
Tenant or installed by Tenant at its expense in the Premises shall be and remain
the property of Tenant and may be removed by Tenant at any time during the lease
term when Tenant is not in default hereunder, provided that Tenant promptly
repairs at Tenant's expense any damage to the Premises or the Building caused by
such removal. On the expiration of the term of this Lease, or on any earlier
termination of this Lease, Tenant shall remove all such personal property and
other items in accordance with the provisions of Article 21 below.
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<PAGE> 5
ARTICLE 9. LIENS
Tenant shall keep the Premises and the Building free from any mechanic's,
materialmen's, or other liens arising out of any work performed, materials
furnished or obligations incurred by Tenant, and agrees to defend, indemnify and
hold harmless Landlord from and against any such lien or claim or action
thereon, together with costs of suit and reasonable attorneys' fees incurred by
Landlord in connection with any such claim or actions.
ARTICLE 10. TAX ON TENANT'S PROPERTY
10.1 Tenant shall be liable for and shall pay not later than ten (10) days
before delinquency, all taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property and if Landlord, after written notice to Tenant, pays the
same, which Landlord shall have the right to do regardless of the validity of
such levy, but only under proper protest if requested by Tenant, or if the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based upon such
increased assessment, which Landlord shall have the right to do regardless of
validity thereof, but only under proper protest if requested by Tenant. Tenant
shall upon demand, as the case may be, repay to Landlord the taxes so levied
against Landlord, or the proportion of such taxes resulting from such increase
in the assessment; provided that, in any such event Tenant shall have the right,
in the name of Landlord and with Landlord's full cooperation, but at no cost to
Landlord, to bring suit in any court of competent jurisdiction to recover the
amount of any such taxes so paid under protest, any amount so recovered to
belong to Tenant.
10.2 If the tenant improvements in the Premises, whether installed or paid
for by Landlord or Tenant and whether or not affixed to the real property so as
to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which tenant improvements conforming to
Landlord's building standard construction in other space in the Building are
assessed, then the real property taxes and assessments levied against Landlord
or Landlord's property by reason of such excess assessed valuation shall be
deemed to be taxes levied against Landlord or Landlord's property by reason of
such excess assessed valuation, shall be deemed to be taxes levied against
personal property of Tenant and shall be governed by the provisions of Section
10.1 above.
ARTICLE 11. MAINTENANCE AND REPAIR
11.1 Subject to the provisions of Section 11.2 below, Tenant shall keep in
good order, condition and repair the Premises and fixtures therein and, subject
to the provisions of Article 17 and Article 18 below, shall reimburse Landlord
for all repairs thereto or to the Building which are made necessary as a result
of any misuse or neglect by Tenant or any of its officers, agents, employees,
contractors, licensees, visitors, guests or invitees.
11.2 Subject to the provisions of Article 17 and Article 18 hereof,
Landlord shall repair and maintain the structural components of the Building and
public areas, and all components of the plumbing, air conditioning and
electrical systems serving the Premises that are concealed or used in common by
tenants of the Building. Landlord shall not be liable for any failure to make
any repairs or to perform any maintenance unless such failure shall persist for
a commercially unreasonable time after written notice of the need for such
repairs or maintenance is received by Landlord. Except as provided in Article 17
and Article 18 hereof, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements; provided,
however, that in making such repairs, alterations or improvements, Landlord
shall interfere as little as reasonably practicable with the conduct of Tenant's
business in the Premises. Tenant waives the benefit of any present or future law
which might give Tenant the right to repair the Premises at Landlord's expense
or to terminate the Lease because of the condition of the Premises or the
Building.
ARTICLE 12. ENTRY AND INSPECTION
Tenant will permit Landlord and its agents at all reasonable times during
normal business hours and at any time in case of emergency, in such manner as to
cause as little disturbance to Tenant as reasonably practicable, to enter into
and upon the Premises for the purpose of inspecting the same, or for the purpose
of protecting the interest therein of Landlord, and to take all required
materials and equipment into the Premises, and perform all required work
therein, including the erection of scaffolding, props, or other mechanical
devices, for the purpose of making alterations, repairs or additions to the
Premises or to any other portion of the Building in which the Premises are
situated as may be provided for by this Lease or as may be mutually agreed upon
the parties or as Landlord may be required to make by law or for maintaining any
service provided by Landlord to Tenant hereunder, including window cleaning and
janitor service, without any rebate of rent to Tenant for any loss of occupancy
or quiet enjoyment of the Premises, or damage, injury or inconvenience thereby
occasioned. Tenant shall also permit Landlord and its agents, upon request, to
enter or pass through the Premises or any part thereof, at reasonable times
during normal business hours to show the Premises to holders of encumbrances on
the interest of Landlord under the Lease, or prospective purchasers, mortgagees
or lessees of the Building as an entirety, and during the period of six (6)
months prior to the expiration date of this Lease, Landlord may exhibit the
Premises to prospective tenants. Landlord shall also have the right to enter on
or pass through the Premises, or any part thereof, at such times as such entry
shall be required by circumstances of emergency affecting the Premises or any
other portion of the Building in which the Premises are located. If, during the
last month of the term hereof, Tenant shall have removed substantially all of
the Tenant's property and personnel from the Premises, Landlord may enter the
Premises and repair, alter and redecorate the same, without abatement of rent
and without liability to Tenant, and such acts shall have no effect on this
Lease.
ARTICLE 13. HOLD HARMLESS AND NON-LIABILITY
Tenant agrees to hold harmless and indemnify Landlord and any and all
principals and affiliates of Landlord, including without limitation any
corporations or other entities controlling, controlled by or under common
control with Landlord, from and against any and all loss, cost, damage,
liability, claim or expense (including without limitation attorneys' fees and
costs) arising from or related to the use and occupancy of the Premises by
Tenant or by anyone claiming through Tenant; the conduct of Tenant's business;
any breach or default under this Lease; claims by any assignee, subtenant,
sublessee or other person, if Landlord declines to consent to any assignment,
sublease or other transfer or encumbrance or terminates this Lease pursuant to
the provisions hereof; and any other acts or omissions of Tenant or of anyone
claiming through or under Tenant. Tenant assumes the risk of all such matters
and waives all claims against Landlord and all principals and affiliates of
Landlord in connection therewith, except for matters caused solely by Landlord's
gross negligence or wilful misconduct. Throughout the term of this Lease, Tenant
shall maintain in effect public liability and property damage insurance with
limits of liability of not less than $1,000,000 combined single limit, showing
Landlord as an additional insured under each policy of insurance, and each such
policy of insurance shall provide that it may not be cancelled or modified
without 30 days' prior written notice to Landlord. Such insurance shall be with
companies and in a form reasonably acceptable to Landlord. Tenant shall provide
Landlord with each original policy or a certificate thereof and proof of
payment therefor prior to the commencement of the term of this Lease and at
least thirty (30) days prior to expiration of any such policy. Except as
expressly set forth above, Landlord shall have no liability to Tenant for any
damage to the Premises or for any loss, damage or injury to property of Tenant
therein or thereon occasioned by bursting, rupture, leakage or overflow of any
plumbing or other pipe (including but not limited to water, steam or refrigerant
lines), sprinklers, tanks, drains, drinking fountains or washstands or other
similar causes, whether in, above, upon or about the Premises or the Building in
which the Premises are located.
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<PAGE> 6
ARTICLE 14. WAIVER OF SUBROGATION
Each policy of insurance which Tenant obtains for the Premises and which
Landlord obtains for the Building shall include a clause or endorsement denying
the insurer any right of subrogation against the other party hereto to the
extent rights have been waived by the insured party prior to the occurrence of
injury or loss. If this endorsement is unobtainable without additional premium
or charge, then the insured party shall immediately notify the other party and
the other party shall have the right to pay the additional premium or charge for
this endorsement. Landlord and Tenant each waive any rights of recovery against
the other for injury or loss due to hazards covered by its own insurance, to
the extent of the injury or loss covered thereby.
ARTICLE 15. ASSIGNMENT AND SUBLETTING
15.1 Tenant shall not, either voluntarily or by operation of law, assign,
sell, encumber, pledge or otherwise transfer all or any part of Tenant's
leasehold estate hereunder, or permit the Premises to be occupied by anyone
other than Tenant or Tenant's employees or sublet the Premises or any portion
thereof, without Landlord's prior written consent in each instance, which
consent shall not be unreasonably withheld. Consent by Landlord to one or more
assignments of this Lease or to one or more sublettings of the Premises shall
not constitute a consent to any future or other assignment or subletting to
exhaust Landlord's rights under this paragraph. The voluntary or other surrender
of this Lease by Tenant or a mutual cancellation hereof shall not work a merger,
and shall, at the option of Landlord, terminate all or any existing subleases or
subtenancies or shall operate as an assignment to Landlord of such subleases or
subtenancies. If Tenant is a corporation which, under the then current
guidelines published by the Commissioner of Corporations of the State of
California, is not deemed a public corporation, or is an unincorporated
association or partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, association, or partnership in the
aggregate in excess of twenty-five percent (25%) shall be deemed an assignment
within the meaning and provisions of this Article 15. Tenant agrees to reimburse
Landlord for Landlord's reasonable costs and attorneys' fees incurred in
connection with the processing and documentation of any such requested
assignment, subletting, transfer, change of ownership or hypothecation of this
Lease or Tenant's interest in and to the Premises.
15.2 If Tenant desires at any time to assign this Lease or to sublet the
Premises or any portion thereof, it shall first notify Landlord of its desire to
do so and submit in writing to Landlord: (i) the name of the proposed subtenant
or assignee; (ii) the nature of the proposed subtenant's or assignee's business
to be carried on in the Premises; (iii) the terms and provisions of the proposed
sublease or assignment; and (iv) such reasonable financial information as
Landlord may request concerning the proposed subtenant or assignee.
See Rider Section 15.3
15.4 No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its obligation to pay the rent and to perform all of the other
obligations to be performed by Tenant hereunder, and no such subletting or
assignment shall require Landlord to accept a subtenant or assignee of Tenant as
a tenant under this Lease in the event of a default by Tenant hereunder. The
acceptance by Landlord of any payment due hereunder from any other person shall
not be deemed to be a waiver by Landlord of any provision of this Lease or to be
a consent to any assignment or subletting.
ARTICLE 16. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer or transfers of Landlord's interest in the
Premises or in the real property of which the Premises are a part, other than a
transfer for security purposes only, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of Landlord
accruing from and after the date of such transfer, including without limitation,
the obligations of Landlord under Article 4 above to return the security deposit
as provided therein, provided such obligations and liabilities are assumed in
writing by the transferee.
ARTICLE 17. DAMAGE OR DESTRUCTION
17.1 If the Premises are damaged by any casualty, the damage shall be
repaired by and at the expense of Landlord, provided (a) such repairs are
permitted by applicable laws, ordinances and other legal requirements and (b)
such repairs can, in Landlord's opinion, be made within one (1) year after
notice to Landlord of the occurrence of such damage without the payment of
overtime or other premiums. If Landlord is required to make repairs, as set
forth above, then, except as set forth hereinbelow, until such repairs are
completed, the rent shall be abated in proportion to the part of the Premises
which is unusable by Tenant in the conduct of its business. There shall be no
abatement of rent by reason of any portion of the Premises being unusable for a
period equal to one day or less.
17.2 If such repairs cannot, in Landlord's opinion, be made within such
one (1) year period, Landlord may, at its option, make them within a reasonable
time and in such event this Lease shall continue in effect and the rent shall be
abated in the manner and to the extent provided above. Landlord's election to
make such repairs must be evidenced by written notice to Tenant within thirty
(30) days after notice to Landlord of the occurrence of the damage advising
Tenant whether or not Landlord will make such repairs and the estimated time for
completing the same. If Landlord does not so elect to make such repairs which
cannot be made within such one (1) year period, then either party may by
written notice to the other cancel this Lease as of the date of the occurrence
of such damage.
17.3 In case of any damage or destruction mentioned in this Article 17
which Landlord is required or undertakes to repair as provided herein, Tenant
may terminate this Lease by notice to Landlord any time prior to completion of
the required repairs if Landlord has not restored and rebuilt the Premises
(exclusive of any property of Tenant or improvements installed by Tenant located
therein) to substantially the same condition as existed immediately prior to
such damage or destruction within one (1) year after notice to Landlord of the
occurrence of such damage or destruction, or such longer period as Landlord has
estimated pursuant to Paragraph 17.2. plus such additional period thereafter as
shall equal the aggregate period Landlord may have been delayed in doing so by
acts of God, adjustment of insurance, labor trouble, governmental controls,
unavailability of materials, or any other cause beyond Landlord's reasonable
control.
17.4 No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance or otherwise arising from any
repair or restoration of any portion of the Premises or other portion of the
Building. Landlord shall use reasonable efforts to effect such repair or
restoration promptly and to avoid unreasonable interference with Tenant's use
and occupancy.
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<PAGE> 7
17.5 Landlord shall not be required to carry insurance of any kind on
Tenant's property and shall not be obligated to repair any damage thereto or to
replace the same.
17.6 If the entire Building is destroyed by casualty, or any part of the
Building other than the Premises is damaged by casualty to the extent that
repairs cannot, in Landlord's opinion, be completed within one (1) year after
the date of such damage, Landlord, at its option, may cancel this Lease as of
the date of the occurrence of such destruction or damage by written notice to
Tenant.
ARTICLE 18. EMINENT DOMAIN
18.1 If the whole of the Premises, or so much thereof as to render the
balance unusable by Tenant, shall be taken under power of eminent domain, this
Lease shall automatically terminate as of the date of such condemnation, or as
of the date possession is taken by the condemning authority, whichever is later.
No award for any partial or entire taking shall be apportioned, and Tenant
hereby assigns to Landlord any award which may be made in such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof, provided, however, that nothing
contained herein shall be deemed to give Landlord any interest in or to require
Tenant to assign to Landlord any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant or for the interruption of or damage
to Tenant's business or for Tenant's unamortized cost of leasehold improvements.
18.2 In the event of a partial taking which does not result in a
termination of this Lease, rent shall be abated in proportion to the part of the
Premises so made unusable by Tenant.
18.3 No temporary taking of the Premises or of Tenant's rights therein or
under this Lease shall terminate this Lease or give Tenant any right to any
abatement of rent hereunder; any award made to Tenant by reason of any such
temporary taking shall belong entirely to Tenant and Landlord shall not be
entitled to share therein.
ARTICLE 20. DEFAULTS AND REMEDIES
20.1 The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:
(a) Any failure by Tenant to pay the rent or to make any other
payment required to be made by Tenant hereunder;
(b) The abandonment or vacation of the Premises by Tenant;
(c) Any failure by Tenant to observe and perform any other provision
of this Lease to be observed or performed by Tenant, where such failure
continues for thirty (30) days (except where a different period of time is
expressly specified in this Lease) after written notice by Landlord to
Tenant; provided, however, that any such notice shall be in lieu of, and
not in addition to, any notice required under Section 1161, et seq., of
the California Code of Civil Procedure; or
(d) The making by Tenant of any general assignment for the benefit
of creditors; the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or of a petition or reorganization or arrangement
under any law relating to bankruptcy or insolvency (unless, in the case of
a petition filed against Tenant, the same is dismissed within sixty (60)
days); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to
Tenant within thirty (30) days; or the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where such seizure is not
discharged within thirty (30) days.
20.2 In the event of any such default by Tenant, then, in addition to any
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving Tenant written notice of such election to terminate.* In the event
that Landlord shall elect to so terminate this Lease, then Landlord may recover
from Tenant:
(a) The worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided;
plus
(d) Any other amount necessary to compensate landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom; and
(e) At Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable
law.
The term "rent" as used herein shall be deemed to be and to mean the Basic
Rent, additional rent and all other sums required to be paid by Tenant pursuant
to the terms of this Lease.
As used in subparagraphs (a) and (b) above, the "worth at the time of
award" is computed by allowing interest at the rate of one percent (1%) per
month. As used in subparagraph (c) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
20.3 In the event of any such default by Tenant, Landlord shall also have
the right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises; such property may be removed
and stored in a public warehouse or elsewhere at the cost of and for the account
of Tenant.
20.4 In the event of the vacation or abandonment of the Premises by Tenant
or in the event that Landlord shall elect to re-enter as provided above or shall
take possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, and Landlord does not elect to terminate this Lease as
provided in this Article 20, then Landlord may, from time to time, without
terminating this Lease, either recover all rent as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rent and upon
such other terms and conditions as Landlord in its sole discretion may deem
advisable with the right to make alterations and repairs to the Premises;
provided that if Landlord elects to recover such rent as it becomes due without
terminating this Lease pursuant to this Paragraph 20.4, Landlord will not
unreasonably withhold its consent to a subletting or assignment by Tenant.
*If Tenant shall be served with a demand for payment of past due rent or any
other charges, any payments rendered thereafter to cure any default by Tenant
shall be made only by cashier's check.
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<PAGE> 8
20.5 In the event that Landlord shall elect to so relet, then rent
received by Landlord from such reletting shall be applied as follows: first to
the payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any cost of such reletting; third, to the
payment of the cost of any alterations and repairs to the Premises; fourth, to
the payment of rent due and unpaid hereunder; and the residue, if any, shall be
held by Landlord and applied in payment of future rent as the same may become
due and payable hereunder. Should that portion of such rent received from such
reletting, during any month to which it is applied by the payment of rent
hereunder, be less than the rent payable during that month by Tenant hereunder,
then Tenant shall pay such deficiency to Landlord immediately upon demand
therefor by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as ascertained, any costs and
expenses incurred by Landlord in such reletting or in making such alterations
and repairs not covered by the rent received from such reletting.
20.6 No re-entry or taking possession of the Premises by Landlord pursuant
to this Article 20 shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant or unless the
termination thereof is decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.
20.7 In the event of the material default of the Tenant hereunder,
Landlord shall have the right, at Landlord's option, to suspend or discontinue
the services specified in Article 5 above, or any thereof, during the
continuance of any such default and any such suspension or discontinuance shall
not be deemed or construed to be an eviction or ejection of Tenant.
ARTICLE 21. SURRENDER OF PREMISES; REMOVAL OF PROPERTY
21.1 The voluntary or other surrender of this Lease by Tenant to Landlord,
or a mutual termination thereof, shall not work a merger, and shall, at the
option of Landlord, operate as an assignment to it of any or all subleases or
subtenancies affecting the Premises.
21.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order and condition as the same are now or
hereafter may be improved by Landlord or Tenant, reasonable wear and tear and
repairs which are Landlord's obligation excepted, and shall, without expense to
Landlord, remove or cause to be removed from the Premises all debris and
rubbish, furniture, equipment, business and trade fixtures, free-standing
cabinet work, movable partitioning and other articles of personal property owned
by Tenant or installed or replaced by Tenant at its expense in the Premises
(exclusive of any items described in Paragraph 21.4 below), and all similar
articles of any other persons claiming under Tenant, unless Landlord exercises
its option to have any subleases or subtenancies assigned to it, and Tenant
shall repair all damages to the Premises resulting from such removal.
21.3 Whenever Landlord shall re-enter the Premises as provided in Article
20 hereof, or as otherwise provided in this Lease, any property of Tenant not
removed by Tenant upon the expiration of the term of this Lease (or within
forty-eight (48) hours after a termination by reason of Tenant's default), as
provided in this Lease, shall be considered abandoned and Landlord may remove
any or all of such items and dispose of the same in any manner or store the same
in a public warehouse or elsewhere for the account and at the expense and risk
of Tenant, and if Tenant shall fail to pay the cost of storing any such property
after it has been stored for a period of ninety (90) days or more, Landlord may
sell any or all of such property at public or private sale, in such manner and
at such times and places as Landlord, in its sole discretion, may deem proper,
without notice to or demand upon Tenant, for payment of all or any part of such
charges or the removal of any such property, and shall apply the proceeds of
such sale: first, to the cost and expenses of such sale, including reasonable
attorneys' fees actual incurred; second, to the payment of the cost of, or
charges for, storing any such property; third, to the payment of any other sums
of money which may then or thereafter be due to Landlord from Tenant under any
of the terms hereof; and fourth, the balance, if any, to Tenant.
21.4 All fixtures, equipment, alterations, additions, improvements or
appurtenances attached to or built into the Premises prior to or during the term
of this Lease, whether by Landlord at its expense or at the expense of Tenant or
both, shall be and remain part of the Premises and shall not be removed by
Tenant at the end of the term unless otherwise expressly provided for in this
Lease or unless such removal is required by Landlord pursuant to the provisions
of Article 8 above. Such fixtures, equipment, alterations, additions,
improvements or appurtenances shall include, but not be limited to: all floor
coverings, drapes, paneling, molding, doors, vaults (exclusive of vault doors),
plumbing systems, electrical systems, lighting systems, silencing equipment,
communication systems, fixtures and outlets for the systems mentioned above and
for telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations.
ARTICLE 22. WAIVER OF DAMAGES FOR RE-ENTRY
Tenant hereby waives all claims for damages that may be caused by
Landlord's re-entering and taking possession of the Premises or removing and
storing the property of Tenant as herein provided, and Tenant shall hold
Landlord harmless thereby, and no such re-entry shall be considered to be a
forcible entry.
ARTICLE 23. COSTS OF SUIT
23.1 If Tenant or Landlord shall bring any action for any relief against
the other, declaratory or otherwise, arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the prevailing party shall be entitled to a reasonable sum for
attorneys' fees in such suit and such attorneys' fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is prosecuted to judgment.
23.2 Should Landlord, without fault on Landlord's part, be made a party
to any litigation instituted by Tenant, or by any third party against Tenant, or
by or against any person holding under or using the Premises by license of
Tenant, or for the foreclosure of any lien for labor or material furnished to or
for Tenant, or by any such other person or otherwise arising out of or resulting
from any act or transaction of Tenant or of any such other person, Tenant
covenants to save and hold Landlord harmless from any liability, loss, cost,
damage, expense or judgment rendered against Landlord or the Premises or any
part thereof, and all costs and expenses, including reasonable attorneys' fees,
incurred by Landlord in or in connection with such litigation.
ARTICLE 24. WAIVER
The waiver by Landlord or Tenant of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition as to any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
of Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
ARTICLE 25. HOLDING OVER
If Tenant holds over after the term hereof, with the express consent of
Landlord, such tenancy shall be from month-to-month only, and not a renewal
hereof or any extension for any further term, and in such case rent shall be
payable at the rate of one hundred twenty-five percent (125%) of the rent due
for the last month of the term of this Lease and such month-to-month tenancy
shall be subject to every other term, covenant and agreement contained herein.
Nothing contained in this Article 25 shall be construed as consent by Landlord
to any holding over by Tenant and Landlord expressly reserves the right to
require Tenant to surrender possession of the Premises to Landlord as provided
in Article 21 above forthwith upon the expiration of the term of this Lease or
other termination of this Lease.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
8
<PAGE> 9
ARTICLE 26. SUBORDINATION; PROTECTION OF LENDERS
26.1 Landlord shall have the right to subordinate this Lease to any ground
lease, deed of trust or mortgage encumbering the Premises or the Project (or any
portion thereof), any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. However, Tenant's right to quiet possession of the Premises during
the Lease term shall not be disturbed if Tenant pays the rent and performs all
of Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to the
lien of its ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed
of trust or mortgage whether this Lease is dated prior or subsequent to the date
of said ground lease, deed of trust or mortgage or the date of recording
thereof.
26.2 If Landlord's interest in the Premises is acquired by any ground
lessor, beneficiary under a deed of trust, mortgagee, or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Premises and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Premises upon the transfer of Landlord's
interest.
26.3 Tenant shall sign and deliver any instrument or documents necessary
or appropriate to evidence any such attornment or subordination or agreement to
do so, on a form satisfactory to Landlord or Landlord's lender. If Tenant fails
to do so within ten (10) days after written request, Tenant hereby makes,
constitutes and irrevocably appoints Landlord, or any transferee or successor of
Landlord, as the attorney-in-fact of Tenant to execute and deliver any such
instrument of document.
ARTICLE 27. RULES AND REGULATIONS
The Rules and Regulations attached hereto as Exhibit "B" are hereby
incorporated herein by this reference and made a part hereof. Tenant agrees to
abide by and comply with said Rules and Regulations and any reasonable and
non-discriminatory amendments, modifications or additions thereto as may
hereafter be adopted and published by written notice to Tenant by Landlord.
Landlord shall not be liable to Tenant for any violation of such Rules and
Regulations by any other tenant or person. Tenant shall be responsible for all
acts of its employees and a violation of the Rules and Regulations (including
those dealing with security) by any of Tenant's employees shall constitute a
material breach of this Lease by Tenant.
ARTICLE 28. DEFINED TERMS
The word "Landlord" and "Tenant" as used herein, shall include the plural
as well as the singular. Words used in neuter gender include the masculine and
feminine and words in the masculine or feminine gender include the neuter. If
there be more than one Tenant, the obligation hereunder imposed upon Tenant
shall be joint and several. The headings or titles to the articles of this Lease
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
ARTICLE 29. HEIRS AND ASSIGNS
Subject to the provisions of Article 15 hereof relating to assignment and
subletting, this Lease is intended to and does bind the heirs, executors,
administrators, personal representatives, successors and assigns of any and all
of the parties hereto.
ARTICLE 30. TIME OF ESSENCE
Time is of the essence in this Lease.
ARTICLE 31. ENTIRE AGREEMENT
This instrument along with any exhibits and attachments or other documents
affixed hereto or referred to herein constitutes the entire and exclusive
agreement between Landlord and Tenant relative to the Premises herein described,
and this agreement and said exhibits and attachments and other documents may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant hereby agree that all prior or
contemporaneous oral agreements, understandings, or practices relative to the
leasing of the Premises are merged in and revoked by this agreement.
ARTICLE 32. WORK LETTER
If an Exhibit "C", Work Letter, is attached to this Lease and is initialed
by both parties, then the Premises shall be finished in accordance with the Work
Letter.
ARTICLE 33. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue beyond any applicable grace period set forth in Article 20,
Landlord may, but shall not be obligated so to do, and without waiving or
releasing Tenant from any obligations of Tenant, make any such payment or
perform any such other act on Tenant's part to be made or performed as in this
Lease provided. All sums so paid by Landlord and all necessary incidental costs,
together with interest thereon at the rate hereinafter provided, from the date
of such payment by Landlord, shall be payable to Landlord on demand and Tenant
covenants to pay any such sums, and Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
nonpayment thereof by Tenant as in the case of default by Tenant in the payment
of the rent.
ARTICLE 34. INTEREST ON TENANT'S OBLIGATIONS
Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at the rate of twelve percent (12%) per year until paid, but the
payment of such interest shall not excuse or cure the default.
ARTICLE 35. NOTICE
All notices which Landlord or Tenant may be required, or may desire, to
serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, addressed as
set forth in Item 14 of the Basic Lease Provisions, or, from and after the
Commencement Date, to the Tenant at the Premises whether or not Tenant has
departed from, abandoned or vacated the Premises, or addressed to such other
address or addresses as either Landlord or Tenant may from time to time
designate to the other in writing.
ARTICLE 36. QUIET ENJOYMENT
Landlord covenants and agrees that Tenant, upon paying the Basic Rent,
additional rent and all other charges herein provided for and observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, shall lawfully and quietly hold, occupy and enjoy the Premises during the
term of this Lease without hindrance or molestation of anyone lawfully claiming
by, through or under Landlord, subject, however, to the matters herein set
forth.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
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<PAGE> 10
ARTICLE 37. ESTOPPEL CERTIFICATES
37.1 Tenant agrees at any time and from time to time upon not less than
ten (10) days' prior notice by Landlord to execute, acknowledge and deliver to
Landlord a statement in form and substance of Exhibit "D" attached hereto
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the Basic Rent,
additional rent and other charges have been paid in advance, if any, and stating
whether or not to the best knowledge of the signer of such certificate, Landlord
is in default in performance of any covenant, agreement or condition contained
in this Lease and, if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant to
this Paragraph 37.1 may be relied upon by any prospective purchaser of the
Building any mortgagee thereof or any assignee of any mortgage upon the
Building.
37.2 Landlord agrees at any time and from time to time upon not less than
ten (10) days' prior notice by Tenant to execute, acknowledge and deliver to
Tenant a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there shall have been modifications that the same
is in full force and effect as modified as stating the modifications) and the
dates to which the Basic Rent, additional rent and other charges have been paid
in advance, if any, and stating whether or not to the best knowledge of the
signer of such certificate Tenant is in default in the performance of any
covenant, agreement or condition contained in this Lease and, if so, specifying
each such default of which the signer may have knowledge, it being intended that
any such statement delivered pursuant to this Paragraph 37.2 may be relied upon
by any prospective assignee of the Tenant's interest in this Lease.
ARTICLE 38. ACCESS, CHANGES IN BUILDING FACILITIES, NAME
All except the inside surface of all walls, windows and doors bounding the
Premises (including exterior building walls, core corridor walls and doors and
any core corridor entrance), and any space in or adjacent to the Premises used
for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other building facilities, and the use therof, as well as
access thereto through the Premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord.
ARTICLE 39. NON-DISCRIMINATION
Tenant herein covenants by and for himself, his heirs, executors,
administrators, personal representatives, successors and assigns, and all
persons claiming under or through him, and this Lease is made and accepted upon
and subject to the following conditions: that there shall be no discrimination
against or segregation of any person or group of persons, on account of race,
color, creed, sex, national origin, or ancestry, in the leasing, sub-leasing,
transferring, use, occupancy, tenure or enjoyment of the Premises herein leased
nor shall Tenant, or any person claiming under or through Tenant, establish or
permit any such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy of tenants,
lessees, subtenants, sublessees or vendees of the Premises.
ARTICLE 40. BROKERS
The parties recognize as the broker(s) who procured this Lease the firm(s)
specified in Item 10 of the Basic Lease Provisions, and agree that Landlord
shall be solely responsible for the payment of brokerage commissions to the
specified Landlord's Broker, if any. If a Tenant's Broker is named in Item 11 of
the Basic Lease, Landlord's Broker shall pay an appropriate portion of its
commission to Tenant's Broker if so provided in any agreement between Landlord's
Broker and Tenant's Broker. Nothing contained in this Lease shall impose any
obligation on Landlord to pay commission or fee to any party other than
Landlord's Broker. If Tenant has dealt with any other person or real estate
broker with respect to leasing or renting space in the Premises, Tenant shall be
solely responsible for the payment of any fee due to said person or firm and
Tenant shall indemnify Landlord against any liability, loss, cost, damage or
expense (including attorneys' fees and costs) with respect thereto.
ARTICLE 41. APPLICABLE LAW
This Lease, and the rights and obligations of the parties hereto, shall be
construed and enforced in accordance with the laws of the State of California.
ARTICLE 42. COMMON AREAS
42.1 As used in this Lease, "Common Areas" shall mean all areas within the
Project which are available for the common use of tenants of the Project and
which are not leased or held for the exclusive use of Tenant or other tenants,
including, but not limited to, parking areas, driveways, sidewalks, loading
areas, access roads, corridors, landscaping and planted areas. Landlord may from
time to time change the size, location, nature and use of any of the Common
Areas, including converting Common Areas into leasable areas, constructing
additional parking facilities (including parking structures) in the Common
Areas, and increasing or decreasing Common Area land and/or facilities. Tenant
acknowledges that such activities may result in occasional inconvenience to
Tenant from time to time. Such activities and changes shall be expressly
permitted if they do not materially affect Tenant's use of the Property.
42.2 Tenant shall have the non-exclusive right (in common with other
tenants and all others to whom Landlord has granted or may grant such rights) to
use the Common Areas for the purposes intended, subject to such reasonable rules
and regulations as Landlord may establish from time to time. Tenant shall abide
by such rules and regulations and shall use its best efforts to cause others who
use the Common Areas with Tenant's expressed or implied permission to abide by
Landlord's rules and regulations. At any time, Landlord may close any Common
Areas to perform any acts in and to the Common Areas as, in Landlord's judgment,
may be desirable to improve the Project. Tenant shall not, at any time,
interfere with the rights of Landlord, other tenants, or any other person
entitled to use the Common Areas.
42.3 Landlord shall maintain the Common Areas in good order, condition and
repair and shall operate the Project, in Landlord's sole discretion, as a first
class commercial real property development. All costs incurred by Landlord for
the operation and maintenance of the Common Areas in the Project shall be
allocated by Landlord, in its discretion, among the buildings within the
Project. The Common Area costs allocated to the Building shall be included in
the Total Operating Expenses, pursuant to Paragraph 3.9(m). Common Area costs
include, but are not limited to, costs and expenses for the following: gardening
and landscaping; utilities, water and sewage charges; maintenance of signs
(other than Tenants' signs), premiums for liability, property damage, fire and
other types of casualty insurance on the Common Areas and worker's compensation
insurance; all real property taxes and assessments levied on or attributable to
the Common Areas and all Common Area improvements; all personal property taxes
levied on or attributable to personal property used in connection with the
Common Areas; straight-line appreciation on personal property owned by Landlord
which is consumed in the operation or maintenance of the Common Areas; rental or
lease payments paid by Landlord for rented or leased personal property used in
the operation or maintenance of the Common Areas; fees for required licenses and
permits; repairing, resurfacing, repaving, maintenance, painting, lighting,
cleaning, refuse removal, security and similar items; reserves for roof
replacement and exterior painting and other appropriate reserves; and reasonable
allowance to Landlord for Landlord's supervision of the Common Areas (not to
exceed five percent (5%) of the total of all other Common Area costs for the
year). Landlord may cause any or all of such services to be provided by third
parties. Common Area costs shall not include depreciation of real property which
forms part of the Common Area.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
10
<PAGE> 11
ARTICLE 43. EXAMINATION OF LEASE
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for Lease, and is not effective as a
Lease or otherwise until execution by and delivery to both Landlord and Tenant.
ARTICLE 44. NO LIGHT, AIR OR VIEW EASEMENT
Any diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Building shall in no way affect
this Lease or impose any liability on Landlord.
ARTICLE 45. SIGNS AND AUCTIONS
Tenant shall not place any sign upon the Premises or Building or conduct
any auction thereon without Landlord's prior written consent.
ARTICLE 46. COVENANTS, CONDITIONS AND RESTRICTIONS
The Project and the Premises are subject to certain matters, covenants,
conditions, restrictions, easements, rights of way and development agreements.
Tenant agrees to be bound by all matters affecting the Premises or the Project
or any portion thereof, whether apparent or of record, including without
limitation the foregoing covenants, conditions and restrictions, together with
any amendments thereto.
ARTICLE 47. INVALIDITY
The parties hereto agree that the terms and provisions of this Lease
express the intent of their agreement as fully as possible; however, the
invalidity or unenforceability of any term of provision hereof (except for
Tenant's obligations to pay Basic Rent under Item 5 of the Basic Lease
Provisions hereof) shall not affect or impair any other term or provision
hereof.
ARTICLE 48. CUMULATIVE RIGHTS
All rights, options and remedies of Landlord contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Landlord shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law or equity,
whether or not stated in this Lease.
ARTICLE 49. ACCORD AND SATISFACTION, RECEIPT OF MONEY
No payment by Tenant or receipt by Landlord of a lesser amount than the
rent herein stipulated shall be deemed to be other than on account of the
earliest Basic Rent and/or additional rent due and not yet paid, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this Lease. No receipt of any
money by Landlord from Tenant after the termination of this Lease, after the
service of any notice, after the commencement of any suit, or after final
judgment for possession of the Premises, shall reinstate, continue or extend the
term of this Lease or affect any such notice, demand, suit or judgment.
ARTICLE 50. NO MEMORANDUM
Tenant shall not record this Lease or any memorandum or short form
thereof.
ARTICLE 51. LATE CHARGE
Tenant acknowledges that late payment of rent due hereunder (including
without limitation Basic Rent and additional rent) will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which are extremely
difficult to ascertain. These costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by
others. Accordingly, if any installment of Basic Rent or additional rent or any
other amounts due from Tenant is not received by Landlord or Landlord's designee
within ten (10) days after the amount is due, Tenant shall pay to Landlord a
late charge equal to six percent (6%) of the overdue amount. Acceptance of late
charges by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder or at law or in equity.
ARTICLE 52. FORCE MAJEURE
If Landlord or Tenant cannot perform any of its obligations due to events
beyond its control, except with respect to the obligations imposed with regards
to Rent and other charges to be paid by Tenant pursuant to this Lease, the time
provided for performing such obligations shall be extended by a period of time
equal to the duration of such events. Events beyond its control include, but are
not limited to, acts of God, war, civil commotion, labor disputes, strikes,
fire, flood or other casualty, shortages of labor or material, government
regulation or restriction and weather conditions.
ARTICLE 53. PARKING
53.1 Tenant shall be entitled, subject to the Rules and Regulations from
time to time in effect, to use the vehicle parking spaces in the Project
allocated to Tenant in Paragraph 13 of the Basic Lease Provisions without paying
any additional rent. Tenant's parking shall not be reserved and shall be limited
to vehicles no larger than standard size automobiles or pickup utility vehicles.
Tenant shall not cause large trucks or other large vehicles to be parked within
the Project or on the adjacent public streets. Temporary parking of large
delivery vehicles in the Project may be permitted by the Rules and Regulations
established by Landlord. Vehicles shall be parked only in striped parking spaces
and not in driveways, loading areas or other locations not specifically designed
for parking. If Tenant parks more vehicles in the parking area than the number
set forth in Paragraph 13 of the Basic Lease Provision such conduct shall be a
material breach of the Lease. In addition to Landlord's other remedies under the
Lease, Tenant shall pay a reasonable daily charge for each such additional
vehicle.
53.2 Notwithstanding Paragraph 53.1, Landlord reserves the right, at its
election at any time, to implement procedures regarding the parking facilities
in the Project that Landlord deems to be in the best interest of the tenants in
the Project, including without limitation, procedures regarding implementation
of parking stickers or other identification devices, reserved parking spaces and
other matters. If Landlord implements any such procedures, all costs in
connection therewith shall be included in the Total Operating Expenses defined
in Paragraph 3.9.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
11
<PAGE> 12
RIDER TO OFFICE LEASE DATED NOVEMBER 20, 1996 BY AND BETWEEN RR&C DEVELOPMENT
COMPANY, A CALIFORNIA GENERAL PARTNERSHIP & PATRICIAN ASSOCIATES, INC., A
CALIFORNIA CORPORATION (LANDLORD) AND INTERNATIONAL INTEGRATION INCORPORATED A
MASSACHUSETTS CORPORATION (TENANT)
ADDITIONAL TERMS, PROVISIONS AND REVISIONS:
3.13 AUDITS OF TOTAL OPERATING EXPENSES STATEMENTS. Any objection
to a Total Operating Expenses statement, or to any information reported therein,
shall be deemed waived if not raised by written notice to Landlord within ninety
(90) days following delivery of such Total Operating Expenses statement.
Following the giving of such notice, Tenant shall have the right, provided that
Tenant is not in default under this Lease, during Landlord's regular business
hours and on reasonable prior notice, to inspect, at the location of Landlord's
accounting records, at Tenant's sole cost, Landlord's material accounting
records with respect to Total Operating Expenses for the year to which such
Total Operating Expenses statement relates. The inspection of Landlord's
accounting records may be conducted by an employee of Tenant, or a recognized
national or regional independent, certified, public accounting firm (the "CPA").
The inspection of Landlord's accounting records must be completed not later than
thirty (30) days after such accounting records are first made available to
Tenant. If, after such inspection of Landlord's accounting records, Tenant
disputes the amount of Total Operating Expenses for the year under inspection,
Landlord and Tenant shall meet and attempt in good faith to resolve the dispute.
If the parties are unable to resolve the dispute within sixty (60) days after
completion of Tenant's inspection, Tenant shall have the right to request an
independent audit of Landlord's material accounting records with respect to
Total Operating Expenses for such year, which right shall be exercised, if at
all, by delivering a request for such audit to Landlord not later than the last
day of said sixty (60) day period. Such audit shall be conducted by a nationally
or regionally recognized independent certified public accounting firm selected
by Landlord, subject to Tenant's reasonable approval. The independent audit
shall be limited to determination of the appropriate amount of Total Operating
Expenses, as relevant to the subject of the dispute, for the year under review.
The results of the audit shall be delivered simultaneously to Landlord and
Tenant. The results of such audit shall be final and binding upon Landlord and
Tenant, and if the independent audit concludes that the amount of Total
Operating Expenses billed to Tenant was incorrect, the appropriate party shall
pay to the other party the deficiency or overpayment, as applicable, within
thirty (30) days following delivery of the auditor's report, without interest.
All costs and expenses of the independent audit shall be paid by Tenant unless
the final determination of such audit is that Landlord overstated Total
Operating Expenses for the applicable calendar year by more than three percent
(3%) of the originally reported Total Operating Expenses, in which case Landlord
shall pay all costs
1
<PAGE> 13
RIDER TO OFFICE LEASE DATED NOVEMBER 20, 1996 BY AND BETWEEN RR&C DEVELOPMENT
COMPANY, A CALIFORNIA GENERAL PARTNERSHIP & PATRICIAN ASSOCIATES, INC., A
CALIFORNIA CORPORATION (LANDLORD) AND INTERNATIONAL INTEGRATION INCORPORATED A
MASSACHUSETTS CORPORATION (TENANT)
ADDITIONAL TERMS, PROVISIONS AND REVISIONS:
and expenses of the independent audit (but not of Tenant's initial inspection of
Landlord's books and records). Tenant shall keep any information gained from its
inspection of Landlord's books and records confidential and shall not disclose
it to any other party, except as required by law. If requested by Landlord,
Tenant shall require its employees or agents inspecting Landlord's books and
records to sign a confidentiality agreement (the "Confidentiality Agreement")
prior to making Landlord's books and records available to them. Tenant's
exercise of its audit rights shall not relieve Tenant of its obligation to pay
disputed amounts. The payment by Tenant of Tenant's proportionate share of Total
Operating Expenses, or any amount on account thereof, shall not preclude Tenant
from exercising its rights under this Section 3.13, but if Tenant fails to
timely exercise its audit rights in accordance with this Section, such failure
shall be conclusively deemed to constitute Tenant's approval of Landlord's Total
Operating Expenses statement for the year in question. Landlord shall maintain
its accounting records with respect to Total Operating Expenses during the
review period for each year and during the pendency of any audit.
Article 5: BASIC RENT
The monthly Basic Rent shall be paid in accordance with the
following schedule:
MONTHS MONTHLY BASE RENT
1-3 THREE THOUSAND NINE HUNDRED TWENTY FOUR AND
28/100 DOLLARS ($3,924.28) ($.68 p.s.f.)
4-15 TEN THOUSAND NINETY NINE DOLLARS AND 25/100
($10,099.25) ($1.75 p.s.f.)
16-27 TEN THOUSAND THREE HUNDRED EIGHTY SEVEN AND
80/100 DOLLARS ($10,387.80) ($1.80 p.s.f.)
28-39 TEN THOUSAND SIX HUNDRED SEVENTY SIX AND
35/100 DOLLARS ($10,676.35) ($1.85 p.s.f.)
40-51 TEN THOUSAND NINE HUNDRED SIXTY FOUR AND
90/100 DOLLARS ($10,964.90) ($1.90 p.s.f.)
2
<PAGE> 14
RIDER TO OFFICE LEASE DATED NOVEMBER 20, 1996 BY AND BETWEEN RR&C DEVELOPMENT
COMPANY, A CALIFORNIA GENERAL PARTNERSHIP & PATRICIAN ASSOCIATES, INC., A
CALIFORNIA CORPORATION (LANDLORD) AND INTERNATIONAL INTEGRATION INCORPORATED A
MASSACHUSETTS CORPORATION (TENANT)
ADDITIONAL TERMS, PROVISIONS AND REVISIONS:
52-63 ELEVEN THOUSAND TWO HUNDRED FIFTY THREE AND
45/100 DOLLARS ($11,253.45) ($1.95 p.s.f.)
15.3 If Landlord consents, the following provision shall apply:
(a) Tenant shall pay to Landlord as additional rent, (the
"Landlord's Share") (as that term as defined below) of the ("Profit") (as that
term as defined below) on such transaction as and when received by Tenant,
unless Landlord gives written notice to Tenant and the assignee or subtenant
that Landlord's Share shall be paid by the assignee or subtenant to Landlord
directly. The "Profit" means (i) all amounts paid to Tenant for such assignment
or sublease, including "key" money, monthly rent in excess of the monthly rent
payable under this Lease and all fees and other consideration paid for the
assignment or sublease, including fees under collateral agreements, less (ii)
costs and expenses directly incurred by Tenant in connection with the execution
and performance of such assignment or sublease for real estate brokers
commissions and costs and renovation or construction of tenant improvements
required under such assignment or sublease. Tenant is entitled to recover such
costs and expenses before Tenant is obligated to pay Landlord's Share to
Landlord. The Profit in case of a sublease of less than all of the Premises is
the rent allocable to the subleased space as a percentage on a square footage
basis.
(b) Tenant shall provide Landlord with a written statement
certifying all amounts to be paid from any assignment or sublease of the
Premises within thirty (30) days after the transaction documentation is signed,
and Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to Landlord
copies of all of the transaction documentation, all of which shall be certified
by Tenant to be complete, true and correct. Landlord's receipt of Landlord's
Share shall not be a consent to any further assignment or subletting. The breach
of Tenant's obligations under this Section 15.3 shall be a material default of
the Lease.
(c) As used herein, "Landlord's Share" shall be FIFTY PERCENT
(50%).
3
<PAGE> 15
RIDER TO OFFICE LEASE DATED NOVEMBER 20, 1996 BY AND BETWEEN RR&C DEVELOPMENT
COMPANY, A CALIFORNIA GENERAL PARTNERSHIP & PATRICIAN ASSOCIATES, INC., A
CALIFORNIA CORPORATION (LANDLORD) AND INTERNATIONAL INTEGRATION INCORPORATED A
MASSACHUSETTS CORPORATION (TENANT)
ADDITIONAL TERMS, PROVISIONS AND REVISIONS:
Article 54. HAZARDOUS MATERIALS:
54.1 NO HAZARDOUS MATERIALS.
Except general office supplies typically used in an office
area in the ordinary course of business, such as copier toner, liquid
paper, glue, ink, and cleaning solvents, for use in the manner for which
they were designed, in such amounts as may be normal for the office
business operations conducted by Tenant on the Property, neither Tenant
nor its agents, employees, contractors, licensees, sublessees, assignees,
concessionaires or invitees shall use, handle, store or dispose of any
Hazardous Materials in, on, under or about the Premises or the Building.
If Tenant breaches the foregoing restriction, Tenant shall be solely
responsible for and shall indemnify, defend and hold Landlord harmless
from and against any and all claims, judgments, damages, penalties,
fines, costs, liabilities and losses (including, without limitation,
diminution in valuation of the Premises or Building, and sums paid in
settlement of claims and for attorneys' fees, consultant fees and expert
fees) which arise during or after the term of the Lease as a result of
any contamination directly or indirectly arising from the activities
which are the basis for such breach. This indemnification of Landlord by
Tenant includes, without limitation, costs incurred in connection with
any investigation of site conditions or any clean-up, remedial, removal
or restoration work and shall survive the expiration or earlier
termination of the Lease. Tenant shall promptly take all actions, at its
sole cost and expense, as are necessary to return the premises and/or
building to the condition existing prior to the introduction of any such
Hazardous Material, provided Landlord's approval of such actions shall
first be obtained and Tenant shall fully cooperate in connection with any
such clean-up, restoration or other work, at Tenant's sole cost and
expense. Furthermore, Tenant shall immediately notify Landlord of any
inquiry, test, investigation or enforcement proceeding by or against
Tenant or the Property concerning the presence of any Hazardous Material.
Tenant acknowledges that Landlord, at Landlord's election, shall have the
sole right, at Tenant's expense, to negotiate, defend, approve and appeal
any action taken or order issued by any governmental authority with
regard to any Hazardous Material contamination which Tenant is obligated
hereunder to remediate.
4
<PAGE> 16
RIDER TO OFFICE LEASE DATED NOVEMBER 20, 1996 BY AND BETWEEN RR&C DEVELOPMENT
COMPANY, A CALIFORNIA GENERAL PARTNERSHIP & PATRICIAN ASSOCIATES, INC., A
CALIFORNIA CORPORATION (LANDLORD) AND INTERNATIONAL INTEGRATION INCORPORATED A
MASSACHUSETTS CORPORATION (TENANT)
ADDITIONAL TERMS, PROVISIONS AND REVISIONS:
54.2 DEFINITION OF HAZARDOUS MATERIAL.
"Hazardous Materials" shall mean asbestos, any petroleum fuel, and
any hazardous or toxic substance, material or waste which is or become regulated
by any local governmental authority, the State of California or the United
States Government or any political subdivision thereof, including, but not
limited to, any material or substance defined as a "hazardous waste", "extremely
hazardous waste", "restricted hazardous waste", "hazardous substance",
"hazardous material" or "toxic pollutant" under the California Health and Safety
Code and/or under the Comprehensive Environmental Response, Compensation and
Liability Act, 42. U.S.C. 9601, ET SEQ.
Article 55. REVENUE AND EXPENSE ACCOUNTING:
Landlord and Tenant agree that, for all purposes (including any
determination under Section 467 of the Internal Revenue Code), rental income
will accrue to the Landlord and rental expenses will accrue to the Tenant in the
amounts and as of the dates rent is payable under the Lease.
Article 56. FIRST RIGHT OF REFUSAL
If at any time during the Lease Term Landlord receives an offer to
lease the adjoining 772 square feet on the Second Floor, West Tower, as shown on
Exhibit "A" and marked "Not a Part", Landlord shall give written notice to
Tenant and Tenant shall have five (5) business days to lease such space on the
same terms and conditions as this Lease, except that Tenant agrees to accept
this space in its "as is" condition. If Tenant elects not to lease this space,
Tenant's right under this First Right of Refusal shall terminate and Landlord
shall thereafter be free to lease this space to other tenants upon such terms as
Landlord so desires.
5
<PAGE> 17
OPTION TO EXTEND TERM
LEASE RIDER
This Rider is attached to and made part of that certain Lease (the "Lease")
dated November 20, 1996 between RR&C Development Company & Patrician Associates,
Inc. as Landlord, and International Integration Incorporated, as Tenant,
covering the Premises commonly known as Suite 200, 13181 Crossroads Parkway
North, (the "Premises"). The terms used herein shall have the same definitions
as set forth in the Lease. The provisions of this Rider shall supersede any
inconsistent or conflicting provisions of the Lease.
A. OPTION(S) TO EXTEND TERM.
1. Landlord hereby grants to Tenant one (1) option(s) (the "Option(s)") to
extend the Lease term for additional term(s) of five (5) years each (the
"Extension(s)"), on the same terms and conditions as set forth in the Lease, but
at an increased rent as set forth below. Each Option shall be exercised only by
written notice delivered to Landlord at least one hundred eighty (180) days
before the expiration of the Lease term or the preceding Extension of the Lease
term, respectively. If Tenant fails to deliver Landlord written notice of the
exercise of an Option within the prescribed time period, such Option and any
succeeding Options shall lapse, and there shall be no further right to extend
the Lease term. Each Option shall be exercisable by Tenant on the express
conditions that (a) at the time of the exercise, and at all times prior to the
commencement of such Extension, Tenant shall not be in default under any of the
provisions of this Lease and (b) Tenant has not been ten (10) or more days late
in the payment of rent more than a total of three (3) times during the Lease
term and all preceding Extensions.
2. PERSONAL OPTIONS.
The Options(s) are personal to the Tenant named in the Lease. If Tenant
subleases any portion of the Premises or assigns or otherwise transfers any
interest under the Lease to any other person or entity prior to the exercise of
an Option (whether with or without Landlord's consent), such Option and any
succeeding Options shall lapse. If Tenant subleases any portion of the Premises
or assigns or otherwise transfers any interest of Tenant under the Lease to any
other person or entity after the exercise of an Option but prior to the
commencement of the respective Extension (whether with or without Landlord's
consent), such Option and any succeeding Options shall lapse and the Lease term
shall expire as if such Option were not exercised. If Tenant subleases any
portion of the Premises or assigns or otherwise transfers any interest of Tenant
under the Lease in accordance with Article 15 of the Lease after the exercise of
an Option and after the commencement of the Extension related to such Option,
then the term of the Lease shall expire upon the expiration of the Extension
during which such sublease or transfer occurred and only the succeeding Options
shall lapse.
B. CALCULATION OF RENT.
The base rent during the Extension(s) shall be determined by one or a
combination of the following methods (INDICATE YOUR CHOICE UPON EXECUTION OF THE
LEASE BY CHECKING THE APPROPRIATE SPACE BELOW):
2. Prevailing Rental Value Adjustment (Section B(2), below) X
-------
2. PREVAILING RENTAL VALUE ADJUSTMENT.
The base rent shall be increased on the first day of the first month(s) of the
Lease Extension(s) of the Lease term (the "Rental Adjustment Date(s)") to the
"prevailing rental value" of the Premises. For purposes hereof, the "prevailing
rental value" of the Premises shall mean an amount equal to the Rentable Area of
the Premises (expressed in square feet) multiplied by an amount per square foot
per month that is the amount quoted by Landlord as the prevailing rental rate
for space in the Building comparable to the Premises.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
<PAGE> 18
EXHIBIT A
[GRAPHIC OMITTED - FLOOR PLAN OF PROPOSED TENANT IMPROVEMENT FOR I-CUBE ATRIUM
BUILDING - 2ND FLOOR - INDUSTRY, CA]
<PAGE> 19
EXHIBIT "B"
ATTACHED TO AND MADE A PART OF OFFICE LEASE
RULES AND REGULATIONS OF THE BUILDING
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and egress. The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control and prevent access
thereto by all persons whose presence, in the judgment of Landlord, shall be
prejudicial to the safety, character, reputation or interests of the Building
and its tenants, provided that nothing herein contained shall be construed to
prevent such access by persons with whom tenants normally deal in the ordinary
course of their business, unless such persons are engaged in illegal activities.
No tenant and no employees of any tenant shall go upon the roof of the Building
without the written consent of Landlord.
2. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No hanging
planters, television sets or other objects shall be attached to or suspended
from ceilings without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door, without the prior written consent of Landlord. Except
as otherwise specifically approved by Landlord, all electrical ceiling fixtures
hung in offices or spaces along the perimeter of the Building must be
fluorescent, of a quality, type, design and bulb color approved by Landlord.
3. No sign, advertisement or notice shall be exhibited, painted or affixed
by any tenant on any part of, or so as to be seen from the outside of, a
tenant's premises or the Building without the prior written consent of Landlord.
In the event of the violation of the foregoing by any tenant, Landlord may
remove same without any liability, and may charge the expense incurred in such
removal to the tenant violating this rule. Interior signs on doors and walls
shall be inscribed, painted or affixed for each tenant by Landlord at the
expense of such tenant, and shall be of a size, color, location and style
acceptable to Landlord.
4. The wash room partitions, mirrors, wash basins and other plumbing
fixtures shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances shall be
thrown therein. All damage resulting from any misuse of the fixtures shall be
borne by the tenant who, or whose servants, employees, agents, visitors or
licensees, shall have caused the same.
5. No tenant shall mark, paint, drill into, or in any way deface any part
of its premises or the Building. No boring, cutting or stringing of wires or
laying of linoleum or other similar floor coverings shall be permitted except
with the prior written consent of Landlord and as Landlord may direct.
6. No bicycles, vehicles, vending machines or animals of any kind shall be
brought into or kept in or about any tenant's premises and no cooking shall be
done or permitted by any tenant in its premises except that the preparation of
coffee, tea, hot chocolate and similar items for the tenant and its employees
and business visitors shall be permitted. No tenant shall cause or permit any
unusual or objectionable odors to escape from its premises.
7. No tenant's premises shall be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the use of such
premises for general office purposes. No tenant shall occupy or permit any
portion of its premises to be occupied as an office for a public stenographer or
typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any
form, or as a medical office, or as a barber shop, manicure shop or employment
agency. No tenant shall engage or pay any employees on its premises except those
actually working for such tenant on its premises, nor advertise for laborers
giving an address at its premises. No tenant's premises shall be used for
lodging or sleeping or for any immoral or illegal purposes.
8. No tenant shall make, or permit to be made, any unseemly or disturbing
noises, sounds or vibrations, or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, phonograph, unusual noise, or in any
other way.
9. No tenant shall throw anything out of doors or down the passageways.
10. No tenant shall at any time bring or keep upon its premises any
inflammable, combustible or explosive fluid, chemical or substance. No tenant
shall do or permit anything to be done in its premises, or bring or keep
anything therein, which shall in any way increase the rate of fire insurance on
the Building or on the property kept therein, or obstruct or interfere with the
rights of other tenants, or in any way injure or annoy them, or conflict with
the regulations of the fire department or the fire laws, or with any insurance
policy upon the Building or any part thereof, or with any rules and ordinances
established by the local health authority or other governmental authority.
11. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanisms thereof. Each tenant must, upon the termination of its
tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
whether furnished to or otherwise procured by tenant, and in the event of the
loss of any keys so furnished, such tenant shall pay to the Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such a change.
12. All removals, or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which Landlord may establish from time to time. The moving of safes or other
fixtures or bulky matter of any kind must be made upon previous notice to the
manager of the Building and under his supervision, and the persons employed by
any tenant for such work must be acceptable to Landlord. Landlord reserves the
right to inspect all safes, freight or other bulky articles to be brought into
the Building. Landlord reserves the right to prohibit or impose conditions upon
the installation of heavy objects which might overload the Building floors.
13. No tenant shall purchase or otherwise obtain for use in its premises,
water, ice, towel, vending machine, janitorial, maintenance or other services of
any kind except from persons authorized by Landlord, and at hours and under
regulations fixed by Landlord.
14. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or its desirability as an office building. Upon written notice from
Landlord, any tenant shall refrain from or discontinue such advertising.
15. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 8 a.m. and at all hours of Saturdays, Sundays and legal
holidays all persons who do not possess a security system access card. Landlord
shall furnish cards to persons for whom any tenant requests the same in writing.
Each tenant shall be responsible for all persons for whom he requests cards and
shall be liable to Landlord for all acts of such persons. Landlord reserves the
right to require a security deposit for access cards and to charge a fee for
replacing lost cards. Nothing in this Paragraph 15 shall limit Landlord's right
to control and prevent access under Paragraph 1 above.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
1
<PAGE> 20
16. Any persons employed by any tenant to do janitorial work, shall, while
in the Building and outside of the tenant's premises, be subject to and under
the control and direction of the manager of the Building (but not as an agent or
servant of said manager or of Landlord, and the tenant shall be responsible for
all acts of such persons).
17. All doors opening into public corridors or lobbies shall be kept
closed, except when in use for ingress and egress.
18. The requirements of tenants will be attended to only upon application
to the building manager's office.
19. Canvassing, soliciting and peddling in the Building, unless approved
by Landlord, are prohibited and each tenant shall cooperate to prevent the same.
20. All office equipment of any electrical or mechanical nature shall be
placed by tenants in their premises in settings approved by Landlord, so as to
absorb or prevent any vibration, noise or annoyance to other tenants.
21. No air conditioning unit or other similar apparatus shall be installed
or used by any tenant without the written consent of Landlord.
22. There shall not be used in any space, or the public halls of the
Building, either by tenants or others, any hand trucks except those equipped
with rubber tires and side guards.
23. Landlord will direct electricians as to where and how telephone or
telegraph wires are to be introduced. No boring or cutting for wires or
stringing of wires will be allowed without written consent of Landlord. The
location of telephones, call boxes and other office equipment affixed to
premises shall be subject to the approval of Landlord.
24. All parking areas, pedestrian walkways, plazas and other public areas
forming a part of the Building shall be under the sole and absolute control of
Landlord with the exclusive right to regulate and control these areas. Tenant
agrees to conform to the rules and regulations that may be established by
Landlord for these areas from time to time. The Parking Rules and Regulations
attached hereto as Exhibit "B-1" form a part hereof and are subject to change in
accordance with Paragraph 30 hereof.
25. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
26. Landlord shall have the right to control and operate the public
portions of the Building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the tenants,
in such manner as it deems best for the benefit of the tenants generally.
27. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into halls, passageways or other public places in the
Building shall not be covered or obstructed by any tenant, nor shall any
bottles, parcels or other articles be placed on the windowsills. Tenant shall
see that the windows, transoms and doors of the premises are closed and securely
locked before leaving the Building and must observe strict care not to leave
windows open when it rains. Tenant shall exercise extraordinary care and caution
that all water faucets or water apparatus are entirely shut off before tenant or
tenant's employees leave the Building, and that all electricity, gas or air
shall likewise be carefully shut off, so as to prevent waste or damage. Tenant
shall cooperate with Landlord in obtaining maximum effectiveness of the cooling
system by closing drapes when the sun's rays fall directly on the windows of the
Premises. Tenant shall not tamper with or change the setting of any thermostats
or temperature control values.
28. The scheduling of tenant move-ins shall be subject to the reasonable
discretion of Landlord.
29. The term "personal goods or services vendors" as used herein means
persons who periodically enter the Building for the purpose of selling goods or
services to a tenant, other than goods or services which are used by the tenant
only for the purpose of conducting its business on the Premises. "Personal goods
or services" include, but are not limited to, drinking water and other
beverages, food, barbering services, and shoe shining services. Landlord
reserves the right to prohibit personal goods and services vendors from access
to the Building except upon such reasonable terms and conditions, including, but
not limited to, the payment of a reasonable fee and provision for insurance
coverage, as are related to the safety, care and cleanliness of the Building,
the preservation of good order therein, and the relief of any financial or other
burden on the Landlord occasioned by the presence of such vendors or the sale by
them of personal goods or services to the Tenant or its employees. If necessary
for the accomplishment of these purposes, Landlord may exclude a particular
vendor entirely or limit the number of vendors who may be present at any one
time in the Building.
30. Landlord may at any time revoke, supplement or modify these Rules and
Regulations, or any portion thereof, whenever in Landlord's sole opinion such
changes are required for the care, cleanliness, safety or preservation of good
order in the Building. All such changes shall be effective five (5) days after
delivery to tenant of written notice thereof, except in the event of emergency,
in which event they shall be effective immediately upon notice to tenant.
31. Tenant shall not place, install or operate on the Premises or in any
part of the Building, any engine, stove, or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about the Premises
any explosives, gasoline, kerosene, oil, acids, caustics, or any other
inflammable, explosive, or hazardous material without the prior written consent
of Landlord.
32. Landlord will not be responsible for any lost or stolen personal
property, equipment, money, or jewelry from the Premises or from public rooms,
regardless of whether such loss occurs when the area is locked against entry.
33. No birds or animals shall be brought onto the Project, and no bicycles
or vehicles shall be brought into or kept in the Building.
34. No draperies, shutters, or window coverings shall be installed on
exterior windows or on windows or doors facing public corridors without
Landlord's prior written approval.
35. Employees of Landlord shall not receive or carry messages for or to
any tenant or other occupant on the Property, nor shall they contract to render
free or paid services to any tenant or any tenant's agents, employees, or
invitees; if any of Landlord's employees perform any such services, such
employees shall be deemed the agent of the tenant for whom the services are
being performed, regardless of whether or how payment is arranged for services,
and Landlord is expressly relieved from any and all liability for any injury to
persons or damage to property (or any other damages) in connection with any such
services.
36. Directories will be placed by Landlord, at its own expense, in
conspicuous places in the Building. No other directories shall be permitted,
unless previously consented to by Landlord in writing.
37. Tenant shall place, affix, or attach on any door or wall of the
Building exposed to the public only those identification markers and other signs
preapproved by Landlord as to style, size, lettering and color. Landlord
reserves the right to place any such identification markers and signs on
Tenant's doors and walls and the cost thereof shall be billed to Tenant.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
2
<PAGE> 21
EXHIBIT "B-1"
PARKING RULES AND REGULATIONS
So long as the Lease to which this Exhibit "B-1" is attached remains in
effect, and so long as the parking rules and regulations adopted by Landlord are
not violated, Tenant or persons designated by Tenant shall be entitled on a
non-exclusive basis to use parking spaces in the Project parking structure (if
any) and on surface parking, which parking structure and surface parking are
identified on Exhibit "A-3". Landlord expressly reserves the right to
redesignate parking areas and to modify the parking facilities for other uses or
to any extent.
A condition of any parking shall be compliance by the parker with parking
facilities rules and regulations, and amendments thereto, including any sticker
or other identification system established by Landlord's parking operator.
Landlord reserves the right to impose parking charges except as provided in
Paragraph 53.1 of the Lease, on Tenant and Tenant's employees for any parking
now or hereafter available. The following Parking Rules and Regulations are in
effect until notice is given to Tenant of any change. Landlord reserves the
right to modify and/or adopt such other reasonable and non-discriminatory rules
and regulations for the parking facilities as it deems necessary for the
operation of the parking facilities. Landlord may refuse to permit any person
who violates the within rules to park in the parking facilities, and any
violation hereof shall subject the car to removal at the owner's cost. In either
of said events the sticker or any other form of identification supplied by
Landlord shall be returned to Landlord. *
1. Hours for the parking facility shall be 6:00 a.m. to 2:30 a.m.
2. Cars must be parked entirely within the stall lines painted on the floor.
3. All directional signs and arrows must be observed.
4. The speed limit shall be 5 miles per hour.
5. Parking is prohibited:
(a) in areas not striped for parking
(b) in aisles
(c) where "no parking" signs are posted
(d) on ramps
(e) in cross hatched areas
(f) in such other areas as may be designated by Landlord's parking
operator.
6. Parking stickers or any other device or form of identification supplied
by Landlord shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any manner.
The serial number of the parking identification device may not be obliterated.
Devices are not transferable and any device in the possession of an unauthorized
holder will be void. There will be a replacement charge payable by Tenant or
person designated by Tenant equal to the amount posted from time to time by
Landlord for loss of any magnetic parking card or parking sticker.
7. Parking facilities managers or attendants are not authorized to make or
allow any exceptions to these Parking Rules and Regulations.
8. Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons is assumed by the parker and
Landlord and/or its agent shall have no liability whatsoever in connection
therewith.
9. Loss or theft of parking identification devices from automobiles must
be reported to the parking facilities manager immediately, and a lost or stolen
report must be filed by the customer at that time.
(a) Any parking identification device reported lost or stolen found on
any unauthorized car will be confiscated and the illegal holder will be
subject to prosecution.
(b) Lost or stolen devices found by the purchaser must be reported to the
office of the parking facilities immediately to avoid confusion.
10. Spaces rented to persons are for the express purpose of parking one
automobile per space. Washing, waxing, cleaning or servicing of any vehicle by
the customer and/or his agents is prohibited.
11. Landlord and the parking facilities management reserves the right to
refuse the sale of monthly stickers or other parking identification devices, or
use of the parking facilities, to any tenant or person and/or his agents or
representatives who fail or refuse to comply with the above Parking Rules and
Regulations and with all unposted City, State or Federal legal requirements,
ordinances, laws or agreements.
12. Tenant shall acquaint all persons to whom Tenant assigns parking
spaces with these Parking Rules and Regulations.
* Tenant shall be allowed to leave vehicles in the parking facility
overnight subject to prior notification and approval of Landlord.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
<PAGE> 22
EXHIBIT C
ADDENDUM
WORK LETTER
(FINAL PLANS AND COST ESTIMATE PREPARED)
This Addendum is attached to and made part of that certain Lease dated
November 20, 1996, between RR&C Development and Patrician Associates, Inc., as
Landlord, and International Integration Incorporated, as Tenant, covering the
Premises commonly known as Suite 200, 13181 Crossroads Parkway North, City of
Industry, CA 91746 (the "Lease"). The terms used in this Addendum shall have the
same definitions as set forth in the Lease. The provisions of this Addendum
shall prevail over any inconsistent or conflicting provisions of the Lease.
A. DESCRIPTION OF IMPROVEMENTS. Landlord shall construct certain
improvements on or about the Premises (the "Work") in accordance with certain
final plans and specifications attached hereto as Exhibit "1" and incorporated
herein by this reference ("Final Plans"). Tenant hereby approves the Final
Plans.
B. COMPLETION OF THE WORK. Landlord shall use its best efforts to complete
the Work described in the Final Plans prior to the scheduled commencement date
set forth in the Lease. Notwithstanding the date set forth in the Lease as the
scheduled commencement date, the commencement date shall be the date upon which
the Work is substantially completed and the Premises are delivered to Tenant.
For the purposes of this Paragraph B, the Work shall be conclusively deemed to
be substantially completed when all Work described in the Final Plans is
completed, except for minor items of work (e.g., "pick-up work") which can be
completed with only minor interference with Tenant's conduct of business on the
Premises.
C. CHANGES. Landlord's obligation to prepare the Premises for Tenant's
occupancy is limited to the completion of the Work set forth in the Final Plans.
Landlord shall not be required to furnish, construct or install any items not
shown thereon. If Tenant requests any change, addition or alteration ("Changes")
in such plans and specifications or in the construction of the Work, Landlord
shall promptly give Tenant an estimate of the cost of such Changes and the
resulting delay in the delivery of the Premises to Tenant. Within three (3) days
after receipt of such estimate, Tenant shall give Landlord written notice
whether Tenant elects to proceed with such Changes. If Tenant notifies Landlord
in writing that Tenant elects to proceed with such Changes and if Landlord
approves such Changes, Landlord shall, at Tenant's expense, promptly make such
Changes. If Tenant fails to notify Landlord of its election within the three
(3) day period, Landlord may either (1) make such Changes at Tenant's expense or
(2) complete the Work without making such Changes. Tenant shall pay or reimburse
Landlord for the costs of such Changes within fifteen (15) days after billing.
Any delay caused by Tenant's request for any Changes or from the construction of
any Changes shall not, in any event, delay the commencement date, which shall
occur on the date it would have occurred but for such Changes. The Work shall be
the property of Landlord and shall remain upon and be surrendered with the
Premises upon the expiration of the Lease term.
D. PAYMENT OF COSTS. The cost of the Work will be paid as follows:
Landlord, at its sole cost and expense, shall pay for Tenant Improvements not to
exceed THIRTY-SIX THOUSAND FIVE HUNDRED SEVENTEEN AND NO/100 DOLLARS
($36,517.00) as described in Estimate No. 2245 attached hereto and made a part
hereof.
Notwithstanding the foregoing, Tenant shall pay the cost of all Changes referred
to in Paragraph C.
Landlord's Initials /s/ [Illegible] Tenant's Initials /s/ [Illegible]
<PAGE> 23
EXHIBIT "1"
COMMERCE CONSTRUCTION CO., L.P.
CLIENT NAME: Majestic Realty - Tim Cullen
PROJECT NAME I-Cube
LOCATION: Suite 200 Atrium Building/West Tower
SKETCH NO.: 4606 dated Nov. 18, 1996
ESTIMATE NO.: 2245 revised
DATE QUOTED: December 4, 1996
BUILDING AREA: 5,771 SF
BASIC BUILDING SPECS.: Demolish selected walls, construct new walls to the
underside of the existing ceiling grid, as shown. Furnish and install four new
3' x 9' stain grade wood doors with frame and hardware to match existing.
Utilize and rehang one existing door for new office. Reuse three existing
windows and install in new Timely frames. Remove and replace acoustic ceiling in
areas of private office demolition only. Install building standard carpet
($15/yd) and base throughout, except for Conference and Employee Lunch rooms.
Clean existing wall coverings in Conference and Lunch rooms. Paint all other
walls to match existing color. Relocate existing HVAC registers and as required.
Relocate five existing 2' x 4' lay in light fixtures and install two new
fixtures as required. Install five new duplex outlets, one core drill for tenant
furniture connections, seven telephone/data stubs to the ceiling.
PRELIMINARY ESTIMATE
Basic Tenant Improvements $36,517.00
QUALIFICATIONS:
Work to be done during working hours.
Owner to provide clear working area.
EXCLUSIONS:
Telephone or data equipment wiring or relocation of equipment.
Locks, keying and Signage.
TV cable.
Revisions to Tel/Storage Room.
estICubeb
<PAGE> 24
COMMERCE CONSTRUCTION CO., L.P.
<TABLE>
<CAPTION>
PROJECT I-Cube FOOTPRINT: 5,771 FLOORS:
LOCATION Suite 200/West Tower Atrium BUILDING: 5,771 # OF BLDGS:
LE/EST.#: 2245 SKETCH #4606 ON-SITE SF: PROJ. USE:
================================================================================
EM DESCRIPTION T.I. TOTAL COST/SF
================================================================================
<S> <C> <C> <C>
1000 GENERAL CONDITIONS 4,637 $ 4,637 0.80
1100 DEMOLITION 1,883 $ 1,883 0.33
7200 INSULATION 300 $ 300 0.05
8200 DOORS, FRAMES & HARDWARE 1,900 $ 1,900 0.33
8800 GLASS & GLAZING 730 $ 730 0.13
9250 DRYWALL 4,290 $ 4,290 0.74
9500 ACOUSTIC TILE 711 $ 711 0.12
9540 FLOORING 7,249 $ 7,249 1.26
9900 PAINTING 2,139 $ 2,139 0.37
5300 FIRE PROTECTION 1,020 $ 1,020 0.18
5700 HVAC 1,490 $ 1,490 0.26
6100 ELECTRIC 4,740 $ 4,740 0.82
PERMIT (ALLOWANCE) 500 $ 500 0.09
================================================================================
SUBTOTAL 31,589 $31,589
LIABILITY INSURANCE 253 $ 253
ARCHITECT 948 $ 948
OVERHEAD 1,358 $ 1,358
FEE 2,369 $ 2,369
TOTAL CONSTRUCTION COST 36,517 $36,517
COST PER SQ. FT ....... ....... 6.33
TOTAL COST PER SQUARE FOOT ....... ....... 6.33
</TABLE>
================================================================================
ESTAT500
<PAGE> 25
EXHIBIT "D"
ESTOPPEL CERTIFICATE
The undersigned, ____________________,does hereby make the following
statements:
1. They are the Tenant under a certain Lease dated________________________
with ___________________________,as Landlord, leasing the Property
commonly known as _______________________________________,California.
2. The Lease dated __________________ is in full force and effect and the
undersigned is aware of no defaults under the terms and conditions of the
Lease and has no offsets against rentals due the Landlord or to become
due the Landlord.
3. The undersigned accepted possession of the Property on
________________________, the Lease Term began on
________________________, and ends on _______________________, and the
obligation to pay Base Rent begins on _______________________, pursuant
to the terms and conditions of the Lease.
4. The total Base Rent to be paid pursuant to the terms of said Lease is not
less than $___________________ and no Base Rent has been paid more than
one month in advance.
5. In the event of a default by the Landlord under any of the terms and
conditions of the Lease, the undersigned at the same time notice
thereof is given to the Landlord, will notify holder of any first
mortgage or deed of trust covering the Property, provided Landlord has
provided Tenant the address of such Mortgagee. In the event that the
default is not cured by the Landlord within the time provided for
under the terms and conditions of the Lease and provided the Mortgagee
has given the undersigned written notice of Mortgagee's intention to
cure such default, the undersigned will allow the Mortgagee the
opportunity and sufficient additional time within which to correct
Landlord's default, provided the Mortgagee diligently pursues such
cure.
_________________________
By:___________________
Title:___________________
Date:____________________
Page 1 of 1
<PAGE> 1
EXHIBIT 10.16
LEASE
BETWEEN
RIVERFRONT OFFICE PARK JOINT VENTURE
Landlord
AND
INTERNATIONAL INTEGRATION INCORPORATED (I-CUBE)
Tenant
101 MAIN STREET,
CAMBRIDGE, MASSACHUSETTS
7/12/95
<PAGE> 2
INDEX
1. REFERENCE DATA ..................................................... 1
2. DESCRIPTION OF DEMISED PREMISES .................................... 3
2.1 Demised Premises ........................................... 3
2.2 Appurtenant Rights ......................................... 3
2.3 Reservations ............................................... 3
3. TERM OF LEASE; OPTION TO EXTEND TERM ............................... 4
3.1 Habendum ................................................... 4
3.2 Term Commencement Date ..................................... 4
3.3 Option to Extend ........................................... 4
4. WORK BY LANDLORD; TENANT IMPROVEMENT ALLOWANCE ..................... 4
4.1 Completion Date - Delays ................................... 4
4.2 Tenant Improvement Allowance ............................... 5
5. USE OF PREMISES .................................................... 5
5.1 Permitted Use .............................................. 5
5.2 Prohibited Uses ............................................ 5
5.3 Licenses and Permits ....................................... 6
6. RENT ............................................................... 6
6.1 Yearly Fixed Rent .......................................... 6
6.2 Taxes ...................................................... 6
6.3 Operating Expenses ......................................... 7
6.4 Tenant's Proportionate Share ............................... 7
6.5 Payment to Mortgagee ....................................... 8
7. UTILITIES AND LANDLORD'S SERVICES .................................. 8
7.1 Electricity ................................................ 8
7.2 Water Charges .............................................. 8
7.3 Heat and Air Conditioning .................................. 9
7.4 Additional Heat, Cleaning and Air Conditioning Services .... 9
7.5 Repairs and Other Services ................................. 9
7.6 Interruption or Curtailment of Services .................... 9
7.7 Elevator Service ........................................... 10
7.8 Building Access ............................................ 10
8. CHANGES OR ALTERATIONS BY LANDLORD ................................. 10
9. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT ........... 11
10. ALTERATIONS AND IMPROVEMENTS BY TENANT ............................. 11
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<PAGE> 3
11. TENANT'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD OF
TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS ........................ 11
12. REPAIRS AND SECURITY BY TENANT ..................................... 12
13. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION ............ 12
13.1 Insurance ................................................ 12
13.2 Certificates of Insurance ................................ 13
13.3 General .................................................. 13
13.4 Property of Tenant ....................................... 14
13.5 Bursting of Pipes, etc ................................... 14
13.6 Repairs and Alterations - No Diminution of Rental Value .. 14
14. ASSIGNMENT, MORTGAGING, SUBLETTING, ETC ............................ 15
14.1 Restrictions ............................................. 15
14.2 Requests to Assign or Sublet ............................. 15
14.3 Exceptions ............................................... 15
14.4 Excess Rent .............................................. 16
14.5 Recapture ................................................ 16
14.6 Further Documentation .................................... 17
14.7 General .................................................. 17
15. MISCELLANEOUS COVENANTS ............................................ 18
15.1 Rules and Regulations .................................... 18
15.2 Access to Premises - Shoring ............................. 19
15.3 Accidents to Sanitary and other Systems .................. 20
15.4 Signs, Blinds and Drapes ................................. 20
15.5 Estoppel Certificate ..................................... 20
15.6 Prohibited Items ......................................... 21
15.7 Requirements of Law Fines and Penalties .................. 21
15.8 Tenant's Acts - Effect on Insurance ...................... 21
15.9 Miscellaneous ............................................ 21
16. DAMAGE BY FIRE, ETC. ............................................... 21
17. WAIVER OF SUBROGATION .............................................. 23
18. CONDEMNATION - EMINENT DOMAIN ...................................... 24
19. DEFAULT ............................................................ 25
19.1 Conditions of Limitation - Re-entry - Termination ........ 25
19.2 Damages - Assignment for Benefit of Creditors ............ 25
19.3 Damages - Termination .................................... 26
19.4 Fees and Expenses ........................................ 27
19.5 Landlord's Remedies Not Exclusive ........................ 27
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<PAGE> 4
19.6 Grace Period ............................................. 27
20. END OF TERM - ABANDONED PROPERTY ................................... 28
21. RIGHTS OF MORTGAGEES ............................................... 28
21.1 Superiority of Lease ..................................... 28
21.2 Entry and Possession ..................................... 29
21.3 Right to Cure ............................................ 29
21.4 Duty to Construct ........................................ 29
21.5 Prepaid Rent ............................................. 30
21.6 Continuing Offer ......................................... 30
21.7 Subordination ............................................ 30
21.8 Limitations on Liability ................................. 30
22. QUIET ENJOYMENT .................................................... 31
23. ENTIRE AGREEMENT - WAIVER - SURRENDER .............................. 31
23.1 Entire Agreement ......................................... 31
23.2 Waiver ................................................... 31
23.3 Surrender ................................................ 31
24. INABILITY TO PERFORM - EXCULPATORY CLAUSE .......................... 32
25. BILLS AND NOTICES .................................................. 32
26. PARTIES BOUND - SEISIN OF TITLE .................................... 33
27. MISCELLANEOUS ...................................................... 33
27.1 Separability ............................................. 33
27.2 Captions ................................................. 34
27.3 Broker ................................................... 34
27.4 Governing Law ............................................ 34
27.5 Assignment of Rents ...................................... 34
27.6 Parking .................................................. 34
27.7 Notice of Lease .......................................... 35
27.8 Financial Statements ..................................... 35
27.9 Security Deposit ......................................... 35
27.10 Use of Conference Center ................................ 36
EXHIBIT A Description of Demised Premises
EXHIBIT B Description of Land
EXHIBIT C Plans Schedule
EXHIBIT D Rules and Regulations
EXHIBIT E Agreement of Subordination, Non-Disturbance and Attornment
7/12/95
<PAGE> 5
AGREEMENT OF LEASE
AGREEMENT OF LEASE made as of the 14th day of July, 1995, by and between
RIVERFRONT OFFICE PARK JOINT VENTURE, a Massachusetts joint venture (hereinafter
referred to as "Landlord") and International Integration Incorporated (I-CUBE),
a Massachusetts corporation (hereinafter referred to as "Tenant").
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
that portion of the fifteenth (15th) floor, as shown on the plan attached hereto
as EXHIBIT A and made a part hereof (hereinafter referred to as the "Premises"
or the "Demised Premises") contained in the building known and numbered as 101
Main Street, Cambridge, Massachusetts (hereinafter referred to as the
"Building").
1. REFERENCE DATA
Each reference in this Lease to any of the terms and titles contained in
this Article shall be deemed and construed to incorporate the data stated
following that term or title in this Article.
(1) Additional Rent: Sums or other charges payable by Tenant to
Landlord under this Lease, other than Yearly
Fixed Rent.
(2) Broker: Lynch Murphy Walsh & Partners and Leggat
McCall/Grubb & Ellis
(3) Business Day: All days except Saturdays, Sundays, and days
defined as "Legal Holidays" for the entire
state under the laws of the Commonwealth of
Massachusetts.
(4) Land: The parcel of land described on EXHIBIT B
attached hereto and made a part hereof.
(5) Landlord's Address: c/o Codman Management Company, Inc., One Main
Street, Cambridge, Massachusetts 02142.
(6) Landlord's Architect: Bryer Associates.
(7) Mathsoft Sublet Premises: The 11,212 rentable square feet adjacent to the
Demised Premises subleased by Tenant from
Mathsoft, Inc., a tenant of the Building
(8) Mortgage: A mortgage, deed of trust, trust indenture, or
other security instrument of record creating an
interest in or affecting title
7/12/95
<PAGE> 6
to the Land or Building or any part thereof,
including the leasehold mortgage, and any and
all renewals, modifications, consolidations or
extensions of any such instrument. For such
time as Teachers Insurance and Annuity
Association ("TIAA") is the holder of a first
mortgage on the Property, the term "Mortgage"
shall mean only said first mortgage, and such
other mortgages, if any, which TIAA shall
approve.
(9) Mortgagee: The holder of any Mortgage.
(10) Parking Spaces: None; provided, however, that Tenant shall have
the option upon not less than thirty (30) days
notice thereof to Landlord to increase such
number up to a maximum of twenty-four (24)
spaces, subject to availability.
(11) Property: The Land and Building.
(12) Rent: Yearly Fixed Rent and Additional Rent.
(13) Rentable Area of the
Demised Premises: 12,138 square feet.
(14) Tenant's Address: 675 Massachusetts Avenue, Cambridge,
Massachusetts until the Term Commencement Date,
and thereafter 101 Main Street, Cambridge,
Massachusetts 02142.
(15) Term Commencement
Date: As defined in Section 3.2.
(16) Term of This Lease: As defined in Section 3.1.
(17) Termination Date: As defined in Section 3.1.
(18) Use of Demised Premises: General office purposes.
7/12/95 2
<PAGE> 7
(19) Yearly Fixed Rent: (a) DURING THE PERIOD TERM COMMENCEMENT DATE
THROUGH AUGUST 31, 1995:
At the rate of $89,012 per annum.
($22.00 per rentable square foot on 4,046
rentable square feet).
(b) DURING THE PERIOD SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995:
At the rate of $178,024 per annum.
($22.00 per rentable square foot on 8,092
rentable square feet).
(c) DURING THE PERIOD JANUARY 1, 1996 THROUGH
OCTOBER 14, 1999:
At the rate of $267,036 per annum.
($22.00 per rentable square foot on
12,138 square feet).
2. DESCRIPTION OF DEMISED PREMISES
2.1 DEMISED PREMISES. The Demised Premises are that portion of the
Building as described above (as the same may from time to time be constituted
after changes therein, additions thereto and eliminations therefrom pursuant
hereto).
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the Demised
Premises, rights to use in common, subject to reasonable rules from time to time
made by Landlord of which Tenant is given notice, those common roadways,
walkways, elevators, hallways and stairways necessary for access to that portion
of the Building occupied by the Demised Premises.
2.3 RESERVATIONS. All the perimeter walls of the Demised Premises except
the inner surfaces thereof, any balconies, terraces or roofs adjacent to the
Demised Premises, and any space in or adjacent to the Demised Premises used for
shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right of access through the Demised Premises, upon
reasonable prior notice to Tenant (except in emergencies) and without materially
interfering with Tenant's business operations, for the purpose of operation,
maintenance, decoration and repair as hereinafter provided, are expressly
reserved to Landlord.
7/12/95 3
<PAGE> 8
3. TERM OF LEASE; OPTION TO EXTEND TERM
3.1 HABENDUM. TO HAVE AND TO HOLD the Demised Premises for a term
commencing on the Term Commencement Date and ending on October 14, 1999 (the
"Term of this Lease"), or on such earlier date upon which said Term may expire
or be terminated pursuant to any of the conditions of limitation or other
provisions of this Lease or pursuant to law (which date for the termination of
the term hereof shall hereafter be called the "Termination Date").
3.2 TERM COMMENCEMENT DATE. The Term Commencement Date shall be the
earlier of (a) the date on which, pursuant to permission therefor duly given by
Landlord, Tenant undertakes Use of the Demised Premises for the purpose set
forth in Article 1, or (b) the date on which the Demised Premises are ready for
Tenant's occupancy in accordance with the provisions of Section 4.2.
3.3 OPTION TO EXTEND. On the conditions that (i) Tenant is not then in
default beyond any applicable grace periods of its covenants and obligations
under this Lease and (ii) Tenant itself is then occupying the entirety of the
Demised Premises, Tenant may extend the Term of this Lease for one (1)
additional period of five (5) years by giving notice to Landlord of its election
to extend at least twelve (12) months prior to the end of the original Term. The
Yearly Fixed Rent payable by Tenant with respect to such extension period shall
be equal to the then fair market rental value of the Demised Premises (taking
into account comparable first-class office space in the East Cambridge area) (1)
as the same may be mutually agreed by Landlord and Tenant; provided, however
that (2) if they have not so agreed in writing within two (2) months following
the exercise of the option then said fair market value shall be determined by
appraisers, one to be chosen by Landlord, one to be chosen by Tenant, and a
third to be selected by the two first chosen. The unanimous written decision of
the two first chosen, without selection and participation of a third appraiser,
or otherwise the written decision of a majority of three appraisers chosen and
selected as aforesaid, shall be conclusive and binding upon Landlord and Tenant.
Landlord and Tenant shall each notify the other of its chosen appraiser within
thirty (30) days following expiration of the aforesaid two (2) month period and,
unless such two appraisers shall have reached a unanimous decision within
seventy-five (75) days from said expiration, they shall within a further fifteen
(15) days elect a third appraiser and notify Landlord and Tenant thereof.
Landlord and Tenant shall each bear the expense of the appraiser chosen by it
and shall equally bear the expense of the third appraiser (if any). For purposes
of this Section 3.3 the Demised Premises shall be deemed to include the Mathsoft
Sublet Premises, if and only if on the date of Tenant's notice to extend and on
October 14, 1999, Tenant is then in possession of the Mathsoft Sublet Premises.
4. WORK BY LANDLORD; TENANT IMPROVEMENT ALLOWANCE
4.1 COMPLETION DATE - DELAYS. Subject to delay by causes beyond the
reasonable control of Landlord or caused by the action or inaction of Tenant,
Landlord shall use reasonable diligence in order to have the Demised Premises
ready for occupancy by Tenant as follows and as more fully detailed in
accordance with the Plans Schedule set forth as Exhibit C attached hereto and
made a part hereof: 4,046 rentable square feet to be substantially completed by
June 1, 1995, with
7/12/95 4
<PAGE> 9
an additional 4,046 rentable square feet (8,092 rentable square feet in the
aggregate) to be substantially completed by September 1, 1995, and with the
remaining 4,046 rentable square feet (12,138 rentable square feet in the
aggregate) to be substantially completed by January 1, 1996. The failure to have
the Demised Premises so ready by such date shall in no way affect the validity
of this Lease or the obligations of Tenant hereunder; provided, however, that
the Yearly Fixed Rent payable by Tenant hereunder shall be based upon the
rentable square feet of space then substantially completed and delivered to
Tenant calculated at $22.00 square feet per annum. Tenant fit-up work shall be
performed in a good and workmanlike manner using first quality materials.
4.2 TENANT IMPROVEMENT ALLOWANCE. Landlord will provide to Tenant a tenant
improvement allowance of $218,484, of which a portion shall be used to pay for
the tenant fit-up work to be performed by Landlord to the Demised Premises as
set forth in Section 4.1, with the remainder of said $218,484 available to
Tenant for additional tenant improvements to be made to the Demised Premises by
Tenant, including, without limitation, for cabling, wire and outside
professional project management services (project management services will be
provided by Facility Management Solutions, Inc. and will be capped at $10,000).
Tenant shall not utilize any of said tenant allowance for furniture, telephone
switches, voice mail systems or other "carry-away" items. Tenant shall furnish
Landlord on or before June 1, 1996 with true and complete copies of all invoices
of third party vendors relating to the tenant fit-up work or additional tenant
improvements conducted by Tenant evidencing such expenditures. Such invoices may
be presented to Landlord separately, and will be payable by Landlord within
thirty (30) days. In addition, Landlord shall provide at no cost to Tenant the
architectural, engineering and space planning services of Landlord's Architect.
5. USE OF PREMISES
5.1 PERMITTED USE. Except as otherwise agreed by Landlord, Tenant, during
the Term of this Lease, shall occupy and use the Demised Premises for the
Permitted Use set forth in Article 1 and for no other purpose. Service and
utility areas (whether or not a part of the Premises) shall be used only for the
particular purpose for which they are designated.
5.2 PROHIBITED USES. Tenant shall not use, or suffer or permit the use of,
or suffer or permit anything to be done in or anything to be brought into or
kept in, the Demised Premises or any part thereof (i) which would violate any of
the covenants, agreements, terms, provisions and conditions of this Lease, (ii)
for any unlawful purposes or in any unlawful manner, or (iii) which, in the
reasonable judgment of Landlord shall in any way (a) impair or tend to impair
the appearance or reputation of the Building, (b) impair or interfere with or
tend to impair or interfere with any of the Building services or the proper and
economic heating, cleaning, air conditioning or other servicing of the Building
or Demised Premises, or with the use of any of the other areas of the Building,
or (c) occasion discomfort, inconvenience or annoyance to any of the other
tenants or occupants of the Building, whether through the transmission of noise
or odors or otherwise. Without limiting the generality of the foregoing, no food
shall be prepared, excepting occasional catered activities in the normal course
of business, for consumption on or about the Demised Premises; no intoxicating
liquors or alcoholic beverages shall be sold on or about the
7/12/95 5
<PAGE> 10
Demised Premises; no lottery tickets (even where the sale of such tickets is not
illegal) shall be sold and no gambling, betting or wagering shall otherwise be
permitted on or about the Demised Premises; no loitering shall be permitted in
or about the Demised Premises; and no loading or unloading of supplies or other
material to or from the Demised Premises shall be permitted on the Land except
at times and in locations to be designated by Landlord. The Demised Premises
shall be maintained in a sanitary condition, and all kept free of rodents and
vermin. All trash and rubbish shall be suitably stored in the Demised Premises
or other locations designated by Landlord from time to time.
5.3 LICENSES AND PERMITS. If any governmental license or permit shall be
required for the proper and lawful conduct of Tenant's business, and if the
failure to secure such license or permit would in any way affect Landlord,
Tenant, at Tenant's expense, shall duly procure and thereafter maintain such
license or permit and submit the same to inspection by Landlord. Tenant, at
Tenant's expense, shall at all times comply with the terms and conditions of
each such license or permit. Landlord represents and warrants that the Demised
Premises may be used for general office purposes under all applicable zoning
laws and ordinances.
6. RENT
6.1 YEARLY FIXED RENT. Tenant shall pay to Landlord, without any set-off
or deduction, at Landlord's office, or to such other person or at such other
place as Landlord may designate by notice to Tenant, the Yearly Fixed Rent set
forth in Article 1. All Yearly Fixed Rent shall be paid in equal monthly
installments in advance on or before the first business day of each calendar
month during the Term of this Lease and shall be apportioned for any fraction of
a month in which the Term Commencement Date or the last day of the Term of this
Lease may fall.
6.2 TAXES. Tenant shall pay to Landlord as Additional Rent a proportionate
share (as defined in Section 6.4) of all real estate taxes (including without
limitation all betterment assessments and charges in lieu of such taxes and any
tax on any fixture (other than a Tenant fixture) installed in the Building, even
if taxed as personal property) imposed against the Building and the Land with
respect to any fiscal tax year during the Term of this Lease in excess of the
amount of said real estate taxes imposed against the Building and the Land for
the fiscal tax year ending June 30, 1995, prorated with respect to any portion
of a fiscal year in which the term of this Lease begins or ends. Such payments
shall be due and payable within thirty (30) days after Tenant shall have
received a copy of the relevant tax bills. If Landlord shall receive any refund
of real estate taxes of which Tenant has paid a portion pursuant to this
Section, then, out of any balance remaining after deducting Landlord's expenses
incurred in obtaining such refund, Landlord shall pay to Tenant the same
proportionate share of said balance, prorated as set forth above. Tenant shall,
if, as and when demanded by Landlord and with each monthly installment of Fixed
Rent, make tax fund payments to Landlord. "Tax Fund Payments" refer to such
payments as Landlord shall determine to be sufficient to provide in the
aggregate a fund adequate to pay, when they become due and payable, all payments
required from Tenant under this Section. In the event that said tax fund
payments are not adequate to pay Tenant's share of such taxes, Tenant shall pay
to Landlord the amount by which such aggregate is less than the amount of said
share, such payment to be due and payable at the time set forth above. Any
surplus tax fund
7/12/95 6
<PAGE> 11
payments shall be accounted for to Tenant after payment by Landlord of the taxes
on account of which they were made, and shall be promptly refunded to Tenant.
6.3 OPERATING EXPENSES. Tenant shall pay to Landlord as Additional Rent a
proportionate share (as defined in Section 6.4) of all costs and expenses
incurred by Landlord in the operation and maintenance of the Building and the
Land in accordance with generally accepted operational and maintenance
procedures with respect to any calendar year during the Term of this Lease in
excess of the amount of said costs and expenses incurred by the Landlord in the
operation and maintenance of the Building and the Land during the calendar year
ending December 31, 1995, including, without limiting the generality of the
foregoing, all such costs and expenses in connection with (1) insurance, license
fees, janitorial service, landscaping, and snow removal, (2) wages, salaries,
management fees, employee benefits and payroll taxes for on-site employees,
on-site office expenses, administrative and auditing expenses, and equipment and
materials for the operation, management, and maintenance of said Property, (3)
any capital expenditure (amortized, with interest, on such reasonable basis as
Landlord shall determine) made by Landlord for the purpose of reducing other
operating expenses or complying with any governmental requirement, (4) the
furnishing of heat, air conditioning, utilities, and any other service to the
common areas of the Building (i.e., areas not constituting a part of the demised
premises of any tenant in the Building), (5) the operation and servicing of any
computer system installed to regulate Building equipment, and (6) the furnishing
of the repairs and services to Tenant referred to in Section 7.5 (the foregoing
being hereinafter referred to as "operating expenses"). Notwithstanding the
foregoing, the following shall be excluded from operating expenses: (a) tenant
build-out and tenant improvement expenses, (b) capital expenditures other than
those described in subsection (3) above of this Section 6.3, and (c) marketing
and advertising expenses and leasing costs, commissions and attorneys' fees in
connection with negotiations or disputes with tenants or other occupants. As
soon as Tenant's share of operating expenses with respect to any calendar year
can be determined, the same will be certified by Landlord to Tenant and will
become payable to Landlord within thirty (30) days following such certification,
subject to proration with respect to any portion of a calendar year in which the
Term of this Lease begins or ends. Tenant shall, if, as and when demanded by
Landlord and with each monthly installment of Yearly Fixed Rent, make operating
fund payments to Landlord. "Operating Fund Payments" refer to such payments as
Landlord shall reasonably determine to be sufficient to provide in the aggregate
a fund adequate to pay, when they become due and payable, all payments required
from Tenant under this Section. In the event that operating fund payments are so
demanded, and if the aggregate of said operating fund payments is not adequate
to pay Tenant's share of operating expenses, Tenant shall pay to Landlord the
amount by which such aggregate is less than the amount of said share, such
payment to be due and payable at the time set forth above. Any surplus operating
fund payments shall be accounted for to Tenant after such surplus has been
determined, and shall be refunded to Tenant promptly.
6.4 TENANT'S PROPORTIONATE SHARE. Tenant's proportionate share of taxes
pursuant to Section 6.2 and operating expenses pursuant to Section 6.3,
respectively, shall be 3.57% (12,138/340,240 square feet) and 3.71%
(12,138/326,900 square feet), respectively.
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6.5 PAYMENT TO MORTGAGEE. Landlord reserves the right to provide in any
Mortgage given by it of the Property that some or all rents, issues, and profits
and all other amounts of every kind payable to the Landlord under this Lease
shall be paid directly to the Mortgagee for Landlord's account and Tenant
covenants and agrees that it will, after receipt by it of notice from Landlord
or Mortgagee designating such Mortgagee to whom payments are to be made by
Tenant, pay such amounts thereafter becoming due directly to such Mortgagee
until excused therefrom by notice from such Mortgagee.
7. UTILITIES AND LANDLORD'S SERVICES
7.1 ELECTRICITY. Tenant shall purchase the electrical energy that Tenant
requires for operation of the lighting fixtures, appliances and equipment in the
Demised Premises. The costs of initially installing any required meter shall be
paid by Landlord, but Tenant shall keep said meter and installation equipment in
good working order and repair. Landlord shall not be liable in any way to Tenant
for any failure or defect in the supply or character of electrical energy
furnished to the Demised Premises by reason of any requirement, act or omission
of the public utility serving the Building with electricity unless due to the
act or omission of Landlord. Tenant's use of electrical energy in the Demised
Premises shall not at any time exceed the capacity of any of the electrical
conductors and equipment in or otherwise serving the Demised Premises. In order
to insure that such capacity is not exceeded and to avert possible adverse
affect upon the Building electrical services, Tenant shall give notice to
Landlord and obtain Landlord's prior written consent whenever Tenant shall
connect to the Building electrical distribution system any fixtures, appliances
or equipment. Any additional feeders or risers to supply Tenant's electrical
requirements in addition to those originally installed and all other equipment
proper and necessary in connection with such feeders or risers, shall be
installed by Landlord upon Tenant's request, at the sole cost and expense of
Tenant, provided that such additional feeders and risers are permissible under
applicable laws and insurance regulations and the installation of such feeders
or risers will not cause permanent damage or injury to the Building or cause or
create a dangerous condition or unreasonably interfere with other tenants of the
Building. Tenant agrees that it will not make any alteration or material
addition to the electrical equipment and/or appliances in the Premises without
the prior written consent of Landlord in each instance first obtained, which
consent will not be unreasonably withheld or delayed, and will promptly advise
Landlord of any alteration or addition to such electrical equipment and/or
appliances. Following substantial completion of the fit-up work by Landlord as
set forth in Section 4.1, Tenant, at Tenant's expense, shall purchase, install
and replace all light fixtures, bulbs, tubes, lamps, lenses, globes, ballasts
and switches used in the Demised Premises.
7.2 WATER CHARGES. Landlord shall furnish hot and cold water for ordinary
cleaning, toilet, lavatory and drinking purposes to the extent required to
service facilities shown on the Plans approved by Landlord pursuant to Section
4.3. If Tenant requires, uses or consumes water for any purpose other than for
such purposes, Landlord may (i) assess a reasonable charge for the additional
water so used or consumed by Tenant or (ii) install a water meter and thereby
measure Tenant's water consumption for all purposes. In the latter event,
Landlord shall pay the cost of the meter and the cost of installing any
equipment required in connection therewith, and Tenant shall keep said meter and
installation equipment in good working order and repair, and shall pay
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for water consumed, as shown on said meter, together with the sewer charge based
on said meter charges, as and when bills are rendered. On Tenant's default in
making such payment Landlord may pay such charges and collect the same from
Tenant.
7.3. HEAT AND AIR CONDITIONING. Landlord shall, through the equipment of
the Building furnish to and distribute in the Demised Premises heat and air
conditioning as normal seasonal changes may require on Business Days from 8:00
a.m. to 6:00 p.m. and on Saturdays (other than legal or recognized holidays as
defined in Article 1) from 8:00 a.m. to 12:00 noon when reasonably required for
the comfortable occupancy of the Demised Premises by Tenant. Tenant agrees to
lower and close the blinds or drapes when necessary because of the sun's
position, whenever the air conditioning system is in operation, and to cooperate
fully with Landlord with regard to, and to abide by all reasonable regulations
and requirements which Landlord may prescribe in writing for the proper
functioning and protection of the heating and air conditioning system.
7.4 ADDITIONAL HEAT, CLEANING AND AIR CONDITIONING SERVICES.
(a) The heating and air conditioning equipment serving the Demised
Premises shall be designed so as to permit Tenant to obtain heat and air
conditioning on days and at times other than as set forth in Section 7.3.
Tenant's use of such additional heat and air conditioning shall be gauged on the
meter referred to in Section 7.1 or otherwise reasonably estimated by Landlord,
and all charges in connection therewith shall be payable directly by Tenant.
(b) Tenant will pay to Landlord a reasonable charge for any extra
cleaning of the Premises required because of the carelessness or indifference of
Tenant or because of the nature of Tenant's business, or furnished by Landlord
at Tenant's request. Landlord will endeavor to furnish such requested extra
cleaning service upon reasonable advance written notice from Tenant of its
requirements in that regard.
7.5 REPAIRS AND OTHER SERVICES. Except as otherwise provided in Articles
16 and 18, and subject to Tenant's obligations in Article 12 and elsewhere in
this Lease, Landlord shall (a) keep and maintain the roof, foundation, exterior
walls, structural floor slabs and columns, windows, and common areas of the
Building in as good condition and repair as they are in on the Term Commencement
Date, reasonable use and wear excepted, (b) keep and maintain in workable
condition the Building's sanitary, electrical, heating, air conditioning and
other systems, (c) provide cleaning services to the Demised Premises and the
common areas of the Building on Business Days according to the cleaning
standards generally prevailing in first class office buildings in the City of
Cambridge, (d) provide maintenance and snow removal for all roadways, walkways
and parking areas on the Property, (e) provide grounds maintenance to all
landscaped areas, and (f) employ a uniformed guard to be stationed at the main
entrance of the Building on an around-the-clock basis. All expenses incurred by
Landlord in connection with the foregoing repairs and other services shall be
included as part of operating expenses pursuant to Section 6.3.
7.6 INTERRUPTION OR CURTAILMENT OF SERVICES. Landlord reserves the right
to interrupt, curtail, stop or suspend the furnishing of services and the
operation of any Building system, when
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necessary by reason of accident or emergency, or of repairs, alterations,
replacements or improvements in the reasonable judgment of Landlord desirable or
necessary to be made, or of difficulty or inability in securing supplies or
labor, or of strikes, or of any other cause beyond the reasonable control of
Landlord, whether such other cause be similar or dissimilar to those hereinabove
specifically mentioned, until said cause has been removed. Landlord shall have
no responsibility or liability for any such interruption, curtailment, stoppage,
or suspension of services or systems, except that Landlord shall exercise
reasonable diligence to minimize inconvenience to Tenant and to eliminate the
cause of same and except that Landlord shall give reasonable notice of such
interruption, curtailment, stoppage or suspension except when due to accident or
emergency.
7.7 ELEVATOR SERVICE. Landlord shall provide passenger elevator service
and freight elevator service from the existing elevator system in common with
other tenants in the Building.
7.8 BUILDING ACCESS. Landlord shall provide access to the Demised Premises
on Business Days from 8:00 a.m. to 6:00 p.m., subject to restrictions based on
emergency conditions, and at all other times, subject to such reasonable
security restrictions as may from time-to-time be in effect and to emergency
restrictions.
8. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself or its nominee, at any
time and from time to time without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor or
otherwise affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Building (including the Demised Premises) and the fixtures and equipment
thereof, as well as in or to the street entrances, halls, passages, elevators,
and stairways thereof, as it may deem necessary or desirable, and to change the
arrangement and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, or other public parts of the Building,
provided, however, that there be no unreasonable obstruction of the right of
access to, or unreasonable interference with the use and enjoyment of, the
Demised Premises by Tenant, except that Landlord shall not be obligated to
employ labor at so-called "overtime" or other premium pay rates. Nothing
contained in this Article shall be deemed to relieve Tenant of any duty,
obligation or liability of Tenant with respect to making or causing to be made
any repair, replacement or improvement or complying with any law, order or
requirement of any governmental or other authority. Landlord reserves the right
to from time to time change the address of the Building. Neither this Lease nor
any use by Tenant shall give Tenant any right or easement or the use of any door
or any passage or any concourse connecting with any other building or to any
public convenience, and the use of such doors, passages and concourses and of
such conveniences may be regulated or discontinued at any time and from time to
time by Landlord and without affecting the obligation of Tenant hereunder or
incurring any liability to Tenant therefor, provided, Tenant shall be permitted
access to the Demised Premises during the Term of this Lease.
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9. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the Demised Premises prior to or during the term, whether by Landlord
at its expense or at the expense of Tenant (either or both) or by Tenant shall
be and remain part of the Demised Premises and shall not be removed by Tenant at
the end of the Term unless otherwise expressly provided in this Lease. Where not
built into the Demised Premise and if furnished and installed by and at the sole
expense of Tenant, all removable electric fixtures, signs, furniture, or trade
fixtures or business equipment shall not be deemed to be included in such
fixtures, equipment, improvements and appurtenances and may be, and upon the
request of Landlord will be, removed by Tenant upon the condition that such
removal shall not materially damage the Demised Premises or the Building and
that the cost of repairing any damage to the Demised Premises or the Building
arising from such removal shall be paid by Tenant.
10. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no alterations, installations, removals, additions or
improvements in or to the Demised Premises without Landlord's prior written
consent, which consent as to non-structural changes costing less than $10,000
shall not be unreasonably withheld or delayed, and then only by contractors or
mechanics approved by Landlord. No installations or other such work shall be
undertaken or begun by Tenant until Landlord has approved written plans and
specifications therefor; and no amendments or additions to such plans and
specifications shall be made without prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Any such work,
alterations, decorations, installations, removals, additions and improvements
shall be done at the sole expense of Tenant and at such times and in such manner
as Landlord may from time to time designate. If Tenant shall make any
alterations, decorations, installations, additions or improvements, then
Landlord may elect at the time of its consent (such election to be in writing
and incorporated in such consent) to such alterations or other work to require
Tenant at the expiration of this Lease to restore the Demised Premises to
substantially the same condition as existed upon completion of the tenant fit-up
work set forth in Article 4.
11. TENANT'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD OF TENANT'S
PERFORMANCE - COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decoration, installations,
removals, additions or improvements or do any other work in or to the Demised
Premises, Tenant will strictly observe the following covenants and agreements:
(a) In no event shall any material or equipment be incorporated in
or added to the Demised Premises in connection with any such alteration,
decoration, installation, addition or improvement which is subject to any lien,
charge, mortgage or other encumbrance of any kind whatsoever or is subject to
any security interest or any form of title retention agreement. Any mechanic's
lien filed against the Demised Premises or the Building for work claimed to have
been done for, or materials claimed to have been furnished to Tenant shall be
discharged by Tenant within thirty (30) days thereafter, at the expense of
Tenant, by filing the bond required by law
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or otherwise. If Tenant fails so to discharge any lien, Landlord may do so at
Tenant's expense and Tenant shall reimburse Landlord for any expense or cost
incurred by Landlord in so doing within fifteen (15) days after rendition of a
bill therefor.
(b) All installations or work done by Tenant under this or any other
Article of this Lease shall be at its own expense (unless expressly otherwise
provided) and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing insurance
rating bureaus; (iii) plans and specifications prepared by and at the expense of
Tenant theretofore submitted to Landlord for its prior written approval.
(c) Tenant shall procure all necessary permits before undertaking
any work in the Demised Premises; do all such work in a good and workmanlike
manner, employing materials of good quality and complying with all governmental
requirements and defend, save harmless, exonerate and indemnify Landlord from
all injury, loss or damage to any person or property occasioned by or growing
out of such work, excepting only that caused by the gross negligence or wilful
misconduct of Landlord or Landlord's servants, agents or employees.
12. REPAIRS AND SECURITY BY TENANT
Tenant shall keep or cause to be kept all and singular the Demised
Premises neat and clean and in such repair, order and condition as the same are
in on the Term Commencement Date or may be put in during the term hereof,
reasonable use and wear thereof, damage by fire or by other insured casualty and
repairs required to be made hereunder by Landlord excepted.
Tenant shall make, as and when needed as a result of misuse by, or neglect
or improper conduct (including without limitation the placement of any weight
exceeding the floor load) of Tenant or Tenant's servants, employees, agents,
invitees or licensees or otherwise, all repairs in and about the Demised
Premises necessary to preserve them in such repair, order and condition, which
repairs shall be in quality and class equal to the original work. Landlord may
elect, at the expense of Tenant, either pursuant to Section 15.3 or otherwise,
to make any such repairs or to repair any damage or injury to the Building or
the Demised Premises caused by moving property of Tenant in or out of the
Building, or by installation or removal of furniture or other property, or by
misuse by, or neglect or improper conduct of, Tenant or Tenant's servants,
employees, agents or licensees.
13. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
13.1 INSURANCE. (a) Tenant shall procure, keep in force and pay for (a)
Commercial General Liability Insurance indemnifying Landlord, any managing agent
designated by Landlord, Tenant and (whenever Landlord shall so request) any
Mortgagee against all claims and demands for injury to or death of persons or
damage to property which may be claimed to have occurred upon the Demised
Premises in the amounts which shall at the time Tenant and/or contractors enter
the Premises in accordance with Article 4 of this Lease be not less than Two
Hundred Thousand
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Dollars ($200,000) for property damage, One Million Dollars ($1,000,000) for
injury or death of one person, and Two Million Dollars ($2,000,000) for injury
or death of more than one person in a single accident, and from time to time
thereafter shall be not less than such higher amounts, if procurable, as may be
reasonably required by Landlord and are customarily carried by responsible
office tenants in the Greater Boston area, (b) insurance covering any damage to
the plate glass windows in or immediately about the Demised Premises, in
reasonable amounts to be established from time to time by Landlord, and (c)
so-called contents and improvements insurance adequately insuring all property
belonging to or removable by Tenant and situated in the Demised Premises.
(b) Landlord shall maintain insurance against loss by fire and
extended coverage in an amount at least equal to eighty percent (80%) of the
replacement value of the Building.
13.2 CERTIFICATES OF INSURANCE. Such insurance shall be effected with
insurers authorized to do business in Massachusetts under valid and enforceable
policies, and such policies shall name Landlord, each Mortgagee, Tenant and any
additional parties designated by Landlord pursuant to Section 13.1 as the
insureds, as their respective interests appear. Such insurance shall provide
that it shall not be cancelled without at least ten (10) days' prior written
notice to each insured named therein. On or before the Term Commencement Date
and thereafter not less than fifteen (15) days prior to the expiration date of
each expiring policy, certificates of the policies provided for in Section 13.1
issued by the respective insurers, setting forth in full the provisions thereof
and issued by such insurers together with evidence satisfactory to Landlord or
Tenant as applicable of the payment of all premiums for such policies, shall be
delivered to Tenant or Landlord as applicable and certificates as aforesaid of
such policies shall, upon request of Landlord, be delivered by Tenant to the
holder of any mortgage affecting the Demised Premises.
13.3 GENERAL. Tenant will save Landlord harmless, and will exonerate and
indemnify Landlord, from and against any and all claims, liabilities or
penalties asserted by or on behalf of any person, firm, corporation or public
authority:
(a) On account of or based upon any injury to person, or loss of or
damage to property sustained or occurring on the Demised Premises on account of
or based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (other than Landlord or its agents, servants or employees);
(b) On account of or based upon any injury to person or loss of or
damage to property, sustained or occurring elsewhere (other than on the Demised
Premises) in or about the Building (and, in particular, without limiting the
generality of the foregoing on or about the elevators, stairways, public
corridors, sidewalks, concourses, arcades, malls, galleries, vehicular tunnels,
approaches, areaways, roof, or other appurtenances and facilities used in
connection with the Building or Demised Premises) arising out of the use or
occupancy of the Building or Demised Premises by the Tenant, or any person
claiming by, through or under Tenant, excepting only that caused by the gross
negligence or wilful misconduct of Landlord or Landlord's servants, agents or
employees;
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(c) On account of or based upon (including monies due on account of)
any work or thing whatsoever done (other than by Landlord or its contractors, or
agents or employees of either) in the Demised Premises during the Term of this
Lease and during the period of time, if any, prior to the Term Commencement Date
that Tenant may have been given access to the Demised Premises; and
(d) On account of or resulting from the failure of Tenant to perform
and discharge any of its covenants and obligations under this Lease;
and, in respect of any of the foregoing items (a) - (d), from and against all
costs, expenses (including reasonable attorneys' fees), and liabilities incurred
in or in connection with any such claim, or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord shall at Tenant's
expense resist or defend such action or proceeding and employ counsel therefor
reasonably satisfactory to Landlord, it being agreed that such counsel as may
act for insurance underwriters of Tenant engaged in such defense shall be deemed
satisfactory.
13.4 PROPERTY OF TENANT. In addition to and not in limitation of the
foregoing, Tenant covenants and agrees that all merchandise, furniture, fixtures
and property of every kind, nature and description which may be in or upon the
Demised Premises or Building, in the public corridors, or on the sidewalks,
areaways and approaches adjacent thereto, during the term hereof, shall be at
the sole risk and hazard of Tenant, and that if the whole or any part thereof
shall be damaged, destroyed, stolen or removed from any cause or reason
whatsoever no part of said damage or loss shall be charged to, or borne by
Landlord, excepting only that caused by the gross negligence or wilful
misconduct of Landlord or Landlord's servants, agents or employees.
13.5 BURSTING OF PIPES, ETC. Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical disturbance, water, rain or snow or
leaks from any part of the Building or from the pipes, appliances or plumbing
works or from the roof, street or sub-surface or from any other place or caused
by dampness or by any other cause of whatever nature, unless caused by or due to
the negligence of Landlord, its agents, servants or employees, and then only
after (i) notice to Landlord of the condition claimed to constitute negligence
an (ii) the expiration of a reasonable time after such notice has been received
by Landlord without such condition having been cured or corrected; and in no
event shall Landlord be liable for any loss, the risk of which is compensated by
Tenant's insurance; nor shall Landlord or its agents be liable for any such
damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public or quasi-public work,
excepting only that caused by the gross negligence or wilful misconduct of
Landlord or Landlord's servants, agents or employees.
13.6 REPAIRS AND ALTERATIONS - NO DIMINUTION OF RENTAL VALUE. Except as
otherwise provided in Articles 16 or 18, there shall be no allowance to Tenant
for diminution of rental value and no liability on the part of Landlord by
reason of inconvenience, annoyance or injury to Tenant arising from any repairs,
alterations, additions, replacements or improvements made by Landlord, Tenant or
others in or to any portion of the Building or Demised Premises, or in or to
fixtures,
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appurtenances, or equipment thereof, or for failure of Landlord or others to
make any repairs, alterations, additions or improvements in or to any portion of
the Building or of the Demised Premises, or in or to the fixtures, appurtenances
or equipment thereof provided, however, that any such work performed by or on
behalf of Landlord shall be subject to the provisions of Section 15.2
14. ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
14.1 RESTRICTIONS. Except as otherwise expressly provided in this Section
14, Tenant covenants and agrees that neither this Lease nor the term and estate
hereby granted nor any interest herein or therein, will be assigned, sublet,
mortgaged, pledged, encumbered or otherwise transferred (whether voluntarily or
by operation of law) and that neither the Demised Premises, nor any part
thereof, will be encumbered in any manner by reason of any act or omission on
the part of Tenant, or used or occupied, or permitted to be used or occupied, or
utilized for any reason whatsoever, by anyone other than Tenant, or for any use
or purpose other than a stated in Article 1 without the prior written consent of
Landlord in every case.
14.2 REQUESTS TO ASSIGN OR SUBLET. In connection with any request by
Tenant for such consent to assign or sublet, Tenant shall submit to Landlord, in
writing, a statement containing the name of the proposed assignee or subtenant,
such information as to its financial responsibility and standing as Landlord may
reasonably require, and all of the terms and provisions upon which the proposed
assignment or subletting is to be made, and, unless the proposed area to be
assigned or sublet shall constitute an entire floor or floors, such statement
shall be accompanied by a floor plan delineating the proposed area to be
assigned or sublet. As long as Tenant is not in default (beyond any applicable
grace periods) under any of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed, Landlord shall not unreasonably
withhold or delay Landlord's prior consent to the assignment or subletting(s) by
Tenant of all or parts of the Demised Premises. Each such subletting shall be
for undivided occupancy by the subtenant of that part of the Demised Premises
affected thereby for the use permitted under this Lease and at no time shall
there be more than three (3) occupants, including Tenant, within the Demised
Premises. Landlord may, however, withhold such consent if, in Landlord's
reasonable judgment, the proposed assignee or subtenant is not engaged in a
business consistent with the character and dignity of the Building, or will
impose any additional material burden upon Landlord in the operation of the
Building (to an extent greater than the burden to which Landlord would have been
put if Tenant continued to use, or used, such part of the Demised Premises for
its own purposes), or if Landlord has any other reasonable objections to the
proposed assignment or subletting.
14.3 EXCEPTIONS. Notwithstanding the foregoing, Tenant may, without the
requirement of obtaining Landlord's consent, assign this Lease or sublease any
portion of the Demised Premises to any entity which is the parent, a
majority-owned subsidiary of Tenant, an entity under common control with Tenant
(any such entity being referred to herein as an "Affiliate") or to any entity
with which Tenant may merge or consolidate or to which Tenant may sell all or
substantially all of its assets as a going concern (such entity with which
Tenant may merge, consolidate or to which Tenant may sell all or substantially
all of its assets as aforesaid being hereinafter referred to as a "Successor"),
provided that, simultaneously with any such assignment, Tenant shall deliver
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to Landlord an agreement in form and substance reasonably satisfactory to
Landlord which contains an appropriate covenant of assumption by such assignee;
and provided further that in the case of any such assignment or sublease to a
Successor, Tenant shall have submitted to Landlord prior thereto financial
statements or other materials reasonably satisfactory to Landlord evidencing
that such Successor has financial resources comparable to that of Tenant as of
the time of such assignment or sublease.
14.4 EXCESS RENT. If the rent received by Tenant on account of a sublease
of all or any portion of the Demised Premises exceeds the Yearly Fixed Rent and
Additional Rent, allocated to the space subject to the sublease in the
proportion of the area of such space to the area of the entire Demised Premises,
Tenant shall pay to Landlord fifty percent (50%) of such excess, monthly as
received by Tenant, except that in the case of an Affiliate, no portion of any
such excess shall be payable to Landlord.
14.5 RECAPTURE. Notwithstanding the foregoing provisions of this Article:
(1) in the event Tenant proposes to assign or sublet all of the Demised Premises
other than pursuant to Section 14.3, Landlord, at Landlord's option, may give to
Tenant, within thirty (30) days after the submission by Tenant to Landlord of
the statement required to be submitted in connection with such assignment or
subletting, or, if Tenant so requests, within thirty (30) days after Tenant
notifies Landlord that Tenant wishes to undertake such assignment or subletting,
but has not yet procured a proposed assignee or subtenant, a notice terminating
this Lease on the date (referred to as the "Earlier Termination Date")
immediately prior to the proposed commencement date of the term of the proposed
assignment or subletting, as set forth in such statement, and, in the event such
notice is given, this Lease and the Term shall come to an end and expire on the
Earlier Termination Date with the same effect as if it were the date originally
fixed in this Lease for the end of the Term of this Lease, and the Rent shall be
apportioned as of said Earlier Termination Date and any prepaid portion of Rent
for any period after such date shall be refunded by Landlord to Tenant,
provided, however, that in the event Landlord shall so elect to terminate this
Lease, Tenant, upon written notice to Landlord given within twenty (20) days of
receipt by Tenant of Landlord's notice of termination, may elect to negate such
termination by declaring its intent not to proceed with such assignment or
subletting; or (2) in the event Tenant proposes to assign or sublet any portion
of the Demised Premises, Landlord, at Landlord's option, may give to Tenant,
within thirty (30) days after the submission by Tenant to Landlord of the
statement required to be submitted in connection with such proposed assignment
or subletting, a notice electing to eliminate such portion of the Demised
Premises (said portion is referred to as the "Eliminated Space") from the
Demised Premises during the period (referred to as the "Elimination Period")
commencing on the date (referred to as the "Elimination Date") immediately prior
to the proposed commencement date of the term of the proposed assignment or
subletting, as set forth in such statement, and ending on the proposed
expiration date of the term of the proposed assignment or subletting, as set
forth in such statement, and in the event such notice is given (i) the
Eliminated Space shall be eliminated from the Demised Premises during the
Elimination Period; (ii) Tenant shall surrender the Eliminated Space to Landlord
on or prior to the Elimination Date in the same manner as if said Date were the
date originally fixed in this Lease for the end of the Term of this Lease; (iii)
if the Eliminated Space shall constitute less than an entire floor, Landlord, at
Landlord's expense, shall have the right to make any alterations and
installations in the Demised
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Premises required, in Landlord's judgment, reasonably exercised, to make the
Eliminated Space a self-contained rental unit with access through corridors to
the elevators and core toilets serving the Eliminated Space, and if the Demised
Premises shall contain any core toilets or any corridors (including any
corridors proposed to be constructed by Landlord pursuant to this subdivision
(iii) providing access from the Eliminated Space to the core area), Landlord and
any tenant or other occupant of the Eliminated Space shall have the right to use
such toilets and corridors in common with Tenant and any other permitted
occupants of the Demised Premises, and the right to install signs and
directional indicators in or about such corridors indicating the name and
location of such tenant or other occupant; (iv) during the Elimination Period,
the Yearly Fixed Rent shall be reduced in the proportion which the area of the
Eliminated Space bears to the total area of the Demised Premises immediately
prior to the Elimination Date (including an equitable portion of the area of any
corridors referred to in subdivision (iii) of this sentence as part of the area
of the Eliminated Space for the purpose of computing such reduction), and any
prepaid Rent for any period after the Elimination Date allocable to the
Eliminated Space shall be refunded by Landlord to Tenant; (v) there shall be an
equitable apportionment of any Additional Rent Payable pursuant to Article 6 for
the relevant fiscal and calendar years in which said Elimination Date shall
occur; and (vi) if the Elimination Period shall end prior to the date originally
fixed in this Lease for the end of the Term of this Lease, the Eliminated Space,
in its then existing condition, shall be deemed restored to and once again a
part of the Demised Premises subject to the provisions of this Lease as if said
elimination had not occurred during the period (referred to as the "Restoration
Period") commencing on the date next following the expiration of the Elimination
Period and ending on the date originally fixed in this Lease for the end of the
Term of this Lease, except in the event that Landlord is unable to give Tenant
possession of the Eliminated Space at the expiration of the Elimination Period
by reason of the holding over or retention of possession of any tenant or other
occupant, in which event (x) the Restoration Period shall not commence, and the
Eliminated Space shall not be deemed restored to or a part of the Demised
Premises, until the date upon which Landlord shall give Tenant possession of
such Space free of occupancies, provided Landlord shall use reasonable efforts
to return the Eliminated Space to Tenant at the expiration of the Elimination
Period, (y) neither the date fixed in this Lease for the end of the Term of the
Lease, nor the validity of this Lease shall be affected and (z) Tenant waives
any right to recover any damages which may result from the failure of Landlord
to deliver possession of the Eliminated Space at the end of the Elimination
Period excepting only those resulting from Landlord's gross negligence or
willful misconduct.
14.6 FURTHER DOCUMENTATION. At the request of Landlord, Tenant shall
execute and deliver an instrument or instruments, in form satisfactory to
Landlord, setting forth any modifications to this Lease contemplated in or
resulting from the operation of the foregoing provisions of this paragraph;
however, neither Landlord's failure to request any such instrument nor Tenant's
failure to execute or deliver any such instrument shall vitiate the effect of
the foregoing provisions of this Article.
14.7 GENERAL.
(a) The failure by Landlord to exercise its option under this
paragraph with respect to any subletting shall not be deemed a waiver of such
option with respect to any extension or any
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subsequent subletting of the premises affected thereby. Tenant shall reimburse
Landlord promptly, as Additional Rent, for reasonable legal and other expense
incurred by Landlord in connection with any request by Tenant for any consent
required under the provisions of this Article.
(b) It is specifically understood and agreed that neither Tenant nor
any other person having an interest in the possession, use, occupancy or
utilization of the Demised Premises shall enter into any sublease, license,
concession or other agreement (or renewals of any of the foregoing) for use,
occupancy or utilization of space in the Demised Premises which provides for
rental or other payment for such use, occupancy or utilization based, in whole
or in part, on the net income or profits derived by any person or entity from
the space leased, used, occupied or utilized (other than an amount based on a
fixed percentage or percentages of receipts or sales). Any such purported
sublease or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy, or
utilization of any part of the Demised Premises,
(c) The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or on the Building directory, or otherwise,
shall not operate to vest any right or interest in this Lease or in the Demised
Premises or be deemed to be the written consent of Landlord mentioned in this
Article, it being expressly understood that any such listing is a privilege
extended by Landlord revocable at will by written notice to Tenant.
(d) If this Lease be assigned, or if the Demised Premises or any
part thereof shall be sublet or occupied by anybody other than Tenant, Landlord
may at any time and from time to time, collect rent and other charges from the
assignee, subtenant or occupant and apply the aggregate amount collected to the
Rent and other charges herein reserved, but no such assignment or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant as a tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained.
Landlord shall notify Tenant of any amounts so collected by Landlord directly
from such subtenant or assignee. The consent by Landlord to an assignment or
subletting or occupancy shall not in any way be construed to relieve Tenant from
obtaining the express consent in writing of Landlord to any further assignment
or subletting or occupancy.
15. MISCELLANEOUS COVENANTS
15.1 RULES AND REGULATIONS. Tenant and Tenant's servants, employees, and
agents will faithfully observe such Rules and Regulations as are attached hereto
as Exhibit D and made a part hereof or as Landlord hereafter at any time or from
time to time may make and may communicate in writing to Tenant and which in the
reasonable judgment of Landlord shall be necessary for the reputation, safety,
care or appearance of the Property, or the preservation of good order therein,
or the operation or maintenance of the Property, or the equipment thereof, or
the comfort of tenants or others in the Building, provided, however, that in the
case of any conflict between the provisions of this Lease and any such Rules and
Regulations, the provisions of this Lease shall control, and provided further
that nothing contained in this Lease shall be construed to impose
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upon Landlord any duty or obligation to enforce such Rules and Regulations or
the terms, covenants or conditions in any other lease as against any other
tenant and Landlord shall not be liable to Tenant for violation of the same by
any other tenant, its servants, employees, agents, visitors, invitees or
licensees. Notwithstanding the foregoing, enforcement by Landlord of such Rules
and Regulations shall be done in a non-discriminatory manner.
15.2 ACCESS TO PREMISES - SHORING. Tenant shall: (i) permit Landlord to
erect, use and maintain pipes, ducts and conduits in and through the Demised
Premises, provided the same do not materially reduce the floor area or
materially adversely affect the appearance thereof; (ii) permit the Landlord and
any Mortgagee of the Building or the Building and Land or of the interest of
Landlord therein, and any lessor under any ground or underlying lease, and their
representatives, to have free and unrestricted access to and to enter upon the
Demised Premises at all reasonable hours and after reasonable notice as set
forth herein below for the purposes of inspection or of making repairs,
replacements or improvements in or to the Demised Premises or the Building or
equipment (including, without limitation, sanitary, electrical, heating, air
conditioning or other systems) or of complying with all laws, orders and
requirements of governmental or other authority or of exercising any right
reserved to Landlord by this Lease (including the right during the progress of
any such repairs, replacements or improvements or while performing work and
furnishing materials in connection with compliance with any such laws, orders or
requirements to take upon or through, or to keep and store within, the Demised
Premises all necessary materials, tools and equipment); and (iii) permit
Landlord, at reasonable times, to show the Demised Premises during ordinary
business hours to any Mortgagee, ground lessor, prospective purchaser,
prospective mortgagee, or prospective assignee of any mortgage, of the Building
or of the Building and the Land or of the interest of Landlord therein, and
during the period of twelve months next preceding the Termination Date to any
person contemplating the leasing of the Demised Premises or any part thereof. If
during the last month of the Term, Tenant shall have removed all of Tenant's
property therefrom, Landlord may immediately enter and alter, renovate and
redecorate the Demised Premises, without elimination or abatement of rent, or
incurring liability to Tenant for any compensation, and such acts shall have no
effect upon this Lease. If Tenant shall not be personally present to open and
permit any entry into the Demised Premises at any time when for any reason an
entry therein shall be necessary or permissible, Landlord or Landlord's agents
must nevertheless be able to gain such entry by contacting a responsible
representative of Tenant, whose name, address and telephone number shall be
furnished by Tenant. Provided that Landlord shall incur no additional expense
thereby, Landlord shall exercise its rights of access to the Demised Premises
permitted under any of the terms and provisions of this Lease in such manner as
not to unreasonably interfere with Tenant's use and occupation of the Demised
Premises, and upon reasonable prior notice, except in the case of an emergency.
If an excavation shall be made upon land adjacent to the Demised Premises or
shall be authorized to be made, for the purpose of doing such work as said
person shall deem necessary to preserve the Building from injury or damage and
to support the same by proper foundations Tenant shall afford, after receipt of
reasonable prior notice, to the causing or authorized to cause such excavation,
license to enter upon the Demised Premises without any claim for damage or
indemnity against Landlord, or diminution or abatement of Rent.
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15.3 ACCIDENTS TO SANITARY AND OTHER SYSTEMS. To the extent known by
Tenant, Tenant shall give to Landlord prompt notice of any fire or accident in
the Demised Premises or in the Building and of any damage to, or defective
condition in, any part or appurtenance of the Building's sanitary, electrical,
heating and air conditioning or other systems located in, or passing through,
the Demised Premises, and the damage or defective condition shall be remedied by
Landlord with reasonable diligence, but if such damage or defective condition
was caused by the negligence or wilful misconduct of Tenant or by the employees,
licensees, or invitees of Tenant, the cost to remedy the same shall be paid by
Tenant. Tenant shall not be entitled to claim any eviction from the Demised
Premises or any damages arising from any such damage or defect unless the same
(i) shall have been occasioned by the negligence of Landlord, its agents,
servants or employees and (ii) shall not, after notice to Landlord of the
condition claimed to constitute negligence, have been cured or corrected within
a reasonable time after such notice has been received by Landlord; and in case
of a claim of eviction unless such damage or defective condition shall have
rendered the Demised Premises untenantable and they shall not have been made
tenantable by Landlord within a reasonable time. Landlord agrees to diligently
work to correct such damage or defect, except as otherwise provided herein.
15.4 SIGNS, BLINDS AND DRAPES. Tenant shall not place any signs on the
exterior of the Building or on or in any window, public corridor or door visible
from the exterior of the Demised Premises. No blinds may be put on or in any
window nor may any Building drapes or blinds be removed by Tenant. Tenant may
hang its own drapes, provided that they shall not, without the prior written
approval of Landlord, in any way interfere with any Building drapery or blinds
or be visible from the exterior of the Building. Notwithstanding the foregoing,
Landlord agrees to provide, at Landlord's expense, the signage as allotted to
other single floor tenants of the Building.
15.5 ESTOPPEL CERTIFICATE. Either party shall at any time and from time to
time upon not less than twenty (20) days' prior notice by Landlord to Tenant or
by a Mortgagee to Tenant, or by Tenant to Landlord, as the case may be, execute,
acknowledge and deliver to the party making such request a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications) and the dates to which Rent has been
paid in advance, if any, and stating whether or not to the best knowledge of the
signer of such certificate Landlord is in default in performance of any
covenant, agreement, term, provisions or condition contained in this Lease and,
if so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by any prospective purchaser of the Building or of the Building and the
Land or of the interest of Landlord therein, any Mortgagee or prospective
Mortgagee thereof, any lessor or prospective lessor thereof, any lessee or
prospective lessee thereof, or any prospective assignee of any Mortgage. The
form of any such estoppel certificate requested by a Mortgagee shall be
satisfactory to such Mortgagee. Notwithstanding anything contained in this Lease
to the contrary, the provisions of this Section 15.5 shall be inapplicable to
Teachers Insurance and Annuity Association in the event said entity shall
succeed to the rights of Landlord hereunder.
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15.6 PROHIBITED ITEMS. Tenant shall not bring or permit to be brought or
kept in or on the Demised Premises or elsewhere in the Building any hazardous,
inflammable, combustible or explosive fluid, material, chemical or substance
(except such as are related to Tenant's use of the Demised Premises, provided
that the same are stored and handled in a proper fashion consistent with all
applicable legal standards).
15.7 REQUIREMENTS OF LAW FINES AND PENALTIES. Tenant at its sole expense
shall comply with all laws, rules, orders and regulations of Federal, State,
County and Municipal Authorities and with any direction of any public officer or
officers, pursuant to law, which shall impose any duty upon Landlord or Tenant
with respect to and arising out of Tenant's use or occupancy of the Demised
Premises. Tenant shall reimburse and compensate Landlord for all expenditures
made by, or damages or fines sustained or incurred by, Landlord due to
nonperformance or noncompliance with or breach or failure to observe any term,
covenant or condition of this Lease upon Tenant's part to be kept, observed,
performed or complied with. If Tenant receives notice of any violation of law,
ordinance, order or regulation applicable to the Demised Premises, it shall give
prompt notice thereof to Landlord.
15.8 TENANT'S ACTS - EFFECT ON INSURANCE. Except for permitted uses,
Tenant shall not do or permit to be done any act or thing upon the Demised
Premises or elsewhere in the Building which will invalidate or be in conflict
with any insurance policies covering the Building and the fixtures and property
therein and shall not do, or permit to be done, any act or thing upon the
Demised Premises which shall subject Landlord to any liability or responsibility
for injury to any person or persons or to property by reason of any business or
operation being conducted on said Demised Premises or for any other reason.
Tenant at its own expense shall comply with all rules, orders, regulations or
requirements of the Board of Fire Underwriters or any other similar body having
jurisdiction, and shall not (i) do, or permit anything to be done, in or upon
the Demised Premises, or bring or keep anything therein, except as now or
hereafter permitted by the Fire Department, Board of Underwriters, Fire
Insurance Rating Organization, or other authority having jurisdiction, and then
only in such quantity and manner of storage as will not increase the rate for
any insurance applicable to the Building, or (ii) use the Demised Premises in
manner which shall increase such insurance rates on the Building or on property
located therein, over that applicable when Tenant first took occupancy of the
Demised Premises hereunder. If by reason of failure of Tenant to comply with the
provisions hereof the insurance rate applicable to any policy of insurance shall
at any time thereafter be higher than it otherwise would be, then Tenant shall
reimburse Landlord for that part of any insurance premiums thereafter paid by
Landlord, which shall have been charged because of such failure by Tenant.
15.9 MISCELLANEOUS. Tenant shall not suffer or permit the Demised Premises
or any fixtures, equipment or utilities therein or serving the same, to be
overloaded, damaged or defaced, nor permit any hole to be drilled or made in any
part thereof.
16. DAMAGE BY FIRE, ETC.
In the event of loss of, or damage to, the Demised Premises or the
Building by fire or other casualty, the rights and obligations of the parties
hereto shall be as follows:
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(a) If the Demised Premises, or any part thereof, shall be damaged
by fire or other casualty, Tenant shall give prompt notice thereof to Landlord,
and Landlord, upon receiving such notice, shall proceed promptly and with due
diligence, subject to unavoidable delays, to repair, or cause to be repaired,
such damage. If the Demised Premises or any part thereof shall be rendered
untenantable by reason of such damage, whether to the Demised Premises or to the
Building, the Yearly Fixed Rent and Additional Rent shall proportionately abate
for the period from the date of such damage to the date when such damage shall
have been repaired.
(b) If, as a result of fire or other casualty, the whole or a
substantial portion of the Building is rendered untenantable, Landlord, within
ninety (90) days from the date of such fire or other casualty, may terminate
this Lease by notice to Tenant, specifying a date not less than twenty (20) nor
more than forty (40) days after the giving of such notice on which the Term of
this Lease shall terminate. If Landlord does not so elect to terminate this
Lease, then Landlord shall proceed with diligence to repair the damage to the
Demised Premises and all facilities serving the same, if any, which shall have
occurred, and the Yearly Fixed Rent and Additional Rent shall meanwhile
proportionately abate, all as provided in Paragraph (a) of this Section.
However, if, in the event of any damage by fire or other casualty, such damage
is not repaired and the Demised Premises and all facilities serving the same
restored to substantially the same condition as they were prior to such damage
within six (6) months from the date of such damage, Tenant within thirty (30)
days from the expiration of such six (6) month period, may terminate this Lease
by notice to Landlord, specifying a date not more than sixty (60) days after the
giving of such notice on which the term of this Lease shall terminate.
(c) If the Demised Premises shall be rendered untenantable by fire
or other casualty during the last year of the Term of this Lease, Landlord may
terminate this Lease effective as of the date of such fire or other casualty
upon notice to Tenant given within thirty (30) days after such fire or other
casualty.
(d) Landlord shall not be required to repair or replace any of
Tenant's business machinery, equipment, cabinet work, furniture, personal
property or other installations (which shall, however, be substantially restored
by Tenant within ninety (90) days after Landlord shall have completed any repair
or restoration required under the terms of this Article), and no damages,
compensation or claim shall be payable by Landlord for inconvenience, loss of
business or annoyance arising from any repair or restoration of any portion of
the Demised Premises or of the Building.
(e) The provisions of this Article shall be considered an express
agreement governing any instance of damage or destruction of the Building or the
Demised Premises by fire or other casualty, and any law now or hereafter in
force providing for such a contingency in the absence of express agreement shall
have no application.
(f) In the event of any termination of this Lease pursuant to this
Article, the Term of this Lease shall expire as of the effective termination
date as fully and completely as if such date were the date herein originally
scheduled as the Termination Date. Tenant shall have access
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to the Demised Premises for a period of thirty (30) days after the date of
termination in order to remove Tenant's personal property.
(g) Landlord's Architect's certificate, given in good faith, shall
be deemed conclusive of the statements therein contained and binding upon Tenant
with respect to the performance and completion of any repair or restoration work
undertaken by Landlord pursuant to this Article or Article 18. Any minor or
insubstantial details of construction or mechanical adjustments which remain to
be done after the delivery of said certificate shall be handled on a punch list
basis and thereafter promptly completed by Landlord.
17. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated under any provision of this
Lease to pay to Landlord any loss, cost, damage, liability, or expense suffered
or incurred by Landlord, Landlord shall allow to Tenant as an offset against the
amount thereof (i) the net proceeds of any insurance collected by Landlord for
or on account of such loss, cost, damage, liability or expense, provided that
the allowance of such offset does not invalidate or prejudice the policy or
policies under which such proceeds were payable and (ii) if such loss, cost,
damage, liability or expense shall have been caused by a peril against which
Landlord has agreed to procure insurance coverage under the terms of this Lease,
the amount of such insurance coverage, whether or not actually procured by
Landlord.
In any case in which Landlord shall be obligated under any provision of
this Lease to pay to Tenant any loss, cost, damage, liability or expense
suffered or incurred by Tenant, Tenant shall allow to Landlord as an offset
against the amount thereof (i) the net proceeds of any insurance collected by
Tenant for or on account of such loss, cost, damage, liability, or expense,
provided that the allowance of such offset does not invalidate the policy or
policies under which such proceeds were payable and (ii) if such loss, cost,
damage, liability or expense shall have been caused by a peril against which
Tenant has agreed to procure insurance coverage under the terms of this Lease,
the amount of such insurance coverage, whether or not actually procured by
Tenant.
The parties hereto shall each endeavor to procure an appropriate clause
in, or endorsement on, any fire or extended coverage insurance policy covering
the Demised Premises and the Building and personal property, fixtures and
equipment located thereon or therein, pursuant to which the insurance companies
waive subrogation or consent to a waiver of right of recovery, and having
obtained such clauses and/or endorsements of waiver of subrogation or consent to
a waiver of right of recovery each party hereby agrees that it will not make any
claim against or seek to recover from the other for any loss or damage to its
property or the property of others resulting from fire or other perils covered
by such fire and extended coverage insurance; provided, however, that the
release, discharge, exoneration and covenant not to sue herein contained shall
be limited by the terms and provisions of the waiver of subrogation clauses
and/or endorsements or clauses and/or endorsements consenting to a waiver of
right of recovery and shall be co-extensive therewith. If either party may
obtain such clause or endorsement only upon payment of an additional premium,
such party shall promptly so advise the other party and shall
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be under no obligation to obtain such clause or endorsement unless such other
party pays the premium.
18. CONDEMNATION - EMINENT DOMAIN
In the event that the whole or any material part of the Building shall be
taken or appropriated by eminent domain or shall be condemned for any public or
quasi-public use, or (by virtue of any such taking, appropriation or
condemnation) shall suffer any damage (direct, indirect or consequential) for
which Landlord or Tenant shall be entitled to compensation then (and in any such
event) this Lease and the Term hereof may be terminated at the election of
Landlord by a notice in writing of its election so to terminate which shall be
given by the Landlord to Tenant within sixty (60) days following the date on
which Landlord shall have received notice of such taking, appropriation or
condemnation. In the event that more than twenty-five percent (25%) of the floor
area of the Demised Premises shall be so taken, appropriated or condemned, then
(and in any such event) this Lease and the Term hereof may be terminated at the
election of Tenant by a notice in writing of its election so to terminate which
shall be given by Tenant to Landlord within sixty (60) days following the date
on which Tenant shall have received notice of such taking, appropriation or
condemnation.
Upon the giving of any such notice of termination (either by Landlord or
Tenant) this Lease and the Term hereof shall terminate on or retroactively as of
the date on which Tenant shall be required to vacate any part of the Demised
Premises or shall be deprived of a substantial part of the means of access
thereto, provided, however, that Landlord may in Landlord's notice elect to
terminate this Lease and the Term hereof retroactively as of the date on which
such taking, appropriation or condemnation became legally effective. In the
event of any such termination, this Lease and the Term hereof shall expire as of
the effective termination date as fully and completely as if such date were the
date herein originally scheduled as the Termination Date. If neither party
(having the right so to do) elects to terminate Landlord will, with reasonable
diligence and at Landlord's expense, restore the remainder of the Demised
Premises, or the remainder of the means of access, as nearly as practicably may
be to the same condition as obtained prior to such taking, appropriation or
condemnation in which event (i) a just proportion of the Yearly Fixed Rent and
Additional Rent, according to the nature and extent of the taking, appropriation
or condemnation and the resulting permanent injury to the Demised Premises and
the means of access thereto, shall be permanently abated, and (ii) a just
proportion of the remainder of the Yearly Fixed Rent and Additional Rent,
according to the nature and extent of the taking, appropriation or condemnation
and the resultant injury sustained by the Premises and the means of access
thereto, shall be abated until what remains of the Premises and the means of
access thereto shall have been restored as fully as may be for permanent use and
occupation by Tenant hereunder. Except for any award specifically reimbursing
Tenant for moving or relocation expenses and Tenant's removable fixtures and
equipment, there are expressly reserved to Landlord all rights to compensation
and damages created, accrued or accruing by reason of any such taking,
appropriation or condemnation, in implementation and in confirmation of which
Tenant does hereby acknowledge that Landlord shall be entitled to receive and
retain all such compensation and damages, grants to Landlord all and whatever
rights (if any) Tenant may have to such compensation and damages, and agrees to
execute and deliver all and whatever further instruments
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of assignment as Landlord may from time to time request. In the event of any
taking of the Demised Premises or any part thereof for temporary use, (i) this
Lease shall be and remain unaffected thereby, and (ii) Tenant shall be entitled
to receive for itself any award made for such use, provided, that if any taking
is for a period extending beyond the Term of this Lease, such award shall be
apportioned between Landlord and Tenant as of the Termination Date.
19. DEFAULT
19.1 CONDITIONS OF LIMITATION - RE-ENTRY - TERMINATION. This Lease and the
herein term and estate are upon the condition that if (a) subject to the
provisions of Section 19.6, Tenant shall neglect or fail to perform or observe
any of the Tenant's covenants herein, including (without limitation) the
covenants with regard to the payment of Rent on or before ten (10) days of its
due date; or (b) Tenant shall be involved in financial difficulties as evidenced
by an admission in writing by Tenant of Tenant's inability to pay its debts
generally as they become due, or by the making or offering to make a composition
of its debts with its creditors; or (c) Tenant shall make an assignment or trust
mortgage, or other conveyance or transfer of like nature, of all or a
substantial part of its property for the benefit of its creditors, or (d) the
leasehold hereby created shall be taken on execution or by other process of law
and shall not be revested in Tenant within sixty (60) days thereafter; or (e) a
receiver, sequester, trustee or similar officer shall be appointed by a court of
competent jurisdiction to take charge of all or a substantial part of Tenant's
property and such appointment shall not be vacated within sixty (60) days or (f)
any proceeding shall be instituted by or against Tenant pursuant to any of the
provisions of any Act of Congress or State law relating to bankruptcy,
reorganization, arrangements, compositions or other relief from creditors, and,
in the case of any such proceeding instituted against it, if Tenant shall fail
to have such proceeding dismissed within thirty (30) days or if Tenant is
adjudged bankrupt or insolvent as a result of any such proceeding; or (g) any
event shall occur or any contingency shall arise whereby this Lease, or the term
and estate thereby created would (by operation of law or otherwise) devolve upon
or pass to any person, firm or corporation other than Tenant, except as
expressly permitted under Article 14 hereof; then, and in any such event (except
as hereinafter in Article 19.2 otherwise provided) Landlord may, in a manner
consistent with applicable law, immediately or at any time thereafter declare
this Lease terminated by notice to Tenant or, without further demand or notice,
enter into and upon the Demised Premises (or any part thereof in the name of the
whole), and in either such case (and without prejudice to any remedies which
might otherwise be available for arrears of rent or other charges due hereunder
or preceding breach of covenant and without prejudice to Tenant's liability for
damages as hereinafter stated), this Lease shall terminate. The words "re-entry"
and "re-enter" as used in this Lease are not restricted to their technical legal
meaning.
19.2 DAMAGES - ASSIGNMENT FOR BENEFIT OF CREDITORS. For the more effectual
securing by Landlord of the rent and other charge and payments reserved
hereunder, it is agreed as a further condition of this Lease that if at any time
Tenant shall make an assignment of its property for the benefit of its creditors
under the terms of which the debts provable by its creditors shall be debts
provable against the estate of insolvent debtors either under the laws of the
Commonwealth of Massachusetts or under some law or laws other than the
Bankruptcy Code as now or hereafter enacted, then and in any such case the same
shall constitute a breach of this Lease, and the term
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and estate hereby created shall terminate ipso facto, without entry or other
action by Landlord; and notwithstanding any other provisions of this Lease
Landlord shall forthwith upon such termination, without prejudice to any
remedies which might otherwise be available for arrears of rent or other charges
due hereunder or preceding breach of this Lease, be ipso facto entitled to
recover as liquidated damages the sum of (a) the amount by which, at the time of
such termination of this Lease, (i) the aggregate of the Rent projected over the
period commencing with such termination and ending with the Termination Date
stated in Article 1 exceeds (ii) the aggregate projected rental value of the
Demised Premises for such period and (b) (in view of the uncertainty of prompt
re-letting and the expense entailed in re-letting the Demised Premises) an
amount equal to the Rent payable for and in respect of the calendar year next
preceding the date of termination, as aforesaid. Upon such termination Landlord,
may immediately or at any time thereafter, without demand or notice, enter into
or upon the Demised Premises (or any part thereof in the name of the whole), and
(without being taken or deemed to be guilty of any manner of trespass or
conversion, and without being liable to indictment, prosecution or damages
thereof) may, forcibly if necessary, expel Tenant and those claiming under
Tenant from the Demised Premises and remove therefrom the effects of Tenant and
those claiming under Tenant.
19.3 DAMAGES - TERMINATION. Upon the termination of this Lease under the
provisions of this Article, then except as hereinabove in Section 19.2 otherwise
provided, Tenant shall pay to Landlord the Rent payable by Tenant to Landlord up
to the time of such termination, shall continue to be liable for any preceding
breach of covenant, and in addition, shall pay to Landlord as damages, at the
election of Landlord,
either:
(x) the amount by which, at the time of the termination of this
Lease (or at any time thereafter if Landlord shall have initially elected
damages under Subparagraph (y), below), (i) the aggregate of the Rent projected
over the period commencing with such time and ending on the originally scheduled
Termination Date as stated in Article 1 exceeds (ii) the aggregate projected
rental value of the Demised Premises for such period,
or,
(y) amounts equal to the Rent which would have been payable by
Tenant had this Lease not been so terminated, payable upon the due dates
therefor specified herein following such termination and until the originally
scheduled Termination Date as specified in Article 1, provided, however, if
Landlord shall re-let the Demised Premises during such period, that Landlord
shall credit Tenant with the net rents received by Landlord from such
re-letting, such net rents to be determined by first deducting from the gross
rents as and when received by Landlord from such re-letting the reasonable
expenses incurred or paid by Landlord terminating this Lease, as well as the
reasonable expenses of re-letting, including altering and preparing the Demised
Premises for new tenants, brokers' commissions, and all other similar and
dissimilar expenses properly chargeable against the Demised Premises and the
rental therefrom, it being understood that any such re-letting may be for a
period equal to or shorter or longer than the remaining term of this Lease; and
provided, further, that (i) in no event shall Tenant be entitled to receive any
excess
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of such net rents over the sums payable by Tenant to Landlord hereunder and (ii)
in no event shall Tenant be entitled in any suit for the collection of damages
pursuant to this Subparagraph (y) to a credit in respect of any net rents from a
re-letting except to the extent that such net rents are actually received by
Landlord prior to such determination. If the Demised Premises or any part
thereof should be re-let in combination with other space, then proper
apportionment on a square foot area basis shall be made of the rent received
from such re-letting and of the expenses of re-letting. Landlord agrees to use
reasonable efforts to re-let the Demised Premises.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding the
recovery by Landlord against Tenant of any sums or damages to which, in addition
to the damages particularly provided above, Landlord may lawfully be entitled by
reason of any default hereunder on the part of Tenant.
19.4 FEES AND EXPENSES. If Tenant shall default in the performance of any
covenant on Tenant's part to be performed as in this Lease contained, Landlord
may immediately, or at any time thereafter, upon written notice to Tenant and
Tenant's failure to cure as provided in Section 19.6, perform the same for the
account of Tenant. If Landlord at any time is compelled to pay or elects to pay
any sum of money, or do any act which will require the payment of any sum of
money, by reason of the failure of Tenant to comply with any provision hereof,
or if Landlord is compelled to or does incur any expense, including reasonable
attorneys' fees, in instituting, prosecuting and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, Tenant shall
on demand pay to Landlord by way of reimbursement the sum or sums so paid by
Landlord with all interest, costs and damages. Without limiting the generality
of the foregoing, in the event that any Rent is in arrears by more than ten (10)
days after written notice thereof by Landlord to Tenant, Tenant shall pay, as
Additional Rent, a delinquency charge equal to one and one-half percent (1-1/2%)
of the arrearage for each calendar month (or fraction thereof) during which it
remains unpaid.
19.5 LANDLORD'S REMEDIES NOT EXCLUSIVE. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any time
be lawfully entitled, and Landlord may invoke any remedy (including the remedy
of specific performance) allowed at law or in equity as if specific remedies
were not herein provided for.
19.6 GRACE PERIOD. Notwithstanding anything to the contrary in this
Article contained, Landlord agrees not to take any action to terminate this
Lease (a) for default by Tenant in the payment when due of Rent, if Tenant shall
cure such default within ten (10) days after written notice thereof given by
Landlord to Tenant, or (b) for default by Tenant in the performance of any other
covenant, if Tenant shall cure such default within a period of thirty (30) days
after written notice thereof given by Landlord to Tenant (except where the
nature of the default is such
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that remedial action should appropriately take place sooner as indicated in such
written notice), or with respect to covenants other than to pay a sum of money
within such additional period as may reasonably be required to cure such default
if (because of governmental restrictions or any other cause beyond the
reasonable control of Tenant) the default is of such a nature that it cannot be
cured within such thirty (30)-day period, provided, however, (1) that there
shall be no extension of time beyond such thirty (30)-day period for curing of
any such default unless, not more than ten (10) days after the receipt of the
notice of default, Tenant in writing (i) shall specify the cause on account of
which the default cannot be cured during such period and shall advise Landlord
of its intention duly to institute all steps necessary to cure the default and
(ii) shall as soon as may be reasonable, duly institute and thereafter
diligently prosecute to completion all steps necessary to cure such default and,
(2) that no notice of the opportunity to cure default need be given, and no
grace period whatsoever shall be allowed to Tenant, if the default is incurable
or if the covenant or condition, the breach of which gave rise to the default,
had, by reason of a breach on a prior occasion within the then immediately
preceding twelve (12) month period, been the subject of a notice hereunder to
cure such default.
20. END OF TERM - ABANDONED PROPERTY
Upon the expiration or other termination of the Term of this Lease, Tenant
shall peaceably quit and surrender to Landlord the Demised Premises and all
alterations and additions thereto, broom clean in good order, repair and
condition excepting only reasonable use and wear and damage by fire or other
casualty for which, under other provisions of this Lease, Tenant has no
responsibility of repair or restoration. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of the
term of this Lease.
Any personal property in which Tenant has an interest which shall remain
in the Building or on the Demised Premises after the expiration or termination
of the Term of this Lease shall be conclusively deemed to have been abandoned,
and may be disposed of in such manner as Landlord may see fit; provided,
however, notwithstanding the foregoing, that Tenant will, upon request of
Landlord made not later than thirty (30) days after the expiration or
termination of the term hereof, promptly remove from the Building any such
personal property or, if any part thereof shall be sold, that Landlord may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any arrears of
Rent payable hereunder by Tenant to Landlord and any damages to which Landlord
may be entitled under Article 19 hereof or pursuant to law, with the balance if
any, to be paid to Tenant.
21. RIGHTS OF MORTGAGEES
21.1 SUPERIORITY OF LEASE. Except as provided in Section 21.7 hereof and
to the extent that it may be provided otherwise by written agreement between
Tenant and a Mortgagee, this Lease shall be superior, and shall not be
subordinated, to a Mortgage or to any other voluntary lien or encumbrance
affecting the Land or Building or any part thereof, provided, however, that such
Mortgage shall be superior, and shall not be subordinated, to this Lease with
respect to the following:
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(a) the prior right and claim under and the prior lien of said
Mortgage in, to and upon any award or other compensation heretofore or hereafter
to be made for any taking by eminent domain of any part of the Demised Premises,
and as to the right of disposition thereof in accordance with the provisions of
the said Mortgage; or
(b) the prior right and claim under the prior lien of the said
Mortgage, in, to and upon any proceeds payable under all policies of fire and
rent insurance upon the Demised Premises and as to the right of disposition
thereof in accordance with the terms of said Mortgage; and
(c) any lien, right, power or interest, if any, which may have
arisen or intervened in the period between the recording of the said Mortgage
and the execution of this Lease.
Landlord shall use commercially reasonable efforts to obtain from TIAA, as
mortgagee of the Property, an Agreement of Subordination Non-disturbance and
Attornment in substantially the form annexed hereto as EXHIBIT E.
21.2 ENTRY AND POSSESSION. Upon entry and taking possession of the
Property by a Mortgagee, for the purpose of foreclosure or otherwise, such
Mortgagee shall have all the rights of Landlord, and shall be liable to perform
all the obligations of Landlord arising and accruing during the period of such
possession by such Mortgagee.
21.3 RIGHT TO CURE. No act or failure to act on the part of Landlord which
would entitle Tenant under the terms of this Lease, or by law, to be relieved of
Tenant's obligations hereunder or to terminate this Lease, shall result in a
release or termination of such obligations or a termination of this Lease unless
(i) Tenant shall have first given written notice of Landlord's act or failure to
act to TIAA at 730 Third Avenue, New York, New York 10017, Attention: Mortgage
and Real Estate Investments, specifying the act or failure to act on the part of
Landlord which could or would give basis to Tenant's rights; and (ii) TIAA,
after receipt of such notice, shall have failed or refused to correct or cure
the condition complained of within a reasonable time thereafter, but nothing
contained in this paragraph shall be deemed to impose any obligation on TIAA to
correct or cure any such condition. "Reasonable time" as used above means and
includes a reasonable time to obtain possession of the Land and Building if any
such Mortgagee elects to do so and a reasonable time to correct or cure the
condition if such condition is determined to exist.
21.4 DUTY TO CONSTRUCT. Notwithstanding any other provision to the
contrary contained in this Lease, if prior to substantial completion of
Landlord's obligations under Article 4 any holder of a Mortgage enters and takes
possession of the Property for the purpose of foreclosing such Mortgage, such
holder may elect, by written notice given to Tenant and Landlord at any time
within 90 days after such entry and taking possession, not to perform Landlord's
obligations under Article 4, and in such event such holder and all persons
claiming under it shall be relieved of all obligations to perform, and all
liability for failure to perform said Landlord's obligations under Article 4 and
Tenant may, without waiver of any rights which Tenant may have against Landlord,
terminate this Lease and all its obligations hereunder by written notice to
Landlord and such
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holder given within 30 days after the day on which such holder shall have given
its notice as aforesaid.
21.5 PREPAID RENT. No Rent shall be paid more than thirty (30) days prior
to the due dates thereof and, as to a first Mortgagee of record and any other
Mortgagees of whom Tenant has been given written notice, payments made in
violation of this provision shall (except to the extent that such rents are
actually received by such Mortgagee) be a nullity as against such Mortgagee and
Tenant shall be liable for the amount of such payments to such Mortgagee.
21.6 CONTINUING OFFER. The covenants and agreements contained in this
Lease with respect to the rights, powers and benefits of a Mortgagee
(particularly, without limitation thereby, the covenants and agreements
contained in this Article) constitute a continuing offer to any person,
corporation or other entity, which by accepting or requiring an assignment of
this Lease or by entry or foreclosure assumes the obligations herein set forth
with respect to such Mortgagee; every such Mortgagee is hereby constituted a
party to this Lease as an obligee hereunder to the same extent as though its
name was written hereon as such and such Mortgagee shall be entitled to enforce
such provisions in its own name.
21.7 SUBORDINATION. Notwithstanding the foregoing provisions of this
Article, Tenant agrees, at the request of Landlord or any Mortgagee, to execute
and deliver promptly any certificate or other instrument which Landlord or such
Mortgagee may request subordinating the Lease and all rights of Tenant under the
Lease to any Mortgage, and to all advances made under such mortgage, provided
that (i) the holder of any such Mortgage shall execute and deliver to Tenant a
nondisturbance agreement substantially in the form attached hereto as EXHIBIT E
to the effect that, in the event of any foreclosure of such Mortgage, such
holder will not name Tenant as a party defendant to such foreclosure nor disturb
its possession under the Lease, or (ii) any such Mortgage shall contain
provisions substantially to the same effect as those contained in such a
nondisturbance agreement.
21.8 LIMITATIONS ON LIABILITY. Nothing contained in the foregoing Section
21.7 or in any such nondisturbance agreement or nondisturbance provision shall,
however, affect the prior rights of the holder of any Mortgage with respect to
the proceeds of any award in condemnation or of any fire insurance policies
affecting the Building, or impose upon any such holder any liability (i) for the
erection or completion of the Building, or (ii) in the event of damage or
destruction to the Building or the Demised Premises by fire or other casualty,
for any repairs, replacements, rebuilding or restoration except such repairs,
replacements, rebuilding or restoration as can reasonably be accomplished from
the net proceeds of insurance actually receive by, or made available to, such
holder, or (iii) for any default by Landlord under the Lease occurring prior to
any date upon which such holder shall become Tenant's Landlord, or (iv) for any
credits, offsets or claims against the rent under the Lease as a result of any
acts or omissions of Landlord committed or omitted prior to such date, or (v)
for return of any security deposit or other funds unless the same shall have
been received by such holder, and any such agreement or provision may so state.
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22. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs each
and every covenant, agreement, term, provision and condition herein contained on
the part and on behalf of Tenant to be kept and performed, Tenant shall quietly
enjoy the Demised Premises from and against the claims of all persons claiming
by, through or under Landlord subject, nevertheless, to the covenants,
agreements, terms, provisions and conditions of this Lease and to the mortgages,
ground leases and/or underlying leases to which this Lease is subject and
subordinate.
23. ENTIRE AGREEMENT - WAIVER - SURRENDER
23.1 ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties and any and all
statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it relied
in executing this Lease are contained herein and that Tenant in no way relied
upon any other statements or representations, written or oral. Any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of this Lease in whole or in part unless such executory
agreement is in writing and signed by the party against whom enforcement of the
change, modification, discharge or abandonment is sought. Nothing herein shall
prevent the parties from agreeing to amend this Lease and the Exhibits made part
hereof as long as such amendment shall be in writing and shall be duly signed by
both parties.
23.2 WAIVER. The failure of Landlord to seek redress for violation, or to
insist upon the strict performance, of any covenant or condition of this Lease,
or any of the Rules and Regulations promulgated hereunder, shall not prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. The receipt by Landlord of
rent with knowledge of the breach of any covenant of this Lease shall not be
deemed a waiver of such breach. The failure of Landlord to enforce any of such
Rules and Regulations against Tenant and/or any other tenant or subtenant in the
Building shall not be deemed a waiver of any such Rules and Regulations. No
provisions of this Lease shall be deemed to have been waived by Landlord or
Tenant unless such waiver be in writing signed by Landlord or Tenant, as the
case may be. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the stipulated rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice of
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
23.3 SURRENDER. No act or thing done by Landlord during the term hereby
demised shall be deemed an acceptance of a surrender of the Demised Premises,
and no agreement to accept such surrender shall be valid, unless in writing
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys of the Demised Premises prior to the termination of
this Lease. The delivery of keys to any employee of Landlord or of Landlord's
agents shall not operate as a termination of the Lease or a surrender of the
Demised
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Premises. In the event that Tenant at any time desires to have Landlord underlet
the Demised Premises for Tenant's account, Landlord or Landlord's agents are
authorized to receive the keys for such purposes without releasing Tenant from
any of the obligations under this Lease, and Tenant hereby relieves Landlord of
any liability for loss of or damage to any of Tenant's effects in connection
with such underletting.
24. INABILITY TO PERFORM - EXCULPATORY CLAUSE
Except as otherwise expressly provided in this Lease, this Lease and the
obligations of Tenant to pay rent hereunder and perform all other covenants,
agreements, terms, provisions and conditions hereunder on the part of Tenant to
be performed shall in no way be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this Lease or is unable to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make or is delayed in making any repairs, replacements,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from doing so by reason of strikes or labor troubles or any other
similar or dissimilar cause whatsoever beyond Landlord's reasonable control,
including but not limited to, governmental preemption in connection with a
national emergency or by reason of any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason of the
conditions of supply and demand which have been or are affected by war,
hostilities or other similar or dissimilar emergency. In each such instance of
inability of Landlord to perform, Landlord shall exercise reasonable diligence
to eliminate the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim for breach of
this Lease against any of Landlord's assets other than Landlord's interest in
the Building of which the Premises are a part and in the rents, issues and
profits thereof, and Tenant agrees to look solely to such interest for the
satisfaction of any liability of Landlord under this Lease, it being
specifically agreed that in no event shall Landlord (which term shall include
without limitation any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives, disclosed or undisclosed of Landlord or any managing agent)
ever be personally liable for any such liability. This paragraph shall not limit
any right that Tenant might otherwise have to obtain injunctive relief against
Landlord or to take any other action which shall not involve the personal
liability of Landlord to respond in monetary damages from Landlord's assets
other than the Landlord's interest in said real estate, as aforesaid. In no
event shall Landlord ever be liable for consequential damages.
25. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by
either party to the other party shall be in writing and, if received at
Landlord's or Tenant's address, shall be deemed to have been duly given when
either delivered or served personally or three (3) days after mailed in a
postpaid envelope, deposited in the United States mails addressed to the
respective party at its address as stated in Article 1, or if any address for
notices shall have been duly changed as hereinafter provided, if mailed as
aforesaid to the party at such changed address. Either party
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may at any time change the address for such notices, consents, requests, bills,
demands or statements by delivering or mailing, as aforesaid, to the other party
a notice stating the change and setting forth the changed address, provided such
changed address is within the United States.
All bills and statements for reimbursement or other payments or charges
due from Tenant to Landlord hereunder shall set forth in reasonable detail the
particulars relating thereto and shall be due and payable in full thirty (30)
days, unless herein otherwise provided, after submission thereof by Landlord to
Tenant. Landlord shall, at Tenant's reasonable request, promptly furnish Tenant
with such additional reasonable details relating thereto as Tenant shall
reasonably request. Tenant's failure to make timely payment of any amounts
indicated by such bills and statements, whether for work done by Landlord at
Tenant's request, reimbursement provided for by this Lease or for any other sums
properly owing by Tenant to Landlord, shall be treated as a default in the
payment of Rent, in which event Landlord shall have all rights and remedies
provided in this Lease for the nonpayment of Rent.
26. PARTIES BOUND - SEISIN OF TITLE
The covenants, agreements, terms, provisions and conditions of this Lease
shall bind and benefit the successors and assigns of the parties hereto with the
same effect as if mentioned in each instance where a party hereto is named or
referred to, except that no violation of the provisions of Article 14 hereof
shall operate to vest any rights in any successor or assignee of Tenant and that
the provisions of this Article shall not be construed as modifying the
conditions of limitation contained in Article 19 hereof.
If in connection with or as a consequence of the sale, transfer or other
disposition of the real estate (Land and/or Building either or both, as the case
may be) of which the Demised Premises are a part Landlord ceases to be the owner
of the reversionary interest in the Premises, Landlord shall so notify Tenant
and Landlord shall be entirely freed and relieved from the performance and
observance thereafter of all covenants and obligations hereunder accruing
thereafter on the part of Landlord to be performed and observed upon notice to
Tenant from the person so succeeding to Landlord's interest that such person has
assumed Landlord's obligations hereunder, it being understood and agreed in such
event (and it shall be deemed and construed as a covenant running with the land)
that the person succeeding to Landlord's ownership of said reversionary interest
shall thereupon and thereafter assume, and perform and observe, any and all of
such covenants and obligations of Landlord.
27. MISCELLANEOUS
27.1 SEPARABILITY. If any provision of this Lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
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27.2 CAPTIONS. The captions are inserted only as a matter of convenience
and for reference, and in no way define, limit or describe the scope of this
Lease nor the intent of any provision thereof.
27.3 BROKER. Each party represents and warrants that it has not directly
or indirectly dealt, with respect to the leasing of office space in the
Building, with any broker or had its attention called to the Premises or other
space to let in the Building, by any broker other than the Broker(s) (if any)
listed in Article 1 whose commission shall be the responsibility of Landlord.
Each party agrees to exonerate and save harmless and indemnify the other against
any claims for a commission by any other broker, person or firm with whom such
party has dealt in connection with the execution and delivery of this Lease or
out of negotiations between Landlord and Tenant with respect to the leasing of
other space in the Building.
27.4 GOVERNING LAW. This lease is made pursuant to, and shall be governed
by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts.
27.5 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of
its interest in this Lease, or the Rent payable hereunder, conditional in nature
or otherwise, which assignment is made to or held by a bank, trust company,
insurance company or other institutional lender holding a Mortgage on the
Building, Landlord and Tenant agree:
(a) that the execution thereof by Landlord and acceptance thereof by
such Mortgagee shall never be deemed an assumption by such Mortgagee of any of
the obligations of the Landlord thereunder, unless such Mortgagee shall, by
written notice sent to the Tenant, specifically otherwise elect; and
(b) that, except as aforesaid, such Mortgagee shall be treated as
having assumed the Landlord's obligations thereunder only upon foreclosure of
such Mortgagee's Mortgage and the taking of possession of the Demised Premises
after having given notice of its exercise of the option stated in Article 21
hereof to succeed to the interest of the Landlord under this Lease.
27.6 PARKING. Landlord shall allocate to Tenant the number of
non-exclusive Parking Spaces indicated in Article 1. Landlord may, pursuant to
Section 15.1, establish Rules and Regulations relative to all parking areas
serving Building tenants and may further engage the services of an independent
contractor to administer and control access to said parking areas. Landlord or
said independent contractor shall impose separate charges for use of said
parking areas, and such charges shall be payable by Tenant as Additional Rent
with respect to Tenant's Parking Spaces. As of the Term Commencement Date the
monthly charge for each Parking Space shall be One Hundred Twenty-five Dollars
($125). Thereafter, the monthly charge shall be as from time to time established
by Landlord or said independent contractor as the then prevailing monthly
parking charge for the Building. Tenant acknowledges that Landlord has informed
Tenant that Landlord intends to allocate in its tenant leases up to one hundred
twenty-five percent (125%) of the actual parking spaces servicing the Building.
It is further acknowledged and agreed that as a consequence of such
over-allocation of parking spaces there may occasionally occur instances in
which the number of parking spaces actually available to Tenant shall be less
than the
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Parking Spaces to which Tenant is entitled under this Lease. Landlord shall
incur no liability to Tenant as a consequence of such over-allocation of parking
spaces.
27.7 NOTICE OF LEASE. Neither party shall record this Lease in any
Registry of Deeds or Registry District; provided, however that the parties
hereto shall execute and deliver a recordable Notice of Lease in the form
prescribed by Chapter 183, Section 4 of the Massachusetts General Laws (the
"Notice of Lease") for recording by Tenant, at its option, with the Middlesex
South Registry of Deeds.
27.8 FINANCIAL STATEMENTS. If requested by Landlord, Tenant shall furnish
to Landlord promptly after they are available to Tenant copies of Tenant's
annual financial statements (audited, if available) and unaudited quarterly
financial statements and such other financial statements as Tenant shall furnish
from time to time to any lender and/or equity holder of Tenant. It is understood
and agreed that Landlord may furnish copies of any and all of such financial
statements to one or more of its mortgagees.
27.9 SECURITY DEPOSIT. Landlord acknowledges that it has received from
Tenant the sum of Eighty Thousand Dollars ($80,000), as security for the payment
of rents and the performance and observance of the agreements and conditions in
this Lease contained on the part of Tenant to be performed and observed. In the
event of any default or defaults in such payment, performance or observance,
Landlord may apply said sum or any part thereof towards the curing of any such
default or defaults and/or towards compensating Landlord for any loss or damage
arising from any such default or defaults. Commencing on the first day of the
twenty-fifth (25th) month of the Term of this Lease and continuing on the first
day of each month thereafter until the balance of the security deposited has
been refunded in full, Landlord shall remit to Tenant on a monthly basis the
lesser of $4,000 or the then remaining balance of the security deposit. It is
understood and agreed that Landlord shall always have the right to apply the
then remaining balance of the security deposit, or any part thereof, in the
event of any such default or defaults (beyond any applicable curative period),
without prejudice to any other remedy or remedies which Landlord may have, or
Landlord may pursue any other such remedy or remedies in lieu of applying the
security deposit or any part thereof. No interest shall be payable on the
security deposit or any part thereof. If Landlord shall apply any portion of the
security deposit as aforesaid, Tenant shall upon demand pay to Landlord such
amount as shall be required to restore the security deposit to the aforesaid
$80,000. Whenever the holder of Landlord's interest in this Lease, whether it be
the Landlord named in this Lease or any transferee of said Landlord, immediate
or remote, shall transfer its interest in this Lease, said holder shall turn
over to its transferee the then balance of the security deposit, and thereafter
following such tranferee's acknowledgment in writing to Tenant of receit of the
then remaining security deposit and such transferee's agreement to apply and/or
return said remaining security deposit in accordance with the provisions of this
Lease, such holder shall be released from any and all liability to Tenant with
respect to said sum or its application or return, it being understood that
Tenant shall thereafter look only to such transferee with respect to said sum,
its application and return. The holder of any mortgage upon property which
includes the Demised Premises shall never be responsible to Tenant for said sum
or its application or return unless said sum shall actually have been received
in hand by such holder.
7/12/95 35
<PAGE> 40
27.10 USE OF CONFERENCE CENTER. So long as the conference center located
on the ground floor of One Main Street, Cambridge, Massachusetts shall be used
as a meeting room for tenants of the Building and said building, Tenant shall be
entitled during the Term of this Lease at no cost to Tenant to use, on a
non-exclusive basis, said conference center, together with other tenants of the
Building and said building, as a meeting room and conference center, all in
accordance with the reasonable rules and regulations (including reservation
rights) established from time to time governing such use.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
By: /s/ Michael P. Sullivan
-----------------------------------
Michael P. Sullivan, Vice President
INTERNATIONAL INTEGRATION INCORPORATED
(I-CUBE)
By:
-----------------------------------
Madhav Anand, President
7/12/95 36
<PAGE> 41
EXHIBIT A
[GRAPHIC OMITTED]
101 MAIN STREET
CAMBRIDGE, MA 02142
TENANT: I Cube DATE: 07/14/95
15th FLOOR KEY PLAN
<PAGE> 42
EXHIBIT B
DESCRIPTION OF LAND
A certain parcel of land in the City of Cambridge, Middlesex County,
Massachusetts, bounded and described as follows:
Beginning at a point on the northerly line of Main Street at land now or
formerly of Technology Realty Trust, and thence running;
N 05(degrees) 59'48"E for 105.66 feet along said Trust land to a point;
thence running
N 85(degrees) 08'23"W for 90.03 feet along said Trust land to land now or
formerly of The Badger Company, Inc., thence running
N 05(degrees) 59'19"E for 120.64 feet long said Badger land to a point,
and continuing
N 16' 13'43"E for 46.32 feet along said Badger land to a point; thence
running
N 72(degrees) 07'10"W for 365.41 feet along said Badger land to a point in
the southeasterly line of Third Street; thence running
N 30(degrees) 00'44"E for 40.91 feet along Third Street to a point at land
of Commonwealth Gas Company; thence running
S 71(degrees) 46'10"E for 467.40 feet along said Commonwealth Gas Company
land to a point, thence continuing
S 73(degrees) 39'44"E for 31.42 feet along said Commonwealth Gas Company
land to a corner; thence running
S 16' 20'16"W for 82.21 feet on a line across the Broad Canal to the
southerly side thereof; thence running
SOUTHEASTERLY along the Broad Canal by the following courses and
distances: S 71(degrees) 26'21"E for 97.75 feet; S 72(degrees) 53'13"E for 74.12
feet; and S 76(degrees) 18'57"E for 50.44 feet to a point; thence running
S 05(degrees) 59'48"W for 154.28 feet to a point in the northerly line of
Main Street; thence running
N 84(degrees) 07'40"W for 268.33 feet along Main Street to the point of
beginning.
Said parcel is shown as Lot 1 on a "Subdivision Plan of Land in Cambridge,
Mass. (Middlesex County)", dated April 24, 1981, and revised September 4, 1981,
drawn by Boston Survey Consultants, and prepared for Darvel Realty Trust,
recorded with Middlesex Southern District Registry of Deeds in Book 14412, Page
199.
7/12/95
<PAGE> 43
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls of the Building shall not be obstructed or
encumbered or used for any purpose other than ingress and egress to and from the
premises demised to any tenant or occupant.
2. No awnings or other projections shall be attached to the outside walls
or windows of the Building without the prior consent of Landlord. No curtains,
blinds, shades, or screens shall be attached or hung in, or used in connection
with, any window or door of the premises demised to any tenant or occupant,
without the prior consent of Landlord. Such awnings, projections, curtains,
blinds, shades, screens, or other fixtures must be of a quality type, design and
color, and attached in a manner, approved by Landlord.
3. No sign, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or inside of
the premises demised to any tenant or occupant or of the Building without the
prior written consent of Landlord. Interior signs on doors and directory tables,
if any, shall be of a size, color and style approved by Landlord.
4. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed, nor shall any bottles, parcels, or
other articles be placed on or stored upon any window sills.
5. No show cases or other articles of any kind shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the halls,
corridors, vestibules or other parts of the Building.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein.
7. No tenant or occupant shall mark, paint, drill into, or in any way
deface any part of the Building or the premises demised to such tenant or
occupant. No boring, cutting or stringing of wires shall be permitted, except
with the prior consent of the Landlord, and as Landlord may direct. No tenant or
occupant shall install any resilient tile or similar floor covering in the
premises demised to such tenant or occupant except in manner approved by
Landlord.
8. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the premises demised to any tenant. Bicycles may be stored in
racks, if any, furnished for such purpose by Landlord in a common area of the
Building. No cooking shall be done or
7/12/95
<PAGE> 44
permitted in the Building by any tenant without the approval of Landlord. No
tenant shall cause or permit any unusual or objectionable odors to emanate from
the premises demised to such tenant.
9. Without the prior consent of Landlord, no space in the Building shall
be used for manufacturing, or for the sale of merchandise, goods or property of
any kind at auction.
10. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with other tenants or occupants of the Building
or neighboring buildings or premises, whether by the use of any musical
instrument, radio, television set or other audio device, unmusical noise,
whistling, singing, or in any other way. Nothing shall be thrown out of any
doors or windows.
11. Each tenant must, upon the termination of its tenancy, restore to
Landlord all keys, either furnished to, or otherwise procured by, such tenant,
including without limitation, all parking pass keys, Building keys, office keys
and keys to storage areas and toilet rooms.
12. All removals from the Building, or the carrying in or out of the
Building or the premises demised to any tenant, of any safes, freight,
furniture, or bulky matter of any description must take place at such time and
in such manner as Landlord or its agents may determine, from time to time.
Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of the
Building Rules or the provisions of such tenant's lease.
13. No tenant shall use or occupy, or permit any portion of the premises
demised to such tenant to be used or occupied, as an office for a public
stenographer or typist, or to a barber or manicure shop, or as an employment
bureau. No tenant or occupant shall engage or pay any employees in the Building,
except those actually working for such tenant or occupant in the Building, nor
advertise for laborers giving an address at the Building.
14. No tenant or occupant shall purchase spring water, ice, food,
beverage, lighting maintenance, cleaning towels or other like service, from any
company or person not approved by Landlord, such approval not unreasonably to be
withheld.
15. Landlord shall have the right to prohibit any advertising by any
tenant or occupant which, in Landlord's opinion, tends to impair the reputation
of the Building or its desirability as a building for offices, and upon notice
from Landlord, such tenant or occupant shall refrain from or discontinue such
advertising.
16. Landlord reserves the right to exclude from the Building, between the
hours of 6:00 p.m. and 8:00 a.m. on Business Days and otherwise at all hours,
all persons who do not present a pass to the building signed by the Landlord.
Landlord will furnish passes to persons for whom any tenant requests such
passes. Each tenant shall be responsible for all persons for whom it requests
such passes and shall be liable to Landlord for all wrongful acts of such
persons.
7/12/95 2
<PAGE> 45
17. Each tenant, before closing and leaving the premises demised to such
tenant at any time, shall see that all entrance doors are locked and windows
closed.
18. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors, and
employees while performing janitorial or other cleaning services and making
repairs or alterations in said premises.
19. No premises shall be used, or permitted to be used, for lodging or
sleeping, or for any immoral or illegal purpose.
20. There shall not be used in the Building, either by any tenant or
occupant or by their agents or contractors, in the delivery or receipt of
merchandise, freight or other matter, any hand trucks or other means of
conveyance, except those equipped with rubber tires, rubber side guards and such
other safeguards as Landlord may require.
21. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant and occupant shall cooperate in seeking their prevention.
22. If the premises demised to any tenant become infested with vermin,
such tenant, at its sole cost and expense, shall cause its premises to be
exterminated from time to time, to the satisfaction of Landlord and shall employ
such exterminators therefor as shall be approved by Landlord.
23. No premises shall be used, or permitted to be used, at any time,
without the prior approval of Landlord, as a store for the sale or display of
goods, wares or merchandise of any kind, or as a restaurant, shop, booth,
bootblack or other stand, or for the conduct of any business or occupation which
predominantly involves direct patronage of the general public in the premises
demised to such tenant, or for manufacturing or for other similar purposes.
24. No tenant shall move, or permit to be moved, into or out of the
Building or the premises demised to such tenant, any heavy or bulky matter,
without the specific prior written approval of Landlord. If any such matter
requires special handing, only a person holding a Master Rigger's License shall
be employed to perform such special handling. No tenant shall place, or permit
to be placed on any part of the floor or floors of the premises demised to such
tenant, a load exceeding the floor load per square foot which such floor was
designed to carry and which is allowed by law. Landlord reserves the right to
prescribe the weight and position of safes and other heavy matter, which must be
placed so as to distribute the weight.
25. The requirements of tenants will be attended to only upon application
at the office of the Building. Building employees shall not be required to
perform, and shall not be requested by any tenant or occupant to perform any
work outside of their regular duties, unless under specific instructions from
the office of the managing agent of the Building.
7/12/95 3
<PAGE> 46
EXHIBIT E
AGREEMENT OF SUBORDINATION
NON-DISTURBANCE AND ATTORNMENT
THIS AGREEMENT made as of this 14th day of July, 1995, by and among DARVEL
REALTY TRUST, a Massachusetts business trust having a principal place of
business at One Main Street Cambridge, Massachusetts (hereinafter called "Ground
Lessor"), INTERNATIONAL INTEGRATION INCORPORATED (I-CUBE), a Massachusetts
corporation (hereinafter called "Tenant"), and TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA, a New York corporation, having its principal office and
post office address at 730 Third Avenue, New York, New York 10017 (hereinafter
called "Teachers");
WITNESSETH
WHEREAS, Ground Lessor is the owner in fee simple of those certain
premises situate, lying and being in the City of Cambridge, County of Middlesex,
Commonwealth of Massachusetts as more particularly described in Exhibit A
attached hereto (the "Demised Premises"); and
WHEREAS, under the terms of a certain lease dated September 23, 1981,
notice of which is recorded with the Middlesex South Registry in Book 14451,
Page 245 (the "Ground Lease"), Ground Lessor did lease, let and demise the
Demised Premises to Riverfront Office Park Joint Venture (hereinafter called
"Landlord") upon the terms and conditions therein set forth;
WHEREAS, Teachers is the owner and holder of a certain promissory note
secured by a Security Agreement and Mortgage Deed (the "Mortgage"), constituting
a first lien upon the leasehold estate created by the Ground Lease;
WHEREAS, under the terms of a certain Agreement of Lease dated as of July
14, 1995 (the "Sublease"), Landlord did lease, let and demise to Tenant, subject
to the Ground Lease, a portion of the Demised Premises as therein more
particularly described;
WHEREAS, the parties hereto desire to establish additional rights of quiet
and peaceful possession for the benefit of Tenant under the Sublease and further
to define the terms, covenants and conditions precedent for such additional
rights.
NOW, THEREFORE, in consideration of the premises and of the sum of One
($1.00) Dollar and other good and valuable consideration, each to the other in
hand paid, it is hereby mutually covenanted and agreed as follows:
1. Ground Lessor consents to and approves the Sublease.
7/12/95
<PAGE> 47
2. In the event of the cancellation or termination of the Ground Lease
or of the surrender thereof, whether voluntary, involuntary or by
operation of law, prior to the expiration date of the Sublease,
including any extensions and renewals of the Sublease now provided
thereunder, and subject to the observance and performance by Tenant,
within such grace periods as may be applicable under the Sublease,
of all of the terms, covenants and conditions of the Sublease on the
part of Tenant to be observed and performed, Ground Lessor does
hereby covenant and warrant as follows;
(a) The quiet and peaceful possession of Tenant under the
Sublease;
(b) That the Sublease shall continue in full force and effect and
Ground Lessor shall recognize the Sublease and the Tenant's
rights thereunder and will thereby establish direct privity of
estate and contract as between Ground Lessor and Tenant, with
the same force and effect and with the same relative priority
in time and right as though the Sublease were originally made
directly from Ground Lessor in favor of Tenant, but not in
respect of any amendment to the Sublease not previously
approved in writing by Ground Lessor.
3. That in the event of the cancellation or termination of the Ground
Lease or of the surrender thereof, whether voluntary, involuntary or
by operation of law, prior to the expiration date of the Sublease,
including any extensions and renewals of the Sublease now provided
thereunder, Tenant hereby covenants and agrees to make full and
complete attornment to Ground Lessor, for the balance of the term of
the Sublease, including any extensions and renewals thereof, now
provided thereunder, upon the same terms, covenants and conditions
as therein provided, subject, however, in all events to the terms,
conditions and provisions of this Agreement, so as to establish
direct privity of estate and contract as between Ground Lessor and
Tenant and with the same force and effect and relative priority in
time and right as though the Sublease were originally made directly
from Ground Lessor to Tenant, and Tenant will thereafter make all
rent payments thereafter directly to Ground Lessor.
4. That Teachers and Tenant do hereby covenant and agree that the
Mortgage shall be and the same is hereby made SUBORDINATE to the
Sublease and to the recognition and attornment agreements provided
for in Paragraphs 2 and 3 hereof with the same force and effect as
if the Sublease had been executed, delivered and recorded and the
said recognition and attornment agreements aforesaid had been
effected in each case prior to the execution, delivery and recording
of the Mortgage,
7/12/95 2
<PAGE> 48
EXCEPT, HOWEVER, that this Subordination shall not affect nor be
applicable to and does hereby expressly exclude
(a) The prior right and claim under and the prior lien of the
Mortgage in, to and upon any award or other compensation
heretofore or hereafter to be made for any taking by eminent
domain of any party of the Demised Premises, and as to the
right of disposition thereof in accordance with the provisions
of the Mortgage,
(b) The prior right and claim under and the prior lien of the
Mortgage, in, to and upon any proceeds payable under all
policies of fire and rent insurance upon the Demised Premises
and as to the right of disposition thereof in accordance with
the terms of the Mortgage, and
(c) Any lien, right, power or interest, if any, which may have
arisen or intervened in the period between the recording of
the Mortgage and the execution of the Sublease or the
effective date of the recognition and attornment agreements
aforesaid, whichever is later, or any lien or judgment which
may arise at any time under the terms of this Agreement.
5. That the terms, covenants and conditions hereof shall inure to the
benefit of and be binding upon the respective parties hereto, their
respective heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered in their respective names and behalf, and, if a
corporation, its officers duly authorized, the day and year first above written.
TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
By: /s/ [Illegible]
------------------------------
Vice President
DARVEL REALTY TRUST
By: /s/ Michael P. Sullivan
------------------------------
Michael P. Sullivan
Vice President and a Trustee
INTERNATIONAL INTEGRATION
INCORPORATED (I-CUBE)
By: /s/ Madhav Anand
------------------------------
Madhav Anand, President
7/12/95 3
<PAGE> 49
STATE OF NEW YORK
New York, ss July __, 1995
Then personally appeared the above named _________________ and
acknowledged the foregoing instrument to be his free act and deed and the free
act and deed of Teachers Insurance and Annuity Association of America, before
me.
_____________________________________
Notary Public
My commission expires:_______________
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss July __, 1995
Then personally appeared the above named Michael P. Sullivan, Vice
President and a Trustee, and acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of Darvel Realty Trust, before me.
_____________________________________
Notary Public
My commission expires:_______________
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss July __, 1995
Then personally appeared the above named Madhav Anand, President of
International Integration Incorporated (I-Cube), and acknowledged the foregoing
instrument to be his free act and deed and the free act and deed of
International Integration Incorporated (I-Cube), before me.
_____________________________________
Notary Public
My commission expires:_______________
7/12/95 4
<PAGE> 50
EXHIBIT A
DESCRIPTION OF LAND
A certain parcel of land in the City of Cambridge, Middlesex County,
Massachusetts, bounded and described as follows:
Beginning at a point on the northerly line of Main Street at land now or
formerly of Technology Realty Trust, and thence running;
N 05(degrees) 59'48"E for 105.66 feet along said Trust land to a point;
thence running
N 85(degrees) 08'23"W for 90.03 feet along said Trust land to land now or
formerly of The Badger Company, Inc., thence running
N 05(degrees) 59'19"E for 120.64 feet long said Badger land to a point,
and continuing
N 16' 13'43"E for 46.32 feet along said Badger land to a point; thence
running
N 72(degrees) 07'10"W for 365.41 feet along said Badger land to a point in
the southeasterly line of Third Street; thence running
N 30(degrees) 00'44"E for 40.91 feet along Third Street to a point at land
of Commonwealth Gas Company; thence running
S 71(degrees) 46'10"E for 467.40 feet along said Commonwealth Gas Company
land to a point, thence continuing
S 73(degrees) 39'44"E for 31.42 feet along said Commonwealth Gas Company
land to a corner; thence running
S 16' 20'16"W for 82.21 feet on a line across the Broad Canal to the
southerly side thereof; thence running
SOUTHEASTERLY along the Broad Canal by the following courses and
distances: S 71(degrees) 26'21"E for 97.75 feet; S 72(degrees) 53'13"E for 74.12
feet; and S 76(degrees) 18'57"E for 50.44 feet to a point; thence running
S 05(degrees) 59'48"W for 154.28 feet to a point in the northerly line of
Main Street; thence running
N 84(degrees) 07'40"W for 268.33 feet along Main Street to the point of
beginning.
Said parcel is shown as Lot 1 on a "Subdivision Plan of Land in Cambridge,
Mass. (Middlesex County)", dated April 24, 1981, and revised September 4, 1981,
drawn by Boston Survey Consultants, and prepared for Darvel Realty Trust,
recorded with Middlesex Southern District Registry of Deeds in Book 14412, Page
199.
7/12/95
<PAGE> 1
EXHIBIT 10.17
AMENDMENT NO. 1 TO AGREEMENT OF LEASE
THIS AMENDMENT TO AGREEMENT OF LEASE made as of the 25th day of September,
1996, by and between RIVERFRONT OFFICE PARK JOINT VENTURE, a Massachusetts joint
venture (hereinafter referred to as "Landlord") and INTERNATIONAL INTEGRATION
INCORPORATION (I-CUBE), a Massachusetts corporation (hereinafter referred to as
"Tenant").
WITNESSETH:
WHEREAS, the parties hereto are parties to a certain Agreement of Lease
dated as of July 14, 1995 (hereinafter referred to as the "Lease"); and
WHEREAS, the parties hereto desire to amend the Lease as hereinafter
provided;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
1. Effective on the Fourteenth Floor Term Commencement Date (said date
being defined as the later of: (i) December 1, 1996, or (ii) the date on which
the Fourteenth Floor Improvements are substantially completed in accordance with
Paragraph 2(c) hereinafter) there shall be added to the Demised Premises
approximately 23,350 rentable square feet of space located on the fourteenth
(14th) floor of the Building, as shown on the plan attached hereto as EXHIBIT A
and made a part hereof (hereinafter referred to as the "Fourteenth Floor
Expansion Space").
2. (a) The Fourteenth Floor Expansion Space is leased in its present "AS
IS" condition, normal wear and tear occurring between the date of execution of
this Amendment and the Fourteenth Floor Term Commencement Date (said date being
defined as the later of (i) December 1, 1996, or (ii) the date on which the
Fourteenth Floor Improvements are substantially completed in accordance with
Paragraph 2(c) hereinafter) excepted. Promptly following execution of this
Amendment, Landlord and Tenant shall conduct a walk-through the Fourteenth Floor
Expansion Space to ascertain its existing condition for the purposes of
establishing a mutually acceptable definition of the Fourteenth Floor Expansion
Space's present "AS IS" condition, as well as to agree upon what shall
constitute normal wear and tear between said inspection and the Fourteenth Floor
Term Commencement Date. The repair of any major damage or excessive wear beyond
the aforesaid mutually agreed normal wear and tear shall be the responsibility
of Landlord and shall constitute a part of the Fourteenth Floor Improvements (as
defined in Paragraph 2(c) below) to be undertaken by Landlord. In the event
Landlord and Tenant shall fail to reach a mutually acceptable definition of said
"AS IS" condition within ten (10) business days of the aforesaid walk-through,
Landlord, at its option, may either (i) accept Tenant's definition of "AS IS" or
(ii) terminate this Amendment upon written notice thereof to Tenant given within
fifteen (15) business days of the aforesaid walk-through.
9/24/96
<PAGE> 2
(b) Landlord shall provide to Tenant a cash allowance of $116,750
($5.00 per square foot for the 23,350 square feet constituting the Fourteenth
Floor Expansion Space) for tenant fit-up (including, but not limited to, costs
associated with cabling and wiring) of the Fourteenth Floor Expansion Space,
payable to Tenant by Landlord within ten (10) days of receipt by Landlord of
paid third party invoices evidencing the expenditure by Tenant of such sum for
tenant fit-up of the Fourteenth Floor Expansion Space. All such tenant fit-up
work shall be completed and invoiced to Landlord by April 15, 1997. All such
tenant fit-up work shall be subject to and accomplished in compliance with
Articles 10. and 11. of the Lease.
(c) Subject to delay by causes beyond the reasonable control of
Landlord, Landlord shall, on or before December 1, 1996, substantially complete
removal of the internal stairway presently located within the Fourteenth Floor
Expansion Space and refinishing of the fourteenth (14th) floor elevator lobby
area (collectively, the "Fourteenth Floor Improvements"). For purposes hereof,
the terms substantial completion or substantially complete shall mean (i) that
the Fourteenth Floor Improvements have been completed with the exception of
minor punch list items so that the Fourteenth Floor Expansion Space may be used
for their intended purpose, and (ii) that a certificate of occupancy or other
permission for Tenant to occupy the Fourteenth Floor Expansion Space for their
permitted use hereunder shall have been obtained.
(d) On or before October 15, 1996, Landlord shall notify Tenant that
Tenant and its contractor may have access to the Fourteenth Floor Expansion
Space as of such date for the purpose of initiating tenant fit-up work and
preparing the Fourteenth Floor Expansion Space for Tenant's occupancy. Such
access shall be deemed to be pursuant to a license pursuant to Paragraph 4 of
this Amendment and shall not be deemed to advance the Fourteenth Floor Term
Commencement Date. Notwithstanding the fact that the Fourteenth Floor Term
Commencement Date shall not have occurred, it is understood and agreed that the
provisions of Article 13 of the Lease shall become effective as to the
Fourteenth Floor Expansion Space immediately upon the commencement of such
access to Tenant, and, Tenant on or before the commencement date of such access
shall furnish to Landlord a certificate of insurance pursuant to Section 13.2 of
the Lease.
3. Tenant shall be conclusively deemed to have agreed that Landlord has
performed all of its obligations under Section 2 of this Amendment unless not
later than sixty (60) days after the Fourteenth Floor Term Commencement Date
Tenant shall give Landlord written notice specifying in reasonable detail the
respects in which Landlord has not performed such obligations.
4. To the extent that Tenant and its contractor shall enter the Fourteenth
Floor Expansion Space the prior to the Fourteenth Floor Term Commencement Date
to undertake such work as is to be performed by Tenant in order to prepare the
Fourteenth Floor Expansion Space for Tenant's occupancy, such entry shall be
deemed to be pursuant to a license from Landlord to Tenant and shall be at the
risk of Tenant. In no event shall Tenant or its contractor materially interfere
with any construction work being performed by or on behalf of Landlord in or
around the Fourteenth Floor Expansion Space; without limiting the generality of
the foregoing, Tenant
9/24/96 2
<PAGE> 3
shall comply with all reasonable instructions issued by Landlord's contractors
relative to the moving of Tenant's equipment and other property into the
Fourteenth Floor Expansion Space and shall pay any reasonable fees or costs
imposed in connection therewith.
5. Effective on the Fourteenth Floor Term Commencement Date, Article 1(10)
of the Lease is hereby amended to read in its entirety as follows:
"(10) Parking Spaces: Thirty-six (36) until October 15, 1999, and
thereafter fifty-three (53)."
6. Effective on the Fourteenth Floor Term Commencement Date, Article 1(13)
of the Lease is hereby amended to read in its entirety a follows:
"(13) Rentable Area of the
Demised Premises: 35,488 square feet."
7. Effective on October 15, 1999 (the "Mathsoft Expansion Space Term
Commencement Date") there shall be added to the Demised Premises the 11,212
rentable square feet of space located on the fifteenth (15th) floor of the
Building presently occupied by Tenant as a sublessee from Mathsoft, Inc. (the
"Mathsoft Expansion Space") under a sublease term terminating on October 14,
1999. The Mathsoft Expansion Space is leased in the "AS IS" condition then
existing on the Mathsoft Expansion Space Term Commencement Date.
8. Effective on the Mathsoft Expansion Space Term Commencement Date,
Article 1(13) of the Lease is hereby amended to read in its entirety as follows:
"(13) Rentable Area of the
Demised Premises: 46,700 square feet."
9. Effective on the Fourteenth Floor Term Commencement Date, Article 1(19)
of the Lease is hereby amended to read in its entirety as follows to reflect a
phased-in increase in the Yearly Fixed Rent payable under the Lease attributable
to the addition of the Fourteenth Floor Expansion Space and the Mathsoft
Expansion Space, respectively:
"(19) Yearly Fixed Rent: (a) DURING THE PERIOD COMMENCING THE
FOURTEENTH FLOOR TERM COMMENCEMENT
DATE THROUGH MARCH 31, 1997:
At the rate of $408,036 per annum.
($22.00 per rentable square foot on
12,138 square feet and $23.50 per
rentable square foot on 6,000 square
feet).
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<PAGE> 4
(b) DURING THE PERIOD APRIL 1, 1997
THROUGH JULY 31, 1997:
At the rate of $549,036 per annum.
($22.00 per rentable square foot on
12,138 square feet and $23.50 per
rentable square foot on 12,000 square
feet).
(c) DURING THE PERIOD AUGUST 1, 1997
THROUGH NOVEMBER 30, 1997:
At the rate of $690,036 per annum.
($22.00 per rentable square foot on
12,138 square feet and $23.50 per
rentable square foot on 18,000 square
feet).
(d) DURING THE PERIOD DECEMBER 1, 1997
THROUGH OCTOBER 14, 1999:
At the rate of $815,761 per annum.
($22.00 per rentable square foot on
12,138 square feet and $23.50 per
rentable square foot on 23,350 square
feet).
(e) DURING THE PERIOD OCTOBER 15, 1999
THROUGH NOVEMBER 30, 2001:
At the rate of $1,097,450 per annum.
($23.50 per rentable square foot on
46,700 square feet)."
10. Effective on the Fourteenth Floor Term Commencement Date, the Term of
the Lease, as defined in Section 3.1 of the Lease, is extended from October 14,
1999 to November 30, 2001.
11. Effective on the Fourteenth Floor Term Commencement Date, Section 3.3
of the Lease is hereby amended to read in its entirety as follows:
"3.3 OPTION TO EXTEND. On the conditions that (i) Tenant is
not then in default beyond any applicable grace period(s) of its
covenants and obligations
9/24/96 4
<PAGE> 5
under this Lease and (ii) Tenant itself is then occupying the
entirety of the Demised Premises, Tenant may extend the Term of this
Lease for one (1) additional period of five (5) years by giving
notice to Landlord of its election to extend at least twelve (12)
months prior to the end of the original Term. The Yearly Fixed Rent
payable by Tenant with respect to such extension period shall be
equal an amount computed by multiplying (i) 46,700 (the Rentable
Area of the Demised Premises), by (ii) $23.50, by (iii) a fraction,
the denominator of which shall be the level of the Consumer Price
Index, Boston, Massachusetts (CPI-W index, Boston, Massachusetts -
base years 1982-84 = 100) for the month of November, 1996 and the
numerator of which shall be the level of said index for the month of
November, 2001."
12. Effective on the Fourteenth Floor Term Commencement Date, the
following new Section 3.4 is added to the Lease:
"3.4 RIGHT OF FIRST OFFER. In the event that at any time
during the Term of this Lease any office space in the Building
becomes or is to become available for rental and Landlord wishes to
lease such space to any person other than the then current occupant
thereof (if any), and in the further event that any existing
tenant(s) of the Building who have heretofore been granted any
right(s) of first offer by Landlord with respect to such space shall
fail to exercise such right(s), and in the further event Tenant is
not then in default beyond any applicable grace period(s) of its
covenants and obligations under this Lease and Tenant itself is then
occupying the entirety of the Demised Premises, Landlord shall make
a written offer to lease such space to Tenant, stating the Rent that
Landlord will accept and all other material terms and conditions of
the proposed lease, and Tenant shall have a right of first refusal
to lease such space by giving notice to Landlord to such effect
within fifteen (15) business days after notice of such offer. If
such notice of acceptance by Tenant is not so given, then Landlord
shall be free to lease such space to a third party on materially the
same economic terms and conditions. In any case in which Tenant
shall have waived said right of first offer, or Tenant shall have
failed to timely exercise such right, then Tenant shall, on request
of Landlord, execute and deliver in recordable form an instrument
indicating such waiver or expiration, which instrument shall be
conclusive in favor of all persons relying thereon in good faith."
13. Effective on the Fourteenth Floor Term Commencement Date, Section 6.4
of the Lease is hereby amended to read in its entirety as follows:
"6.4 TENANT'S PROPORTIONATE SHARE. (a) Tenant's proportionate
share of taxes pursuant to Section 6.2 and operating expenses
pursuant to Section 6.3, respectively, with respect to the original
12,138 square feet of Rentable Area of the Demised Premises shall be
3.57% (12,138 square feet/340,240 square feet) and 3.71% (12,138
square feet/326,900 square feet), respectively.
9/24/96 5
<PAGE> 6
(b) In addition, Tenant's proportionate share of taxes
pursuant to Section 6.2 with respect to the Fourteenth Floor
Expansion Space (as defined in Amendment No. 1 to Agreement of Lease
dated as July 25, 1996) shall be 6.86% (23,350 square feet/340,240
square feet) of the amount of said taxes imposed against the
Building and the Land in excess of those imposed for the fiscal tax
year ending June 30, 1997, prorated with respect to any portion of a
fiscal tax year, in which the term of this Lease with respect to the
Fourteenth Floor Expansion Space begins or ends.
(c) In addition, Tenant's proportionate share of
operating expenses pursuant to Section 6.3 with respect to the
Fourteenth Floor Expansion Space shall be 7.14% (23,350 square
feet/326,900 square feet) of the amount of said operating expenses
(determined in accordance with the provisions of Section 6.3)
incurred by Landlord in the operation and maintenance of the
Building and the Land in excess of those incurred by Landlord for
the calendar year 1996, prorated with respect to any portion of a
calendar year in which the term of this Lease with respect to the
Fourteenth Floor Expansion Space begins or ends."
14. Effective October 15, 1999, the date "June 30, 1995" appearing in the
first sentence of Section 6.2 of the Lease shall be deleted and the date "June
30, 1997" shall be inserted in substitution thereof.
15. Effective October 15, 1999, the date "December 31, 1995" appearing in
the first sentence of Section 6.3 of the Lease shall be deleted and the date
"December 31, 1996" shall be inserted in substitution thereof.
16. Effective October 15, 1999, Section 6.4 of the Lease is hereby amended
to read in its entirety as follows:
"6.4 TENANT'S PROPORTIONATE SHARE. Tenant's proportionate
share of taxes pursuant to Section 6.2 and operating expenses
pursuant to Section 6.3, respectively, shall be 13.73%
(46,700/340,240 square feet) and 14.29% (46,700/326,900 square
feet), respectively."
17. Landlord, at Landlord's expense, shall install building standard
signage for Tenant on (a) the lobby directory, (b) floor directory and (c) the
listing on the side of the Building adjacent to the front door.
18. Landlord shall be responsible for payment of leasing brokerage
commissions in connection with this Amendment to Lynch, Murphy, Walsh and
Partners, Inc..
19. Except as expressly provided herein, as used herein, all capitalized
terms shall have the same meaning as set forth in the Lease.
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<PAGE> 7
20. Except as herein expressly modified, the provisions of the Lease are
hereby confirmed and ratified and shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
By: /s/ Michael P. Sullivan
-----------------------------------
Michael P. Sullivan, Vice President
INTERNATIONAL INTEGRATION
INCORPORATION (I-CUBE)
By: /s/ Madhav Anand
-----------------------------------
Madhav Ahand, President
9/24/96 7
<PAGE> 1
EXHIBIT 10.18
6/19/95
SUBLEASE
MathSoft, Inc., a Massachusetts corporation with a place of business at
101 Main Street, Cambridge, Massachusetts ("Sublessor"), and International
Integration Incorporated, a Massachusetts corporation with a place of business
at 675 Massachusetts Avenue, Cambridge, Massachusetts ("Sublessee"), make this
Sublease as of June 19, 1995.
PRELIMINARY STATEMENT
Sublessor is the tenant in a portion of the building known and numbered as
101 Main Street, Cambridge, Massachusetts (the "Building"), consisting of
approximately 11,212 rentable square feet on the fifteenth (15) floor of the
Building and 23,350 rentable square feet on the sixteenth (16) floor of the
Building (the "Premises"), under a lease dated August 17, 1993, by and between
Riverfront Office Park Joint Venture, as lessor (the "Lessor"), and Sublessor,
as lessee (the "Lease").
Sublessee currently occupies and desires to sublet a portion of the
Premises consisting of approximately 11,212 rentable square feet on the
fifteenth floor of the Building and shown on Exhibit A attached to this Sublease
(the "Demised Premises"). Sublessor is willing to sublet the Demised Premises to
Sublessee on the terms and conditions set forth in this Sublease.
AGREEMENT
In consideration of the mutual covenants of this Sublease and other
valuable consideration, the receipt and sufficiency of which Sublessee and
Sublessor hereby acknowledge, Sublessor and Sublessee agree as follows:
1. DEMISED PREMISES. Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor, the Demised Premises, together with
the right to use, in common with others entitled thereto the common roadways,
walkways, hallways, stairways and elevators necessary for access to the Demised
Premises, subject to the terms and conditions of the Sublease and in accordance
with any rules and regulations established by Lessor from time to time.
2. SPECIFICATIONS. Sublessor has previously delivered the Demised Premises
to the Sublessee on the Commencement Date (as hereinafter defined) in its then
current "as is" condition, and Sublessee acknowledges that it has accepted the
Demised Premises in such condition and is fully satisfied therewith.
3. TERM. The term of this Sublease (the "Sublease Term") shall commence on
February 24, 1995 (the "Commencement Date"), and shall terminate on October 14,
1999, or such earlier date upon which said Sublease Term may expire or be
terminated pursuant to this Sublease, the Lease or pursuant to law.
4. USE. Sublessee will use and occupy the Demised Premises solely for
general office purposes and in accordance with the use permitted under the
applicable zoning regulations. The Demised Premises will not be used for any
other purposes without the prior written consent of Lessor and Sublessor.
<PAGE> 2
-2-
Demised Premises will not be used for any other purposes without the prior
written consent of Lessor and Sublessor.
5. MONTHLY BASE RENT. Sublessee shall pay to Sublessor rent at an annual
rate of $168,180 ("Base Rent"), payable in equal monthly installments of $14,015
(the "Monthly Base Rent"), on the first day of each calendar month during the
Lease Term. If the Sublease Term includes a partial calendar month at its
beginning or end, the installment of Monthly Base Rent for such partial month
shall be prorated at the rate of 1/30 of the monthly installment for each day in
such partial month within the Sublease Term and shall be payable in advance on
the first day of such partial month occurring within the Sublease Term. The Base
Rent shall be paid to Sublessor at its offices located at 101 Main Street,
Cambridge, Massachusetts, or such other place as Sublessor may designate in
writing, in lawful money of the United States of America, without demand
therefor, and without any deduction, setoff or abatement.
6. REAL ESTATE TAXES AND OPERATING EXPENSES. In addition to Base Rent, for
those periods coinciding with the Sublease Term, Sublessee shall pay to
Sublessor, as additional rent, 32.44 percent of the difference between (i) the
amounts charged by Lessor to Sublessor under Sections 6.2 and 6.3 of the Lease
and (ii) all such amounts charged with respect to fiscal year 1995 as to Section
6.2 and with respect to calendar year 1995 as to Section 6.3. Specifically
excluded from the amount set forth in clause (i) above shall be any amounts
charged under Section 7.4., Article 12, Section 5.3, or any other amounts
charged by Lessor for services to the Premises leased by Sublessor under the
Lease which are not part of the Demised Premises hereunder, or any other amounts
charged by Lessor arising from Sublessor's failure to fulfill its obligations
under the Lease, provided the failure to fulfill such obligations under the
Lease is not caused by Sublessee. Sublessee shall make such payments within ten
days after written notice from Sublessor to Sublessee that such payments are
due; provided, however, if Lessor requires Sublessor to make estimated payments
under said Sections 6.2 and 6.3, Sublessee shall make payments on account of any
amounts due under this Paragraph 6 in monthly installments equal to one-twelfth
of the annual amount reasonably estimated by Sublessor to be payable under this
Paragraph 6 based on the most recent projection provided by Lessor to Sublessor
under Sections 6.2 and 6.3 of the Lease. Sublessee shall pay such monthly
installments on the first day of each calendar month. Within 20 days after
Sublessor receives a final accounting under said Sections 6.2 and 6.3 for any
period during which Sublessee has made estimated payments under this Paragraph
6, Sublessor shall provide to Sublessee a statement of the actual amount payable
by Sublessee under this Paragraph 6 based on such final accounting. If the
amount shown on such statement exceeds the total estimated payments made by
Sublessee with respect to the corresponding period, Sublessee shall pay such
excess to Sublessor within ten days after receiving such statement. If the total
estimated payments for such period exceed the amount shown on such statement,
Sublessor shall give to Sublessee a credit against subsequent payments of Base
Rent and additional rent under this Sublease or, after the expiration of the
Sublease Term, pay such excess to Sublessee at the time of the delivery of such
statement.
7. ELECTRIC. Sublessee shall purchase the electrical energy that the
Sublessee requires for the operation of the lighting fixtures, appliances and
equipment in the Demised Premises directly from the utility company which
services the Building, which electricity shall be separately metered. Sublessor
shall have no obligation to provide or liability for failure to provide
electrical current to the Demised Premises and Sublessee shall seek service only
from the utility company servicing the Demised Premises.
8. PARKING. Sublessee shall be entitled to the use of 23 parking spaces in
the parking garage serving the Premises on a non-exclusive basis, subject to,
and in compliance with, the provisions of
<PAGE> 3
-3-
Section 27.6 of the Lease, which provides, INTER ALIA that: Lessor may designate
or change the location or the areas in which Sublessee may park within the
parking garage and Lessor may designate parking spaces for the use of other
tenants at the Premises; Lessor may establish Rules and Regulations relative to
all parking areas serving Building tenants and may further engage the services
of an independent contractor to administer and control access to said parking
areas; Lessor has allocated in its tenant leases up to one hundred twenty-five
percent (125%) of the actual parking spaces servicing the Building; and that as
a consequence of such over-allocation of parking spaces there may occasionally
occur instances in which the number of parking spaces actually available to
Sublessee shall be less than the Parking Spaces to which Sublessee is entitled
under this Sublease. Lessor and Sublessor shall incur no liability to Sublessee
as a consequence of such over-allocation of parking spaces.
9. SECURITY DEPOSIT. Sublessee has previously paid to Sublessor the sum of
$30,000 as security for the performance of Sublessee's obligations under this
Sublease (the "First Security Deposit"). Sublessee shall, at the time Sublessee
executes and delivers this Sublease to Sublessor, pay to Sublessor an additional
security deposit of Fifteen Thousand ($15,000.00) Dollars to secure Sublessee's
obligations under this Sublease and in consideration for Sublessor consenting to
the construction of the alterations in accordance with the Plans (as defined in
Section 10) (the "Second Security Deposit"). The First Security Deposit and the
Second Security Deposit shall be collectively referred to as the "Security
Deposit". In the event of any default in the payment or performance of such
obligations, Sublessor may apply all or any portion of the Security Deposit
towards curing any such default and/or compensating Sublessor for any loss or
damage arising from any such default. If Sublessor applies any portion of the
Security Deposit in accordance with this Paragraph 9, Sublessee shall
immediately pay to Sublessor an amount equal to the portion applied by Sublessor
to restore the Security Deposit to its original amount. If Sublessor assigns its
interest in this Sublease and transfers the Security Deposit (or any balance
thereof) to its assignee, provided that any such assignee shall acknowledge in
writing to Sublessee receipt of such security deposit and liability to Sublessee
with respect to the Security Deposit and its application and return in
accordance with the provisions of this Sublease, Sublessee shall look only to
such assignee for the application and return of the Security Deposit.
10. ALTERATIONS. Sublessee shall not make any alteration, improvement,
decoration, or installation (hereinafter called "Alterations") in or to the
Demised Premises, without in each instance obtaining the prior written consent
of Lessor and Sublessor and in accordance with Article 10 of the Lease. If any
alterations are made without Lessor's or Sublessor's consent, Lessor or
Sublessor may remove the same, and may correct, repair and restore the Demised
Premises and any damage arising from such removal, and Sublessee shall be liable
for any and all costs and expenses incurred by Lessor or Sublessor in the
performance of this work. Notwithstanding the foregoing, Sublessor hereby
consents to Sublessee's alteration of the Demised Premises in accordance with
the plans entitled "The I-Cube 15th Floor Plan, dated May 8, 1995 designed by
Bryer Architects" (the "Plans") a copy of which are attached hereto as Exhibit
B. Any changes in the Plans shall be subject to the additional review and
consent of the Sublessor and Lessor.
11. ASSIGNMENT AND SUBLEASE. Sublessee agrees not to assign, mortgage,
pledge or otherwise encumber this Sublease nor to sublet the Demised Premises or
any part thereof, without in each instance obtaining the prior written consent
of Lessor and Sublessor.
12. SUBORDINATION TO LEASE. This Sublease is subject and subordinate to
the terms and conditions of the Lease, and neither Sublessee nor Sublessor nor
any of their respective employees, agents, contractors, or invitees shall do
anything which would violate any provision of the Lease or cause a default under
the Lease.
<PAGE> 4
-4-
13. INCORPORATION OF LEASE.
a) Except as otherwise specified in this Sublease, all of the
terms and conditions of the Lease are incorporated as a part
of this Sublease, but all references in the Lease to
"Landlord", "Tenant", "Premises", and "Yearly Fixed Rent"
shall be deemed to refer, respectively to Sublessor,
Sublessee, the Demised Premises and the Base Rent, as defined
in this Sublease. Sublessee shall perform the obligations of
the Sublessor, as tenant under the Lease. Except as otherwise
provided in this Sublease, (i) Sublessor shall have no
obligations under this Sublease to perform the obligations of
Lessor, as landlord under the Lease, and Sublessee shall seek
such performance solely from the Lessor but Sublessor shall
cooperate in all respects with Sublessee in obtaining the
services of Landlord provided to Tenant under the Lease; (ii)
Sublessor shall not be bound by any representations or
warranties of the Lessor under the Lease; and (iii) Sublessor
shall not be liable to Sublessee for any failure or delay in
Lessor's performance of its obligations, as landlord under the
Lease.
b) Except as otherwise provided in this Sublease, the following
terms and conditions of the Lease are not incorporated as part
of this Sublease:
i) Sections 1(2), (12), (15), (16), (17), (19); Sections
2.1, 2.2; Article 3; Article 4; Article 6; the first
sentence of Section 7.1; and Sections 27.3, 27.6, 27.9,
27.10 of the Lease.
c) Notwithstanding any contrary provision of this Sublease, in
any instance where a specific grace period is granted to
Sublessor, as tenant under the Lease, before Sublessor is
considered in default under Article 19 of the Lease,
Sublessee, as tenant under this Sublease, shall be deemed to
have a grace period which is ten days less than Sublessor
before Sublessee is considered in default under this Sublease,
but in no event shall any grace period be reduced to less than
five days unless the period under the Lease is five days or
less, in which case the period under this Sublease shall be
one day less than that provided to Sublessor under the Lease.
14. DEFAULT BY SUBLESSEE. Sublessee shall indemnify and hold harmless
Sublessor from all liabilities, losses, damages and expenses (including without
limitation, reasonable attorneys' fees and court costs) arising out of a default
by Sublessee in the performance of its obligations, as tenant, under this
Sublease. In the event of a default by Sublessee in the performance of its
obligations under the Sublease, Sublessor shall have all of the rights and
remedies in the Lease with respect to defaults by the tenant under the Lease,
including without limitation the rights and remedies set forth in Article 19 of
the Lease. Sublessor shall indemnify and hold harmless Sublessee from all
liabilities, losses, damages, and expenses (including without limitation,
reasonable attorneys' fees and court costs) arising out of a default by
Sublessor in the performance of its obligation as Tenant under the Lease
resulting in early termination of the Lease arising from any such default, and
Sublessee shall have all rights and remedies at law and equity arising
therefrom.
15. BROKERS. Sublessee and Sublessor each represent and warrant to the
other that it has not dealt with any brokers other than Leggat McCall/Grubb &
Ellis and Lynch Murphy Walsh & Partners in connection with the consummation of
this Sublease. Sublessee and Sublessor each agree to indemnify
<PAGE> 5
-5-
and hold harmless the other and its affiliated companies against any loss,
damage, claims or liabilities arising out of the failure of such representation
or the breach of such warranty. Sublessor shall be solely responsible for the
payment of any brokerage commission due to Leggat McCall/Grubb & Ellis and Lynch
Murphy Walsh & Partners.
16. NOTICES. All notices, demands, requests and other instruments which
may or are required to be given by any party to the other under this Sublease
shall be in writing. All notices, demands, requests and other instruments from
Sublessor to Sublessee shall be deemed to have been properly given three (3)
days after being sent by United States certified mail, return receipt requested,
postage prepaid, or when delivered or served personally addressed to:
If to Lessor: c/o Codman Management Company, Inc.
One Main Street
Cambridge, MA 02142
If to Sublessor: MathSoft Inc.
101 Main Street
Cambridge, MA 02142
with a copy to: Testa, Hurwitz & Thibeault
53 State Street, Exchange Place
Boston, Massachusetts 02109
Attention: Joseph R. Torpy, Esq.
If to Sublessee: International Integration Incorporated
101 Main Street
Cambridge, MA 02142
Attention: Director of Finance and Administration
or to such other address as any of the above parties shall designate in writing
to the others.
17. TERMINATION OPTION. In the event Lessor and Sublessee agree to enter
into a direct lease (the "Direct Lease") for the Demised Premises and Lessor
releases Sublessor from all of its obligations under the Lease as to the Demised
Premises (including, without limitation, no obligation upon Sublessor to accept
the Demised Premises in the event of a termination of the Direct Lease), then
Sublessee shall have the option of terminating this Sublease provided that
Sublessee is current on its Base Rent and Additional Rent due hereunder and is
not in default under the terms of this Sublease (the "Termination Option"). In
the event Sublessee elects to terminate this Sublease pursuant to the terms of
the previous sentence, all of the obligations and rights of the parties
hereunder shall cease except that the Sublessee's obligation to pay any unpaid
Monthly Base Rent or additional rent shall survive such termination. In the
event the Termination Option is exercised hereunder, Sublessor shall return the
Security Deposit or any remaining balance thereof, after application towards the
cure of any defaults or performance of any obligations in accordance with
Paragraph 9 of this Sublease, to Sublessee within thirty (30) days after this
Sublease is terminated.
18. PERSONAL PROPERTY. Sublessee has purchased and Sublessor has sold
certain items of personal property specifically described as all furniture and
workstations (collectively the "Furniture") which are presently located on the
Premises and are listed on Schedule A attached hereto. The purchase price for
the Furniture was $35,000 (the "Purchase Price") and Sublessor acknowledges
receipt of the
<PAGE> 6
-6-
same. Sublessor has provided Sublessee a Bill of Sale for the Furniture.
19. ENTIRE AGREEMENT. This Sublease contains all of the agreement,
conditions, warranties and representation relating to the Sublease of the
Demised Premises, and neither Sublessor nor Sublessee nor any of their
respective agents or representatives has made any warranties, representations or
agreements, except as expressly set forth in this Sublease. Additionally,
Sublessor agrees to use reasonable efforts to assist Sublessee in obtaining an
Estoppel Certificate and Non-Disturbance Agreement from Landlord substantially
in the form of Exhibit C attached hereto and, if such agreement is executed by
Landlord, Sublessor and Sublessee, it shall become a part of the agreement
between the parties hereto.
20. CONDITION PRECEDENT. This Sublease, and the rights and obligations of
all parties hereto, are subject to the condition precedent of the Lessor
consenting to the making of this Sublease (the "Lessor's Consent"). If the
Lessor's Consent is not obtained in writing within 10 days of the date first
written above, this Sublease shall be void and the Sublessee shall be deemed a
trespasser and shall immediately vacate the Premises.
21. WAIVER OF OPTIONS TO EXPAND AND TO EXTEND TERM OF LEASE. Sublessor
hereby waives its option to expand and its right of first refusal pursuant to
the terms of Section 3.4 of the Lease. Sublessor also waives its option to
extend the Term of the Lease pursuant to Section 3.3 of the Lease with respect
to the Demised Premises provided that Landlord agrees to allow the option to
extend the Term of the Lease remain effective as to the Premises not a part of
the Demised Premises.
IN WITNESS WHEREOF, Sublessor and Sublessee have duly executed this
Sublease as of the date first written above.
SUBLESSEE: SUBLESSOR:
INTERNATIONAL INTEGRATION MATHSOFT, INC.
INCORPORATED.
By: /s/ Madhav Anand By: /s/ Robert P. Orlando
---------------------------- -----------------------------
Name: Madhav Anand Name: Robert P. Orlando
Title: CEO Title: Vice President & CFO
<PAGE> 7
-7-
LESSOR'S CONSENT
The undersigned, Riverfront Office Park Joint Venture, in its capacity as
lessor under the Lease referred to in the foregoing Sublease Agreement between
MathSoft Inc., as sublessor, and I-Cube, Inc., as sublessee, and any other
affiliate of sublessor which may from time to time become a sublessee under the
Sublease Agreement, hereby consents to the terms and conditions thereof, and
acknowledges that all conditions required for such consent contained in the
Lease have been fulfilled or are hereby waived and Landlord further agrees that
Sublessor's waiver of its right to extend the Term of the Lease as to the
Demised Premises in no way limits or invalidates its right to extend the Term of
the Lease as to the remainder of the Premises which are not a part of the
Demised Premises.
RIVERFRONT OFFICE PARK
JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
May ___,1995 By: _______________________________
Its: Trustee
<PAGE> 1
EXHIBIT 10.19
[I-CUBE LETTERHEAD]
June 3, 1996
Mr. Michael Pehl
920 Drovers Lane
Chester Springs, PA 19425
Dear Mike:
We at International Integration Incorporated ("I-CUBE" or the "Company") are
pleased to offer you the position of Chairman of the Board of Directors and
Chief Executive Officer of our Company. This position would report directly to
the Board of Directors of I-CUBE. Subject to your acceptance of the terms of
this letter agreement, your employment with us will commence on June 3, 1996.
You will receive a $1,000,000 cash "signing bonus" upon commencement of your
work with us.
As a full time employee, you will receive compensation in the amount of
$8,333.33 on a semi-monthly basis as a base salary. This amount is equivalent to
$200,000 in one full year of employment. You will be eligible to participate in
all employee benefit plans and programs made available generally to employees of
I-CUBE or to executive employees of I-CUBE. Descriptions of the benefit plans
currently being offered are available for your review. Please note that any
benefit may, from time to time, be amended or terminated with or without prior
notice. In accordance with Company policies, you will also be reimbursed for all
business, promotional, entertainment expenses incurred on behalf of the Company
or to further the Company's business. The Company will provide you with an
office, secretary and office automation and support equipment suitable for a
chief executive of the Company.
Although you will be employed full time by I-CUBE, you will have the right to
participate in charitable and community organizations, and also to participate
in activities outside of the Company related to the Company's business, such as,
for example, industry trade shows, seminars, forums, lectures and standards
setting committees. You will also have the right to provide advisory services to
your former employer under a separate agreement with your former employer, such
services to be limited to a maximum of twelve days per year. However, none of
these activities may interfere in any important way with your responsibilities
as Chief Executive Officer of the Company.
Effective upon your employment, you will receive stock options to purchase
595,000 shares of common stock. To the maximum extent possible under applicable
tax rules and
Headquarters - 101 Main Street - Cambridge, MA 02142
Tel: (617) 374-5900 - Fax: (617) 374-5901
West Coast - 5245 Pacific Concourse Drive - Suite 290 - Los Angeles, CA 90045
Tel: (310) 536-9747 - Fax: (310) 536-9749
<PAGE> 2
tax rules and regulations then in effect, the stock options granted to you will
be incentive stock options within the meaning of section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), for federal income tax purposes,
and the balance of the options will be non-qualified stock options. These
options will be issued at the current exercise price of $3.00 per share. The
options will vest over a four year period, in eight equal semi-annual
installments commencing six months after the date of grant, except that (i) 100%
of these options shall vest immediately upon the sale of the Company or a change
of control (a transaction after which new stockholders own more than fifty
percent (50%) of the outstanding shares of the Company) and (ii) if at the time
of the IPO less than 50% of the Options have vested, then 50% of these Options
shall vest immediately upon an IPO (as defined below), the remaining 50% to vest
in four equal semi-annual installments commencing six months after the IPO.
These options will terminate if your employment is terminated by the Company for
"Cause" (as defined below), if you voluntarily leave the Company or upon your
death; provided, that you or your estate, as the case may be, may exercise the
vested portion of the Options in accordance with their terms. Notwithstanding
anything to the contrary in this Agreement or the Incentive Stock Option and
Non-Qualified Stock Option Agreements to be in the form attached hereto as
Exhibits A and B and to be dated as of the first day of your employment with the
Company, in the event that your employment is terminated by the Company without
Cause, the options which have vested as of the date of termination will remain
exercisable until the later of June 30, 1998 or 90 days after termination, after
which date they shall be deemed to have expired.
In addition to the stock options for 595,000 shares described above, you will be
entitled to receive two non-qualified stock options, each to purchase 108,000
shares of I-CUBE common stock, which also will be issued at the current
exercise price of $3.00 per share. Each of these options will vest at the end of
7 years, subject to acceleration as follows. If the Company achieves a total
market capitalization (market price of shares of common stock of the Company
times the total number of shares of common stock then outstanding whether or not
freely tradable) of $400,000,000 while you are employed by the Company or, in
the event your employment is terminated by the Company without Cause, within six
months of the effective date of such termination, one of these two options will
then completely vest. The second of these options will completely vest if the
Company achieves a total market capitalization of $600,000,000 while you are
employed by the Company or, in the event your employment is terminated by the
Company without Cause, within six months of the effective date of such
termination. Except as set forth above, these additional options will terminate
if your employment with the Company terminates for any reason or no reason prior
to their vesting.
This entire package of stock options consisting of 811,000 shares represents
approximately 7.5% of all currently outstanding stock of the Company inclusive
of all outstanding stock options, warrants and other rights held by any person
or entity to acquire equity securities of the Company. If the Company sells
shares of its stock to
2
<PAGE> 3
raise the $1,000,000 signing bonus payable to you as described above, the number
of shares subject to your stock options as described in the preceding paragraph
will be appropriately increased by an aggregate of 7.5% of such additional
shares. Otherwise with respect to protection against dilution, you will not be
treated any differently than any of the founders, such as Messrs. Subramaniam
and Anand. We anticipate that the Board may issue options to employees,
including officers, but it will do so as dictated by the interests of the
Company. All options will be issued under the Company's 1996 Stock Option Plan.
You may exercise your options and pay for the stock with other stock which you
already hold, provided the Company will not thereby incur an expense charge
(normally, the shares must be held for six months to avoid such a charge). If
this method of payment is not feasible because of such expense charge, the
Company will cooperate with you to facilitate the exercise of the Options and
payment of the exercise price of the shares.
The Company may discharge you at any time for Cause upon delivery of written
notice to you, making reference to this paragraph and specifying with
particularity the actions or inactions constituting such Cause. For purposes of
this letter agreement, a termination for "Cause" shall mean only termination for
any one or more of the following reasons:
a. being convicted of criminal conduct constituting a felony offense,
other than a traffic offense, whether or not related to your employment;
b. incompetence or negligence in the performance of your duties on behalf
of the Company and which is not cured or corrected within thirty (30) days
after your receipt of written notice from the Company referring to this
paragraph and describing with specificity the conduct or omission
constituting incompetence or negligence;
c. fraud or embezzlement with respect to funds of the Company;
d. your failure to comply with lawful instructions given to you by the
Board of Directors and which is not cured or corrected within thirty (30)
days after your receipt of written notice from the Company referring to
this paragraph and describing with specificity the instructions with which
you did not comply.
The Company will provide at its expense a $4,000,000 life insurance policy
payable to your estate upon your death. This policy will be terminated 91 days
after the Company's IPO.
In connection with expenses incurred by you in negotiating this letter agreement
and relocating to the Company's headquarters, the Company will pay you a
3
<PAGE> 4
non-accountable expense allowance of $50,000, such amount to be paid upon our
receipt of a signed copy of this letter agreement.
You will receive the same registration rights, if any, as granted to Messrs.
Subramaniam and Anand.
As you know, the Immigration Reform and Control Act requires employers to verify
the employment eligibility and identity of new employees. Enclosed is a copy of
the Form I-9 that you will be required to complete within the first three days
of your employment. Please bring the appropriate documents listed on that form
with you when you report to work.
We have agreed upon a form of "Nondisclosure, Noncompetition and Developments
Agreement" ("NDA"), a copy of which is attached as Exhibit A. This offer of
employment is conditioned on your willingness to sign and abide by the terms of
this agreement. In making this offer, I-CUBE understands that you are not under
any obligation to any former employer or any person, firm or corporation which
would prevent, limit or impair in any way the performance by you of your duties
as an employee of I-CUBE, other than as set forth in the NDA. Please return the
signed NDA with the signed copy of this offer letter.
It is understood that you are not being offered employment for a definite period
of time and that either you or I-CUBE may terminate the employment relationship
at any time and for any reason without prior notice.
Please acknowledge your acceptance of this offer by signing at the bottom of
this letter agreement and returning a signed copy to the attention of Carolynn
Levy, Human Resources. An extra copy of this offer, signed on behalf of the
Company, has been included for your records.
The undersigned officer represents and warrants that he has full power and
authority to enter into this letter agreement on behalf of the Company, and that
the execution, delivery and performance of this letter agreement have been
authorized by the Board of Directors of the Company. Upon your acceptance of
this letter agreement by signing and returning it to the Company, this letter
agreement will become binding upon you and the Company. Notwithstanding the
foregoing, the Company and you may enter into a more formal employment agreement
consistent with the terms of this letter agreement, but this letter agreement
and the offer of employment contained herein are not contingent in any manner on
the execution and delivery of a separate employment agreement.
Notwithstanding the formal nature of this letter agreement, you should know that
we are very excited at the prospect of working with you to continue our task of
creating a great company. We know that your leadership will be instrumental in
moving us forward.
4
<PAGE> 5
We believe this will mark the beginning of a long-term mutually beneficial
relationship. We look forward to having you on board.
Sincerely,
/s/ Sundar Subramaniam
- ----------------------------
Sundar Subramaniam
Chairman
/s/ Michael Pehl
- ----------------------------
Michael Pehl
5
<PAGE> 1
EXHIBIT 10.20
[I-CUBE LETTERHEAD]
August 30, 1996
Mr. Lawrence P. Begley
5 Cardinal Lane
Walpole, MA 02081
Dear Larry:
As per our discussions, please find below our offer to employ you as Chief
Financial Officer at our offices located in Cambridge, MA. We would like you to
begin work as soon as possible. However, we understand the necessity to provide
for an orderly transition with your current employer. As you know, I feel it is
very important to have you on board sooner rather than later. I hope that you
can finalize some form of acceptable arrangement with your current employer
shortly.
As a full-time employee, you will receive base salary compensation in the amount
of $10,416.67 on a semi-monthly basis. This amount is the equivalent to the
gross amount of two hundred fifty thousand dollars ($250,000) on an annual
basis. You will also be eligible to participate in the employee benefit plans
which I-CUBE generally makes available to its employees. Descriptions of the
benefit plans currently being offered are available for your review. In
addition, vacation is being accrued after your first month of employment,
totaling two weeks per year in your first two full years of employment and three
weeks per year thereafter. Please note that any of I-CUBE's benefit plans may,
from time to time, be amended or terminated with or without prior notice. In
particular, we anticipate reviewing & revising our current group health and
dental plans upon their expiration. I-CUBE will also provide you at Company
expense with short-term disability benefits and reimburse you for the premiums
on a term life insurance policy in the amount of one million dollars payable to
the beneficiaries you designate. I-CUBE will also pay for the premiums of your
existing group health and dental insurance programs with your current employer
(The Boston Consulting Group - "BCG") which you will bring with you to I-CUBE
under COBRA. Since COBRA will only allow you continuation coverage under your
current employer's group health and dental insurance programs for a maximum
period of 18 months, upon the expiration of the COBRA benefits, I-CUBE will
provide group health and dental insurance benefits to you and your dependents on
the same terms as for similarly situated employees at I-CUBE, provided that you
comply with the usual rules and procedures for enrolling in such plans.
You have said that you are eligible to receive a non-guaranteed payment of
$223,000 from your current employer, The Boston Consulting Group, by the end of
the 1996 calendar year. In the event that you and your current employer do not
resolve your employment relationship amicably and you do not receive a payment
of $223,000 before the end of 1996, then I-CUBE will pay you a sign-up bonus of
up to but not more than $150,000, provided however, that the amount of any
payment from your current employer plus the amount of any sign-up bonus from
I-CUBE shall not exceed $223,000 in total.
Headquarters - 101 Main Street - Cambridge, MA 02142
Tel: (617) 374-5900 - Fax: (617) 374-5901
West Coast - 5245 Pacific Concourse Drive - Suite 290 - Los Angeles, CA 90045
Tel: (310) 536-9747 - Fax: (310) 536-9749
<PAGE> 2
You expect to resign from BCG effective October 15, 1996 and join I-CUBE
effective October 16, 1996. From October 16, 1996 to December 31, 1996, I-CUBE
will pay your full base pay ($10,416.67 semi-monthly), although you will be
working the equivalent of 3 days per week at I-CUBE and consulting to BCG for
the equivalent of 2 days per week. As of January 1, 1997, you will terminate
your consulting relationship with BCG and work full-time for I-CUBE. We
understand that you have not yet discussed your transition to I-CUBE with BCG
and that the specific details of your transition may differ from your current
expectations. To the extend that material differences emerge, further discussion
of your transition to I-CUBE may be necessary.
The Board of Directors has approved and authorized I-CUBE to grant you options
to purchase 250,000 shares of I-CUBE common stock (the "First Option"). The
effective date of the grant will be your first day of employment at I-CUBE
(expected to be October 16, 1996). To the maximum extent possible under
applicable tax rules and regulations then in effect, the stock options granted
to you under the First Option will be incentive stock options within the meaning
of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
for federal income tax purposes, and the balance of the options will be
non-qualified stock options. The options will be issued at the current fair
market value of $3.00 per share. The options will vest over a four-year period,
in eight equal semi-annual installments after the date of grant, except that if
at the time of any IPO less than 50% of the options have vested, then 50% of
these options shall vest immediately upon the successful competition of an IPO
with the remaining 50% to vest in four equal semi-annual installments commencing
six months after the IPO is completed.
Except as set forth to the contrary in this letter, the terms of the Company's
1996 Stock Plan (the "Plan") and the standard form "Incentive Stock Option
Agreement" (copy enclosed) shall control your rights concerning all stock
options.
In addition to the First Option for 250,000 shares described above, the Board
has approved and authorized an additional grant of two non-qualified stock
options, each to purchase 50,000 shares of I-CUBE common stock, which will be
issued at the current fair market value of $3.00 per share (each an "Additional
Option"). The effective date of the grant will be your first day of employment
at I-CUBE (expected to be October 16, 1996). Both Additional Options will vest
at the end of seven years, subject to acceleration as follows. If the Company
achieves a total market capitalization (market price of shares of common stock
of the Company times the total number of shares of common stock then outstanding
whether or not freely tradable) of $400,000,000 while you are employed by the
Company or, in the event your employment is terminated by the Company without
Cause, within six months of the effective date of such termination, one
Additional Option will then completely vest. The second Additional Option will
completely vest if the Company achieves a total market capitalization of
$600,000,000 while you are employed by the Company or, in the event your
employment is terminated by the Company without Cause, within six months of the
effective date of such termination.
<PAGE> 3
In the event of a change in control of the Company, all nonvested shares under
the First Option (up to the total of 250,000), but excluding non vested shares
under the two Additional Options, will vest immediately. Change in control is
defined as (i) sale or merger of the Company as described in paragraph 16(c) of
the Company's 1996 Stock Plan, or (ii) any "person" as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, who is not a
stockholder of the Company (and, to the extent it is a group, does not include a
current stockholder of the Company) on the date of this letter, is or becomes
the beneficial owner (within the meaning of section 13(d)-3 under the Exchange
Act,) directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding capital
stock.
The Company agrees to incorporate all of the stock option provisions described
in this letter into I-CUBE Stock Option Agreements governed by the Company's
1996 Stock Plan.
The Company may discharge you at any time for Cause upon delivery of written
notice to you, making reference to this paragraph and specifying with
particularly the actions or inaction's constituting such Cause. For purposes of
this letter agreement, a termination for "Cause" shall mean only termination for
any one or more of the following reasons:
a. being convicted of criminal conduct constituting a felony offense,
other than a traffic offense, whether or not related to your
employment;
b. incompetence or negligence in the performance of your duties on
behalf of the Company and which is not cured or corrected within
thirty (30) days after your receipt of written notice from the
Company referring to this paragraph and describing with specificity
the conduct or omission constituting incompetence or negligence;
c. fraud or embezzlement with respect to funds of the Company;
d. your failure to comply with lawful instructions given to you by the
Board of Directors or the Chief Executive Officer and which is not
cured or corrected within thirty (30) days after receipt of written
notice from the Company referring to this paragraph and describing
with specificity the instructions with which you did not comply.
Please be aware The Immigration Reform and Control Act requires employers to
verify the employment eligibility and identity of new employees. Enclosed is a
copy of the Form I-9 that you will be required to complete within the first
three days of your employment. Please bring the appropriate documents listed on
that form with you when you report for work.
<PAGE> 4
Also enclosed for your review is a "Nondisclosure, Noncompetition and
Developments Agreement". This offer of employment is conditioned on your
willingness to sign and abide by the terms of this agreement. In making this
offer, I-CUBE understands that, apart from the transition arrangements described
above, you are not under any obligation to any former employer or any person,
firm or corporation which would prevent, limit or impair in any way the
performance by you of your duties as an employee of I-CUBE. Please return this
signed agreement with your offer letter.
It is understood that you are not being offered employment for a definite period
of time and that either you or I-CUBE may terminate the employment relationship
at any time and for any reason without prior notice, provided, however, that if
your employment is terminated for any reason other than Cause (as defined above)
or you resign as a result of any reduction in compensation as of the date of
this letter or a material diminution of your job responsibilities or position
within the Company without your consent within the first 36 months after you
commence employment with I-CUBE, then I-CUBE will continue to pay you your base
salary compensation and permit you to participate in I-CUBE's benefit programs
on the same basis as similarly-situated individuals for the twelve-month period
immediately following the date of your termination.
As Chief Financial Officer of I-CUBE, you will be elected to the Board of
Directors of the Company.
Please acknowledge your acceptance of this offer by signing at the bottom and
returning it to the attention of Kim Clancy, Human Resources. A copy of this
letter has been included for your records.
We hope and expect that this will mark the beginning of a long and mutually
beneficial relationship. I look forward to having you on board.
Very truly yours,
/s/ Michael Pehl
Michael Pehl
Chairman and C.E.O.
/s/ Lawrence P. Begley 9/3/96
- ---------------------------- ------------------
Accepting Signature Date
<PAGE> 1
EXHIBIT 10.21
[I-CUBE LETTERHEAD]
December 19, 1997
Karl-Heinz Dette
Helfrichsgaerten 3
D-69l68 Wiesloch
Germany
Dear Karl-Heinz:
I am excited to extend the following offer to you for employment at i-Cube. As
Vice President (General Manager) for i-Cube European Operations, you will be a
key player in creating success at i-Cube.
Your compensation arrangement will be as follows (I have stated all of these
amounts in U.S. dollars as we are in the process of setting up our German-based
payroll and benefits program. Once completed, we will set you up to be paid in
DMs):
BASE SALARY - US$175,000 per annum
SIGN-ON BONUS - Upon acceptance of this offer, we will pay you a sign-on bonus
of US$100,000.
EXECUTIVE BONUS - Our executive bonus plan provides for a performance-based
bonus (based both on company performance as well as individual performance) that
is managed by individual goals and objectives. Your bonus potential will be 20%
of your base salary. It is important to note that this bonus is directly tied to
company objectives - if we don't meet our objectives as a company, no bonus pool
will be available.
PERFORMANCE BONUS - Based on mutually agreed upon goals, a performance-based
bonus up to $100,000 on an annualized basis will be paid; this bonus will be
tied to individual region objectives such as revenue, profitability, client
satisfaction, etc. We will discuss and finalize these mutually agreed upon
objectives within 2 months of your employment. For the first 12 month period of
your employment, we will guarantee a minimum performance bonus of $50,000.
STOCK OPTIONS - To recognize that you will have the opportunity to participate
in the Company's success, we will offer you an option to purchase 100,000 shares
of i-Cube stock. These stock options are subject to the approval of our Board of
Directors. We have a four (4) year vesting schedule where 25% of these shares
vest at the end of your first year of employment and then 12.5% vest at the end
of the each six month period thereafter. The exercise price will be fair market
value on the date of the grant.
COMPANY CAR - We will lease you a company car and pay related operating
expenses.
SEVERANCE PROVISION - In the event that i-Cube ceases to perform computer and
consulting services and you elect to terminate your employment with the company,
we will pay you, in
- --------------------------------------------------------------------------------
INTERNATIONAL INTEGRATION INC.
- --------------------------------------------------------------------------------
101 Main Street o Cambridge, MA 02142 o TEL: 617-374-5900 o FAX: 617-
374-5901 o http://www.i-cube.com
<PAGE> 2
satisfaction of all obligations and liabilities whatsoever, a lump sum payment
equal to twice your then annual base salary.
Enclosed is a benefits summary for our U.S.-based staff. We are in the process
of constructing a comparable package for our GmbH employees and you will receive
essentially the same benefit package, customized for Germany.
Now for the formalities. Attached is i-Cube's Nondisclosure, Noncompetition and
Developments Agreement. Please be aware, this offer is contingent upon your
signing the enclosed agreement.
As a team at i-Cube, our vision is to consistently deploy brilliant technology,
thrill our clients, and do the right things right! We are passionate people
having fun and we're thrilled to have you as a part of the team. Come join the
journey. We're going to have a great time!
Sincerely,
/s/ Michael Pehl
Michael Pehl
Chairman & CEO
<PAGE> 1
EXHIBIT 16.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
April 24, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Re: International Integration Incorporated
We have read the section titled "Change in Accountants" included in
International Integration Incorporated's Registration Statement on Form S-1
filed on April 24, 1998 and are in agreement with the statements contained in
that section.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Jurisdiction
Name of Organization
- ---- ---------------
International Integration GmbH Germany
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this 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
April 23, 1998
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