SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
International Integration Incorporated
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined.):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
INTERNATIONAL INTEGRATION INCORPORATED (i-CUBE)
101 Main Street
Cambridge, Massachusetts 02142
Notice of Annual Meeting of Stockholders
to be Held On Thursday, May 20, 1999
The 1999 Annual Meeting of Stockholders of International Integration
Incorporated (the "Company") will be held in the D. Dorr Room at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 at 10:00 a.m.,
local time, to consider and act upon the following matters:
1. To elect Lawrence P. Begley and Gregory S. Young as Class I Directors,
to serve for a three-year term;
2. To ratify the selection of PricewaterhouseCoopers LLP by the Board of
Directors as the Company's independent auditors for the fiscal year
ending December 31, 1999; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on April 5, 1999 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
The stock transfer books of the Company will remain open.
By Order of the Board of Directors,
David M. Samuels
Secretary
Cambridge, Massachusetts
April 19, 1999
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
INTERNATIONAL INTEGRATION INCORPORATED
101 Main Street
Cambridge, Massachusetts 02142
Proxy Statement for the Annual Meeting of Stockholders
to be Held on Thursday, May 20, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of International Integration Incorporated
(the "Company") for use at the Annual Meeting of Stockholders to be held on May
20, 1999 and at any adjournments of that meeting (the "Annual Meeting"). All
proxies will be voted in accordance with the stockholders' instructions, and if
no choice is specified, the proxies will be voted in favor of the matters set
forth in the accompanying Notice of Annual Meeting. Any proxy may be revoked by
a stockholder at any time before its exercise by delivery of written revocation
or a subsequently dated proxy to the Secretary of the Company or by voting in
person at the Annual Meeting.
The enclosed Notice of Annual Meeting, this Proxy Statement, the enclosed
Proxy and the Company's Annual Report to Stockholders for the year ended
December 31, 1998 are being mailed to stockholders on or about April 19, 1999.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, as filed with the Securities and Exchange Commission,
except for exhibits, will be furnished without charge to any stockholder upon
written request to the Secretary of the Company, International Integration
Incorporated, 101 Main Street, Cambridge, Massachusetts 02142.
Voting Securities and Votes Required
At the close of business on April 5, 1999, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there
were outstanding and entitled to vote an aggregate of 16,813,571 shares of
common stock, $0.01 par value per share, of the Company (the "Common Stock"),
constituting all of the voting stock of the Company. Holders of Common Stock
are entitled to one vote per share.
The presence or representation by proxy of the holders of a majority of
the number of shares of Common Stock issued, outstanding and entitled to vote
at the Annual Meeting constitutes a quorum for the transaction of business at
the Annual Meeting. Shares of Common Stock represented in person or by proxy
(including shares which abstain or do not vote with respect to one or more of
the matters presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the shares voting on the
matter is required for the ratification of the selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending December 31, 1999.
Shares that abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on the
matters presented for stockholder approval at this Annual Meeting.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 15, 1999,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each director and each person
nominated to become a director of the Company,
<PAGE>
(iii) each executive officer of the Company named in the Summary Compensation
Table set forth under the caption "Executive Compensation" below and (iv) all
current directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficially Common Stock
Beneficial Owner Owned(1) Outstanding(2)
---------------- ------------------ ---------------
<S> <C> <C>
Sundar Subramaniam ....................................................... 4,752,025 28.3%
219 Vassar Street
Cambridge, Massachusetts 02139
Madhav Anand (3) ......................................................... 1,886,250 11.1%
c/o International Integration Incorporated
101 Main Street
Cambridge, Massachusetts 02142
Yannis Doganis ........................................................... 1,666,200 9.9%
c/o International Integration Incorporated
101 Main Street
Cambridge, Massachusetts 02142
Edouard Aslanian (4) ..................................................... 1,600,000 9.5%
c/o International Integration Incorporated
101 Main Street
Cambridge, Massachusetts 02142
Harrington Trust Limited as Trustee of the Geneva Trust .................. 1,161,000 6.9%
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM EX, Bermuda
The TCW Group, Inc.(5) ................................................... 1,038,752 6.2%
865 South Figueroa Street
Los Angeles, California 90017
Michael Pehl (6) ......................................................... 919,814 5.2%
c/o International Integration Incorporated
101 Main Street
Cambridge, Massachusetts 02142
Lawrence P. Begley (7) ................................................... 309,375 1.8%
Karl-Heinz Dette ......................................................... -- *
James K. McCann (8) ...................................................... 112,497 *
Jane Callanan (9) ........................................................ 112,497 *
Maria A. Cirino (10) ..................................................... 63,750 *
Thomas J. Meredith (11) .................................................. 30,000 *
Joseph M. Tucci .......................................................... 37,500 *
Gregory S. Young (12) .................................................... 130,631 *
John A. Young ............................................................ -- *
Patrick J. Zilvitis (13) ................................................. 31,000 *
All current directors and executive officers as a group (12 persons) (14) 3,633,314 19.6%
</TABLE>
- --------------------
* Less than 1%
2
<PAGE>
(1) Each person has sole investment and voting power with respect to the
shares indicated, except as otherwise noted. The number of shares of
Common Stock beneficially owned is determined under the rules of the
Securities and Exchange Commission and is not necessarily indicative of
beneficial ownership for any other purpose. The inclusion herein of any
shares of Common Stock deemed beneficially owned does not constitute an
admission of beneficial ownership of such shares. Any reference in the
footnotes below to stock options held by the person in question relates to
stock options which are currently exercisable or exercisable within 60
days after March 15, 1999.
(2) The number of shares deemed outstanding with respect to a named person
includes 16,813,571 shares outstanding as of March 15, 1999 plus any
shares subject to options held by the person in question that are
currently exercisable or exercisable within 60 days after March 15, 1999.
(3) Includes 112,500 shares issuable pursuant to options held by Mr. Anand
that may be exercised within 60 days after March 15, 1999.
(4) Includes certain shares held by a family limited partnership controlled by
Mr. Aslanian.
(5) Consists of 1,038,752 shares for which The TCW Group, Inc. shares voting
and dispositive power with an affiliate, Robert Day.
(6) Consists of 919,814 shares issuable pursuant to options held by Mr. Pehl
that may be exercised within 60 days after March 15, 1999.
(7) Consists of 309,375 shares issuable pursuant to options held by Mr. Begley
that may be exercised within 60 days after March 15, 1999.
(8) Includes 112,497 shares issuable pursuant to options held by Mr. McCann
that may be exercised within 60 days after March 15, 1999.
(9) Includes 97,497 shares issuable pursuant to options held by Ms. Callanan
that may be exercised within 60 days after March 15, 1999.
(10) Consists of 63,750 shares issuable pursuant to options held by Ms. Cirino
that may be exercised within 60 days after March 15, 1999.
(11) Consists of 30,000 shares held subject to the Company's right to
repurchase 22,500 of such shares in the event Mr. Meredith's service as a
director terminates before certain vesting dates applicable to such
shares.
(12) Includes 58,131 shares issuable pursuant to options held by Mr. Young that
may be exercised within 60 days after March 15, 1999.
(13) Consists of 30,000 shares issuable pursuant to options held by Mr.
Zilvitis that may be exercised within 60 days after March 15, 1999,
subject to the Company's right to repurchase 22,500 of such shares in the
event Mr. Zilvitis' service as a director terminates before vesting dates
applicable to such options, and 1,000 shares held in trust for the benefit
of a family member.
(14) Includes 1,703,564 shares issuable pursuant to options that may be
exercised within 60 days after March 15, 1999.
ELECTION OF DIRECTORS -- DIRECTORS OF THE COMPANY
The Company's Board of Directors is divided into three classes, with
members of each class holding office for staggered three-year terms. The Board
currently consists of two Class I Directors, whose terms expire at the 1999
Annual Meeting of Stockholders, three Class II Directors, whose terms expire at
the 2000 Annual Meeting of Stockholders and three Class III Directors whose
terms expire at the 2001 Annual Meeting of Stockholders (in all cases subject
to the election of their successors and to their earlier death, resignation or
removal).
The persons named in the enclosed proxy will vote to elect Lawrence P.
Begley and Gregory S. Young as Class I Directors, unless authority to vote for
the election of the nominees is withheld by marking the proxy to that effect.
The Company has no nominating committee, and all nominations are made by the
Board of Directors. Each nominee has indi-
3
<PAGE>
cated his willingness to serve, if elected, but if any nominee should be unable
to stand for election, proxies may be voted for a substitute nominee designated
by the Board of Directors.
Set forth below are the name, age and certain other information with
respect to each director and nominee for director of the Company.
Nominees for Class I Directors
Lawrence P. Begley, 43, 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
Boston Consulting Group ("BCG"), an international management consulting firm.
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.
Gregory S. Young, 42, has served as 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.
Class II Directors
Madhav Anand, 32, co-founded the Company and has served as a Director
since June 1993. Since November 1994, Mr. Anand has served as President of the
Company. From April 1992 to February 1993, 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, Inc., an IT
consulting firm.
John A. Young, 66, has served as a Director of the Company since August
1995. Mr. Young was the Chief Executive Officer and President of
Hewlett-Packard Company from 1978 to 1992. Mr. Young is a director of
SmithKline Beecham p.l.c., Lucent Technologies, Chevron Corp., Novell, Inc.,
Wells Fargo Bank & Co. and Affymetrix, Inc. Mr. Young is the father of Gregory
S. Young.
Patrick J. Zilvitis, 56, 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.
Class III Directors
Thomas J. Meredith, 48, 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.
Michael Pehl, 37, 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.
Joseph M. Tucci, 51, 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.
4
<PAGE>
Board and Committee Meetings
The Company has a standing Audit Committee of the Board of Directors,
which reviews the Company's internal accounting control policies and
procedures, the performance of the Company's independent auditors in the annual
audit and auditors' fees; considers and recommends the selection of the
Company's independent auditors; reviews and approves any major accounting
policy changes affecting the Company's operating results and provides the
opportunity for direct contact between the Company's independent auditors and
the Board of Directors. The Company's consolidated financial statements are
currently audited by PricewaterhouseCoopers LLP. The Audit Committee met 3
times during fiscal 1998. The current members of the Audit Committee are
Messrs. Meredith and G. Young.
The Company has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and administers and has authority to grant stock
options under the Company's 1998 Stock Incentive Plan to all employees,
directors and officers of the Company, including those persons who are required
to file reports ("Reporting Persons") pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Compensation Committee also administers the Company's 1993 Stock Plan, the
Company's 1996 Stock Plan, the Company's 1998 Non-Employee Director Stock
Option Plan and the Company's 1998 Employee Stock Purchase Plan. The
Compensation Committee met 2 times during fiscal 1998. The current members of
the Compensation Committee are Messrs. Tucci, J. Young and Zilvitis.
The Board of Directors held 8 meetings during fiscal 1998. Each director
attended at least 60% of the aggregate number of Board meetings and meetings
held by all committees on which he then served.
Director Compensation and Stock Options
The Company's Directors do not receive any compensation for their services
on the Board of Directors or any committee thereof; however, they are
reimbursed for expenses incurred in connection with their attendance at Board
or committee meetings. The non-employee directors (which consist of Messrs.
Meredith, Tucci, G. Young, J. Young and Zilvitis) will receive options to
purchase shares of Common Stock pursuant to the 1998 Non-Employee Director
Stock Option Plan as of the date of the 1999 Annual Meeting of Stockholders,
provided that they will continue to serve as Directors immediately after the
meeting.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary of Compensation
The following table sets forth certain compensation information for the
fiscal years indicated, of the Company's Chief Executive Officer and the
Company's four other most highly compensated executive officers whose cash
compensation exceeded $100,000 during the fiscal year ended December 31, 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation
--------------------- -------------
Securities
Underlying All Other
Fiscal Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (shares)(2) ($)
- ----------------------------------------- -------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael Pehl ............................ 1998 260,000 167,700 -- 20,737(3)
Chief Executive Officer and 1997 260,000 130,000 200,000 8,771(3)
Chairman of the Board of Directors
Lawrence P. Begley ...................... 1998 250,000 118,250 -- 1,020(4)
Executive Vice President, Chief 1997 250,000 96,600 -- 10,910(4)
Financial Officer, Treasurer and Director
Karl-Heinz Dette ........................ 1998 136,595 150,000 100,000 --
Vice President and General Manager, 1997 -- -- -- --
European Operations
James K. McCann ......................... 1998 200,000 60,200 -- --
Vice President, Client Services 1997 116,667 128,175 225,000 --
Jane Callanan ........................... 1998 180,000 67,725 -- 150(5)
Vice President, Human Resources 1997 114,818 80,690 225,000 --
</TABLE>
- --------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constitute less than the lesser of $50,000 or ten percent of the total
salary and bonus reported for the executive officer during the years ended
December 31, 1997 and 1998.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the year ended December 31, 1998. The Company does not have
any long-term incentive plan.
(3) Represents life insurance premiums paid on behalf of Mr. Pehl.
(4) Represents life and health insurance premiums paid on behalf of Mr. Begley.
(5) Represents health and fitness expenses paid on behalf of Ms. Callanan.
6
<PAGE>
Option Grants
The following table sets forth certain information concerning option
grants during the fiscal year ended December 31, 1998 to the Named Executive
Officers and the number and value of the unexercised options held by such
persons on December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Option Term (1)
Options Employees in Exercise Expiration --------------------------
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
- ---------------------------- ------------- -------------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Pehl ............... -- -- -- -- -- --
Lawrence P. Begley ......... -- -- -- -- -- --
Karl-Heinz Dette ........... 100,000 8.7 5.00 1/08 314,447 796,872
James K. McCann ............ -- -- -- -- -- --
Jane Callanan .............. -- -- -- -- -- --
</TABLE>
- --------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The assumed rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future stock prices. This table does
not take into account any appreciation or depreciation in the price of the
Common Stock to date. Actual gain, if any, on stock option exercises will
depend on future performance of the Common Stock and the date on which the
options are exercised. Values shown are net of the option exercise price,
but do not include deductions for tax or other expenses associated with
the exercise.
Option Exercises and Holdings
The following table sets forth certain information concerning each
exercise of a stock option during the fiscal year ended December 31, 1998 by
each of the Named Executive Officers, and the number and value of unexercised
options held by each of the Named Executive Officers on December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised Options at In-the-money Options
Fiscal Year-End (#) at Fiscal Year-End($)(1)
Shares ----------------------------------- -------------------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------------- -------------- -------------- ----------------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael Pehl .............. -- -- 919,814/496,686 13,597,210/7,450,290
Lawrence P. Begley ........ -- -- 309,375/215,625 4,640,625/3,234,375
Karl-Heinz Dette .......... -- -- 0/100,000 0/1,200,000
James K. McCann ........... -- -- 93,747/131,253 1,312,458/1,837,542
Jane Callanan ............. 15,000 30,000 78,747/131,253 1,102,458/1,837,542
</TABLE>
- --------------------
(1) The per share value of unexercised in-the-money options is calculated by
subtracting the per share option exercise price from the last per share
sale price of the Company's Common Stock on the Nasdaq National Market on
December 31, 1998 ($17.00).
7
<PAGE>
Employment Agreements with Named Executive Officers
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 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 vested prior to the 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 ninety days after the date of
termination, whereupon they will expire. The agreement also provides that
effective upon his employment, Mr. Pehl was entitled to receive two stock
options, each to purchase 162,000 shares of the Company's Common Stock at an
exercise price of $2.00 per share. The agreement provides for vesting of these
options at the end of seven years from the date of the agreement, subject to
the following acceleration provisions. The first of the options will completely
vest if the Company achieves a total market capitalization of $400 million
while Mr. Pehl is employed by the Company or within six months of the
termination of Mr. Pehl's employment without cause. The second of the options
will completely vest if the Company achieves a total market capitalization of
$600 million while Mr. Pehl is employed by the Company or within six months of
the termination of Mr. Pehl's employment without cause. As of March 15, 1999,
the first of such acceleration provisions has become effective. 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 that $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 vested prior to the 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. As of March 15, 1999, the first of such acceleration provisions
has become effective. 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.
8
<PAGE>
The Company is party to a letter agreement with Karl-Heinz Dette dated
December 19, 1997. Pursuant to the agreement, Mr. Dette received a $100,000
cash signing bonus as an inducement to join the Company. Under the agreement,
Mr. Dette is entitled to an annual base salary of $175,000, an annual bonus of
up to 20% of his annual base salary and an additional annual bonus of up to
$100,000, each bonus to be based upon the attainment of certain performance
criteria set by the Board of Directors, which include revenue, profitability
and client satisfaction. The agreement provides that for the first twelve-month
period of Mr. Dette's employment, the Company will guarantee a minimum
performance bonus of $50,000. The agreement also provides that effective upon
his employment, Mr. Dette was entitled to receive stock options to purchase
100,000 shares of the Company's common stock. The agreement provides for
vesting of the options over a four-year period. In the event that the Company
ceases to perform computer and consulting services and Mr. Dette elects to
terminate his employment with the Company, the Company will pay him a lump sum
equal to twice his annual base salary.
Certain Transactions
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, 1999, the outstanding
amount of this loan, including accrued interest, was approximately $599,749.
The Company believes the transaction set forth above was made on terms no
less favorable to the Company than would have been obtained from unaffiliated
third parties. As of the closing of the Company's initial public offering in
June 1998, the Company adopted a policy whereby all future transactions between
the Company and its officers, directors and affiliates will be on terms that
are no less favorable to the Company than could be obtained from unaffiliated
third parties and will be approved by a majority of the disinterested members
of the Company's Board of Directors.
For a description of option grants to certain executive officers of the
Company, see "Executive Compensation-- Option Grants."
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is currently composed of three non-employee directors, Joseph M.
Tucci, John A. Young and Patrick J. Zilvitis. The Compensation Committee is
responsible for establishing and administering the policies which govern both
annual compensation and performance-based equity ownership of the Company's
executive officers.
This report is submitted by the Compensation Committee and addresses the
Company's policies for 1998 as they apply to the Named Executive Officers.
Compensation Philosophy
The Company's executive compensation program is structured and
administered to achieve three broad goals in a manner consistent with
stockholder interests. First, executive compensation structures are set to
enable the Company to attract and retain key executives. Second, compensation
programs are designed to reward executives for the achievement of specified
business objectives of the Company. Finally, the Company's executive
compensation programs provide executives with long-term ownership opportunities
in order to align executive and stockholder interests.
In evaluating both individual and corporate performance for purposes of
determining salary and bonus levels and stock option grants, the Compensation
Committee places significant emphasis on the extent to which strategic and
business plan goals are met, including the progress and success of the Company
with respect to matters such as achieving operating budgets and enhancement of
the Company's strategic position, as well as on the Company's overall financial
performance.
9
<PAGE>
Executive Compensation in Fiscal 1998
The compensation programs for the Company's executives established by the
Compensation Committee consist of three elements based upon the foregoing
objectives: (i) base salary and benefits competitive with the marketplace; (ii)
bonus grants based on Company performance; and (iii) stock-based equity
incentive in the form of participation in the 1998 Stock Incentive Plan (prior
to the closing of the Company's initial public offering in June 1998, option
grants under the 1996 Stock Plan were also possible). The Compensation
Committee believes that providing a base salary and benefits to its executive
officers that are competitive with the marketplace enables the Company to
attract and retain key executives. In addition, the Compensation Committee
believes that bonuses based on both corporate and individual performance
provide incentives to its executive officers that align their interests with
those of the Company as a whole. The Compensation Committee generally provides
executive officers with discretionary stock option awards to reward them for
achieving specified business objectives and to provide them with long-term
ownership opportunities.
In determining the salary and bonuses of each executive officer, including
the Named Executive Officers, the Compensation Committee and the Board of
Directors consider numerous factors such as (i) the individual's performance,
including the expected contribution of the executive officer to the Company's
goals, (ii) the Company's long-term needs and goals, including attracting and
retaining key management personnel, and (iii) the Company's competitive
position, including data on the payment of executive officers at comparable
companies that are familiar to members of the Compensation Committee. The
companies used by the Compensation Committee to compare executive compensation
are companies of which the members of the Compensation Committee have specific
knowledge and are considered to be at similar stages of development as the
Company. As appropriate, the Compensation Committee also considers general
economic conditions and the historic compensation levels of the individual.
Stock option grants made pursuant to the 1996 Stock Plan and the 1998
Stock Incentive Plan in the fiscal year ended December 31, 1998 were designed
to make a portion of the overall compensation of the executive officers
receiving such awards dependent upon the performance of the Company's Common
Stock. Such grants, as a result of vesting arrangements, also serve as a means
of retention. In making stock option grants to executives, the Compensation
Committee considers a number of factors, including current performance and
responsibilities, and the executive's current stock or option holdings.
Benefits
The Company's executive officers are entitled to receive medical benefits
and life insurance benefits and to participate in the Company's 401(k) Savings
Plan on the same basis as other full-time employees of the Company.
Compensation of the Chief Executive Officer in Fiscal 1998
The compensation philosophy applied by the Compensation Committee in
establishing the compensation for the Company's Chairman and Chief Executive
Officer is the same as for the other senior management of the Company--to
provide a competitive compensation opportunity that rewards performance.
During fiscal 1998, Mr. Pehl served as Chairman and Chief Executive
Officer of the Company and was paid a base salary of $260,000. The Compensation
Committee established Mr. Pehl's base salary at a level considered to be
competitive with the compensation of Chief Executive Officers at other
publicly-traded IT services companies at the same stage of development as the
Company. Mr. Pehl was also paid a bonus of $167,700 in fiscal 1998.
Compliance with Section 162(m) of the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows tax deductions to publicly-traded
corporations for compensation over $1,000,000 paid to the corporation's Chief
Executive Officer or any of its other four most highly compensated executive
officers. Qualifying performance-based compensation
10
<PAGE>
will not be subject to this disallowance if certain requirements are met. The
Company intends to structure the compensation arrangements of its executive
officers in a manner that will avoid disallowances under Section 162(m).
COMPENSATION COMMITTEE
Joseph M. Tucci
John A. Young
Patrick J. Zilvitis
11
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock of the Company during the period from June 23, 1998 (the date
on which the Company's Common Stock began trading on the Nasdaq National
Market) to December 31, 1998 with the cumulative total return over the same
period of (i) the Nasdaq National Market (U.S. Companies) (the "Nasdaq
Composite Index") and (ii) the Nasdaq Computer Index (the "Nasdaq Computer
Index"). This comparison assumes the investment of $100 on June 23, 1998 in the
Company's Common Stock, the Nasdaq Composite Index and the Nasdaq Computer
Index and assumes dividends, if any, are reinvested.
[graphical representation of stock performance data]
<TABLE>
<CAPTION>
June 23, 1998 December 31, 1998
--------------- ------------------
<S> <C> <C>
International Integration Incorporated .......... $ 100.00 $ 141.67
Nasdaq Composite Index .......................... $ 100.00 $ 121.42
Nasdaq Computer Index ........................... $ 100.00 $ 143.02
</TABLE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, at the recommendation of the Audit Committee, has
selected the firm of PricewaterhouseCoopers LLP as the Company's independent
auditors for the current fiscal year. PricewaterhouseCoopers LLP has served as
the Company's independent auditors since 1996. Although stockholder
ratification of the Board of Directors' selection of PricewaterhouseCoopers LLP
is not required by law, the Board of Directors believes that it is advisable to
give stockholders the opportunity to ratify this selection. If this proposal is
not approved at the Annual Meeting, the Board of Directors may reconsider its
selection of PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be present
at the Annual Meeting. They will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from stockholders.
12
<PAGE>
OTHER MATTERS
Matters to be Considered at the Meeting
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
Solicitation of Proxies
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph and personal interviews, and the Company reserves the
right to retain outside agencies for the purpose of soliciting proxies.
Brokers, custodians and fiduciaries will be requested to forward proxy
soliciting material to the owners of shares held in their names, and the
Company will reimburse them for out-of-pocket expenses incurred on behalf of
the Company.
Stockholder Proposals
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Cambridge, Massachusetts not later than December 21, 1999 for inclusion in
the proxy statement for that meeting.
In connection with the 2000 Annual Meeting of Stockholders, the persons
appointed by the Board of Directors to act as the proxies for such Annual
Meeting will, if the Company does not receive notice of a matter or proposal to
be considered by March 5, 2000, be allowed to use their discretionary voting
authority with respect to any such matter or proposal that is raised at such
Annual Meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
Except as described below, and based solely upon a review of reports
submitted, the Company believes that during 1998 its executive officers and
directors and holders of more than 10% of the Common Stock complied with all
Section 16(a) filing requirements.
Pursuant to a Deed of Exclusion dated December 22, 1998, Sundar
Subramaniam, a holder of more than 10% of the Common Stock of the Company, was
excluded as a beneficiary of the Geneva Trust, reducing his beneficial
ownership in the Company by 1,800,000 shares of Common Stock. Mr. Subramaniam
filed a Form 4 reporting the reduction in his beneficial ownership in April
1999.
The Geneva Trust, then a holder of more than 10% of the Common Stock of
the Company, sold 22,000 shares of the Common Stock on December 31, 1998. The
Geneva Trust filed a Form 4 reporting the sale in April 1999.
By Order of the Board of Directors,
David M. Samuels
Secretary
Cambridge, Massachusetts
April 19, 1999
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT STOCKHOLDERS PLAN TO ATTEND, STOCKHOLDERS ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN
THOUGH THEY HAVE SENT IN THEIR PROXIES.
13
<PAGE>
1765-PS-99
<PAGE>
PROXY
INTERNATIONAL INTEGRATION INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael Pehl and David M. Samuels, jointly
and individually, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as directed below, all shares of
common stock, par value $0.01 per share, of International Integration
Incorporated, a Delaware corporation (the "Company"), that the undersigned would
be entitled to vote if personally present at the Annual Meeting of Stockholders
of the Company to be held on Thursday, May 20, 1999, or any adjournments
thereof, as follows on the reverse side.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
[X] Please mark
votes as in
this example.
1. Election of Directors.
Nominees: Lawrence P. Begley and Gregory S. Young
FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
MARK HERE
FOR ADDRESS
[ ] CHANGE AND [ ]
-------------------------------------- NOTE BELOW
For all nominees except as noted above
2. Proposal to ratify PricewaterhouseCoopers LLP FOR AGAINST ABSTAIN
as the Company's independent auditors for [ ] [ ] [ ]
the 1999 fiscal year.
In accordance with their discretion, upon such other matters as may properly
come before the meeting and any adjournments thereof.
When properly executed, this proxy will be voted in the manner directed by the
undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS SET FORTH HEREIN.
(Please sign exactly as name appears on stock certificate. When shares are
registered jointly, all owners must sign. Corporate owners should sign full
corporate name by an authorized person. Executors, administrators, trustees or
guardians should indicate their status when signing.)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature: _______________ Date: ______ Signature: _______________ Date: ______
